The Patent Examiner, part of UC Berkeley’s Investigative Journalism Project, has a fascinating and disturbing article by Gregory Thomas about a Delaware-incorporated, Chicago-based company (and a Chicago law firm) involved in a curious series of lawsuits that have been filed this year. The short of it: Innovatio owns some patents, and is suing hotels, department stores, and chain restaurants for violating them, because they offer WiFi.
This month, Innovatio set its sights on national and international hotel companies Hyatt Corporation, Marriott Hotels, Wyndham Hotels and Resorts, Ramada Inn, Best Western, Days Inn, Super 8 Hotels, Travelodge, and several others, filing five lawsuits in five days, from Sept. 15 to Sept. 19, against more than 220 individual hotels in Illinois. The company is suing for royalties it says each location owes for unlicensed use of wireless local area network (WLAN) technology features covered under a portfolio of 31 patents the company holds.
But it’s willing to settle for amounts in the mid-four figures!
You may be wondering how it’s remotely possible that a company could accuse someone of patent infringement for using a product they purchased, instead of the company that sold them the networking equipment, or the one that manufactured it. I was puzzled too, but the answer seems to be in the comments to a thread at TechDirt:
The Uniform Commercial Code (the UCC) does say that manufacturers of goods have an obligation to indemnify the customer. (UCC 2-312).
But, not all scenarios are well suited for the UCC, which deals mostly with goods. IN most cases, software and services are out the window.
More importantly, though, users often agree to waive an indemnification obligation. This is usually part of the sales contract or license agreement. When pressed, many vendors will agree to accept indemnification obligations.
However, the real reason most end users are not sued for patent infringement is because their individual infringement is incredibly small so the damages are very limited. That does always stop a patent holder who might be seeking some leverage over a deeper pocket.
Or as another commenter puts it:
It’s a common misunderstanding of patent law that you can’t be sued if you buy a product that violates the patent. This is not the case: anybody who “practices” the technique described in the patent is liable, unless they have a license.
So if the company that sold you the WiFi box paid for a license on your behalf, you’re in the clear. If they didn’t, you’re not. In principle, the patent holder can sue both you and the company who sold you the WiFi router.
Given that these patents hadn’t been enforced in the past, it’s unlikely that your WiFi vendor purchased a license for you. So yes, you are probably liable, if the patents are upheld.
“If the supplier makes a machine capable of performing A, B, and C, but the customer is the one who actually presses the button that performs the steps, in that case the customer could be the direct infringer, and the supplier might be the indirect infringer,” Goldberg said.
The relevant law seems to be Section 271(a) of the U.S. Patent Statute: “whoever without authority makes, uses, offers to sell, or sells any patented invention, within the United States, or imports into the United States any patented invention during the term of the patent therefor, infringes the patent.”
And it’s not a new dilemma:
Suppose that the manufacturer of a component that infringes another’s patent sells that component to the manufacturer of a final product; the manufacturer of the final product incorporates the infringing component into the final product and then sells the final product to a wholesaler; the wholesaler sells to a retailer, who sells to a consumer, who takes the product home and uses it. Every party within the chain of distribution is liable for patent infringement, including the consumer, because patent law makes it unlawful not only to manufacture an infringing device, but also to sell or use the device.
End users basically never get sued, because end users are usually people, and people don’t usually have enough money to make it worthwhile. But corporations that function as end users do have plenty of money.
In fact, a recent federal court decision, from January of this year, seems to lean towards placing the burden of copyright infringement on the end user. The telecom giant Qwest (now CenturyLink) got sued because its automated billing system was allegedly infringing on patents possessed by a company called Centillion Data Systems. But the court found that Qwest wasn’t on the hook:
Qwest does not “make” the patented invention under § 271(a) as a matter of law. Qwest manufactures only part of the claimed system. In order to “make” the system under § 271(a), Qwest would need to combine all of the claim elements–this it does not do. The customer, not Qwest, completes the system by providing the “personal computer data processing means” and installing the client software.
In other words, because the customer installs the software and uses it—the billing system provided by his or her telephone company—the customer is actually more likely to be the infringer, because otherwise the system wouldn’t “exist” without the end consumer. It seems like a better principle of ontology than law, but IANAL.
The patent system is obviously chaos and the liability of end users reasonably established, but the Innovasio lawsuits have roiled people in particular because they raise the specter of consumers being sued for using products they bought, presumably free and clear, for personal use, and the simultaneously reassuring and ominously qualified statement by its lawyer, Matthew McAndrews, that it “has made a strategic and business judgment at this stage that it doesn’t intend to pursue [lawsuits on the basis of] residential use of WiFi.”
But maybe it’s for the best. The insanity of the American patent system might seem abstract when it comes to one enormous entity like Google consuming another one like Motorola Mobility. But when you put people’s WiFi at Caribou Coffee or Comfort Inn at risk, much less in their living rooms, it gets real fast.