Patent infringement claims plague restaurant chainsPatent infringement claims plague restaurant chains

When White Castle’s Jamie Richardson testified in front of Congress last November, he became the unofficial spokesman for a growing number of businesses dealing with questionable companies claiming patent infringements.

In his testimony, Richardson, vice president of government and shareholder relations at Columbus, Ohio-based White Castle Systems Inc., laid out how patent assertion entities, or PAEs, commonly referred to as patent trolls, had sent intentionally vague and convoluted letters claiming the 406-unit quick-service chain had violated patents through such actions as including hyperlinks in promotional emails to customers or placing QR codes on White Castle packaging.

In addition to being potentially costly, patent troll claims also are forcing White Castle and other businesses to pull back from using progressive technologies that could better serve their customers, Richardson said.

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“It really came out of nowhere, and it’s all about what they can do to extort money from as many different sources as possible, which they do with impunity and not much care as to whether there is a real case or not,” Richardson told Nation’s Restaurant News, explaining a recent letter received from a patent troll.

PAEs fall under a group known as non-practicing entities, or NPEs, which are defined by Patent Freedom, a company that tracks patent troll lawsuits, as entities that earn or plan to earn the majority of their revenue from the licensing or enforcement of patents. When the term “patent trolls” is used, it typically refers to shell companies that go after other companies for infringements on patents where ownership is often unclear and the violation is vague.

A growing number of restaurant companies are being targeted by patent trolls, according to Liz Garner, director of commerce and entrepreneurship at the National Restaurant Association.

“It is becoming way too common,” Garner said. “The majority of our chains have received some kind of patent troll demand letter.”

While she would not identify the chains because patent troll claims present a “sensitive legal issue,” she noted that Whataburger officials last year decided not to offer Wi-Fi access to customers because they had been threatened with a patent infringement suit.

The San Antonio-based quick-service chain declined to be interviewed for this story.

Patent trolls are not traditional patent holders, Garner said, adding they operate with deliberately deceptive tactics and a specific agenda.

“Troll activity is generally done by shell companies,” she said. “When they make a patent assertion, they are claiming that you are using some sort of technology that in some way they own the patent over and they are demanding a licensing fee and threatening litigation.”

Litigation is not a viable option for many targeted companies, however, leaving them to choose between paying fees or, in the case of White Castle and Whataburger, walking away from progressive technologies.

“We have incredibly bright attorneys, but we have two, not 20,” Richardson said. “We want to keep our hamburger prices low. We don’t have the depth of resources to take a lot of things to court.”

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Restaurant companies are not alone in their vulnerability. Patent troll activity has increased significantly in recent years across several industries, including retail, technology and media, among others.

According to the first annual NPE Activity Report by RPX, a patent risk management provider, the number of patient infringement cases filed in 2012 was a record-high 4,731, up more than 40 percent from 3,374 in 2011 and up 87.4 percent from 2,525 in 2010.  More specifically, the study found that the number of NPE cases filed in 2012 nearly doubled from 2011, increasing 97 percent to 3,054 from 1,551.

“It has become a cottage industry,” Richardson said, adding he is not content to ignore the situation. “We are all in this together. If our industry is under attack, we feel it is our responsibility to speak up and share the truth.”

Government officials are also aware of the growing problem. On Dec. 5, 2013, the House passed a bill designed to curb patent trolling by a vote of 325 to 91. Called the Innovation Act, the bill would increase specificity and clarity in patent lawsuits, increase transparency when it comes to patent ownership, and make it easier for defendants that win cases to recover the cost of litigation.

“We think this will disincentivize frivolous lawsuits, or the threat of frivolous lawsuits, because there is more at stake for the loser,” the NRA’s Garner said.

Around the same time, Sen. Patrick Leahy, D-Vt., who is the judiciary committee chairman, and Sen. Mike Lee, R-Utah, introduced the Patent Transparency and Improvements Act of 2013, which would also call for increased transparency of patent ownership and crack down on demand letters.

“America’s patent system is the envy of the world, but unfortunately some bad actors are misusing the system to sue unsuspecting consumers or extort monetary settlements by making misleading demands,” Leahy said when introducing the bill.

If the Senate passes its bill, it must be reconciled with the House bill before going to the president. President Obama voiced his support for such legislation in his State of the Union address.

While increased awareness and government action are steps in the right direction, restaurant companies such as White Castle still need to tread lightly when it comes to the use of third-party technologies in an attempt to better serve their customers, said the NRA’s Garner.

“If you are using a third-party technology provider, you should really be talking to them about strong indemnification clauses,” Garner said. “Essentially, they would be responsible for litigation if there were assertion on the technology they are providing.”

Such advice is not lost on Richardson, but it does little to quell his frustration with the situation, as he laments the hurdles his company faces trying to move forward in the face of costly litigation and limited technology options.

“These patent trolls really are hiding under the bridge to the future,” he said.

Contact Charlie Duerr at [email protected].