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As Coakley ramps up patent troll fight, LevelUp says it has spent $1m dealing with claims

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Parents tell their children a canonical fairy tale: The Three Billy Goats Gruff trying to cross a bridge to greener pastures only to be threatened by a hungry troll who lives under the bridge.

It turns out that fairy tale has become a real-world nightmare for web businesses fighting patent litigation across the united states.

Attorney General Martha Coakley held an event Wednesday on the damage patent trolls inflict against businesses and small start-ups. These trolls reside in offices — not under bridges — but have a similar taxing effect.

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”It sounds like a cute name,” Coakley said. “But it’s not a cute behavior.”

Typically a group of lawyers, patent trolls earn money by buying up cheap and often overly-broad patents and then collecting licensing fees by settling lawsuits levied on companies that have allegedly infringed on their patents. The trolls never intend to use the patents for anything other than legal leverage.

Boston based mobile payment company LevelUp hosted the event at their 1 Congress St. offices. LevelUp chief executive Seth Priebatsch said patent trolling has cost the company over a million dollars while preventing the hiring of an additional 10 to 20 employees.

Recently LevelUp proactively countered one of the four patent troll cases they faced under a provision in Massachusetts General Law Chapter 93A which protects Bay Staters against unfair business practices.

”We are going to protect our rights to the fullest extent of the law,” Priebatsch said.

While current Massachusetts law offers some protection against unfair business practices, the reach of current laws and any future laws is limited to within the Commonwealth.

”Ultimately [a federal solution] makes sense. But they don’t always move as quickly as states do,” Coakley said.

While LevelUp is an established start-up with backers who are willing to  defend properly against patent trolls, the million dollars the company has spent on its defense is a death sentence to newer start-ups, Coakley said.

Those start-ups play a major part in the current economy.

”It’s important for us to understand the role that start-ups play in the economy right now,” Tim Rowe, founder and chief executive of startup incubation house Cambridge Innovation Center, said.

According to him, Start-ups five years old and younger contribute a majority of new jobs in the economy.

Over the summer, President Barack Obama announced five executive actions and seven legislative proposals aimed at curbing the deluge of patent trolling, according to Massachusetts Lawyers Weekly. But lawyers remain skeptical regarding the efficacy of those actions, asking if any real dents will come of them or if they serve a merely symbolic purpose.

This fall, the Federal Trade Commission moved forward on a study requiring 25 companies they diplomatically call “patent assertion entities” to turn over information about their business practices.

”Over half of all patent litigation is in the troll category,” Rowe said. “It really is highway robbery, and I think the name [patent trolling] is very apt.”

Last year two members of Boston University’s law school produced a report estimating that patent trolls cost US companies upwards of $29 billion dollars. That figure did not include ancillary costs like hiring freezes or delays in production resulting from the time and money spent fighting the largely unfounded lawsuits.

In the children’s fairy tale, the last goat butts the troll to his demise in a stream flowing under the bridge, but businesses in the Commonwealth and across the nation will have to wait and see if the president and the FTC prove as tough.

“We shouldn’t allow [trolls] in fairy tales or in our businesses,” Coakley said.

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