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0 pointsdamoncali13y ago0 comments

It's neither fraud nor a loop hole. Suppose you are a patent troll and you set up a business to extract value from a particular patent. You start out with $100k and buy a patent for $50k. You use the other $50k to sue someone and lose. You now owe them, say $30k. (I made up the numbers, but they don't really matter - the point is that liabilities are greater than assets at the end).

Where is that $30k going to come from? It doesn't exist. If you think that this is a case where you should breach the limited liability provided by incorporating, you're opening a pretty huge can of worms - it's pretty much the basis of our economy.

It's a lot more complex than "you can't do that".

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5 comments · 3 top-level

DannyBee13y ago· 2 in thread

There is a huge difference between setting up a business to say, mow lawns, and setting up a business to file lawsuits.

Especially when the possible costs are basically known (you have no customers except yourself, and you control your own costs), you are deliberately underfunding. Maybe that's not even so bad. Doing so specifically to avoid the intent of an act of congress, is, well, a bad idea.

Courts make factual distinctions between cases all the time when deciding whether to pierce the corporate veil, and i can't see why they wouldn't do so here.

Note that limited liability corporations are fairly new. The world got along just fine when shareholders were responsible for the actions of companies. It made the shareholders more careful in investing.

damoncaliOP13y ago

How is setting up a separate corporation for each patent different from setting upa separate corporation for each, say, office building? How much money is necessary to keep a corporation set up for these purposes from being underfunded? Do we really want to set that precident? Do we really want to require money to access the legal system? Keep in mind the business model is not to sue other companies. The business model is to create license revenue from the patent. Lawsuits are merely a way to settle disputes.

DannyBee13y ago

Yes, we really want to set that precedent. We already require money to access the legal system in certain cases.

You act as if this is a slippery slope where if we differentiate here we've given up the ball game. If that's what you think, well, that ball game was given up long ago. We already have different pleading requirements for different types of lawsuits, etc. This is all done to serve various end policy goals. The business model you give is not the end goal of patents. It's not clear why supporting it should be a policy goal, and as of right now, it isn't. The end goal is to encourage innovation as well as R&D, not to create license revenue. These are separate things.

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Djehngo13y ago

From what I understand, in limited circumstances this can and does happen. http://en.wikipedia.org/wiki/Piercing_the_corporate_veil But given that I am not a lawyer I have no idea if creating a LLC for the sole purpose of isolating a patent holder from court fees would qualify and/or be provable.

learc8313y ago

That's why this bill requires NPEs to put up a bond to cover the other sides legal bills in the case they lose.

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