Last week, our fight took a big step forward, as a gathering to highlight the patent troll problem and plot a path to legislation swelled into a standing-room only affair. The “big tent” meeting, hosted by the Coalition for Patent Fairness, drew a large, diverse crowd of influential industry representatives. Look at this amazing list of who showed up to listen, learn and weigh in:

• American Association of Advertising Agencies (4A)
• National Association of Broadcasters (NAB)
• Food Marketing Institute (FMI)
• National Grocers Association (NGA)
• American Hospital Association (AHA)
• Retail Industry Leaders Association (RILA)
• National Retail Federation (NRF)
• National Restaurant Association (NRA)
• Financial Services Roundtable (FSR)
• The Securities Industry and Financial Markets Association (SIFMA)
• American Bankers Association (ABA)
• Newspaper Association of America (NAA)
• Entertainment Software Association (ESA)
• Engine Advocacy
• Public Knowledge
• Internet Association
• Internet Infrastructure Coalition
• Business Software Alliance
• Consumer Electronics Association
• Computer & Communications Industry Association (CCIA)
• Information Technology Industry Council (ITI)
• Software & Information Industry Association (SIIA)

Importantly, as you can see, many of these groups represent independent small businesses, the type of companies we hold near and dear as they make up a significant portion of our customer base.

These organizations – large and small – are fed up. They’re sick and tired of patent assertion entities (PAEs), more commonly known as patent trolls, and their often baseless but costly attacks. In a blog post on Patent Progress, Josh Lamel, Executive Director at The Foundation for Innovation and Internet Freedom, likened the energy at the big tent meeting to the iconic scene from “Network,” where Howard Beale (Peter Finch) persuades viewers to scream out “I’m as mad as hell, and I’m not going to take it anymore.”

There have been encouraging developments recently, with President Obama addressing the issue live in a Google+ hangout and New York Senator Charles Schumer unveiling plans to strengthen the America Invents Act to improve patent quality and reduce meritless litigation. But more is needed. No one silver bullet will solve the problem, so industry leaders are contributing ideas to concerned members of Congress.

We expect the Coalition for Patent Fairness, our host of the big tent meeting, to contribute and help pass a list of excellent and fair proposals designed to work together to knock out the most egregious abuses of the patent system. The Internet Association will also weigh in with strong and thoughtful legislative proposals.

The Internet Infrastructure Coalition is taking up the flag of end user rights. Patent trolls sue small business end users as “soft targets,” because it is not cost effective for these defendants to hire lawyers. Protecting end users from suit will limit the options for PAEs, forcing them to pursue the manufacturers or providers of common products or services, rather than their customers.

Combining our efforts in this war on trolls will have the maximum impact. There is true power in numbers, and the diverse group of people who have joined the fight is a clear indication that banding together can make change happen.

Senator Schumer tirelessly championed the implementation of this provision, weighing in with comments to the Patent Office’s rulemaking, reinforcing that it was “enacted for the dual purposes of improving patent quality and reducing meritless litigation of low quality business method patents.”

This week, Senator Schumer has announced his intention to strengthen the program, so that it will apply to all types of business method patents, to include more businesses, and would also make the program permanent. This is welcome news. As I have said in prior blog posts on the patent problem, it will take a number of initiatives to stamp out abusive patent litigation.  Senator Schumer’s approach is right on the money and will be a huge help in solving the patent troll problem.  We look forward to working with him and other members to get this important legislation passed as soon as possible.

It is sad, but true, that Rackspace is just one of many companies dealing with endless suits over dubious patents. It’s a never-ending game of whack-a-troll. What is different, though, is that we have decided to break the silence and shine a bright light on these patent-powered parasites.

Recently, we were sued by a Patent Assertion Entity (PAE) called Rotatable Technologies. Rotatable owns a patent that it claims covers the screen rotation technology standard in just about every smartphone. You know, when you flip your device sideways and the screen shifts orientation from portrait mode to landscape mode? Like nearly all the apps in the Apple and Android app stores, Rackspace uses standard functionality provided by Apple’s libraries and Android open source software to provide this display feature in one of our mobile cloud applications.

Rotatable provides a textbook case of patent extortion. One court identified how to spot patent extortion: a patent troll will file a series of “nearly identical patent infringement complaints against a plethora of diverse defendants.” (Eon-Net, 653 F.3d 1314.) Trolls do this to cast as wide a net as possible. They purposefully include companies that aren’t prepared to engage in patent litigation.

Rotatable didn’t just sue us; they’ve sued a number of companies including Apple, Netflix, Electronic Arts, Target and Whole Foods Market.

Patent trolls then follow each filing with a settlement demand “at a price far lower than the cost to defend the litigation.” (Id. at 1326.) This allows trolls to use the high cost of litigation as a club against operating companies. Patent litigation typically costs defendants between $1 million and $5 million just to stay in the fight.

When Rackspace contacted Rotatable to ask for a routine extension of time to answer their complaint, Rotatable admitted their trollish motives. Unprompted, they told us they had been instructed by their client to offer a settlement of $75,000 to anyone who contacts them asking for an extension of time. And that the number was negotiable.

As patent settlements go, that is very cheap. We also believe it is completely unacceptable.

Rackspace has decided to stick up for ourselves, the open source community, app developers and every other company in the mobile applications world. Today we filed a challenge to Rotatable’s patent in the patent office (see the petition here). It’s called an IPR, or Inter Partes Review. It’s a new proceeding made available under the America Invents Act. It gives us a chance to show why the patent is invalid and should not have been issued in the first place. Once we file the IPR, the patent holder can file a response. From there, a board of patent reviewers has a year to decide whether the patent in question is valid.

When it comes to fighting this particular troll, we believe an IPR is our best option to have this patent abolished at its source – eliminate the root, destroy the weed. We are optimistic that the patent office will agree with our petition and invalidate the patent, stopping Rotatable from attacking businesses in hopes of pilfering their hard-earned money and hindering app developers and the open source community from bringing their best every day.

IPRs can be risky and costly. We know this IPR will cost us more than the $75,000 that Rotatable wanted to extort from us. But we are not just fighting for us; we are fighting for all the app developers who are also in the line of fire. As the noted software engineer and blogger Joel Spolsky wrote, “Life is a bit hard sometimes, and sometimes you have to step up and fight fights that you never signed up for.”

Last week, a patent assertion entity (PAE) called Parallel Iron sued Rackspace and 11 other defendants in Delaware for allegedly infringing on a trio of patents that Parallel Iron says cover the use of the open source Hadoop Distributed File System (HDFS). This is the newest in a series of 23 similar suits Parallel Iron has filed in Delaware since last June, which is when Parallel Iron was forced to dismiss an earlier set of lawsuits on another patent it could not enforce. Parallel Iron is the latest in a string of shell companies created to do nothing more than assert patent-infringement claims as part of a typical patent troll scheme of pressuring companies to pay up or else face crippling litigation costs . At least that is what it looks like on the surface.

In actuality, it is a bit more complicated. Our dealings with this particular troll reach back to December 2010 when IP Navigation Group (IP Nav), as agent for a supposedly secret patent owner, now known as Parallel Iron, accused Rackspace of patent infringement. IP Nav told us that they could not divulge the details of their infringement claims – not even the patent numbers or the patent owner – unless we entered into a “forbearance agreement” – basically, an agreement that we would not sue them. IP Nav was worried that as soon as we found out what their patents and claims actually were, Rackspace would sue to invalidate their patents or for a declaration that Rackspace does not infringe. We were unwilling to enter into such a one-sided agreement, so we negotiated a mutual forbearance agreement that required either party to give 30 days’ notice before bringing suit.

IP Nav has used this trick before. Sending a letter like the one IP Nav sent Rackspace – and trying to pressure the target into a forbearance agreement – got IP Nav into hot water with a Wisconsin federal court in late 2011. The court decision, as reported by Techdirt, describes the tactics that IP Nav deploys, and uses literary references to Shakespeare and Chekov to excoriate IP Nav. It even cited the “Duck Test” – if it quacks like a troll, it probably is a troll. Search online for “IP Navigation Group.” You will find that this group’s only business is acquiring patents and suing companies.

Once again, the Duck Test holds true: walking, swimming, quacking, everything. True to form, Parallel Iron sued Rackspace in Delaware without providing any notice, breaking the agreement they insisted upon.

We aren’t going to take it. We have sued IP Nav and Parallel Iron in federal court in San Antonio, Texas, where our headquarters is located (see the complaint here). We are asking the court to award Rackspace damages for breach of contract, and to enter a declaratory judgment that Rackspace does not infringe Parallel Iron’s patents.

Meanwhile, IP Nav wears its designation as a patent assertion entity, or patent troll, as a badge of honor. It makes the laughable claim to be a “white hat” patent troll created to “give the little guy a chance.” This is tragic comedy at best. There are few trolls more notorious than IP Nav, and there is no such thing as a patent troll that has the best interests of small businesses in mind. Instead, IP Nav and Parallel Iron are acting in their own selfish interests and suffocating innovation, while stripping capital away from businesses both large and small. Everybody knows they are a duck – or should we say, a troll.

Patent trolls like IP Nav are a serious threat to business and to innovation. Patent trolls brazenly use questionable tactics to force settlements from legitimate businesses that are merely using computers and software as they are intended. These defendants, including most of America’s most innovative companies, are not copying patents or stealing from the patent holders. They often have no knowledge of these patents until they are served with a lawsuit. This is unjust.

At Rackspace, we have seen a 500 percent spike since 2010 in our legal spend combating patent trolls – we recently fought one and emerged victorious. To put the scope of the problem into perspective, a Boston University study of patent trolls, conducted last year, found that they cost the U.S. economy about $29 billion in 2011, up from $7 billion in 2005.

Until Congress reforms the patent laws, companies of all sizes and industries could – and likely will – find themselves in the crosshairs of a greedy patent troll looking for a quick cash-grab. No company is immune, and, sadly, small companies can’t afford to fight. If they don’t succumb to the troll’s demands by settling, they face certain ruin.

Our goal with this lawsuit is to highlight the tactics that IP Nav uses to divert hard-earned profits and precious capital from American businesses. This time, the patent troll should pay us.

Red Hat indemnified Rackspace in the case. This is something that Red Hat does well, and kudos to them. They stand up for their customers and defend these Linux suits. The lawyers who defended us deserve a ton of credit. Bill Lee and Cynthia Vreeland of Wilmer Hale were creative and persuasive, and their strategy to bring the early motion to dismiss was brilliant.

The patent at issue is a joke. Uniloc alleged that a floating point numerical calculation by the Linux operating system violated U.S. Patent 5,892,697 – an absurd assertion. This is the sort of low quality patent that never should have been granted in the first place and which patent trolls buy up by the bushel full, hoping for fast and cheap settlements. This time, with Red Hat’s strong backing, we chose to fight.

The outcome was just what we had in mind. Chief Judge Leonard Davis found that the subject matter of the software patent was unpatentable under Supreme Court case law and, ruling from the bench, granted our motion for an early dismissal. The written order, which was released yesterday, is excellent and well-reasoned. It’s refreshing to see that the judiciary recognizes that many of the fundamental operations of a computer are pure mathematics and are not patentable subject matter. We expect, and hope, that many more of these spurious software patent lawsuits are dismissed on similar grounds.

It’s obvious to us that patent trolls like Uniloc are having a caustic affect on innovation. Patent trolls have become Rackspace’s most pressing legal issue. We have seen a 500 percent spike since 2010 in our legal spend combating patent trolls. Until patent laws are reformed, companies of all sizes could – and likely will – find themselves in the crosshairs of a greedy patent troll looking for a quick cash-grab. No company is immune.

That is why patent reform should be a top priority for Congress. The rapid dismissal of lawsuits filed by patent trolls coupled with legislation to make it difficult for them succeed in their litigious shakedowns would be a massive step in the right direction.

At Rackspace, we will continue to fight the battle against patent trolls on several fronts – in the courts, in the news and by working with members of Congress. We encourage our customers, partners, open source collaborators and friends to support the continuing war against innovation stifling lawsuits. Join us.

Many of these PAEs (patent acquisition entities) file lawsuits against small and medium-sized businesses, targeting a settlement just under what it would cost for litigation, knowing that these businesses will want to avoid costly litigation and probably pay up.

PAE lawsuits claim ownership over basic ideas, such as sending a photocopy to email, podcasting, aggregating news articles, offering free Wi-Fi in your shop, or using a “shopping cart” on your website – something is terribly wrong here.

The patent system was never intended to be a playground for trial lawyers and frivolous claims. We need to work on reforms to discourage frivolous patent litigation and keep U.S. patent laws up to date. Abusive patent troll litigation strikes at the very heart of American innovation and job creation. That is why Congress, the Federal Courts and the PTO should continue to take the necessary steps to ensure that the patent system lives up to its Constitutional underpinnings.

One of the witnesses at the hearing, John Boswell, senior vice president and chief legal officer of SAS, a leading privately held software firm, stated that “patent trolls are business terrorists. Their weapons of mass destruction are software and business-method patents with fuzzy boundaries that can be asserted against many different products, many different companies, in many different ways.”

At Rackspace, the patent troll problem is our most pressing legal issue. Since 2010, our spending to combat PAEs has increased by 500 percent. We are fighting for software patent reform and are working closely with legislators to encourage troll-free innovation.

But changing the law to get rid of patent trolls will not be easy. The patent trolls and their lawyers are well-funded, and will fight vigorously to protect the status quo and their ability to victimize small businesses and start ups with their lawsuits.

Even so, technology users should be encouraged by the attention given to end users at the committee hearing.  “End users” are you and me: small businesses, developers, students, professionals, and other ordinary Americans who use technology in our daily lives.  We didn’t steal somebody’s idea. We didn’t copy someone’s patent. We bought a computer and downloaded some software. We bought a scanner.

Most of the witnesses and members of the committee at the hearing acknowledged the serious problem that threatens essentially everybody who owns a computer. Consider the “scanner trolls” referred to in Chairman Goodlatte’s statement which have sent out untold numbers of letters claiming patent infringement and demanding payment for the recipients’ use of a simple document scanner to scan documents to e-mail.

Just as bad, the “Wi-Fi troll” has filed several suits against retailers and other small businesses, claiming that their ordinary Wi-Fi networks infringe a group of seventeen patents. In the Wi-Fi troll case, Cisco Systems fought back and even filed a civil suit under the Racketeer Influenced and Corrupt Organizations Act, (“RICO”) which is used by law enforcement to expose and fight criminal activity and gives ordinary citizens the right to bring civil suits if they are harmed by racketeering activities.  The RICO case was thrown out, but Cisco’s efforts are to be commended.

These egregious examples are typical patent troll activities, and Congress has the power to bring them to an end. Congressman Blake Farenthold’s questioning was right on point and went straight to the heart of the issue. Congressman Farenthold offered a simple, workable solution to solve a big part of the problem:  immunize end users of commodity-type products from patent litigation. Under this approach, if a business (or individual) buys a computer or other piece of commodity gear and is using it in its intended way, it cannot be sued for patent infringement.

There is precedent in the law for this type of immunity. For example, Section 287(c) of the U.S. Patent Act, the Physician’s Immunity Statute, was enacted in 1997 to immunize physicians from infringement claims for practicing patented medical procedures.

Most small businesses and software developers cannot afford to hire a lawyer to defend them against lawsuits. Our legal system is just too expensive. Elected officials celebrate startups and small businesses as job creators and innovators. Unfortunately, for most small businesses, our patent laws are something to be feared, and an obstacle to success. This is not the right policy in 2013. The U.S. Patent Act should be amended to protect the hundreds of thousands of businesses that are subject to victimization by a handful of people who are taking advantage of a broken system.

Patent trolls, who employ few and create nothing but wealth for themselves and their lawyers, have made a mockery of an historic law designed to promote the progress of science and useful arts. It is time to fix this exploit. Immunizing end users as part of a legislative package to meet the objectives that Chairman Goodlatte set forth, to “continue to take the necessary steps to ensure that the patent system lives up to its Constitutional underpinnings” would go a long way to restore the confidence of American businesses in the patent system.

The patent troll problem has become our most pressing legal issue at Rackspace. Since 2010, our spending to combat so-called “patent assertion entities” (PAEs) – more commonly known as patent trolls – has increased by 500 percent. To put the scope of the problem into perspective, a Boston University study of patent trolls, conducted last year, found that they cost the U.S. economy about $29 billion in 2011, up from $7 billion in 2005.

Patent trolls hit hardest at the most productive sectors of our economy, including the young businesses that create most of the nation’s jobs, and the software developers who invent new technologies. We at Rackspace see this damage up close, as these young businesses and developers represent a large share of our customers. We are particularly concerned about the impact that patent-troll lawsuits have on important open source software projects. These projects are helping our country boost its share of global technology innovation. Patent trolls represent a direct threat to the open source development that powers many tech startups, small businesses and new growth opportunities for mature companies.

We’ve been vigilant in our fight – pushing for patent reform to be a top priority for Congress and encouraging Congress to take action. We were strong supporters of the SHIELD Act filed last session by Rep. Peter DeFazio (D-Oregon) and Representative Jason Chaffetz (R-Utah) which would have required patent trolls to pay defendants’ legal costs if the suit was unsuccessful. Under current law, patent trolls don’t face any meaningful risk in bringing litigation, while defendants are subjected to massive legal expenses and discovery costs. This approach would have leveled the playing field and would have taken away the trolls’ unfair advantage. We hope that similar legislation will be introduced in the current Congress and eventually make its way to President Obama’s desk for signature.

With the president’s recent acknowledgement of the scale of the patent troll problem, we feel we’re one step closer to seeing true change enacted.

Last week, during the Google+ Hangout, President Obama fielded a question from a young entrepreneur who said patent troll suits that target software patents are stifling innovation and spreading fear throughout the startup community.

“These are firms that collect software patents just for the purpose of litigation, and getting money out of small companies that can’t afford patent defense, they’re expensive. So, I know you’ve made a lot of progress on patent reform, but I’m wondering, what are you planning to do to limit the abuses of software patents? For example, would you be supportive of limiting software patents to only five years long?” the entrepreneur asked.

In an encouraging response, the president said patent troll suits are extortion and that the America Invents Act, which originally intended to spark sweeping patent reform, only got “halfway” to where it needed to go.

“The folks that you’re talking about are a classic example; they don’t actually produce anything themselves. They’re just trying to essentially leverage and hijack somebody else’s idea and see if they can extort some money out of them,” President Obama said, later adding “what we need to do is pull together additional stakeholders and see if we can build some additional consensus on smarter patent laws.”

The president’s response shows that we’re on the right track and gives us hope that the importance of software patent reform is resonating at the highest levels of government. We applaud President Obama for his candor and transparency and look forward to working closely with legislators to create reform and encourage troll-free innovation.

What really got me going after reading the article was this quote: “Give it a rest already. Give the AIA [America Invents Act] a chance to work. Give it a chance to even get started.”

Mr. Kappos is dead wrong. Software patents are stifling innovation and the law must be changed now to allow developers to create software without fear of patent infringement lawsuits from patent trolls.

In today’s world, open source software projects fuel the most important innovations in technology. Software patents issued before cloud computing even existed are being used by patent trolls to attack legitimate and important open source development projects. When defending a patent lawsuit costs upwards of $4 million, very few companies can afford to defend these suits, so they settle or go out of business. It is shameful that our legal system allows this. No other country has this problem. We are putting ourselves at a competitive disadvantage.

As for the facts that Mr. Kappos wants us to look at before we criticize, a Boston University study by Bessen and Meurer estimated that the direct costs of patent assertions from non-practicing entities (NPEs), or patent trolls, totaled about $29 billion in 2011, up from $7 billion in 2005.

For David Kappos to tell us that we should shut up and wait for the America Invents Act to work is not acceptable. Let’s solve the problem. Developing, distributing or running a program on an ordinary computer should not constitute patent infringement. This article by Richard Stallman in Wired makes the case.

To help in the fight against patent trolls we recently launched a job on Elance (sign-in required) for the documentation of solutions developed in the OpenStack community. We hope to keep these fundamental cloud computing technologies open and publicly available for everyone to use, including our competitors. We also hope this will help keep these technologies out of the claws of patent trolls.

Not one of these suits comes from a competitor. No one claims that we surreptitiously “copied” their technology. And in our opinion, not one of the so called “software patents” being used against us and other businesses that are actually developing software is valid or infringed. Instead, all of these suits are from patent trolls (non-practicing entities or “NPEs” in polite company) that acquired software patents later and are using those patents as weapons to hold up the companies that actual employ people and build value in our economy.

We’re fed up, and we’re doing something about it. We are absolutely going to promote legislation to solve this problem. We particularly like an idea that Dr. Richard Stallman wrote about recently in a Wired article, namely, that the effect of patents are changed, such that developing, distributing, or running a program on generally used computing hardware does not constitute patent infringement. While nothing short of eliminating software patents will satisfy us, we intend to work hard on anything practical that will move the law in the right direction. That leads us to something that we think could make a difference.

At Rackspace, we believe that an open cloud will create the best opportunities for developers and end users. We also know that most of the innovation around computer systems and software now happens in the open source community. We see that innovation every day in the communities in which we participate, such as OpenStack. The problem is that so much of that innovation is in code that is invisible to the patent office.

Recently, we posted a new job on online employment and freelance job site Elance – you can see the text and the link below (an Elance account and log in are required). The job is the first in what we hope is a series of jobs where freelancers document important technologies in OpenStack and in other communities. We plan to make documentation available to the patent office via the IP.com database. By fanatically documenting the solutions that are developed in the OpenStack community, we hope to keep these fundamental cloud computing technologies open and publicly available for everyone to use, including our competitors. We also hope this will help keep these technologies out of the claws of patent trolls.

We don’t know if this will work. It may take some time. But it is the right thing to do.

You can view the Elance job post at: https://www.elance.com/job/35235531/proposals

And here is the full text of the post:

Creating descriptions of OpenStack technologies for prior art publication

We invite you to submit your proposal to create publications describing OpenStack networking technologies for ip.com’s Prior Art Database – see http://priorartdatabase.com/defensive-publishing.html.

This is a pilot program for the rapid, cost-effective development of prior art publications. If successful, we anticipate ongoing, recurring work to create prior art publications for other OpenStack technologies. We welcome your independent formulation of a scope of work and fee structure that meets our goals to define a repeatable process for creating searchable prior art publications for the benefit of the OpenStack community.

The deliverable will be provided as an article or series of articles in Plain Text (txt), Microsoft Word (doc), Rich Text Format (rtf), or HTML (htm/html). The article (or series of articles) should clearly and completely describe some aspect of the networking technologies at use in OpenStack, including installation and use of OpenStack networking technologies, the APIs, plugins, techniques, technologies and associated standards.

Project will be paid on per-article basis. When providing time and cost estimates in your proposal, please include each of the following:

1. Review of any materials that are relevant to the Quantum networking project and the use of software-defined networking (SDN) within OpenStack generally. This includes materials published at www.openstack.org and on other publicly accessible sites, such as developer documentation, wiki, developer mailing list, IRC postings, design summit blueprints and publicly accessible launch pad notes, articles discussing SDN, OpenFlow, OpenvSwitch, and other technologies for use with OpenStack Quantum.

2. Providing a 3,000-10,000 word written description of one or more aspects of the OpenStack Quantum technology, with particular emphasis on any new or innovative aspects. Each written description should focus on one aspect of the technology and include a title, abstract, relevant keywords, a description of the problem addressed, the solutions available within OpenStack, the implementation of those solutions, alternative implementations that are known or considered, and possible future uses of the technology.

Your fee proposal should not include the ip.com publication fee.

We would require the assignment of the copyright in your work, but would list you as the author of the work to the extent the ip.com publication platform enables the listing of separate author names. We may engage a subject matter expert to modify or expand on your work.

Please note that we are not trying to expand our rights in any intellectual property that is the subject of this request or your work. We hope to implement a rapid and cost effective means to protect the OpenStack community. If a suitable process/fee structure is developed via responses to this proposal, we expect to solicit further participation on the same terms.

Please submit your proposal no later than November 22, 2012. Please include in your proposal a statement of the time to complete the work, with a completion date no later than November 30.

Frivolous patent lawsuits – filed in hopes of a quick financial payoff via settlement – are sapping capital and slowing the pace of innovation and job growth at Rackspace and at the startups and other small and midsized companies that account for many of our customers.

In the past two years we have seen a dramatic increase in patent infringement cases filed against Rackspace, all of them brought by non-practicing entities. We spend a substantial amount of time and money dealing with these claims – time that would be better spent addressing the needs of our employees and customers. The dollars are also substantial. Defending a patent infringement lawsuit can easily cost in excess of $3 million. In most cases, the cost of settling is significantly less than the cost of fighting and these patent trolls know it.

Now imagine this on a grander scale. How is this impacting the technology industry? Consider Google, Yahoo, Apple and other major technology companies and the deluge of patent infringement suits they suffer at the hands of patent trolls. The financial impact and drain on resources and innovation is astronomical. One recent study by James Bessen and Michael Meurer of the Boston University School of Law, “The Direct Costs from NPE Disputes,” estimated that patent trolls cost the American economy $29 billion – a 400 percent increase over 2005 — and affected 5,842 defendants in 2011. Of course this $29 billion burden falls on the shoulders of stockholders and employees. Additional research suggests that of that $29 billion, the costs are largely deadweight and less than 25 percent actually flows to support innovation and another 25 percent goes toward legal fees.

Patent trolls aren’t just a large company problem anymore. Startups and small companies are now prime targets. “Startups and Patent Trolls,” a recent study by Colleen Chien of the Santa Clara University School of Law, found that most defendants in troll suits are small companies and startups. According to the findings, which were released this month, companies with less than $100 million in annual revenue represent at least 66 percent of defendants in patent troll suits, while 55 percent of defendants have annual revenue of less than $10 million. Chien’s survey found that the smaller the company, the more likely a bogus patent suit caused a “significant operational impact” such as delaying hiring, postponing a milestone achievement, forcing changes in a product or business strategy, shutting down a line of business or the entire business, or diminishing the company’s valuation.

This threat goes to the heart of Rackspace’s customer base, and I would imagine that many of our customers have been damaged by these spurious lawsuits. (If you’re a troll victim, we’d love to hear your story and share it with legislators; please comment below, contact me on Twitter at @AlanSchoenbaum or send an email to our blog editor at andrew.hickey@rackspace.com.)

Patent trolls also exact a heavy emotional and personal toll on entrepreneurs and their teams. In Chien’s study, one survey respondent noted:

“It was agonizing to hand over all the money we had earned from a product we had invented and created ourselves to a firm that invents nothing and creates nothing. Our founder has since lost his house, car — all his assets.”

Had Rackspace been subjected to this sort of harassment in its early stages, we might never have become the $1 billion, 4,500-employee company that we are today.

This new research reaffirms that patent trolls cannot be allowed to continue to prey on productive businesses. We have to band together and fight back. We at Rackspace are working with legislators to toughen laws against patent trolls. The Leahy-Smith America Invests Act is a great start. So is the work that Rep. Peter DeFazio (D-Ore.) and Representative Jason Chaffetz (R-Utah) are doing with the introduction of the SHIELD Act, which requires plaintiffs to pay defendants’ legal costs if a lawsuit is unsuccessful. I’d like to again encourage all of our customers, partners and friends to get behind the SHIELD Act and push for legislation directed at patent trolls. We must work together to defend innovation and force these trolls back under their bridges with empty pockets.

You can read the full text of the proposed SHIELD Act here. And consider signing this Defend Innovation petition, which will be presented to Congress in support of patent law reform.