Innovatio IP Ventures is one of the most controversial patent trolls to emerge in the past few years. Like the oft-condemned Lodsys, Innovatio is asking for relatively small payouts from a large number of targets. But Innovatio's campaign is even broader than other hated trolls like Lodsys: the company claims nothing less than a patent claim on using Wi-Fi.

In 2011, Innovatio started suing chain hotels and even local coffee shops, saying they infringed 17 patents that cover the use of Wi-Fi. Innovatio sued hundreds of businesses and has reportedly sent out more than 8,000 letters demanding license fees, generally ranging from $2,300 to $5,000. Instead of going after companies that make routers like Cisco, Innovatio targeted small businesses that simply use Wi-Fi, an increasingly common pattern.

The lawyer behind the Wi-Fi patent suits, Matthew McAndrews of Niro Haller & Niro, gave an interview when the campaign started in fall 2011.

“We want you to continue to use this technology, we just want our client to get his due share,” McAndrews said. “This is not a seat-of-the-pants, fly-by-night shakedown.” Household Wi-Fi was off-limits, he said—for now.

The idea that corner coffee shops were going to be hit up for thousands of dollars for using Wi-Fi, and that private homes were only off-limits as part of a "strategic decision," got some media attention, especially in Chicago, where Innovatio's lawyers and many of the targets are based.

The lawyers behind Innovatio responded by doubling down on their assertions. Prominent patent litigator Ray Niro defended the patents publicly in March 2012, saying they were connected to two pioneering inventors, Ronald Mahany and Robert Meier, whom he called the "fathers" of WLAN.

Manufacturers hit back with a novel strategy

Innovatio deliberately avoided targeting the actual manufacturers of Wi-Fi equipment, preferring to sue end-users. But in October, Cisco, Netgear, and Motorola teamed up to file an 81-page lawsuit [PDF] seeking to shut down Innovatio's patent-trolling project once and for all. Not only were the patents invalid, but the suit alleged Innovatio's whole campaign was a violation of the RICO anti-racketeering law. That law is more commonly used against crime families than patent holders.

"Unlike suppliers of the accused technologies, many of Innovatio’s licensing targets are small businesses that do not possess the resources or experience to investigate and challenge Defendants’ illegal licensing activities as alleged herein," the complaint stated. The patents had all kinds of problems, the manufacturers alleged. One big one: the patents originally came from Broadcom, and the manufacturers had already paid for licenses to them. It all amounted to a scheme to "unlawfully tax" the 802.11 Wi-Fi standard and "prey upon end users" not involved in creating or distributing the technology.

The litigation revealed some interesting information about Innovatio. The company was created in February 2011 by Noel Whitley, a former Broadcom IP lawyer who lives in Orange County, California. Whitley and his associates sent out more than 8,000 threatening letters to targets in all 50 states.

In the end, though, the idea of shutting down a patent troll with a RICO claim didn't work out. US District Judge James Holderman, who is overseeing the case, issued a 34-page order [PDF] last week throwing out the RICO claims.

At the end of the day, patent trolls are entitled to First Amendment rights, and "Innovatio's campaign is protected petition activity under the First Amendment." In order for Innovatio's letters to be illegal, it would have to be actually engaged in "sham litigation," with the letters sent in bad faith.

That's not the case here. One by one, Holderman shot down the manufacturers' allegations. Their argument that the targets were covered by existing licenses, for example, doesn't amount to a RICO claim, because Innovatio had a "reasonable expectation" that at least some of the products they were going after weren't licensed. "Innovatio had no way of knowing which targets may have been using only products with Broadcom components," Holderman noted.

Holderman will allow some contract claims to proceed against Innovatio, but that's it.

In an e-mailed statement, Cisco General Counsel Mark Chandler said the company was pleased about being able to go forward with the contract claim. "We are, however, disappointed the court interpreted the right to 'petition the government' so broadly as to immunize from RICO liability Innovatio’s misleading statements," said Chandler. Innovatio's goal is to make thousands of businesses that "are already fully licensed" pay much more. "We do not believe those misleading demands should be immune from liability, and we will review the steps available from here to vindicate our customers' rights."

For hotels, time to pay up: $5,000 apiece

A few days after Holderman's order came out, Innovatio lawyers filed a lengthy series of notices regarding the dozens of hotels it is preparing to ask for a "default judgment" against, which suggests those hotels haven't yet defended themselves against the infringement allegations. Now there's a hearing approaching next week, on February 21, and Innovatio has put the hotels on notice that it intends to ask for judgments against them of $5,000 each.

The hotels in this batch are all in Illinois and include: Wyndhams in Glenview, Schaumburg, and Wadsworth; Ramadas in Galena, Glendale Heights, Freeport, Waukegan, Bolingbrook, South Beloit, Joliet, and Chicago; Days Inn in Waukegan, Naperville, Morris, Niles, Woodstock, and Chicago; and Super 8s in Willowbrook, Northlake, Elgin, Bridgview, Dixon, Elk Grove Village, Peru, Yorkville, Aurora, Woodstock, Chicago, and elsewhere.