Innovatio IP Ventures has become arguably the most infamous sender of patent demand letters in recent memory, besides the $1,000-per-worker "scanner trolls" we covered last year. Innovatio bought old Broadcom patents and then sent out more than 13,000 letters asking for individual chain hotels and coffee-shops to pay between $2,300 and $5,000 in licensing fees for using off-the-shelf Wi-Fi routers and other access points. When the company didn't get paid, lawsuits followed.

Innovatio was one of a few examples that led directly to a Senate hearing specifically about patent demand letters, in which those who send demand letters were slammed as "bottom feeders."

The big companies that make router equipment didn't stand still as Innovatio's campaign continued. Cisco, Netgear, and Motorola Solutions intervened in the litigation. Cisco even tried the brash tactic of filing a RICO suit against Innovatio. That didn't work, but Innovatio went from asking for thousands of dollars per business, to a few dollars per router. Cisco was able to get Innovatio's damage demands limited to less than 10 cents per device.

After shrinking Innovatio's damage claims, Cisco struck a deal. Today, Cisco General Counsel Mark Chandler outlined the details in a company blog post. Cisco will pay $2.7 million to prevent any Cisco customers from being targeted by Innovatio. The company admitted that about 100 million of the accused devices were already licensed, and Innovatio will be paid about 3.2 cents per wireless device for the remaining 85 million.

Millions of users of Cisco routers won't need to worry about a threat letter from Innovatio now, but there was a lot of damage done along the way.

"We spent $13 million on this litigation, not including the $2.7 million settlement," wrote Chandler. "I’m proud that we stepped up for our customers and appreciate the great job that our counsel at Kirkland and Ellis did for us. But that expenditure would not have been necessary if Innovatio had met its obligations to license on reasonable and non-discriminatory terms and had come to Cisco seeking a reasonable license first rather than targeting our customers and those of other manufacturers."

And more reform is needed, he added:

[I]f our laws included provisions requiring those who target innocent third party users of products to register their claims at the FTC and make sure users know they can take their claims to manufacturers like Cisco, it seems unlikely Innovatio would have engaged in its letter-writing shakedown against end users. And if they thought they might be on the hook for the $13M we had to spend, they might have thought twice about the way they approached their licensing scheme.

When Cisco GC Chandler spoke to Ars in October, he described the fight against Innovatio as a personal one.

"For me, this was always a matter of protecting my customers against being ripped off," he said. "This is really outrageous conduct to try to rip off a bunch of innocent small businesses. Nothing will make me as a general counsel more angry than someone trying to abuse my customers."

While Cisco has styled this relatively low payment as a "victory" in its announcement today, in October Chandler said he intended the litigation to end with Innovatio cutting a check to Cisco, not the other way around. Cisco had a breach-of-contract claim against Innovatio that is resolved with today's settlement.

While it may involve a payment to a notorious "troll," the Cisco deal is still a good thing on balance, because it gets millions of end users protection, said Julie Samuels of the Electronic Frontier Foundation. But she adds that the case highlights the need for further reform.

"It's really unfortunate that bad actors with overbroad patents in their hands can use them to get at so many layers of the supply chain," said Samuels. "We worry most about the end users being on the hook. That's when the system is really broken, and that's what Innovatio exploited here."



Innovatio's attorney didn't respond to a request for comment.

Cisco's announcement comes just days after the company intervened against another famous patent troll; Apple and Microsoft-owned Rockstar Consortium has sued cable companies for using Cisco equipment.

Court documents show that Motorola Solutions and SonicWALL reached separate settlements with Innovatio in December. Netgear and HP also intervened in Innovatio's lawsuits and do not appear to have reached a settlement yet.

Innovatio's methods have already inspired an imitator, however: Innovative Wireless Solutions. IWS, just like Innovatio, says its patents (originated at Nortel) cover use of off-the-shelf Wi-Fi equipment, and the company is using them against the same targets: chain hotels and coffee shops.

Until legislative reform is enacted, "it's a game of whack-a-mole," said Samuels. "Kudos to Cisco for standing up for end users, but the system can't continue like this."