Big news from Texas: Adam Carolla has settled with the podcasting patent troll Personal Audio. Although the settlement is confidential, we can guess the terms. This is because Personal Audio sent out a press release last month saying it was willing to walk away from its suit with Carolla. So we can assume that Carolla did not pay Personal Audio a penny. We can also assume that, in exchange, Carolla has given up the opportunity to challenge the patent and the chance to get his attorney’s fees.

EFF’s own challenge to Personal Audio’s patent is on a separate track and will continue. Our case is before the Patent Trial and Appeal Board at the Patent Office. We are on schedule for a hearing in December with a ruling likely by April 2015. Carolla’s settlement does not impact our case.

Carolla and Personal Audio have agreed to a “quiet period” where they won’t make any public statements about the settlement before September 30, 2014. Not coincidentally, Personal Audio is still scheduled to go to trial against a number of television companies (NBC, CBS, and Fox) in September. Since Carolla is muzzled, we’ll do our best to explain the significance of the settlement. In short, it’s a mixed result.

The Good

Carolla, his team, and everyone who donated in support deserves massive credit for putting up such a strong fight. The podcasting community showed that it would not be shaken down. Patent litigation is very expensive and most troll targets settle early just to avoid the cost of defense. By fighting back, Carolla forced Personal Audio to actually mount a case and establish that it deserved money. That turned out to be too hard for the troll.

As you probably know, podcasting is not an especially lucrative business. Personal Audio, however, appears to have been unaware of this. In its July press release, the company wrote:

When Personal Audio first began its litigation, it was under the impression that Carolla, the self-proclaimed largest podcaster in the world, as well as certain other podcasters, were making significant money from infringing Personal Audio’s patents. After the parties completed discovery, however, it became clear this was not the case. As a result, Personal Audio began to offer dismissals from the case to the podcasting companies involved, rather than to litigate over the smaller amounts of money at issue.

By forcing Personal Audio to prove that it suffered damages, Carolla made it confront the fact that podcasting generates little revenue (for people that claim to have ‘invented’ podcasting, Personal Audio appears not to have understood the industry at all). Carolla is the one of the most successful podcasters in the business. If suing him makes no economic sense, then it makes no sense to sue any podcaster.

We hope that Personal Audio’s public statements on this issue mean that it has truly abandoned threatening and suing podcasters. Though a press release might not be legally binding, the company will have a hard time justifying any further litigation (or threats of litigation) against podcasters. Any future targets can point to this statement. Carolla deserves recognition for getting this result.

The Bad

By settling now, Carolla gives up the chance to make Personal Audio pay his fees. If a defendant wins on the merits it can get fees in extraordinary cases. Winning fees would be a huge deterrent to future litigation from Personal Audio. Although the Supreme Court recently made it somewhat easier for victorious defendants to get fees, it is still a challenge. Moreover, the judge has a lot of discretion and this case was in the Eastern District of Texas, a forum generally considered quite friendly to trolls. Carolla’s team likely made the calculation that fees would be a long shot.

Even more important, Carolla also loses the opportunity to invalidate the patent. If the case had gone to trial, he would have argued that the patent was invalid because the so-called invention was described or made obvious by other people’s work before Personal Audio filed its patent. Carolla would have been able to use more prior art at trial than EFF (challenges at the Patent Office are limited to printed publications). As Charles Duan at Public Knowledge recently explained, if Carolla had won on the invalidity issue, he would have defeated Personal Audio for all podcasters. A troll can’t sue with patent claims that have been invalidated by a court.

For now, the television companies are still in the case and are headed to trial in September. If they don’t settle, and they win on invalidity, then they would also defeat Personal Audio for the entire public. And EFF’s challenge at the Patent Office will continue. So Personal Audio’s claim to own podcasting is not necessarily saved by this settlement.

The Ugly

The most disappointing aspect of today’s settlement is how unsurprising it is. Almost every defendant, no matter how strong their case, ends up settling with the patent troll. Litigating patent cases is extraordinarily expensive. Carolla raised almost half a million dollars and that still would not have been enough to fund a defense through trial.

Trolls know this and use the cost of defense to extort settlements. In the rare case where someone shows a willingness to fight to the end, the troll will often save its patent at the last moment with a walk-away deal. This is likely what happened in Carolla’s case. It is also what happened when infamous patent troll Lodsys settled for nothing with Kaspersky Lab to avoid trial.

Overall, while some aspects of the settlement are disappointing, we think Carolla did a service to the podcasting community by fighting back. We hope that his example will protect smaller podcasters from further attacks from this troll.