June 5, 2014

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Right of Way

Fighting the Patent Trolls under the Bridge of Innovation

By Dan Sorensen | Illustration by David Habben

June 5, 2014

For centuries, trolls were only known as mythical creatures found in the mountains across Scandinavian countries. These powerful, ugly creatures were notorious for terrorizing humans, and they haunted the dreams of young children who believed they were real.

Today, trolls actually exist—not as dimwitted humanoids living in caves, but as corporate entities that attack legitimate businesses for infringing on patents of questionable validity. These trolls, or—as they are formally known—patent assertion entities, cost businesses of all shapes and sizes massive amounts of money. In fact, a Boston University study found that patent trolls cost businesses nearly $30 billion in 2011.

Perhaps the only thing harder than fighting a troll is navigating the patent process. That said, there are steps companies can take to safeguard against trolls, take a stance, and protect their business, their customers and their intellectual property.

Troll Methodology

There is no one particular way to deal with patent trolls; however, understanding their method of operation is the first step in preventing being targeted.

Most patent trolls prefer to never go to trial. Because it can cost upwards of $1 million to defend against a patent troll, a settlement of $250,000 can appear reasonable to many businesses. Even if you were to successfully defend against a troll, you could still be out more than $1 million—four times the cost to settle. This is why patent trolls often push for settlements over an actual lawsuit. They then take the funds and move on to the next target.

Many patent trolls take one specific patent and threaten large numbers of companies with litigation. In these cases, even small businesses that are not directly infringing a patent can be at risk.

Innovatio IP Ventures is a patent assertion entity that made news in recent years for suing coffee shops and hotels for licensing fees for using off-the-shelf Wi-Fi routers. Rather than go after the companies that built the routers, like Netgear or Cisco, Innovatio targeted end-users, requesting settlements of approximately $1,000 per employee.

These patent assertion entities target thousands of small businesses, looking for payouts as little as a few thousand dollars. After several thousand of these payments, the trolls have amassed millions of dollars, which they use to purchase new patents that can be used to threaten other companies.

Collateral Damage

It is easy to see how patent trolls are impacting companies, including many Utah businesses. For startups and mom-and-pop shops, even $10,000 can mean the difference between breaking even and closing the doors. For small businesses, going to trial is out of the question, leaving settlement as the only option.

“It sometimes seems like legal extortion because targets know it’s more expensive to defend than to pay up,” says H. Dickson Burton, attorney at TraskBritt. “As an example, I have one client who has had several challenges from non-practicing entities. In each case, the patents they are accused of infringing cover technology they developed and had been using for up to 20 or 30 years before some of these patents were even filed, and yet they had to pay hundreds of thousands of dollars to fight these claims.”

In addition to financially impacting organizations of all sizes, patent trolls also stifle ingenuity by causing innovative companies to close their doors, or go bankrupt, before they can even release products.

Overall, patent trolls are costing Utah companies millions of dollars annually—money that could be spent expanding businesses, providing higher salaries or delivering new products to market. Ultimately, these costs are passed on to the customer, meaning all Utahns pay in the long run.

Fighting Back

When targeted by a patent troll, there are generally two options: fight them in court or pay a settlement. Because patent litigation is a very long and costly process, most companies choose to settle. Even challenging a patent in the U.S. Patent Office can cost hundreds of thousands of dollars. That said, some companies have chosen to fight patent trolls at all costs. While this can be expensive, it sends a clear message to trolls that the company will not be extorted using patents. It also costs the patent troll vast amounts of money as well and can result in the patent in question being invalidated.

“The patent trolls don’t really want to litigate, because they have to spend money, too,” says Rand Bateman, founder of Bateman IP Group. “Their goal is a quick settlement so if you’re one of the first people to be targeted by a patent troll, sometimes the best way out is to settle with them cheap, because they’ll often use that money to target your competitors.”

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