Patent Trolls – The White House Makes a Move in the Right Direction
Patent Trolls – The White House Makes a Move in the Right Direction.
One of the worst issues that could befall an early startup is litigation. Litigation can distract a startup from its main priority – innovating and executing its business model. Furthermore, litigation, or even threatened litigation, can scare away potential investors. For many tech and even non-tech driven startups, some of their litigation may be initiated by “patent trolls.” Rather than seeking to place their technology in the hands of the public, patent trolls’ primary business model is to collect licensing and settlement fees through the power of a potential patent infringement suit or even initiate suit in some cases. A patent troll will typically stockpile patents only for potential litigation purposes. As patent trolls have continued to frustrate the business objectives of startups and their investors, the United States Patent and Trademark Office (USPTO) and White House have recently taken steps to make it easier to fight patent trolls.
In February, the White House launched a toolkit to help startups search government databases on patent trolls and patents. Many of the costs associated with fighting a troll come even before you gear up for litigation. First, time and money is spent attempting to learn the identity and nature of the entity that just sent your startup a cease and desist or demand letter. Second, ascertaining whether a patent infringement threat has merit is difficult without the assistance of a patent attorney.
This refocus of resources and time is more costly to a startup then it would be to a larger company. Whereas a large company may decide to just close a certain business line to avoid suit, a startup’s future may rely on a single business line in the early stages. Also, unlike a large company, startups don’t have the luxury of spending company dollars to battle litigation. Typically, a startup budgets all of its early capital to fuel it until the next round of funding; hiring new employees, research and development, rent, and marketing are among the few costs that startups can afford with investors dollars.
Handling a Potential Patent Troll’s Cease and Desist Letter.
One issue with receiving a cease and desist letter is the difficulty in determining whether a patent troll or a more “reputable” entity is attempting to enforce its rights in a patent. The hope of the White House is that the new toolkit will streamline this process of “discovery” for cash-strapped businesses.
Prior to even analyzing an asserted patent (and therefore possibly engaging a patent attorney), a startup can learn much about the nature of a patent assertion. The following are steps you could take prior to bringing on a patent attorney to learn more about the threatening entity, its motivations, strategies, and capabilities:
1. One of the first steps you should take in dealing with a potential patent troll’s cease and desist letter is to determine who the driving force behind the letter is. Many letters are sent by lawyers and do not identify the actual entity that owns the asserted patent(s). Learn as much about the entity as possible;
- Review and utilize the new patent toolkit and search issued by the White House, which can tie asserted patents to the underlying entity.
- Perform a Google search to learn additional information about the entity’s past activity.
- Look for any blogs or stories; long standing patent trolls will typically have a lot of voiced opinions of them on the web. Many trolls are painted in a negative light and will be blasted by blogs across the web.
- Have they been involved in past suits? What was the outcome of those suits?
- If you find out that the troll sends hundreds of cease and desist letters but has never engaged in suit, you may be in luck. Some trolls issue letters with only the hope that some respond with potential settlements. They understand that they probably won’t win an infringement suit and hope to collect on any potential settlement.
- Is the letter boilerplate? This can often be a telltale sign of a troll engaging in wide-ranging assertions, but perhaps not following through on any.
2. Next, a recipient of a cease and desist letter should analyze the merits of the patent infringement claim. This will help you determine whether your startup may indeed be infringing. Determining whether a product or service is indeed infringing may not be as straightforward as it sounds. You should focus on what the claims define in the patent. The test is whether your product or service satisfies each and every limitation of a single claim of the patent. This process often requires someone experienced in construing patents to determine the specific meaning of the words used in the patent. You can search for patents through the USPTO’s website or through Google’s patent search.
Several law schools, law students, and lawyers have worked together to form the Law School Patent Troll Defense Network. The network provides free legal services to app developers and other small business entrepreneurs that are threatened by patent trolls. Another form of help might come from others in your position. Sometimes multiple recipients of a common cease and desist letter can pool resources, as a cost and time saving mechanism, to analyze a patent. Also, shop around, some patent attorneys will have initial meetings for free and offer some initial impressions on a patent.
With President Obama emphasizing tackling patent trolls, hopefully they will become an issue of the past. Until then, your startup should initially take any cease and desist letter it receives seriously. Entirely ignoring a cease and desist letter is typically not the best option. A startup will typically need to disclose any threatened litigation to investors. If a startup has received a cease and desist letter, it will want to be able to explain to investors that nature of the letter, what the startup has done about it, and why the letter is without merit. Investors want the cash they put in to spur growth and innovation, not cover hefty legal bills. Accordingly, investors will be weary of funding a startup that may have to battle a troll in litigation or that can’t credibly explain why such a battle is highly unlikely.