The trolls of mythology can be conquered with lightning, church bells or heroic cunning, but shutting down today’s patent trolls requires a more comprehensive approach.
Patent trolls, more formally known as Patent Assertion Entities (PAEs), pose a major threat to American businesses. A study published by the Boston University School of Law revealed that more than six times as many patent lawsuits are filed today as in 1980. More than 10,000 companies have been sued at least once by a PAE, and litigation by PAEs using acquired patents is increasing at an alarming rate — PAEs are now responsible for more than 84 percent of patent litigation in the U.S. Scared yet?
Businesses in all sectors are vulnerable, but today, high-tech companies face a particularly high risk. Why? Because patent trolls are lazy. They want to do the least amount of work and spend the least amount of money to generate as much profit as possible from the settlements. Taking a suit to trial is extremely expensive, with the cost of defense ranging from $500,000 to upwards of $5 million. To avoid these costs, more than 87 percent of defendants settle before trial, even if the infringement claim has no merit, and despite the fact that less than 1 percent of all defendants in PAE suits are found guilty.
Five years ago, trolls favored fluffy business method patents that were granted during the dot-com boom, when companies eagerly filed patents for basic things you could do with the Internet, like sell books, hyperlink content or publish online press releases. Then the American Invents Act, a patent reform bill, passed in 2014 and introduced “Covered Business Method Review (CBM),” which means that if a company gets sued by a vague business method patent, they can initiate a review with the Patent Office to see if that patent should exist at all.
There are steps every business can take to protect themselves and the tech/innovation ecosystem as a whole.
Many of these business method patents re-examined by the Patent Office end up getting revoked, and, as a result, going after them is no longer as lucrative. This led trolls to go on a high-tech patent-buying binge, because these patents have a better chance of surviving review. Last year, PAEs scooped up more than 6,000 high-tech patents, most of which involved software.
The combination of increasing PAE litigation and high-tech patent targeting means every tech company is at risk and needs to take meaningful steps to protect their business. Here are three easy steps businesses can take to shut down patent trolls.
Step one: don’t sell
Step one is to not sell to patent trolls. More than 80 percent of patents litigated by PAEs are acquired from operating companies, and nearly 1,000 companies have transferred patents directly to PAEs in recent years. In the hands of trolls, these patents become weapons that they can use to wage an attack. Decreasing the number of patents that trolls can get their hands on weakens them by drying up their feed lines.
Companies relinquish patents to trolls for a number of reasons, but it usually boils down to money. Patent portfolios are extremely expensive to maintain, so when a company needs money, selling patents to a PAE can seem like a quick and easy way to boost cash flow and cut down on expenses. However, patents are not worth today what they were five years ago. There was a period of time when companies could get $500,000 to a million dollars per patent, but that was the high watermark, and the average selling price of a patent has dropped to around $40,000.
Selling a patent is essentially releasing a weapon into the wild.
The benefits of selling a patent no longer justify the cost, because there can be serious consequences. To start, offloading patents on the open market can damage a company’s reputation, as well as its relationships with customers, partners, vendors and suppliers who are now at greater risk of getting sued. Selling a patent is essentially releasing a weapon into the wild, and any money gained from the sale can quickly be lost in mistrust and ill-will. The smarter, more responsible and, ultimately, more lucrative approach is to find other monetization models, like licensing.
Step two: join a community
As mentioned above, patents are extremely expensive animals to keep, and a large corporation with a large stable of patents can spend tens of millions of dollars a year on maintenance fees and taxes. If a company needs to shed some patents, it is important to shed them in a responsible way by selling to legitimate companies, rather than putting them on the open market and/or selling to a troll.
There are a number of nonprofit community-based organizations out there that help keep patents away from trolls, including my own.
In the war against patent trolls, the many are stronger than the few. PAEs look for the highest return on the least amount of work, and they won’t waste their time going after companies that are part of an anti-troll community and thus backed by a proactive network of supporters. Moreover, PAEs will never be defeated if battles are fought individually, on a reactive case-by-case basis. Victory requires private sector businesses to cooperate and collaborate toward the common goal of vanquishing trolls.
Step three: fight
Patent trolls would not be able to do what they do if companies fought back, because their survival is predicated on settlements. Remember: 99 times out of a hundred, PAEs do not succeed at trial, in which case, they neither win money nor keep the patent. If trolls perceive a company as weak and vulnerable, and see that it does not or will not fight back, that company is more likely to become a target for lawsuits — a prime piece of prey.
Conversely, patent trolls will not want to waste their resources going head-to-head with a warrior. Take Lee Cheng at Newegg, a lawyer who has earned a fierce reputation for fighting patent assertion claims to the death in court, and who is willing to do just about anything to win. Trolls do not want to mess with him and his company.
When faced with a patent assertion, tech companies can shut trolls down instead of coughing up the money in a settlement by challenging the validity of a patent in a process called IPR. IPR can be expensive, but there are organizations out there to help. Unified partners large companies, SMEs and startups to proactively deter PAE activity by attacking the patents that trolls own through IPR.
Joining a community is also a way to gather assistance when fighting back, because they facilitate the sharing of expertise and resources when a member is faced with a suit. Fellow community members may have experts who have dealt with PAE assertions and can assist board members and senior management at other companies, informing them about the risks patent trolls present, as well as the means of managing them. Again, we see that private sector cooperation is a highly impactful way to reduce the threat of PAEs, and an essential part of a multi-pronged, offensive approach.
Simply put, patent trolls are hurting innovation. For far too long, PAEs have been allowed to run roughshod over legitimate businesses, which have had few options for recourse or defense. While legislation (and lobbying for it) is necessary for curbing PAE activity, companies can’t sit on their laurels and wait for Congressional bills to get passed. There are steps every business can take to protect themselves and the tech/innovation ecosystem as a whole. It’s time to break out those bolts of lightning.