Patent trolls prey on small businesses by threatening lawsuits over tenuous patent or copyright claims. How can SMBs protect themselves?
Is your business vulnerable to patent troll claims built on tenuous connections to obscure patent rights over commonly used practices and technologies? And what can you do to protect your business against an unwarranted “troll fee?”
In Scandinavian mythology, a troll (Norse for “demon”) is a dim-witted, supernatural being whose quarrelsome nature is devoted to harassing travelers. You might remember the fairy tale of the troll that demands money or answers to riddles to allow passage across a bridge.
Trolling on the Internet refers to disrupting message boards and chats with no other purpose than to cause trouble and aggravation. In the evolution of this particular genus of irksome behavior, patent trolls are individuals or companies that don’t make anything, but hold broad patent rights (which they often didn’t develop, but purchased from bankrupt companies) in order to file infringement suits against companies with the actual products or services with which the patents have a connection.
In fact, the connection is so vague it can be applied to literally thousands of businesses.
Image via Inc
Related Article: Richard Branson on Why Patents Kill Innovation
Perhaps one of the most notorious cases is the “virtual shopping cart” patent suit filed by Soverain. By asserting rights to common technologies used to build a website’s online checkout capability, an underpinning feature of all e-commerce, Soverain aimed to extract protection money from retailers such as Macy’s, Home Depot and Victoria’s Secret.
Many companies decided it was better to settle than fight, notably industry giant Amazon, which ponied up $40 million in 2005. The one exception was Newegg, an online retailer of computer software and hardware, which has consistently refused to to cave to patent troll threats. In 2007, an appeals court reversed a $2.5 million judgment for indirect infringement against Newegg.
Newegg Versus Patent Trolls
Although this judgment was considerably less than the $34 million Soverain had originally sought, Ars Technica reports that Newegg’s Chief Legal Officer Lee Cheng responded: “We saw that if we paid off this patent holder, we’d have to pay off every patent holder…This is the first case we took all the way to trial. And now, nobody has to pay Soverain jack squat for these patents…We have always been willing to sacrifice tactical gain for strategic success.”
Of course, whether you decide to fight or settle, you need deep pockets to defend yourself against patent trolls. In a profile of the patent troll “industry,” This American Life notes that bankrupt Nortel’s 6,000 patents sold for $4.5 billion to a consortium of leading tech companies that included Apple and Microsoft, solely for the purpose of defending themselves against possible patent troll claims. As correspondent Alex Blumberg notes:
“[That money] won’t build anything, won’t build new products to the shelves, won’t hire people who need new jobs [but] adds to the price of every product these companies sell…essentially wasted buying arms for an ongoing patent war. The big companies—Google, Apple, Microsoft—will probably survive this war. The likely casualties, the companies out there that no one’s ever heard of that could one day take their place.”
Meaning a company like yours.
As Dennis Kralik points out in a blog post for Newegg, ”Patent trolls are bad for any business out there. They often prey on smaller companies…It’s a sad situation as many of these small business end up in million dollar lawsuits that force them to close before they can even make it in today’s economy.”
Given considerably smaller legal and financial resources, what can a small business do to protect itself against a potentially debilitating patent suit?
Related Article: How to Defend Your Business Against Patent Trolls
Be Proactive Against Patent Trolls
While we’ve recommended tactics to follow in case you are trolled, the best defense may be a good offense. Avoid getting sued in the first place, advises law firm, Blank Rome.
- Perform an FTO (Freedom to Operate) search that compares your product or process to other patents. (Unfortunately, an FTO cannot search back before 2000. Moreover, just because you’ve performed an FTO search doesn’t mean someone still can’t try to sue you. And an FTO can be expensive, though perhaps less expensive than getting sued.)
- Modify your product or process to avoid infringement if an FTO turns up a possible claim. Or, if you find a similar patent, consider buying the rights to the patent so you can continue to develop the product or process.
- Look into getting insurance for patent infringement.
Unfortunately, taking proactive measures doesn’t protect you from patent trolls. But it’s a good first step and, if you do have to go through the legal process, at least provides evidence that you operated in good faith to avoid infringement.
Should that happen, take some solace that you probably won’t be alone, as trolls tend to go after multiple defendants. In which case, just hope that Newegg, or some other large company that prefers to fight these nuisance suits rather than settle, is named along with your company, and follow its lead.