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How to Deal with Patent Trolls

How to Deal with Patent Trolls

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Enforcing patents is important from a business perspective, however not every person seeking to enforce a patent is doing so in good faith.

At some point or another all companies will have to deal with what I call a real “patent troll”. That is, not someone who enforces their rights in a manner that is intended by the system, but someone who goes ahead and says “Hey, I have a bunch of patents….you might be infringing them! You need to pay me $20,000 and then I won’t enforce them against you. Rather than pay $650,000 to figure out whether you’re infringing my patents or not….just pay $20,000 and I’ll go away and leave you alone.”

What does this mean? I equate this scenario to someone saying “Pay me some money and I won’t break your window.” In some ways, I equate patent trolls to the mafia.

So, we’re going to talk about what to do when you are contacted by a patent troll!

Patent trolls are not the people that send you a letter in the mail saying “You’re infringing my patent, here are the reasons why, your technology has these issues, we’ve done an analysis – here is the information.”

These people we take seriously. If this happens, you need to talk to your attorney and work out a plan of action.

When talking about actual patent trolls, I’m talking about those emails. For example, imagine your product has made the “Top 50 Best New Products List” (or another of those lists available on the internet).  When you make that list, you will probably receive around five emails from patent trolls saying that you’re infringing their shipping patents or ecommerce patents.  When you make any well known list or close a high profile deal, people know that you’re doing well – this is when the patents trolls inevitably show u and try to capitalize. And they almost always fall into those two groups (shipping patents or ecommerce patents).

So, what do we do about them?

For the most part, we ignore them. If that doesn’t work, we have a few options; be prepared, as unfortunately none of them are free.

To illustrate this point, let me explain via a case study. One day, Ron came to me. He made a high profile list, and the next week he had letters from a bunch of patent trolls.

Not really having any patent counsel or legal counsel, he went ahead and paid the first troll. He decided “Hey, this guy must know what he’s doing. I must be infringing his patent.” Well, the fact that he had paid the troll was then on public record – the next week, he received a whole bunch of new letters from fresh trolls. Eventually he came to see me and we sat down and talked. We had to come up with a strategy to deal with the patent trolls – otherwise he was going to go out of business as he was losing money every month paying off the trolls.

My first recommendation was to ignore the trolls unless they came back a second time. Generally, they are after easy money; they won’t come back a second time unless they really want the cash.

At one point, Ron did get a second letter. He brought the letter to me and said “Ok, I now have the second letter from a patent troll….what should I do?” This letter actually contained a list of 12 patents they “thought” he was infringing – 12 that were pertinent to the specific case.

From this point, there are a number of ways to handle it. I am a big fan of hiring an attorney. You pay the attorney around $10,000 depending on the scenario – less money than the patent troll is asking for to settle the case. If the troll is asking for $20,000, you will essentially pay half to the attorney and therefore end up better off than paying the troll to leave you alone.

There are many advantages to including an attorney:

  • You make sure the docket is sealed, so that nobody looks at it.
  • You get a license in a manner that means the patent troll won’t come back and bother you again.
  • They also won’t bother your clients again.

Why is this important? Well, if you’re in the service industry it means the troll won’t send a letter to your clients along the lines of “They (i.e. you) took a license to provide software as a service – you (your client) uses the software, therefore you are also infringing…so you need to pay me too!”

So, an attorney will protect your clients and they will protect you from any lawsuits from the same patent troll. It doesn’t matter if it’s a new patent or not, we get a license to cover all patents that you own and we seal it so no other troll is going to get wind of it and take it. That’s the leading benefit of involving an attorney!

Going back to Ron’s story, regarding the troll who came back with a second email – we got the docket sealed and we never heard from the troll again. We did have to pay, but it was only one – Ron’s been my client for four years and we have only had that one (out of many who sent emails) who came back and pushed the limit. This demonstrates that few persist beyond the initial email.

However, it’s important to remember that generally when you pay off a troll more emails will flood in. The trolls know when there is money to be had. While the number of trolls that come back with a second request is pretty low, those that do are the ones we take seriously.

Dealing with court summons

The second group of patent trolls we take seriously is those that serve a court summon. There has been a recent troll who has been pretty prolific in terms of serving court summons; they have been targeting people for violating shipping patents. Anyone using US Post Office or UPS is supposedly infringing their patents. The US Post Office and UPS have taken a license from the client. They may actually be infringing; they probably are. The trolls did take a license and paid a lot of money for it – now they believe that anyone using these two shipping options is infringing their patent.

Lawsuits can be a real headache for businesses. A client of mine named Dennis received a lawsuit – in Florida. This was not convenient as we are both located in Austin, Texas – making it very hard just to attend the case!

However, the demand was $20,000 – which, in the scheme of things, is quite low. This made me think it was a patent troll, rather than a legitimate case. I took a look at the summons for Dennis and came to the conclusion that there wasn’t much of a case – it had a lot of holes! We decided to settle it, and managed to do so for about half the initial request….we ended up paying about $8,000. Should Dennis have chosen to pursue it in court, it would have cost $10,000 in legal fees. So we saved him a few thousand dollars.

That being said, had we really wanted to push it and issued a response to the patent troll – which would have been the next step in the lawsuit – we probably would have got away with no license in this case, because the troll would have had to put out significant expense at that point.

So, the first step is they file a lawsuit; the second step is that we respond; and then it goes back to them. The response was going to cost more than $20,000 in total. My client decided to save the money, take out a license and make this troll go away.

If we had responded, we could have played chicken – this might have cost the client a similar amount of money, but also would have sent out a strong message to other trolls. However, this does require a lot of time and effort, and we decided in this case not to mess around – it just depends on the case and how you want to deal with it.

So what’s my advice?

The truth is patent trolls are a problem – and they will show up sooner or later.

In dealing with them, I recommend following these three steps:

  1. Don’t respond to the first email/letter – if a second letter shows up, speak to an attorney.
  2. If they send a letter regarding infringing particular assets which are outlined, see an attorney.
  3. If it’s a lawsuit, see an attorney and do it quickly as there are time limits.

I also advise clients to put away money – even just a few cents per product or a certain amount per month, as this will help to cover the cases that will show up as part of doing business.

Overall, I think non-practicing entities – i.e. patent trolls – can be a good thing for the US economy. However, dealing with them as a small business can be a hassle. If they demand money, whether you hire an attorney or not, it probably will cost something to make them go away – the good news is that dealing with them can be less expensive than you would think.

I encourage my clients to carefully consider who the troll actually is. If it’s a business or attorney you have never heard of, I’d take it less seriously. If it’s an operating company on the Fortune 500 list, take it seriously! So the entity makes a difference; a quick glance at Google should tell you whether or not the entity is a big-name company worth worrying about.

I believe it’s beneficial to sit down with an attorney before any issues occur. Discuss how best to handle patent trolls, and devise a level at which you seek professional help to deal with these opportunists!