Taming the Patent Trolls: Tactics for Dealing With a Growing Epidemic
There has been a marked increase in "patent troll" activity in recent years. Dealing with patent trolls is an ever-increasing burden and business expense, particularly in technology-driven industries. Whether your business is a regular target for patent trolls, or has avoided a troll attack thus far, there are business practices and strategies that will give you a leg up in battling with trolls, and will help to avoid dealing with them as often in the first place.
What is a Patent Troll?
The term "patent troll" has no generally-accepted definition and some entities labeled as trolls are undeserving of the pejorative title. In its broadest sense, a patent troll is an entity that generates revenue exclusively from enforcing patent rights rather than developing products embodying the technology underlying its patents. For purposes of this article, however, this definition is too broad. It is possible to operate under this model in an ethical and justifiable manner, and many entities do. In fact, some patent trolls at least arguably provide benefits to society, such as creating a secondary market for patents, which makes patents a more liquid asset.
Unfortunately, not all patent trolls are so benign. The ugliest of the trolls, and the ones who are most deserving of the moniker, are those that not only fail to commercialize the technology (the reasons for which may be perfectly legitimate), but also attempt to enforce dubious to baseless infringement claims in the hopes of extracting (some might say extorting) a settlement. These patent trolls are the subject of this article.
So what can a company do to counter and help prevent the assaults of these "true" patent trolls? Here are a few of the basics:
I. Be Diligent and Proactive
A. Product Clearance
Before developing and commercializing a new product, or a new version of an existing product, always do a patent clearance search and have a patent attorney review the results to ensure that there are no patents that could be legitimately asserted against your new product. If you identify any patents of particular concern for one reason or another, obtain opinions of non-infringement, invalidity, and/or unenforceability to protect the company against charges of willful infringement. If it appears that a valid patent would likely be infringed by the new product, you should either design around the patent or move in another direction.
B. Be Aware of Known Trolls in Your Industry
Some trolls are notorious within a particular industry. It is wise to review regularly and carefully the patent portfolios of trolls within your industry and any closely-related industries. As you design products, you should also satisfy yourself that all patents held by a known patent troll could not be asserted in good faith against the products. Consideration should also be given to obtaining opinions on these patents.
II. Cooperate With Other Troll Targets
Patent trolls often assert their patents systematically against every significant player in an industry. Consequently, by the time a troll has targeted your company, that same troll may have targeted other companies—sometimes many other companies—using the same patents. To the extent they are willing to talk, such companies can be an invaluable source of information regarding the troll’s behavior, goals, tendencies, weaknesses, and characteristics.
III. Fight Back
Often a patent troll's bark is worse than its bite. Since patent trolls typically have no assets outside of their patents, and typically conduct no business outside of licensing and litigating patents, they are often less concerned than your ordinary plaintiff about the risks of litigation. This lack of concern is heightened by the fact that many patent trolls engage litigation counsel on a contingent-fee basis. There are, however, tactics that a company can employ to give the patent troll a downside to continuing its pursuit of an infringement claim.
Consider filing a request for reexamination of the asserted patent(s) with the United States Patent & Trademark Office. Reexamination proceedings are designed to provide a relatively low-cost alternative to litigation for invalidating patents. Patents are the lifeblood of a patent troll. Without patents, a patent troll typically has no means for generating income. Thus, if good prior art has been identified, the threat of reexamination may give the troll a reason to forgo filing an infringement action, or settle a pending action. Moreover, if a complaint is filed, an early grant of a request for reexamination can be a compelling reason for a court to stay the litigation during the reexamination proceedings.
If the infringement claims brought by a troll are completely baseless, file a motion for sanctions under Rule 11 of the Federal Rules of Civil Procedure. This rule is intended to deter claims that a party (or its attorney) has reason to know are frivolous. Patent trolls, and particularly those who routinely make infringement allegations that unduly stretch the scope of their patents, often bank on the high costs of patent litigation as a motivating factor for forcing early settlement offers. In fact, patent trolls have been known to structure settlement offers around anticipated litigation costs, rather than around the alleged infringer’s sales figures. Rule 11 can be a powerful tool to rein in frivolous claims.
C. Early Summary Judgment
If the infringement claims are not frivolous, but are nonetheless weak, consider filing an early summary judgment motion. Such motions may or may not, depending upon the jurisdiction, be well-received early in the case. However, if the rules and practices of the district court allow for an early summary judgment motion, such a motion can provide an early opportunity to rid yourself of the troll, often for substantially less money than what a license to the troll’s patent(s) would cost.
IV. Develop a Troll-Intolerant Reputation
As discussed above, patent trolls often structure settlement offers to appear favorable relative to the prospect of protracted litigation. However, even if such an offer is made for a relatively small amount, there may be hidden consequences associated with settling instead of fighting. Most notably, you may be foster or contribute to your company’s reputation for giving in to the demands of patent trolls. This can put a target on the company for other trolls. Patent trolls usually prefer to settle, especially if they have little confidence in the strength of their infringement allegations. As such, they will target companies with a reputation for settling, rather than fighting. Money spent fighting off one troll is therefore likely to be valuable as a "scarecrow" to future trolls. In short, being penny wise in the short term by settling with a patent troll may turn out to be pound foolish in the long run.
Grappling with patent trolls can be frustrating and expensive. However, there are effective tactics and strategies for minimizing the negative impact of patent trolls on your business, including strategies for handling trolls after they have attacked and for keeping future trolls at bay. Businesses that ignore the recent trends and simply hope they can rely on luck to avoid patent trolls are at substantial risk.
This article was originally published in The Enterprise, June 9-15, 2008