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4 Ways to Protect Yourself Against Patent Trolls

Apr 20, 2017

Sounding equal parts mysterious and ominous, patent trolls—also called patent holding companies or PHCs—are increasingly making their presence known. A watershed moment occurred in 2006 when Research in Motion agreed to pay patent holding company NTP, Inc. $612.5 million to prevent an interruption in BlackBerry service. A patent troll—a person or entity—obtains patents that are sold at auctions by distressed companies attempting to liquidate their assets or by companies that want to monetize unused patents and/or patents that don’t have any value to the companies. The patents are usually of poor quality and the trolls exploit the legal system to make a quick buck. Trolls never intend to exploit the patents themselves for innovation, to make products or to legitimately license them to third parties. Instead, they identify companies that use technology that may be infringing on the acquired patents, and file lawsuits against so-called infringing companies in hopes of inducing a quick monetary settlement. Patent trolls generally target smaller companies and start-ups en masse. These vulnerable companies are more likely to settle than defend the infringement claims in costly litigation.   In addition to cash settlements, trolls may require a license from the “infringing companies” for their continued use of the patented technology resulting in additional royalty payments to the trolls over the remaining life of the patent.

According to Unified Patents, 67% of all patents lawsuits filed in 2015 were by patent trolls; a 61% increase from 2014. And 88% of high-tech patent cases in 2015 involved patent trolls, up from 78% in 2014. Europe is experiencing a similar trend.  IP2Innovate notes that 20% of all patent lawsuits filed in Germany stem from trolls, and 80% of all troll lawsuits outside of the U.S. are filed in France and Germany.  The U.S. Government is trying to stop this trend by drafting the Innovation Act.  This legislation would create additional requirements as part of the legal process associated with patent infringement suits. Plaintiffs filing lawsuit would need to be more specific about the alleged violation, making it harder for them to file a vague claim of infringement.  While President Obama supported the legislation, urging Congress to “pass a patent reform bill that allows our businesses to stay focused on innovation, not costly and needless litigation,” the bill currently rests with the House Judiciary Committee, and its future is uncertain under the Trump Administration. So what can you do to prevent a patent troll from stifling your innovation, draining your bank account and generally making your life miserable?

  1. Do Your Homework – Before you expend significant resources on an invention, monitor and research to see if a related patent exists. Visit the U.S. Patent and Trademark Office.
  2. Use Legal Counsel – Don’t fight the patent troll alone. Consult with an attorney who specializes in patent law.
  3. Consider Insurance – Intellectual property insurance can cover litigation defense costs, settlements and judgments.
  4. Join a Network – The License on Transfer Network is a not-for-profit association open to companies of any size. Members pool their patents, which are then licensed to every other company in the network, thereby creating a defensive positon. Member companies include Google, Ford, Pandora and more than 50 others.

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