Typically, these letters demand so-called ‘licensing fees’ range from $1,000 to $50,000 or more to avoid a patent infringement lawsuit that could cost these businesses far more to defend against in court—even if the business owner is innocent of any infringement.
What exactly are patent trolls? They are people who knowingly use questionable patents to extort licensing fees from businesses who can’t afford or wish to avoid the much higher costs of defending themselves in court.
But amid the clamor from the business community and elected officials to rein in patent trolls, one group has remained largely silent: the patent licensing industry itself. Unlike responsible players in other industries where abuses have occurred over the years, the leaders of America’s two centuries-old patent licensing industry have not exactly been strong advocates of reform in their own backyard.
This is unfortunate, because while patent troll demand letters are a big economic problem for small businesses, costing them millions of dollars in settlement fees and legal costs annually, they are an even greater political problem for our industry and for the patent system as a whole. Simply put, they are wrecking public confidence in the patent system—and by extension, undermining our nation’s bedrock belief in the great economic benefits that system produces.
Yet, many in our industry keep fiddling while innovation’s Rome burns. That’s too bad, because although reliable data on the extent of the demand letter problem and its economic impact are hard to come by, there is mounting anecdotal evidence that the deluge of demand letters is harming one of the nation’s most critical job creation and innovation sectors. I am referring, of course, to, small businesses and startup companies.
The reported impact usually takes the form of hiring delays, reduced R&D spending, or a negative change in product or business strategy. One study reported that 70 percent of 200 venture capitalists surveyed had invested in startup companies that later received extortionist demand letters.