What SMEs Can Do When Patent Trolls Come Calling

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.

“While patent troll demand letters are a big economic problem for small businesses, they are an even greater political problem for our industry and for the patent system as a whole.”

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.

This is serious stuff—especially for an economic sector that produces most of this nation’s net job growth. Therefore, it’s time for responsible members of our industry to step up and help deal with the scourge of patent troll demand letters.

FIGHTING BACK
Stand Up to the Demand is a campaign designed to help small businesses identify and respond to these demand letters. The first phase of our campaign features a website with an infographic quiz that helps business owners distinguish a patent troll demand letter from a legitimate notice letter.

“We believe that a responsible licensor should not seek licenses or threaten litigation against a small business such as a start-up company, a local retailer or end-user customer.”

For example, have you received a demand letter addressed to no one in particular— perhaps “To Whom It May Concern” or “Dear Business Owner?” That’s a pretty good indicator that a patent troll has targeted you and hundreds of other businesses of a similar size or industry classification for a form letter shakedown.

Legitimate notice letters are always addressed to a specific person in a specific company. And ethically, we believe that a responsible licensor should not seek licenses or threaten litigation against a small business such as a start-up company, a local retailer or end-user customer.

Was the letter sent by some company you have never heard of, and does it fail to identify the true owner of the patent? That’s another clue that you’re the target of a bad demand letter.

Does the letter lack actual evidence that your particular business, or its products and services, are infringing one of the troll’s patents? Vague accusations of infringement that have no clear connection to your business are the hallmark of bogus demand letters.

Does the sender of the demand letter strongly imply or threaten legal action? That’s another clue you are dealing with a patent troll, not a legitimate patent owner. Proper notice letters invite negotiation. Only someone trying to intimidate you would threaten litigation.

“Only when our industry acts to curb abuses in its own backyard can we begin to restore public trust in our patent system as a national engine of economic progress and competitiveness.”

Does the sender of the demand letter give you an unreasonable time frame in which to respond? Legitimate notice letters should provide ample time for you to investigate the allegations of patent infringement and reach your own conclusions.

How about a demand for money? That’s the biggest red flag. Legitimate notice letters ask for a conversation, not a check. They invite you to discuss the evidence of infringement—which should be clearly documented—and give you a chance to respond.

We believe that only when our industry acts to curb abuses in its own backyard can we begin to restore public trust in our patent system as a national engine of economic progress and competitiveness.

Former USPTO director David Kappos once described the patent system as America’s 401(k) plan. As a vital guarantor of our nation’s economic future, the patent system certainly warrants that description. Let’s not forfeit that future by allowing patent trolls to corrupt it today.

 

Scott Burt :Scott Burt is the senior vice president and chief intellectual property officer at Conversant Intellectual Property Management, Inc.