The Surprising Secret To Fighting Off Patent Infringement Lawsuits

Most patent lawsuits are filed by 'trolls,' individuals or firms whose business is suing companies for the value of their intellectual property, not actually using the patents, copyrights or trademarks for productive ends.

Such firms are looking for a quick hit in order to minimize their legal costs. So the best policy, as the following article explains, is to not respond to such a suit (after doing appropriate research) as the plaintiffs are more likely to pursue those who do so, assuming that the response is a sign of owner uncertainty about the validity of their claim. JL

Colleen Chien reports in the Wall Street Journal:

The best way to deal with a patent demand may be to take a deep breath — and then do . . . nothing.
The prospect of a patent lawsuit can be terrifying for a startup. Entrepreneurs often imagine that legal action will empty company coffers, throw the business out of joint or scuttle a round of financing. Yet a different picture emerges if you actually talk to entrepreneurs who have been hit with patent demands. Over the past several years, I’ve surveyed and talked to hundreds of venture capitalists, entrepreneurs, legal experts and service providers.
Out of that research, a surprising finding emerges: More than a fifth of survey responders resolved the threat by “doing nothing.” This means, for example, looking at the claim, determining a license isn’t needed — and then filing the letter away, rather than responding.
Why does that work? Often, the entities that bring suits are doing fishing expeditions, asserting the same patent against many defendants so that they achieve economies of scale.
In the first half of this year, entities that don’t actually use the patents they hold brought the majority of patent cases, targeting companies that make less than $100 million half the time, according to RPX, a patent defense firm. So-called trolls looking for a quick settlement are unlikely to be aggressive about pursuing each and every claim.
The same logic holds for campaigns that target entire industries because they use someone else’s technology, often bought off the shelf. Forty percent of the companies I surveyed reported receiving a patent demand for their use of another’s technology, such as Wi-Fi.
So, anyone who receives a patent demand is unlikely to be alone. A company that keeps cool and does nothing is more likely to fly below the radar. In some cases, the company’s contract with its technology provider gives it the right to say, “This is your problem.”
There are other reasons for keeping cool. Research
suggests that the harms from patent demands often flow not from the fact of being sued, but from being in a drawn-out, expensive dispute. Stories of small companies winning in the courtroom, but spending so much time and money on a case that they damage their business, are unfortunately commonplace.
What’s more, sometimes small businesses feel pressed to act because they don’t want to look bad before investors. But any company that’s worth investing in will likely eventually appear on the radar of a patent troll — seasoned venture capitalists understand that fact.
Of course, there are some cases where doing nothing won’t work.
Sometimes a larger competitor, or “patent bully,” will go after a small company, trying to achieve a strategic outcome. Although motives vary, incumbents have been known to file lawsuits against startups to force merger or licensing agreements, disrupt the startup’s business or squash the competition. These attacks aren’t likely to go away if ignored.
Other times, patent holders aren’t looking for a quick settlement but seek high damages from a jury. In those cases, they will be more willing to pursue a claim. One approach is to plead poverty. There is evidence that patent trolls, like other patent holders seeking settlements, target firms with cash on hand. A company might want to share financial information confidentially to convince a troll it isn’t worth its time.
Another possible layer of protection: patent defense insurance. After struggling for years to come up with workable policies, insurers have launched several offerings in the past year or so. They may be worth considering before a financing, acquisition or other situation when contracts providing indemnities will be negotiated or scrutinized.