Imagine you run a startup. Things are going great and you’re about to hire new staff. But then a company you’ve never even heard of sues you for patent infringement. The case seems ridiculous. You don’t do anything close to what that patent claims. You figure it will be a minor inconvenience. But your patent lawyer (whom you’ve somehow already paid a small fortune) tells you that, even if you win, a lawsuit could easily cost more than $1 million in legal fees. You reluctantly agree to pay a settlement. Now, instead of hiring new people, you can barely afford to keep your business alive.
This story is happening over and over again. Patent trolls – companies that assert patents instead of creating products – are on a rampage. The past few years have seen a massive and sustained increase in litigation from trolls. And trolls specialize in picking on smaller companies. A recent study showed more than half of the firms sued by patent trolls have less than $10 million in annual revenue – with startups being a common target.
Take the story of FindTheBest, a startup that provides an online research hub. It got hit by a patent troll wielding a vague patent on “multilateral decision-making.” The case was absurd. The patent covered an abstract concept, not an invention. And FindTheBest didn’t even engage in the kind of “decision-making” the patent claimed. Yet the troll demanded $50,000.
Faced with the prospect of expensive litigation, most small businesses elect to pay the troll toll. But, with extra funds from its founder, FindTheBest fought back and convinced a judge to declare the silly patent invalid. Victory, right? Wrong. Even though it won the case quickly, FindTheBest spent more than $200,000 in legal fees. It would have been far cheaper to settle.
Dangerous dynamic
This is the dynamic that makes patent trolling so dangerous to small businesses: a crippling settlement on one hand, the threat of ruinous litigation expenses on the other. Trolls use the threat of expensive litigation to shake down company after company.
Many L.A. businesses have also been hit by patent trolls. Riot Games, a young Silicon Beach tech company, has already been sued by patent trolls three times. Even the entertainment business is not safe. A patent troll has targeted podcasters, suing comedian Adam Carolla and sending threatening letters to many more.
In an era of gridlock in Washington, the explosion in patent troll litigation has succeeded in uniting Democrats and Republicans. The Innovation Act – a package of reforms designed to make the troll business model less attractive – passed the House with an overwhelming bipartisan majority in December. The president has also called for action. Now it’s the Senate’s turn and many are eager to act
We need a combination of reforms that target abusive litigation. This should include requiring fair notice in court pleadings, meaningful fee-shifting provisions, and protection for customers dragged into patent litigation. Of course, no bill would be ideal without addressing the root cause of the problem: poor-quality patents.
With trolls targeting everything from offices using scanners to podcasters, the time is now for patent reform.
Daniel Nazer is a staff attorney and the Mark Cuban Chair to Eliminate Stupid Patents at the Electronic Frontier Foundation, a San Francisco non-profit that aims to defend civil liberties in the digital world.
