Patent trolls are becoming a more and more painful thorn in the side of business, and 2015 is shaping up to be the worst year on record for patent litigation initiated by patent trolls. In the first half of the year, 89.9 percent of all U.S. patent litigation was initiated by so-called non-practicing entities (NPEs) ,or parties that own patents but don’t manufacture or otherwise use the patented technology. Rather, the NPEs (a less pejorative label than patent troll) seek to generate revenue by enforcing their patent rights by licensing the technology or suing the alleged infringing party in court. If you’re company’s been sued by a patent troll, then a business litigation lawyer can help you fight the lawsuit and assert your rights.
Patent Troll Basics
Patent trolls — which have been around since the 1990s — go by several names. In addition to NPEs, they are sometimes called patent-holding companies or patent assertion entities. Regardless of the label, their methods are similar or identical.
An NPE may:
- Buy the assets of a bankrupt company and then file lawsuits against companies that are allegedly infringing upon the newly acquired patent, or attempt to negotiate a licensing agreement
- Exist solely to assert patent rights
- Sue alleged infringers despite having no intention of manufacturing the patented item or using the patented service
- Claim that an entire industry is infringing its patents
- Enforce patents despite having no manufacturing or research facilities
Countless companies have found themselves in the crosshairs of patent trolls, though the technology industry, not surprisingly, is often the target. The three companies that filed the most patent lawsuits in the first half of 2015 all work with the same Dallas-based law firm and primarily file lawsuits in the U.S. District Court for the Eastern District of Texas.
Patent lawsuits are a bigger problem in the United States compared to Europe, for example, because losers are not automatically required to pay the winner’s legal costs. Europe’s loser-pays system has kept patent trolling activity to a minimize on that continent.
Trying to Stem the Tide of Patent Troll Lawsuits
Legislators at both the federal and state levels are well aware of the havoc that patent trolls can wreck on companies, even those companies that successfully fight off the patent trolls. Patent litigation lawsuits are expensive — often costing more than $1 million before the case even goes to trial — and many companies choose to negotiate a settlement rather than incur the legal costs of a protracted court fight, even with the defendant stands a strong case of winning.
A Boston University study estimated that in 2011, patent trolls cost U.S. businesses about $29 billion. This total includes only direct costs, such as hiring business litigation lawyers and paying licensing fees. Companies also incur indirect costs, such as the loss of market share and the diversion of internal resources while the case was in progress.
Federal and state governments are doing their part to reduce the threats posed by non-practicing entities. The U.S. Federal Trade Commission has filed consumer protection lawsuits against companies making phony legal threats in connection with alleged patent infringement. Several states have also taken action against specific patent trolls and their law firms.
Protecting Your Business Against Patent Trolls
Companies have a few options — none of which are bulletproof — to reduce the likelihood of getting hit with patent infringement lawsuits. These include:
- Designing around the allegedly infringing patent, thus reducing the licensing fee a troll can demand.
- Carefully monitoring new patents and patent applications, or hiring a law firm to monitor on the company’s behalf.
- Performing thorough clearance searches before developing a new product or introducing it to the marketplace.
- Requesting a reexamination proceeding (in the United States) or initiating opposition proceedings in Europe if the company believes the patent should be invalidated.
- Purchasing patent infringement insurance.
- Taking a more aggressive approach to patents, including purchasing patent rights from other companies before the patents can fall into the hands of trolls.
Companies that are sued should consult with a business litigation lawyer, who can analyze the lawsuit and help determine both the cost to litigation while also investigating possible settlement opportunities. However, it’s important to remember that many traditional litigation strategies — such as countersuing for infringement or seeking an injunction forcing the plaintiff to shut down manufacturing — will not work with patent trolls. That’s because NPEs don’t create and sell items covered by the patents, so there’s no possible infringement and since they don’t manufacture anything, an injunction is useless.
Your business’s lawyer can also help you lobby regulators and work with state attorneys general. Many business-oriented trade groups are also working aggressively to thwart patent trolls.
If your company is being targeted by a patent troll, consult with the business litigation lawyers at Waltz, Palmer & Dawson, LLC, today. We can help you craft and execute a plan to keep the NPE at bay and protect your business’s intellectual assets.
Should you have any questions about a patent troll or would like to schedule a free initial consultation, please contact Waltz, Palmer & Dawson, LLC at (847)253-8800 or contact us online.
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