New Risk-Reward Paradigm for Technology Startups, Part I

Bringing new technology to market is risky business, especially for startups. Founders and investors’ reputations – and money – depend on a successful product launch. But these days, it’s not enough that startups simply design the next great thing. Long-term success often hinges on a company’s ability to successfully navigate the myriad of patented technologies in its field. In a recent opinion, the Federal Circuit shifted the risk-reward balance slightly in favor of technology startups, provided, however, they exercise due diligence before designing and launching new products.

Prior-Art Searching and Implications of Willful Infringement

When designing new technology products, startups are faced with two options: 1) blindly develop a product without regard to other patented inventions; or 2) search for inventions in the field, and, if they exist, determine whether defenses exist to potential claims of infringement or attempt to design around them to avoid infringement altogether.

A company that does not search for existing patents assumes an enormous risk that its product may be later found to infringe other, existing patents. Notwithstanding a judgment for infringement, the costs of simply defending a lawsuit for patent infringement are often high enough to shutter many startups.

But conducting a prior-art search before developing new products is no golden ticket. If a company identifies relevant patented technology, it can craft alternative methods for designing its product – if they exist – to avoid infringement. All to often, however, the results of a prior-art search impute knowledge of existing patents to the company. If a company elects to willfully proceed with launching a new product in the face of a known, relevant patent, it runs the risk that a court will award enhanced damages to a successful patent litigant. Enhanced damages can be up to three times the actual damages awarded for infringement.

On the other hand, if counsel advises a company that it has reasonable defenses to a potential suit arising from known patents – either that the company’s technology will not infringe or that the known patents are invalid – allegations of willfulness, and enhanced damages, may be avoided.

In Part 2, we'll see how the Federal Circuit may have strengthened the advice-of-counsel defense to patent infringement, reducing risk for technology startups.

Next Up: The New Standard for Assessing Willfulness

For more information, please visit our patent service page.

Klemchuk LLP is an Intellectual Property (IP), Technology, Internet, and Business law firm located in Dallas, TX.  The firm offers comprehensive legal services including litigation and enforcement of all forms of IP as well as registration and licensing of patents, trademarks, trade dress, and copyrights.  The firm also provides a wide range of technology, Internet, e-commerce, and business services including business planning, formation, and financing, mergers and acquisitions, business litigation, data privacy, and domain name dispute resolution.  Additional information about the IP law firm and its IP law attorneys may be found at www.klemchuk.com.

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