Patent “Trolls”—the often unexpected drain on start-ups and small businesses

The commonly used (and somewhat pejorative) term “patent troll” refers to non-practicing entities whose business model involves acquiring patents to enforce. In other words, they don’t make anything, but may still own patent rights giving them an avenue to threaten or actually file lawsuits in order to make money off of licensing fees or (more rarely) a patent infringement judgment. Whatever term one chooses to use—whether “patent trolls” or “non-practicing entities”—there is no question that they are responsible for an increasing portion of patent lawsuits, and thus legal fees for defendant companies. In fact, while patent trolls were responsible for only 23% of patent lawsuits in 2007, they are now responsible for 61% in 2012. These non-practicing entities (to choose the less biased term) often target small and midsize companies, start-ups, and the like. While this may see counterintuitive because we always hear about the litigation involving mega companies like Apple or eBay, it really is not. Dealing with a non-practicing entity is expensive, but defending the litigation and staying in the court system costs much more than settling and taking a license. So, a smaller or newer company may not be able to afford to fight back in court like a large company that is used to dealing with litigation, has in-house attorneys, and wants to “take a stand.” It is also interesting that of all the suits brought by trolls, 55% of defendants have annual revenue of less than $10 million and that 20% of start-ups that have raised $20 million to $50 million have been sued for patent infringement. The impact on a smaller company can be huge, and 40% of small companies targeted for patent litigation said it caused “significant operational impact.”

That said, there are ways a smaller company can handle this issue through proper IP due diligence in the start-up phase and then later fighting the often vague patent held by the troll by challenging its validity.

Source: http://www.inc.com/lindsay-blakely/cost-patent-trolls-startups.html?nav=featured

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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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