Large companies aren’t the only ones facing patent troll headaches.
Small businesses too are frequently targeted by lawsuits alleging patent infringement. Our Boston small business lawyers know that contrary to the moniker, these “trolls” aren’t some mythical ogre setting up camp under a rock. These are large, rich conglomerates of investors that exploit legal loopholes to file thousands of patent lawsuits each year. And they win many millions of dollars doing it. New England’s increasing reputation as a hub for tech companies and startups makes the issue particularly salient as we enter a period of economic recovery.
The New York Times recently profiled one such individual who earns $25 million annually, owns a 14,000-square-foot home that is now on the market for about $20 million and travels in a company jet when he’s not driving one of his 16 vehicles, six of those Lamborghinis.
This is not simply a minor nuisance. This is a sophisticated form of business, which is why all companies need to take precaution in ensuring they are insulated from such a threat.
The federal government has tried to step in on this issue, but so far to little effect. In 2011, federal lawmakers passed the America Invents Act, which made it illegal for companies to file a single patent lawsuit with numerous defendants. That means that a patent holder has to file individual lawsuits for each company against which it is alleging infringement.
However, that hasn’t done much to stop the patent trolls. Rather, it’s served to simply spawn more lawsuits.
Shell companies that exist for the sole purpose of filing patent suits are a particular problem within the technology industry, accounting for about 50 percent of all patent infringement suits in the last two years.
President Barack Obama recently addressed the issue by calling such claims frivolous, adding that he had issued an order to the Patent and Trademark Office requiring that companies be highly specific about what a patent covers when it’s first filed. However, some have said this could create more problems for legitimate patent holders.
States may be able to pass initiatives that could prove more effective. In Vermont, for example, lawmakers passed a measure banning claims of patent infringement that are made in bad faith. We hope other states, including Massachusetts, will eventually do the same.
In the meantime, small businesses need to take threats by these shell companies seriously. Typically, we find that many companies will take their first shot with “invitation” to the allegedly infringing company to “consider” payment of a license. Thoughtful response to this letter can help ward off many future legal headaches.
The language is sweetly deceptive, but ignoring the letter could be bad because if the case does later go to court, the plaintiff will be able to show that you were put on notice of the infringement, yet made no effort to respond.
Having your attorney carefully craft a response that asks specific, point-by-point questions about the patent and requests extensive documentation could be enough to put off the patent troll, who may move on to an easier target. A failure to respond on the part of the plaintiff could give rise to an effective estoppel defense later on.
However, if a patent troll persists, any involved company should insist on a non-disclosure agreement right from the start in order to continue communication.
This communication should be conducted only with thorough review by your attorney. In fact, it may be unwise to communicate directly with the individual. Simply refer all communications to your lawyer.