Intellectual Property Law

How to Battle a (Patent) Troll

By Harry Boadwee

This month’s California Lawyer magazine has a simple and clear explanation of the latest strategies by and against patent trolls.

In basic terms, “patent trolls” are entities that own patents but do not use them in their businesses, and instead make money by licensing them and bringing lawsuits against companies who will not buy a license.  They also are known as “non-practicing entities” (NPE’s).  Their business has been fueled by large damage awards in patent infringement cases, which led to the rise of brokers and auction houses for a resale market in patents.

The article lays out many of the latest strategies by and against NPE’s:

Offensive Strategies by NPE’s

• Suing dozens of defendant companies to complicate defense coordination and raise defense costs.
• Picking off “the weakest in the herd,” by settling first with smaller defendants who cannot afford to litigate.
• Filing claims not only in court, but also with the U.S International Trade Commission (ITC), which can issue injunctions against importing a product.
• Filing suits in “rocket docket” jurisdictions where cases proceed faster and damage awards are higher.

Defensive Strategies against NPE’s

• Suing for a declaratory judgment in the court jurisdiction of choice, rather than waiting for the NPE to sue and choose a “rocket docket” jurisdiction.  (A lawsuit for declaratory relief asks the court to make a decision declaring the rights and obligations of the parties under a statute or contract.  For example, a company may ask for a declaration that a patent is invalid or is not infringed, in order to eliminate the risk that patent damages accrue while the company continues to sell products that might be covered by the patent.)
• Requesting reexamination of the patent at the U.S. Patent & Trademark Office (PTO).  For example, if more evidence is made available, the PTO could invalidate the patent that it had issued.
• Refusing to settle, and taking the cases all the way through litigation — even to the U.S. Supreme Court.
• Subscribing to a defensive patent aggregator (DPA) service, a somewhat new model.  DPA’s buy a defensive portfolio of patents or patent licenses, then make them available to subscriber companies for a membership fee.  One such DPA is RPX Corporation, which is funded by VC’s Kleiner Perkins, Charles River Ventures, and Index Ventures, and which has spent over $115 million amassing its IP portfolio.  (I say “somewhat” new, because companies have for many years obtained defensive positions through cross-licensing of patents directly, through multi-party alliances or “patent pools” and through development of industry standards, which often include patent licenses on non-discriminatory terms).

Because the stakes are so high — millions of dollars and the fate of nascent and hugely profitable technologies — this battle of strategies will only continue.

Full post as published by AS-IS Blog on January 05, 2010 (boomark / email).