In June the White House released a report on the recent increase in number of patent assertion entities (PAEs), commonly known as patent trolls. PAEs obtain patents for the purpose of extracting royalties from other businesses, sometimes threatening to sue thousands of small companies at once. Suits filed by patent trolls have tripled in the past two years; their victims paid $29 billion in 2011, a 400 percent increase from 2005.
While the government is cracking down on abusive patent litigation, Jonathan Ezor, the director of the Institute for Business, Law and Technology in Central Islip, N. Y., doesn’t envision the problem going away entirely. “My overall advice includes a full awareness of patent-related risks and the tools to manage them,” he says.
Who’s at Risk
Because patent claims are written so broadly, Ezor says, it’s easy to become a target by unknowingly using patented software or machinery. However, recent PAE suits have been concentrated in IT, so the average corner bakery is probably safe. But you might want to talk to your lawyer before advertising your new baking method. “Once you’ve done something that may be new and you’re telling the world about it, that does expose you [to potential litigation],” says Ezor.
Two measures can provide extra protection for highly inventive companies:
1. Patent Portfolios: Companies in industries like electronics and biochemicals that are driven by patentable inventions—and whose competitors are building patent portfolios—should consider whether their own inventions are patentable and, if they are, obtaining patents for them, says Ezor.
Owning multiple patents could ward off trolls, who might see your patent portfolio as a reflection of your ability to countersue. “The more patents a business has,” says Ezor, “the more likely it might find one the troll [is] infringing.”
2. Insurance: The White House study estimated the median cost of litigation was $650,000 for smaller cases. Patent insurance is prohibitively expensive for many small businesses, but high-risk companies may want to research their patent insurance options.
Should you receive a threatening letter from a PAE, don’t assume you can’t fight back. Before calling your lawyer, contact a trade association in your industry to determine whether other companies have received similar letters. The Business Technology Association, for example, advises members to ignore certain letters, and bigger companies than yours may have successfully fought the same claim.