By Mallun Yen, Executive Vice President, RPX Corporation
I’ve wrestled with patent trolls since the early 2000s when I ran global intellectual property at Cisco. At the time, many of my peers and I recognized that the problem of patent assertion was real and only going to grow more serious. We also believed that industry and government could readily find a solution to deal with this problem.
Turns out we were right. And wrong. But we’ve learned a lot along the way that puts us in the best position we’ve ever been in to fight back.
To start with, patent trolls (more politely known as non-practicing entities, or NPEs) haven’t gone away. Quite the contrary. In the early 2000s, only a few hundred companies faced a new patent infringement lawsuit in a US district court from an NPE each year. By 2008, that number had grown tenfold. Since then, companies have been sued by NPEs between 2,500 and 4,700 times per year. And the collective cost to corporations of defending and settling those thousands of lawsuits is several billions of dollars each year.
And they are tenacious. In 2016 alone, trolls targeted nearly 3,000 defendants—many of them with SaaS models. In fact, affiliates of the most prolific patent troll of 2016 (called IP Edge) have taken particular interest in SaaS defendants, targeting providers of CRM software, contact management software, and cloud storage and file sharing solutions, to name a few.
It’s also worth noting that as trolls have targeted new companies and new tech sectors, they have also expanded their activities to attack small or medium sized firms. Today, more than 65% of companies targeted have less than $100 million in revenue. One-in-ten companies backed by top-tier venture firms are sued by NPEs within five years of funding. For these companies, patent troll attacks can be both a massive waste of time and human capital and a devastating way to spend the precious dollars just raised from your last round. Even “nuisance” patent infringement litigation can cost millions.
Where we were wrong was in believing the problem could be largely corrected through government engagement. While there has been both new legislation and evolving judicial guidance to limit the impact of infringement assertions, regulatory relief has not been a panacea.
Furthermore, the problem of patent risk isn’t as simple as patent trolls = bad guys. It turns out that patent monetization is complex and nuanced. Patents are legitimate corporate assets with value. Operating companies hold the majority of these assets, and more and more of them are seeking to extract value from them. Approximately 70% of all patents asserted by NPEs originated from operating companies, and there has been an uptick in company-generated patent monetization, especially in the form of privateering—companies using third parties (read “patent trolls”) to assert patents. This is still a relatively limited phenomenon, but a worrisome one.
So, 15 years ago my IP peers and I mistakenly believed that patent litigation could be largely legislated out of existence. But we were right to understand that industry also had a role to play, and that is where we have made the most progress limiting patent risk.
We recognized that patent monetization is not simply just a legal problem. It’s a business problem with significant costs (both in dollars and precious founder and engineering time away from the business), and a key part of driving change is utilizing market mechanisms. When I was at Cisco, one approach we tried was aggregating capital from multiple at-risk companies to buy problematic patents before the trolls could. I became such a believer in this approach I helped launch RPX.
Today I am doubly convinced that this kind of market-based approach must be the foundation of any lasting solution. It informs what I consider the three pillars of mitigating patent risk.
- Arm Yourself with Data – in litigation you have to know your enemy, and there are now a number of free tools that make it easier to research the patent and patent troll attacking you.
- Don’t Fight Alone – in the fight against trolls, the enemy of my enemy is my friend, and joining forces can reduce your future exposure to patent litigation risk and its costs.
- Insure Yourself – today there is finally enough accurate actuarial data to underwrite and price patent insurance effectively, and companies have real and affordable options to transfer patent risk.
In upcoming posts we’ll explore these three concepts in more depth and discuss how all companies, large and small, can benefit.
Mallun Yen is Executive Vice President of RPX Corporation, which provides patent risk management solutions to more than 330 companies. RPX (Nasdaq: RPXC) has saved its clients more than $3.4 billion to date in avoided legal and settlement costs through defensive patent acquisition, liability insurance, and market intelligence and strategic advisory services. To start protecting your company against patent risk, click here.