by Mallun Yen, Board Member, RPX Corporation

“Dear CEO: we have determined that your product is infringing our patents and wish to resolve this matter on reasonable and amicable terms without the need for litigation.”

Few legal matters are as troubling or distracting to hard-working founders than receiving a patent assertion letter. The good news is—you no longer have to face this problem alone.

The Risk

In my previous posts on the phenomenon of patent risk, we looked at the scale of the problem—last year, patent owners filed more than 4,500 infringement cases. More than 23,000 companies have been sued at least once since 2010. More than 70% percent of companies sued each year are smaller companies with less than $100M in annual revenue. It costs companies multiple billions of dollars every year to litigate and resolve these cases.

We started by exploring ways companies can best defend themselves – with the first step being to learn as much as possible about the entity that is demanding the license. While this step may seem obvious, it’s easier said than done given the intentional cloak of secrecy within which most patent licensing is done. This is especially true when the asserter is a patent assertion entity (also referred to as a “patent troll” or non-practicing entity) that doesn’t make or sell products of its own, and thus are not susceptible to patent infringement counterclaims.

Step Two: Work Together

Today let’s look at the second step in fighting back against attacks from patent assertion entities: work together by combining both resources and intelligence. Collaborating with other at-risk companies can go a long way toward leveling the uneven playing field when facing a patent attack.

And make no mistake; there are always other at-risk companies. It’s extremely rare for a patent assertion entity to go after only one company—it just isn’t cost efficient for them to do so and the payday isn’t large enough to justify the effort. (And it is always about money, and never about competition issues.) The norm is for a patent aggressor to identify multiple—often dozens or even hundreds—of companies that are allegedly using technologies covered by the patent. They then monetize the patents in licensing campaigns that can roll out over several years of ongoing litigation.

For asserters, this makes complete sense. They only need to develop one basic legal argument and then use it over and over again against different defendants, each of whom must replicate (and pay for) its own legal team and strategy for fighting the infringement claim. It’s highly efficient for licensors, but incredibly inefficient for defendants. 

Hence the logic of collaboration. Rather than have multiple companies each recreate the legal wheel to defend against litigation, why not have them join forces and fight as one, sharing resources, information, and legal counsel?

Even though it makes economic sense and I’ve advocated for this approach for years, there are admittedly limits to how much companies can share resources, information and lawyers. Companies named in the same patent infringement complaint are often competitors, and arguments relating to patent claim interpretation can vary depending on how each company implements the accused technology—one interpretation of patent claim language can exonerate one company and implicate another. Furthermore, regardless of the extent of sharing, one thing always holds true—litigation in any way, shape or form is expensive and time-consuming.

Collaborate by Combining Resources

More attractive is the idea of collaborating to preempt and avoid the litigation altogether—heading off the problem before it starts.

This is the model on which we founded RPX Corporation nearly a decade ago. Our network of 320+ companies, which range from the largest technology companies in the world to early stage startups, aggregates capital through and relies on a trusted, independent third party—RPX—to deploy that capital to preemptively buy patent rights before a patent asserter can. We also proactively file actions to invalidate patents of questionable validity before the United States Patent and Trademark office.

This kind of collaboration has two main benefits. First, it shares the cost of  derisking or invalidating the patent across a large group of participants. Second, if acquiring a patent or a license is appropriate, it can largely eliminate the very high transaction costs—the attorneys’ fees and other costs of an infringement litigation—of doing so.  And if a patent does end up in litigation, those same principles apply to reduce the cost and impact of litigation.

In either case, these cost-savings are reflected in the fair value paid for the patent versus what would be spent in litigation, which are significant and add up over time. Through preemptive licensing and acquisition of dangerous patents over the past nine years, RPX members, for example, have cumulatively avoided thousands of litigations, had nearly 1,400 cases dismissed, and saved more than $3.5 billion in avoided legal and settlement costs.

Collaborate by Sharing Intelligence

Collaboration also involves sharing of information.  And this, too, can be a powerful advantage for defendants looking to preempt problems before they start.

For example, two of our clients—an e-tailer and an online marketing company—received assertion letters almost simultaneously from a patent troll threatening multi-million dollar litigation. Both clients alerted us. Immediately we began doing diligence on both the patent troll and the patent: our dedicated team of patent experts, many of whom are longstanding technologists, did technical and validity analyses on the patent, and quickly determined the claims of infringement were weak. At the same time, tapping into the intelligence of our large member network, we quickly ascertained the patent troll was casting a very wide net, threatening a large number of e-commerce companies and hoping for quick settlements from as many as possible.

By sharing their information with RPX, our clients not only added to the intelligence of the overall network, but both also benefitted from our ability to unearth salient details from our experts and other companies about the patent attack. Collaborating and sharing resources allowed both companies to adopt no-engagement strategies (i.e., do not respond), saving each many tens of thousands of dollars typically spent on outside counsel to investigate and engage with the plaintiff.

Clearly, collaboration works. It is the best way to turn the tables on patent trolls and other asserters trying to keep defendants in the dark and isolated until they can achieve a payout. Collaboration, especially on the scale of the RPX network, is ideal for any company facing a patent attack. But what else can be done, especially for smaller companies?

Well, that will be the topic of my next and final post for this series on arming yourself against predatory patent infringement litigations.

Mallun Yen is a Board Member of RPX Corporation (Nasdaq: RPXC), a company that she helped launch in 2008 and then take public in 2011. RPX provides patent risk management solutions to more than 300 companies, saving its clients more than $3.5 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.

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