Startups aren’t typically founded by lawyers, so patent law isn’t usually a front line issue for them. But I’ve come to realize that patent protection is at best No. 11 on the top 10 list of things for startups to focus on — something they generally understand is important, but not quite important enough. Part of that is because the headlines focus on big lawsuits lobbed at big companies, which creates a false sense of security. As an inventor and a computer scientist with 25-plus years of practical experience, I’d like to think I’ve navigated the murky, complicated world of patents and come out on the other side wiser and more informed. And, as such, there is something I want entrepreneurs, inventors and early-stage businesses to know. Yes, you are a potential target for patent trolls, and yes, there is something you can do about it. Today.
Here’s what everyone thinks they know.
It is generally understood patent trolls are typically “shell” companies that do no real business but simply pursue a business strategy of suing businesses over their patents. They typically sue for a large amount of money but settle for an amount they estimate will cost the victims less than a court fight. They do no good for anyone in the world but themselves, and they can be extremely costly (in time and money) to their victims. Too many people believe patent trolls are only after big names — big companies with big wallets. The smaller suits, the ones aimed at startups and mid-sized businesses, might not make headlines, but they do untold damage.
Startups are targets for trolls, and grow more so over time.
Startups are often targets for trolls, but many entrepreneurs are unaware of this reality. With so many things to think about — building a product, hiring a staff, fundraising, marketing, sales — protecting against patent trolls is not likely to be high on a founder’s list of priorities, but it should still be a consideration. A company gets hit with a suit and has to respond, but by then, it’s too late. The mere presence of the suit is itself a drain on limited resources, to the tune of several million dollars that startups can’t afford. This is why being proactive is essential.
A disproportionate number of patent trolls target smaller companies: More than 50 percent of businesses targeted by patent trolls make less than $10 million in revenue per year and 75 percent of the companies sued by trolls are privately held. And for good reason: To trolls, the whole point is to impose a costly and scary lawsuit, so that startups with limited resources to protect and defend themselves are more likely to settle than fight.
Don’t let your own patents be used by trolls someday.
I doubt that I’ve ever met an entrepreneur who liked the idea that his or her patents might someday fall into the hands of a troll. But they can and do. Simply to be good citizens, startups can and should take measures to ensure that their patents will never be useful to trolls. Patent-fighting networks can help protect others against abuse of your patents while protecting you against use of theirs.
Leverage a network — don’t go it alone.
Many startups view patent protection as something that is “critical but not urgent.” There is often a perception that addressing your patent strategy will be time and money intensive. But it doesn’t have to be.
The key here is to leverage networks. Through collective information sharing, experiences and rights that the networks build, startups can tap into rich resources to get themselves toward a higher state of preparation for relatively low cost. Through a patchwork of these networks — each offering their own layers of protection — startups can build strong protective communities.
Communities enable economies of scale and resource sharing, so that member companies can together garner maximum benefit with minimal (or even zero) cash outlay.
Who are these networks anyway?
LOT Network is a great example of a resource that gives startups a large distributed benefit while costing very little money and time. In fact, for companies making less than $5 million per year it is currently free. LOT essentially immunizes its members from patent troll litigation against using other members’ patents, which collectively number nearly 900,000, by granting each LOT member a license in case any of those patents fall into the hands of a patent assertion entity (PAE) a.k.a. a patent troll. This represents a significant percentage of all valid patents, particularly tech patents. With large companies that have hefty patent portfolios as members of the network, the protections for startups are beneficial and scalable.
Frankly, to me, joining LOT is a no-brainer for a startup. It costs little or even nothing (if you’re small enough), it gives you some protection if you do become a target, and it helps pre-empt future patent trolls by ensuring that your own patents never end up as troll fodder. It’s also likely to be good for morale on your technical team, where there’s likely to be a lot of concern about the way patents are used. It’s good for you, it’s good for the world and it’s free. With that in mind, there are also other organizations to consider joining.
Allied Security Trust does collective patent buying. Allied Security Trust tries to intercept patents that are likely to be asserted, and as a group, shares the cost of acquisition. This is more expensive for companies than an option like LOT, but still less expensive than being engaged in an active lawsuit.
Then there are organizations like Unified Patents that are geared toward companies that are already embroiled in active litigation, which challenge the validity of patents used in lawsuits and enable companies to share defensive costs. These are the most expensive, and focus on the risks at hand.
For most of my career, the patent system has been treated with frustration and despair by tech entrepreneurs. The belief that “there’s nothing we can do” has created a kind of fatalism that can lead directly to costly interactions with patent trolls. Today, however, there are options, and startups that want to protect themselves for the longer term, while also ensuring that their own patents will only be used for good rather than evil, should seriously consider LOT and the other organizations that have arisen to battle the trolls. The trolls don’t have to always win, and we can all play a part in fighting back against them.