As I post this, it is St. Patrick’s Day, a day to celebrate all things Irish. As part of the celebration, I pass down to my daughters some of the Irish folklore I learned from my parents and grandparents, including stories about leprechauns, those mischief-making, shoe-mending sprites who hoard their pots of gold at the ends of rainbows. If captured, the leprechaun is obligated to grant his captor three wishes in exchange for his freedom. Because the mischief they create is generally harmless, leprechauns are for the most part considered fun-loving creatures.
Trolls are mythological creatures that frequently live under bridges and challenge those who wish to cross. In contrast to leprechauns, trolls are not fun-loving, but are threatening and usually harmful. A troll prefers to devour those who fail to meet its challenge rather than provide access to its bridge.
Unlike its mythological counterpart, the patent troll is an all-too-real creature that exists to hoard unused patents and spring them on unsuspecting businesses in an effort to produce windfall awards. Just as the leprechaun hoards its pot of gold, the patent troll hoards its portfolio of patents which it frequently acquires from bankrupt companies. For the most part, these patents are vaguely written and much more limited in scope than the patent troll claims. Unlike the leprechaun who makes and repairs shoes, the patent troll makes nothing. Rather, like its mythological counterpart who demands excessive compensation for crossing its bridge, the patent troll plans to make money by threatening or filing patent infringement lawsuits, demanding payment that far exceeds the actual value of the patent and its contribution to the prior art. Moreover, because the patent troll makes no products, it is immune from any cross action for patent infringement, a situation which eliminates a deterrent to bringing baseless patent infringement actions.
In practice, the patent troll identifies a technology sector and, rather than seeking out equipment manufacturers and systems integrators, instead targets end users of the technology, such as start-ups and other small businesses which do not have the resources to engage in patent litigation. The patent troll will offer the end user a paid-up license, the cost of which is usually based on the anticipated legal defense costs rather than any benefit that the end user obtained from using the troll’s patents. The patent troll strives to strike quick deals with the end users in order to build up a war chest to fund further litigation efforts. Because the damage model is premised on the cost of litigation and not on the actual benefit obtained from use of the patent, the patent troll is incentivized to bring actions against a large number of end users as opposed to a single action against the equipment vendor.
Although a small business cannot fully insulate itself from the threat of patent trolls, there are some steps which a small business can do to better protect itself:
- Small businesses should review the terms and conditions of existing vendor contracts to determine whether the vendor has agreed to provide an indemnity for patent infringement. Also, the small business should be sure to review the scope of the indemnity – oftentimes the indemnity will be limited to the use of the vendor’s equipment alone and not as part of an overall system.
- For future vendor contracts, the small business should attempt to negotiate broad patent indemnities.
- The small business should immediately place its vendors on notice when it receives a demand letter from a patent troll. Odds are that the patent troll has targeted other end users and the vendor may have already reviewed the patents and be able to intervene quickly to resolve the matter. The vendor may also be aware of groups that have organized to challenge the patent troll and can provide leads to the small business should it want to contribute to such a group.
Federal legislation has been proposed to address the targeting of small business end users by patent trolls. That legislation empowers the equipment vendor or system integrator to intervene in the matter and stays all litigation against end users until after the litigation involving the vendor has been completed. In this manner, the proposed legislation defeats the patent troll’s strategy of obtaining multiple awards from a large number of end users. The legislation has been stalled, but will likely be brought up again next year either as part of a larger patent bill or as a stand-alone measure. In the meantime, small businesses should avail themselves of the protections outlined above.