Patent trolls are lurking. How will you protect your business? Featured

8:25pm EDT June 30, 2013
Christian Drago, patent attorney, Fay Sharpe LLP Christian Drago, patent attorney, Fay Sharpe LLP

Patent trolls can be huge, single-minded licensing companies. These nonpracticing entities purchase patents from small inventors who don’t have the desire or funding to create what they’ve patented and threaten potential infringers to get money through licensing fees or lawsuits. Business owners of small and midsize companies can be caught off guard when they receive the letter claiming their product infringes an existing patent, and often don’t know what to do.

“Fighting the alleged infringement usually costs more than the licensing fee the troll is seeking,” says Christian Drago, a patent attorney at Fay Sharpe LLP.

This can make a business owner feel trapped. However, he says patent trolls often cast a wide net, sending letters to companies that may not be infringing. That’s why it’s important to know how to respond.

Smart Business spoke with Drago about how to deal with patent trolls.

Who is most at risk of being the victim of a patent troll?

Generally, infringement claims are a lot more successful when made against small to midsize businesses because they don’t have the capital to fight an infringement suit, so they often opt to pay the license fee.

A patent troll is not going to pick a company out of the clear, blue sky. It will buy a company’s products and reverse engineer them, or scrutinize its marketing collateral for product descriptions. It’s important for companies with patents to be careful what they post on their website. Market your company, but don’t give too much away because you could be giving ammunition to a troll.

If you receive a letter from a nonpracticing entity, what do you do?

First, don’t panic. The entity is soliciting a licensing fee and its track record in litigation is not great. Contact a patent attorney and have him or her review the claim and your product to find out if you’re actually infringing. Don’t use your in-house or general practice attorney; courts want outside independent review.

If it’s discovered that you’re not infringing, get a non-infringement opinion by outside counsel. That can be used to offset damages and show you acted in good faith by procuring the assistance of an attorney.

The attorney will compose a letter that says your company had outside counsel review the claim and determined you are not infringing. Now the troll has to do its cost/benefit analysis and decide whether it wants to pursue this any further. The troll may just move on.

However, if willful infringement is discovered, meaning you continue to infringe after you’re made aware of the infringement, the penalty can be upped by a judge. That’s why it’s important to show you acted on the well-reasoned opinion of counsel as soon as possible.

How can you protect yourself?

If you’re going to file for a patent, you want to file as soon as is practical. Bring an attorney onboard while the product is in development, not when you join the market. Have a patent attorney conduct a patentability search and get a freedom to operate opinion. This gives you the best idea of what patents are out there.

If the attorney finds similar, existing patents, he or she can show them to your engineers, and the engineers can innovate around current designs. This could give you a competitive edge and allow you to go after competitors when they infringe on you. The process also focuses the company on what it’s doing in the market.

If you have to backpedal because you failed to do your due diligence, your R&D costs could double because of scrapping a project and going back to the drawing board.

However, keep in mind patent searches aren’t exhaustive because, at the time of the search, there may be applications that are being reviewed but have not published. Patents issue from three to five years after they’re filed and they’re published 18 months after filing. That leaves a gap.

That’s why, it’s important to take these letters seriously and get counsel involved right away. You need to quickly determine the best course of action based on the facts, not the claims.

Christian Drago is a patent attorney at Fay Sharpe LLP. Reach him at (216) 363-9000 or cdrago@faysharpe.com.

Insights Legal Affairs is brought to you by Fay Sharpe LLP