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 firstname.lastname@example.org.
Insights Legal Affairs is brought to you by Fay Sharpe LLP
The first and most important thing a company can do to protect its intellectual property (IP) is to identify it.
“A business cannot protect its IP assets if it is unaware of the existence and significance of those assets,” says Robert G. Schuler, director and chair of the Intellectual Property area at Kegler, Brown, Hill & Ritter. “An IP audit is one way a business can identify its IP assets and ensure that proper steps have been taken to protect those assets.”
Schuler also says it’s important to educate your work force on the basics of intellectual property. “It does a business little good if the only ones who are aware of the company’s IP assets are those in upper management. More importantly, an educated work force is less likely to infringe another company’s IP, putting their own company at risk.”
Smart Business asked Schuler for tips on protecting intellectual property.
Why do businesses struggle with identifying their intellectual property?
Companies struggle for two primary reasons. First, when talking about intellectual property, you’re talking about intangible and quite often very abstract rights. It’s one thing to know how many widgets you have. It’s quite another thing to know how many copyrights or trademarks you may be using in the business, because that requires an understanding of what is subject to copyright or trademark protection.
Second, quite often the decision makers at a company are not on the front lines; they’re not actually in the room when various inventions are conceived or when marketing campaigns are developed. They may not be aware of the key IP that is being developed. This disconnect between employees and decision makers can result in a failure to take the proper steps to protect intellectual property and, accordingly, a loss in value to the business.
What areas are commonly overlooked?
It really depends on the business. If your company is heavily focused on technology research and development, you are more likely to be focused on patent or trade secret protection and may not be as focused on issues relating to trademark and branding. Conversely, if your company concentrates on marketing, you may be focused on trademarks and may overlook the value of other key IP assets, such as your trade secrets and know-how.
If I were to pick one category that is most often overlooked, or undervalued, it would be the business’s trade secrets, which comprise the truly confidential information and know-how that gives a business its competitive advantage. The law requires that you take reasonable steps to keep the information secret, and, if there is ever a dispute, the court will scrutinize the steps you took. So someone within the organization needs to be aware of the business’s trade secrets and ensure that appropriate measures are in place, which includes the use of non-disclosure agreements and appropriate IT security.
How can a company identify its intellectual property?
The first step is to have an intellectual property attorney do an audit to identify your IP assets and the steps you have taken to protect them.
The audit can usually be done within a few hours for a small company or within a day or two for a larger company.
Reach out to the attorney early on and he or she can identify who in your company will need to attend the meeting and let you know what those people will need to bring to the meeting.
Make sure all the right people are meeting with the attorney. If R&D is involved, have the head of the division there; if marketing is involved, have the person familiar with all marketing efforts present.
The attorney can also suggest best practices to help a company identify and ‘mine’ its valuable IP assets more easily going forward, which can include training, invention disclosure forms, and appropriate clearance and review procedures for marketing collateral.
How can a company protect its assets?
With respect to trademarks and copyright, if they are important to your business, you need to register them — period. Doing so will significantly enhance your ability to protect them.
In regard to new inventions, processes, and designs, talk to a patent attorney. If they are subject to patent protections, the patent can give you exclusive rights for a certain amount of time and the benefits can be immeasurable.
You also need to think globally. Make sure you’ve taken the proper steps to protect your trademarks in key foreign jurisdictions in which you conduct business. In regard to patent protections, be sure your patent attorney is aware of all countries in which you are making or selling your products so that a proper strategy for protection can be put in place.
How should a company proceed if it is accused of infringing on someone else’s IP?
The most important advice is this: Get experienced legal counsel involved immediately. If the attorney can put together a well-reasoned, researched response out of the gate, you’ll maximize your opportunity to avoid costly litigation.
ROBERT G. SCHULER is director and chair of the Intellectual Property area at Kegler, Brown, Hill & Ritter. Reach him at (614) 462-5410 or email@example.com.