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Protecting Your Small Business from Patent Trolls



Patent assertion entities – commonly known as patent trolls – are companies that hold patents so they can sue businesses in an effort to generate revenue. The process is simple: a patent troll acquires a collection of #patents and identifies businesses producing a similar product or using a similar technology. They then threaten litigation unless the businesses pay exorbitant licensing fees. Essentially, it is a legal form of #extortion.


Patent trolls are estimated to cost the U.S. economy more than $80 billion each year, as the companies they target typically settle rather than engage in costly litigation. For years, these entities have focused on suing or threatening to sue large corporations. They took advantage of the fact that companies could be sued anywhere they do business. Because many large companies conduct business in multiple states, patent trolls could file suits in remote federal court districts with a reputation for being friendly to plaintiffs.


However, in 2017 the Supreme Court ruled that companies could only be sued for patent infringement in the state where they reside. This made collecting much harder for patent assertion entities, many of whom turned their attention to small to medium-sized businesses who are not necessarily in a position to afford a long, expensive legal battle.


The U.S. patent system was designed to promote innovation, and patents are vital to a small business looking to protect ideas from competitors. However, 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 are privately held.


Legislators have proposed a number of bills over the years to curb these practices. This includes the Targeting Rogue and Opaque Letters Act (TROL Act), which has been introduced in each congressional session since 2015. Under the TROL Act, a party sending a demand letter will be considered to have engaged in “an unfair or deceptive act or practice” under federal law if it misrepresents the truth in bad faith; seeks compensation for a patent that is invalid or to which the accused company already has a license; or fails to include a description of “how the product, service, or other activity of the recipient infringes an identified patent and patent claim.”


In the absence of comprehensive patent reform legislation, the number of #lawsuits filed by patent trolls has dramatically increased in recent years. Small businesses remain at risk of receiving letters demanding licensing fees for infringing on patents and being forced to invest valuable time and money to evaluate the claims and engage legal counsel to address the assertions.


Many business owners look for ways to mitigate the risk of patent trolls and the costs of #litigation or settlement. Companies with a strong patent portfolio or the right patents may, in some cases, be able to countersue a patent troll by claiming infringement of the company’s patents. There are also insurers offering products designed to protect small businesses from infringement claims from patent trolls.


If your business receives a threatening letter, it is important to take time to determine the seriousness of the assertion. Any threat over patent infringement will include the number of the patent in question, so you can search to find out whether the patent has previously been the subject of a lawsuit. The fact that you find no previous lawsuit over a particular patent is no guarantee that you won't be sued, but keep in mind that the threat of a lawsuit may not lead to an actual lawsuit.


You may also choose not to respond immediately to the threat. Some patent assertion entities send out hundreds of letters and only focus on the businesses that respond. If you receive a follow-up letter, more action may be needed.


#Patentinfringement litigation can be complicated and costly, so it is important to work with an experienced intellectual property attorney to help evaluate your situation and determine whether a threat is potentially serious.


Leslie A. Farber, email LFarber@LFarberLaw.com.


The contents of this writing are intended for general information purposes only and should not be construed as legal advice or opinion in any specific facts or circumstances.

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Leslie Farber Law, New Jersey lawyer, attorney

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