Startups Realizing That Patent Trolls Are An Existential Threat

from the time-to-fix-the-problem dept

Most people used to think that patent trolls tended to focus on bigger companies — those with huge bank accounts who’d rather pay the troll off than deal with a lawsuit. But over the last few years, we’ve been hearing more and more stories about startups hit by patent trolls, who are taking advantage of the fact that a patent lawsuit — win or lose — would almost certainly kill the company. One common tactic? Wait until a startup announces a round of fundraising and then pounce — knowing that the company (a) has some money and (b) has little time to deal with a lawsuit. Finally, this issue is getting some attention. Crain’s recently had a piece on patent trolls going “downmarket” after startups, which has some quotes from startup execs (many who want to remain anonymous to avoid further attacks). One of whom is actually fighting the troll:

“I have more lawyers than I have employees,” said the entrepreneur, who asked to remain anonymous for fear he would be the target of even more lawsuits.

That entrepreneur noted that he’s stopped paying himself a salary, and his legal bills ($50,000 per month) were rivaling his overall payroll of $63,000 per month. But he’s fighting the troll on principle.

But, of course, even if he wins, he’s not going to get that money back:

Young companies that are looking for venture capital are most likely to settle, so goes the conventional wisdom, because they have limited cash and worry that a lawsuit will scare off investors. It’s cheap to bring a lawsuit, but expensive—$2.5 million on average—to defend against one. Not surprisingly, the majority of patent suits are settled out of court.

“The system is so stacked against me,” said the e-commerce entrepreneur. “To prove I’m right, it will cost me more money than I have raised in my company’s existence. If I win, I don’t get the money back, and if I lose, I owe triple damages.”

This is part of the reason why the SHIELD Act would be a useful step. While there are still many, many problems with patent trolling, at least it would make it possible to go after trolls for legal fees when the trolls lose.

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Comments on “Startups Realizing That Patent Trolls Are An Existential Threat”

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30 Comments
Anonymous Coward says:

Congress caused the problem and Congress should sort it out. it will take clear thinking, time and work, that’s why nothing will be done. the ones that will suffer? you and i because companies, both old and new, will move/are moving abroad where there is less chance of a law suit and more chance of a company starting and progressing!

RyanNerd (profile) says:

Not just a problem with trolls but with American courts in general

My wife is from England. She’s told me that Americans are considered “sue happy”… Everything that offends will be “taken to the supreme court”.

Patent trolling is a symptom of a bigger problem in that the justice system is broken and is often misused as a club to beat up those who do not have the means to defend themselves.

It’s sad really. Many mornings I wake up and wonder what country I’m living in.

Bengie says:

Re: Not just a problem with trolls but with American courts in general

Defending yourself or your property in the UK can be considered assault again the other person and get you jail time.

If someone is breaking into your house or threatening you, you just leave them alone and wait for them to leave, otherwise you break the law.

Another example is that story where a young child at school climbed up a tree that straddled the school property and went over the fence to the sidewalk.

The teachers were instructed to leave the child stuck in the tree because if they attempted to help the child and the child got hurt, then they would be liable. Police would not help either. On the other hand, letting the child attempt to get out of the tree and getting hurt would only leave the child responsible.

Some passer-by saw the child in the tree all alone and the child was calling for help. With no teachers outside, the stranger helped the child down and walked the child to the school.

He got charged with trespassing and kidnapping a child.

Welcome to the UK.

The Real Michael says:

I can hardly think of a better way to discourage new businesses from getting off the ground than the looming threat of a lawsuit dangling overhead. $2.5 million just to fight one in court? This is class warfare, blatantly designed to favor the wealthy, as is practically every other political construct. No wonder businesses are opting to leave this country for greener pastures.

Tom (profile) says:

Re: Why so expensive?

The lawsuit process in general is expensive, because it takes a long time.

Part of the problem is that you can no longer just go straight to court. You have to go through a series of settlement conferences that have the goal of getting you to settle out before you actually hit the courtroom. In practice, however, they’re just another way to drag the process out more and increase your lawyers’ billable hours.

What I’d like to see is a “Plaintiff Pays” system, where if someone wants to sue another person, they have to put up the money for both parties. If the plaintiff wins, they’re going to get the money back in the judgement. If they lose, then the defendant isn’t being punished for defending themselves.

I’m sure that right there would fix most frivolous lawsuits.

tomxp411 (profile) says:

Re: Re: Re: Why so expensive?

I should mention that “filer pays” should only apply when the defendant meets certain financial conditions.

The costs would also have to be split exactly 50/50, and the defendant could of course opt-out and choose to pay his own legal bills… and pay whatever he wants.

The whole point is that a rich plaintiff should not be able to browbeat a poor defendant in to settling just becuase the defendant can’t afford the legal costs of continuing the case.

A Different AC says:

Re: Re: Re:

What?

Age doesn’t appear to be an issue here. Even if it was I’d be inclined to believe that it’s the OLDER people (the ones who’ve had time to accrue wealth and power) who are abusing the young(er) owners of start-ups.

It is completely about the patent system and the way that over broad patents give grounds to sue innovators.

And moron back at you for not reading the damn article.

anonymouse says:

startups

It has been created like this by those in power as they are the trolls using their powers to change the law to make money, how else could you explain 3x the amount in a settlement. This is a system of extortion the same as the copyright monopoly , all will cease to exists eventually as more and more people start attacking them, just look at the stupidity of those trolls that are attacked , they think they can extort the courts and judges just as they do normal start-ups or individual citizens.

I believe the courts are involved in this as it gives them huge sums of money in court fees and that is just sad and should be outed for all to see.

saying that , it could be rather easy to make money for almost everyone if they have a few basic ideas that sound improbable right now or so broad that they cover almost every business in existence.

Jeremy Collake says:

yes, it's all broken..

Yes, society is broken. Yes, it rewards the most greedy, most immoral. Yes, government that should be protecting us, isn’t. The two are related. Politicians reflect society. Therefore, we get self-centered, immoral politicians in office, many of whom don’t even like government and want to tear it down. Almost all don’t act in the best interests of the citizens at large.

Change must start at a fundamental level. Many had hope with Obama’s election, and although he can not be a king, he could have done a lot more to keep people inspired. His actions and words quickly became ‘safe’ and well rehearsed after his election. If only he hadn’t played it safe, maybe he could have continued to motivate young people to do something positive for society. Instead, he probably ended up crushing all hope anyone had. After all, if the election of Obama can’t change much, what can!?

Want to fix society? Start punishing those who are greedy and immoral at an interpersonal level, instead of sucking up to them to get your daily bowl of food. When society’s rules have changed, the government will change to reflect that.

And start raising your kids to be moral, instead of competitive. I know, your kids are soooo special, and sooo much better than everyone who ever walking the earth before. BUT, raising such self-centered, egotistical, members of society further compounds the problems. While I’m NOT at all religious, I can’t help but think that religion has traditionally served the very function that we now need (destruction of the ego and imposition of morality).

Anonymous Coward says:

Here's an idea

Why don’t we stop giving damages to the Patent Holders. If you win in court, the court can fine the IP infringer. Make patent suits purely punitive in nature.

NPE’s would then find their patent portfolio’s completely worthless. There would be no way of monetizing except via licensing.

It’s still a rough idea, but I’m thinking of some way of removing the extortion-by-legal-system that currently exists.

Tom (profile) says:

Re: Here's an idea

My solution is simple: allow for independent development in the patent system.

The problem is that two people can’t invent the same thing under modern patent law: the first person to invent something gets all the rights to that invention, even if someone else invents the same thing completely on his own.

If I come up with a solution to a problem completely independently of someone else, I should have the right to utilize my solution without paying someone else for my invention.

Fix that, and you’ve cured the patent system overnight.

Pavel says:

partnership

Suggest partnership in the development of “internal combustion engine”
patent US 8,613,269 B2
http://www.transportationdesigners.com/designer/portfolio/shehterpavel/three/109
The project is under – working drawings.
The next stage – production and testing of prototypes.
1. Changing the design of the head unit existing engine.
Result – 2x magnification power without increasing fuel consumption.
Reducing the number of parts, weight and size of the head and the engine block.
2. Production of the new engine.
Torque 6100 Nm at 100 rev / min.
Power 5000kwt / 10000 rev / min.
Engine weight – 57 kg.
Maximum speed – 20 000 rev / min
Dimensions 870 x 440 x 440 mm.

Shehter Pavel
shehterpol@hotmail.com

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