Why Must Startups Have A Strong Patent Strategy?

Starting a new company involves approvals, licensing and many other legal documentations and formalities. It is a daunting task. However, a big number of startups do not survive for more than 3 to 5 years. The majority of the startups focus on developing a great product on which big segment of audience loves to invest. Well, this is the right thing to do. However, not all of them give much thought to the protection of their intellectual property rights. They need to protect their business from patent trolls.
 
The startups show reluctance to perusing patents because they have limited funds. However, it is important to incorporate the possibility of patent troll into their risk mitigation. Having intellectual property rights increases the confidence of investors. Here is why startups must have a patent strategy.   
     

Grow Value and Reduce Litigation Exposure 

 

Every company, be it a startup, small, medium scale of large, has some innovation and that innovation is required to be protected. Patent litigation is a real threat. Therefore, startups should start thinking about patent troll litigation as early as possible. If you are growing at a pace that can upset someone then patent litigation can be used as a weapon to decelerate your growth. Startups and small companies lack expertise and have limited resources. This makes them an easy target. And, the bad news is propagated more quickly. Patent trolls or non-practicing entities know that the company is not in a position to protect its intellectual property rights. 60% of the patent trolls target companies having revenue less than $100million. 

Apart from protecting from patent trolls, being proactive about patents can give the startup a competitive advantage. Having patent strategy is good for the reputation of the company and it can also help in funding. This also helps in partnerships and joint ventures. It also motivates investors to invest in your business. A strong patent strategy provides a sense of security to investors. 

For Software and Tech Startups 

 

 These companies focus on the content delivery. These are the companies making most rapid innovation. Therefore, software and tech companies are more prone to this problem. However, tech startups often ignore the future risk mitigation. And, they start considering the future risk mitigation when they start facing problems like patent litigation.

Apart from obtaining a patent, having a patent insurance policy also gives an edge to startups. Therefore, startups should consider strong patent strategy as mandatory. And, patent insurance plays a role in safeguarding your IP rights.

RPX Patent Insurance and Pro-Active Intellectual Property Risk Management Strategy

The world is more integrated now. A business cannot stay isolated from the rest of the business world. Both good and bad news are traveling fast. The unique product or service you are offering is already in the limelight. Therefore, it hardly takes much time for a patent troll to discover you. Your unique idea, design or invention is priceless. It should be protected. Therefore, your financial position should enable you to defend your idea. If you are a company working on a particular technology then your intellectual property rights are always at risk. And, in the below-given facts, you can see that the risk is increasing in leaps and bounds.

The number of patent cases filed in 1990 was 914. And, in 2010, the number was increased to 3531. The risk is increasing. No business want to be involved in patent infringement lawsuit as it is very expensive. If you are willing to fight then you need to know that the losing side (if it is not a big company) often goes out of the business. On the other, if you are willing to settle, you will be seen as an easy target.

Therefore, you should have a proactive strategy for risk management. This will help in avoiding patent litigation and defending your rights.

RPX Patent Insurance

Having RPX patent insurance for defending or enforcing your IP rights is a great financing strategy for infringement risk management. You have a great financial resource that can keep patent troll at bay. An RPX patent insurance can discourage them. It makes you a hard act to follow.

IP Defense Insurance Coverage

This policy is for reimbursing your litigation expenses when you are defending against infringement charges on another’s intellectual property rights. It is a cost effective solution for small companies. With this insurance coverage, small companies need not fund lawsuit.  

IP Abatement Insurance Coverage 

This policy reimburses litigation expenses when you are enforcing your IP rights against infringers. This insurance coverage saves your business from financial stresses as you are not using your cash reserves to cover your litigation expenses.   

Including RPX patent insurance in intellectual property risk management strategy endows you with some other benefits such as:

Preserving market share

Preventing cash drain

Attracting investors

Less distractions of lawsuit and more focus on business

In a nutshell, you must have an RPX patent insurance and proactive risk management strategy to protect your intellectual property rights. 

Are Patent Trolls Putting an End to Startups?

Receiving a ‘patent violation’ notice is really a bad news for a startup or a small business. Patent trolls are literally guzzling startups. The innovation or idea if implemented can be good for the society in numerous ways. However, they are holding it just for their own benefits. And, when someone else is transforming that idea into success for making the society the real beneficiary, they send a notice of ‘patent violation’. They are using patent infringement lawsuit as a legal way for extortion. It is found in many surveys that small companies and startups are strongly affected by Patent Assertion Entities.

Professor Colleen Chien from Santa Clara University School of laws surveyed startups and small companies. One-third of these companies had received ‘patent demand letters’ from PAEs. The revenue of 13 companies was less than $100,000.

Patent Trolls Create Trouble

The demand letter has an adverse impact on the operation and productivity of the targeted company. Delayed hiring, inability to meet operational milestones and product change often reduces the value of the company and this often ends with the shutdown of the company. The patent demand letter has a significant operational impact on 50% of the companies having revenue less than $100million. However, companies with revenue more than $100 million do not report a significant impact on the operations.

On receiving a patent demand letter, 35% of the startup or small companies opt for fighting. 10% opt to settle and 22% do nothing. The average cost of settlement among 12 companies in this survey was $350,000. Fight in the court costs an average of $857,000. Moreover, small businesses do not have enough knowledge and information, and strategy to address this threat.

Ramifications

Many companies fall short in understanding the ramifications of their actions after receiving a patent demand letter. And, the problem is that the information about easy targets is propagated quickly in the PAE community. Taking license without proper research puts them at a disadvantage.

Dealing with Patent Troll

To deal with patent trolls, first of all, the company should go for patent infringement insurance. Having an insurance indicates that you are ready to fight. This can deter the confidence of the patent troll. Industry association groups should work together when their common interests are threatened. Small businesses should share information about PAEs.

PAEs often target startups and small companies that are not financially strong enough to defend. Therefore, small companies and startups should make patent insurance the first line of their defense.