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.