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What To Do If You Are Sued for Patent Infringement


Written by Gene Quinn
President & Founder of IPWatchdog, Inc.
Patent Attorney, Reg. No. 44,294
Zies, Widerman & Malek
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Posted: June 2, 2011 @ 8:27 pm
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Unfortunately for small businesses and start-up companies, some patent owners are becoming far more litigious.  Once upon a time small businesses might be able to fly under the radar screen even if they were infringing because the cost associated with going after such folks was prohibitive.  But welcome to the brave new world of the patent troll, where certain nefarious bad-acting patent owners seek to enforce dubious patent rights against those who are engaged in a business vaguely related, but who are almost certainly not infringing.  These bad actors, who seek to extract licensing payments with threatening letters or lawsuits if necessary, know that because it can be expensive to fight most will simply fold and pay what amounts to extortion.  See Extortion Patent Style.

Despite the gathering storm, some businesses would prefer to pretend that patent infringement is not a problem for them and they won’t be sued.  The graph below shows that since 1980 the number of patent lawsuits filed has only gone up, with a record number (3,301) being filed in 2010.  Add the frequency of the “dime a dozen” threatening letters sent by those seeking to extract licensing payments to the number of lawsuits filed and you can readily see that patent infringement litigation, and the associated threats thereof, are a growth industry.

It is only a matter of time before technology based businesses, regardless of size, will find themselves facing a patent infringement issue.  As with most things in life, there is are many things you can do that are wrong, incorrect and/or harmful, with a small handful of appropriate things you really need to do.  When you get that first threatening letter, or you get sued without warning, you need to know the follow.

True or False — I should contact the lawyer sending the letter or representing the party suing me because if I can only talk to them I’m sure I can convince them I am not infringing.

FALSE! You have been sued or targeted with a threatening letter for a reason.  Typically that reason is be extract money from you, or perhaps to get you to stop doing what you are doing.  If you have been targeted by a patent troll the reality that you are not infringing is of absolutely no consequence.  Patent trolls sue small businesses to extract payments knowing that the overwhelming majority of patent infringement lawsuits will settle. In fact, upwards of 96% of patent infringement lawsuits settle, many without a Judge ever reviewing any of the merits of any argument.  So the fact that you are right and would prevail is not going to get them to back off.

It is a huge mistake to contact the attorney who represents the party coming after you.  You may say certain things that compromise your negotiating position, you could give them crucial information about your business that they can use against you, or you might demonstrate that you are scared to death and willing to do whatever it takes to get the case to go away.  None of these things are good.

True or False — I can just ignore the matter because it will go away if I don’t respond.

FALSE. Looking the other way or burying your head in the sand are not effective strategies to deal with what may or may not be a meritorious patent infringement lawsuit.  Certainly if the lawsuit or dispute is meritorious you have to take it seriously otherwise your business may be in jeopardy.  If the lawsuit or dispute is frivolous you still have to take it seriously because that almost certainly means you are a target of a patent troll who is not going to go away.

When you are sued there is a limited amount of time within which to act, and you absolutely need to act with due speed to address the matter.  In fact, you have days to act, not months.  Yes, you might be able to get an extension of time to act, but you cannot assume that you can deal with the case when you get around to it.

If you have yet to be sued and instead are being threatened there are some ways to take the offensive and attack, should you be interested in taking an aggressive approach to fighting back.  Some of what is available to turn up the heat on the party threatening ceases to be available, or is far less useful, once a lawsuit has actually been filed.  So definitely take those threatening letters seriously and become informed of your options.

True or False — I should contact a patent attorney to discuss the threatening letter or federal complaint to understand what my options are and what I should be doing.

TRUE. There are a few things that you never want to really need in life.  You probably never want to be in a position to really need a dentist for an emergency procedure, but that doesn’t mean you ignore that excruciating pain in your tooth.  Likewise, you never really want to need a lawyer, but sometimes you find yourself in a position where you absolutely need the assistance of someone who has been in the trenches and can navigate the rocky waters on your behalf.

Having been sued several times in my life, having filed lawsuits on behalf of clients and having defended clients who have been sued, I know first hand the thoughts and feelings that go through the head of someone thrust into a legal dispute.  It can be all consuming, particularly when it comes by surprise, which is almost always.  The ordeal can be all consuming even if you have seen it coming a mile away, because even when you see the dispute developing there is nothing like the finality of it coming to a head and your adversary turning to the courts.

A patent attorney can take the mystery out of what can be a truly mysterious and foreboding process.  A patent attorney can also take up the fight, represent you and allow you to the greatest extent possible to continue to focus on business rather than being distracted.

True or False — When I get sued by a patent troll there is little that can be done, I might as well give in, pay and move on.

FALSE. Ultimately you might wind up deciding to pay to make the dispute go away, but make no mistake, there are ALWAYS things that can be done to facilitate a resolution.  Even if you care going to give in and pay you want to make sure that this happens in a way that doesn’t paint a bulls-eye on your back identifying you to all other patent owners as someone who caves and pays rather than fights.  If you are an easy target then expect to get shot, metaphorically speaking of course.  So you need to consider not only this case, but what of others down the road.

Early on in my legal career I learned that sometimes you need to turn up the heat on the opponent in order to achieve a favorable resolution.  With those who are patent trolls they have little to lose, but they certainly want to keep that patent they are so fond of trying to enforce against you, so you really need to consider trying to strike a blow at the heart of that patent and render it useless.  You also need to consider an array of counter-claims that you might be able to bring against the bad acting patent owner who is simply trying to interfere with your business operations enough to get you to pay on a specious claim.

Turning the tables on the patent troll can be an effective strategy, and one that is unfortunately not employed very often.  Of course, you probably want to avoid fighting an all-out war, but if both parties fear a long drawn-out battle, there is incentive to come to a resolution. In order to be a party at the peace talk table, however, you need to have leverage of some kind, otherwise you are not a party to talks as much as you are having terms dictated.

True or False — I’ve been sued and the patent troll is also suing some big companies for the same patent.  I can just sit back and let the big companies fight the case, because they have far more to lose.  They will fight hard so I don’t really have to.

FALSE. Your interest is not necessarily the same as another defendant, so relying on other parties to fight your battle is risky.  In fact, large corporations sometimes cave to patent trolls, finding it easier to pay than to litigate, which might not be in your best interest.  Still other times large corporations will fight and fight hard, going deep into a case before even considering settlement, perhaps even taking the case all the way to trial.  The same way that caving might not be in your best interest, fighting an all out battle to the bitter end might not be in your best interests either.

There is little generalized legal advice that any attorney can give that applies to everyone who might find themselves in the same or similar situation.  The advice you need, and will get if you hire an attorney, will be tailored to your unique circumstances.  The facts that are legally relevant to your situation are but one piece of what needs to be considered.  Your business reality is unique, and clearly far different than the larger or smaller companies that might also be sued in the same case.

Relying on others to do the heavy lifting, which I have heard as a strategy of some who are sued, is an enormous risk.  Would you feel comfortable putting the future of your business in the hands of a large competitor?  Likely not, so why would you tie your litigation fate to that large competitor?

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Posted in: Business, Gene Quinn, IP News, IPWatchdog.com Articles, Patent Litigation, Patents

About the Author

is a Patent Attorney and the founder of the popular blog IPWatchdog.com, which has for three of the last four years (i.e., 2010, 2012 and 2103) been recognized as the top intellectual property blog by the American Bar Association. He is also a principal lecturer in the PLI Patent Bar Review Course. As an electrical engineer with a computer engineering focus his specialty is electronic and computer devices, Internet applications, software and business methods.

 

 


22 comments
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  1. Thanks Gene.

    Do you (or anyone) know how the litigation numbers correlate with the patents-issued numbers over these same years?

  2. Gene this article is on the money about small businesses and start-up companies facing this growing problem, and sad with too many making the choice to get out or just never start. Along with the financial problem as of ’08 that had a lesson for business owners; that they learned how to do the same with less. That less is something very important to many Americans, jobs. More business today is saving money and not jobs that is having an impact on growth in the U.S.

    If business continues to be a target, and the problems of those tools used to that end are not addressed, will continue to harm growth in the U.S. with the TROLLS included: What thinking drives such destructive goals that continues the growth of it. It is a hard question to answer and a simple answer as greed seems to not cover the full impact of it.

    Gene you are in a position to understand the impact this has on public view of patents and the harm it does. For me (or anyone) to just blame patents would be incorrect to an approach to address the problem. The correct path to address this problem must come from within the patent system itself. No other way is going to work because it is a patent problem that is destructive to the patent system — with the U.S. along with it.

  3. Gene,
    The problem is not the patent system or the patent trolls. The problem is the business culture that refuses to clear products of patent issues before their design. Corporations from the mid 80′s have decided instead to make it a calculated business decision to ignore patents and build whatever the latest gizmo is with whatever the latest technology is and let the courts decide how much they owe patent holders that cry foul. This is far cheaper than competing fairly using homegrown tech and proactively licensing patents which are unavoidable.

    If companies conscientiously did this there is little doubt that technologically advanced products would be far more expensive, but do sixth graders really need smart phones and high schoolers iPads? Or does the average middle class American home really need 50″ plasma TVs with satellite dish, DVR and 15M DSL or Fios?

    If any company designs products without finding whether or not all the tech that product uses is in the public domain they are just asking for it. If someone built a high-rise on a lot you owned wouldn’t you expect some portion of the profits from the building owner?

  4. One way to take all of this seems to be that unless one has a monstrously profitable product the cost of being in the game is just too high. This can’t be good for small to medium size manufacturing in general.

  5. Companies without IP insurance may be forced into litigation with larger competitors and patent trolls who have plentiful resources to litigate. Intellectual property (IP) insurance enables them to ensure that their most valuable asset is protected. Companies can demonstrate that they can fight to the end of an IP case on the merits, and not run the risk of going out of business or being forced to drain their working capital to pay legal fees to enforce or defend their IP rights. IP insurance definitely levels the playing field and gives companies options.

    Rudy Telscher, an IP litigator with the firm Harness Dickey in St. Louis, MO, recognizes the benefits of companies holding an IP insurance policy. Telscher says, “Without a doubt, the smaller companies, when backed by the insurance proceeds of IPISC, drastically shift the power structure. The larger company knows that the smaller company is not paying for the litigation and can therefore withstand the battle to the end if necessary. This puts the smaller company in a very favorable position to negotiate a good settlement.” Telscher recognizes that any client who simply holds an insurance policy can significantly level the playing field. Telscher says that he has “handled several cases now where the insured would have been bowled over by the bigger opponent without insurance to back them.”

    Intellectual Property Insurance Services Corporation (IPISC) is the industry leader in intellectual property insurance, and has been in the business of managing risk and protecting the value of client’s IP assets for over 20 years. IPISC has developed products that use advanced strategies to become market leaders in the dynamic field of intellectual property insurance.

    Karrie Lewis, klewis@patentinsurance.com
    IPISC

  6. Steve M,
    Patents issued and lawsuits filed track nicely. Here’s a breakdown
    Year Patents issued Lawsuits filed
    1980 65,000 700
    1990 101,000 1,200
    2000 176,307 2,500
    2010 244,664 3,200

  7. Gene, you wrote in a teasing manner that there are strategies to turn up the heat for a bad actor but didn’t get that specific for the obvious reason that you are a lawyer. I was sued for infringement in my first month of business by the market segment leader and as a one man company I was forced to fight them without a lawyer. The bad actor spent over $300,000 getting to the injunction phase in 2010 and when the matter got before an intelligent judge, the bad guys were told by the judge that I was not infringing at which time they dropped the suit. The entire process cost me less than $5,000 including the cost for a reexamination. Like most bullies, they ran away at the first sight of their own blood.

  8. Mark,

    Thank you for the numbers.

    These turn out to be (using a stright line division):
    1.08 %
    1.19 %
    1.42 %
    1.31 %

    HOWEVER the actual math needs to be a little different because each patent grant from the previous year must be added in a cumulative manner – for this small a subset the first maintenance fee is not a consideration – because that patent is alive and well and in the pool for generating lawsuits. Given this true view, the “problem” can be seen in the correct light. The appropriate (and miniscule) percentages are:

    1.08 % (likely smaller – but I can only go on the numbers given)
    0.72 %
    0.73 %
    0.55 %

    Or in even more stark terms, the change year over year is:
    MINUS .36 % (but not a real factor givne data limitations)
    + .01 %
    MINUS .18 %

    There is no “problem” here – at least not an exploding problem. Rather, the true change in lawsuits per available patent is DROPPING.

  9. Mea Culpa – disregard my stats analysis to an appropriate degree (the year over year especially – and the maintenance fee effect does need to be factored in) – I thought the data presented was from sequential years – it is not.

    However, the overarching points are still valid -
    1) the increased lawsuits out there roughly track with the fact that are more patents out there.
    2) the actual ratio to be looked at is lawsuits per active patents – and active patents are an even higher number than single year issues.

  10. Thanks Mark & BD; good to know.

  11. Barry-

    I’m glad to hear that things worked out for you, but if what you say is correct it sounds like you were extremely lucky. I simply cannot in good faith suggest that your experience is common or that it is at all a good idea to represent yourself in litigation.

    I also have to wonder how much you lost when you factor in the opportunity costs. If you did prepare and file a reexamination, and you did represent yourself in litigation you would have had to spend enormous amounts of time figuring out what needed to be done, which would have taken you away from your business for a great many hours.

    Finally, there is something that just doesn’t sound right about your story to me. You say you are a one many company sued by the market leader right after you opened your business. That sounds remarkably fishy. But still, as a one man show you were able to stare down the market leader and prevail in a true David and Goliath battle. Really? All the while you had the time to educate yourself on the USPTO rules and regulations about reexamination and prepare an appropriate request, and you also had the time to represent yourself and prepare the required filings within the prescribed deadlines all while still running your one man business. I’m quite surprised you were able to do all that only a month after opening, and as a one man business no less. This seems quite implausible to me unless you were able to extract more than 24 hours out of a single day.

    Excuse me for not believing your story.

    -Gene

  12. Gene,
    Actually it really is no huge mystery. All I did is read all of the motions filed in a suits similar to mine and just change the names just like lawyers recycle motions and responses. I spend a ton of money on WestLaw and eyedrops, but it was worth it as I am the only pro se to have won an infringement suit. You ask a very wierd question regarding what I lost by fighting, i.e. lost sales. So you would have told me to grab my ankles and let them win by default then get a judgement that would have also included my IP? That is no victory and very unAmerican in my opinion. You do not seem to believe my story so I invite you to google my name + lawsuit + Reno Nevada district court and read the judges words at a July 2, 2010 hearing. Also, search the reexaman notices and follow the path to the final office action of rejecting the important claims in their patent. BTW, luck had very little to do with the results. One very commited man can and it has proven that a well paid large firm can be humbled by just one committed guy with a low limit credit card.
    Take care,
    Barry

  13. Barry-

    So you spent a ton of money on Westlaw? Again, not believable. You said you spent only $5,000 and that included the reexamination fees. That does not leave much money left for Westlaw. Maybe a few hours of Westlaw time at best.

    The question about lost sales is not at all a weird one. The trouble is that for some reason you are telling a tale that is not true. If it were true you would know that you would have had to shut down your one man business and spend full time dealing with the patent infringement lawsuit against you.

    Also, it is simply not believable that a market dominant leader would sue a one man operation for patent infringement in their first month of business operation.

    So much of your story simply doesn’t add up.

    -Gene

  14. Gene,
    What can I say to someone who refuses to check the facts before shooting his mouth off? I did as good a job with my defense as you could have done. Your opinion does not overcome the facts but I am guessing that has never stopped you now or in the past.
    Barry

  15. Barry,

    Is this you: 2010 U.S. Dist. LEXIS 91485

    Veterinary Ventures filed a complaint on December 14, 2009. (See Compl. (#1)). The complaint also states various other causes of action, including defamation, product disparagement, deceptive trade practice, intentional interference with prospective economic advantage, and unfair competition.

  16. Barry-

    So now you are accusing me of shooting my mouth off without checking facts? First you say you spent less than $5,000 and that included the reexamination fee, which would have eaten up half of that amount alone. Then you say you spent a ton of money on Westlaw. It is not shooting my mouth off to observe that you are making statements that are wholly inconsistent.

    I do find it interesting that you get called by me for making incompatible statements and then you attack me. I did not attack you personally, yet you attack me. That is a sign of weakness and the last resource for those who are losing a debate.

    I have checked your filing, and that opposition to the preliminary injunction cited a great many cases. You seem to have a thorough and complete understanding of the law, procedural requirements and write exceptionally well for a pro se. It almost looks like those things were ghost written for you.

    So who is the person that signed all of your certificates of service? Why didn’t you just sign your own certificates of service and send copies? How much time did you spend representing yourself?

    I’m also not exactly sure I would call Veterinary Ventures a market dominant player, and if you did represent yourself without the assistance of an attorney I know you spent many hundreds of hours representing yourself, which is time you couldn’t have spent running your one man show corporation.

    Go ahead and attack me for pointing out the obvious. It is naive for anyone to believe that they should represent themselves. There is a well known saying about those who represent themselves having a fool for a client, and I am not going to allow you to pretend that it is a viable option to represent yourself in a patent infringement action. It is also my right to look at your filings, listen to your story and simply not believe that you are being 100% honest here.

    -Gene

  17. Everyone-

    I received an e-mail from Barry saying that he has had enough and isn’t going to participate in the discussion any longer. You can all draw your own conclusions about whether his refusal to answer questions or acknowledge the inconsistency of his statements suggests he was not being truthful, exaggerating or telling the complete truth.

    -Gene

  18. When patent trolls regularly collect triple the amount of damages awarded to practicing entities in patent litigation, it is certainly no surprise that more trolls are springing up and becoming ever more aggressive. They have everything to gain and relatively little to lose. I fear that the only way to minimize the threat that PAEs pose to small businesses is by eliminating their incentives to assert patents — i.e., by limiting their ability to collect such large damage awards. But I don’t know if any judicial solution will be forthcoming.
    http://www.youtube.com/watch?v=LkQELhZeDYQ

  19. The problem is not the patent system or the patent trolls. The problem is the business culture that refuses to clear products of patent issues before their design. Corporations from the mid 80?s have decided instead to make it a calculated business decision to ignore patents and build whatever the latest gizmo is with whatever the latest technology is and let the courts decide how much they owe patent holders that cry foul. This is far cheaper than competing fairly using homegrown tech and proactively licensing patents which are unavoidable.

    Scott,

    Prove it. Seriously. You have made a rather inflammatory statement. However you have provided no proof of any sort to back up our statement. To me you appear to be a troll, like the Barry guy who Gene had to put down earlier.

    So, where is your documentation?

    Wayne

  20. Wayne,
    It is a curious thing that no one working at the larger manufacturers that surely read this challenged me, don’t you think?

    As a systems engineer around 2000 I was working on a hardware design and was stuck. I found that the USPTO had implemented a pretty good search engine and decided to see if I could find patents that solved my problem. I did this not so I could copy them but so that seeing other’s ideas might free up the brain block I was experiencing and maybe I could come up with a solution. In the midst of the search my manger walked in and was curious about what I was doing. I explained and he turned red in the face and yelled “don’t ever do that!”

    The next day all of my fellow engineers and I were drug into the auditorium and lectured for an hour by the corporate legal guys on how we should never check with the USPTO on anything we are developing for any reason and the USPTO web site was blocked from our network.

    I thought this very odd and at the next developers conference I attended I asked engineers I met from other companies if they had ever heard from their management to never search the USPTO on new designs to make sure what they are designing doesn’t infringe someones patent. Shockingly 4 out of the 5 at that table had been told the same thing. For the next 5 years this was a standard question I asked anytime I met with other engineers. Somewhere around 90% of them working at major manufacturers all said they have the same company policy.

    Since then I have moved up in the ranks and deal primarily with high level IP execs of Fortune 500 companies including HP, Avaya, Cisco, ATT, Google, Microsoft, Philips, Broadcom, Motorola, TI, Verizon, Comcast, Dish, Samsung and quite a few more. I have personally asked all of them if they have similar policies and all of them stated quite emphatically “yes”. The primary reason given is that marketing is going to develop products that sell and legal’s job is to minimize the repercussions that come from those products. They view infringement as inevitable and the fear of treble damages is the main driver of this policy. Several have told me that “the US patent system is just sand in the gears of progress”, really, exact words.

    At an IP conference I sat next to Marshal Phelps and asked him the same old question. He is the only one that has ever told me that his company made a conscious effort to clear products of patent issues before sale. This was for IBM and only up to 1985. After that products became too complex and involved far too many patented technologies and corporate forces wouldn’t allow it. Most other execs I’ve talked to say that is a load of crap, no company including IBM ever has or ever will clear their products.

    It appears that you are a researcher of sorts, check it out for yourself, this story is easily verified. Most companies will unashamedly acknowledge this policy.

    Scott

  21. Scott,

    But at present you only have anecdotal evidence. I’ve heard the same thing myself, but I’ve never seen solid proof that it’s true. I was responsible for reading patents and carrying out searches at my last position, and I know of other people who I dealt with who did the same thing.

    So I would file it under “Urban Legend”

    Wayne

  22. Wayne,
    As this is a discussion board and not a court of law or Senate hearing 2nd hand testimony is about as good as it gets. That is unless one of the corporate legal types I mentioned chimes in.

    File it however you like, just keep it near the front so you can find it the next time some fortune 500 CTO decides to buy up thousands of patents to be used for assertion and testifies in front of the senate a story very similar to mine.

    http://www.intellectualventures.com/Libraries/Article_Reprints/NMyhrvoldTestimony052306.sflb.ashx

    Scott

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