Sued by a Patent Troll? How to Respond to Demand Letters
|Written by John F. Martin
Chairman and Chief Executive Officer, Innography
Posted: February 24, 2014 @ 1:42 pm
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Regardless of intent, the number of patent infringement lawsuits is increasing rapidly. Also rising at an alarming rate are the number of infringement assertions, which can often take the form of a threatening letter that goes over the top and even crosses the line into open misrepresentation. In fact, the New York State Attorney General recently entered into groundbreaking enforcement settlement with MPHJ Technology Investments, LLC, who had incorporated misleading statements into demand letters in an attempt to scare small businesses into paying patent licensing fees, even though they didn’t design or sell products. See NY Attorney General Settles Investigation into Patent Troll.
In order to address some of the perceived issues with patent trolls, the patent reform bills in front of Congress include suggestions such as: requiring asserting companies to identify the real owner of the patent, allow more discretion in awarding legal fees to the prevailing party, limiting assertions against end-users of a technology, and allowing more challenges to broad patent claims. Some proposals from industry observers have gone as far as to suggest that software patents should not be allowed, as a large number of the filed cases involve disputes over software functions. New Zealand’s Parliament, for this and other reasons, recently voted almost unanimously to abolish software patents. The Supreme Court is poised this term to rule about the extent to which software and other computer implemented inventions are patent eligible in the United States. It seems unlikely that the Supreme Court will abolish software patents in the United States, which means defendants and those accused of infringement will need to continue to utilize various strategies to protect and insulate themselves.
There is no more alarming moment for an accused infringer than the moment the demand letter arrives. While large entities are sued frequently and it is part of doing business in America, a small business receiving a demand letter that alleges patent infringement may be the first time it has faced this reality. An understandable initial reaction is to get in touch with the party sending the demand letter and just explain that you are not infringing. However, if you have been sued by a company legitimately characterized as a patent troll, a lack of infringement may be of no consequence, as the patent troll may continue to require a choice between a license and a more-costly lawsuit defense.
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So, you’ve received a demand letter….
According to the New York Attorney General’s settlement, a responsible demand letter will include the patent number, the real “parties of interest” of the patent, some specifics of alleged infringement, and an offer to negotiate a license to the patent. The demand letter will be highly tailored to the specific company that makes an allegedly infringing product.
What is happening in some situations, however, is quite different from a responsible demand letter. A niche market has opened up that relies on form-letter demand letters sent to hundreds of small businesses that use off-the-shelf products that include a specific technology feature. These demand letters will often include a fixed sum that the patent owner is demanding, along with a threat of legal action. It is these types of demand letters sent to end-users of a technology that Congress is considering addressing with new legislation passed in December 2013 by the House of Representatives, and currently pending in the U.S. Senate.
With any demand letter, your options are to not respond, respond with reasons why you feel the infringement is not valid, or to settle with the patent owner. Before any action is taken and you decide which path to follow, you should become as informed as possible and consult a lawyer.
Here’s some research that you can perform before deciding how you are going to respond to the demand letter:
- Who is doing the assertion? Is it a subsidiary of some other company or is it a firm hired to protect a product company? This can be difficult to determine because many times non-practicing patent owners will create many subsidiaries to assert from.
- What is the litigation track record of the patent owner who now alleges you are infringing? If you use Innography Playbooks software, for example, you can run a report in minutes to determine this information. You can also access all of the litigation documents directly from the Innography software. Alternatively, you can get an account with PACER, which provides public access to court electronic records, and perform your research on the entity and any legal representation they may have used. Also, determine the law firms they use and the venues where they commonly file.
- What other patents do they own? Look at assignment data to see if they have been buying and selling related patents. If they hold a number of related patents, that would be an indication that they have solid subject matter expertise and broad IP ownership.
- What prior art could invalidate the claim? There is a surprising amount of overlap in many patents. A semantic search is an excellent tool for finding related patents, even those that use different terminology.
- Finally, determine if there are other defendants that have been approached by the patent owner who claims you are infringing. At the least, you can share information with others in a similar position. You may also be able to reduce your legal costs through joint defense arrangements or utilizing the same external counsel that has already become familiar with the patents and the patent owner.
Getting sued or accused of patent infringement is never easy, but having a game plan if it happens can be very helpful. That game plan should start with collecting as much information as you possibly can and then evaluating where you stand and how best to proceed given the situation you are facing.
For more information please see our recorded webinars and white papers. Innography users can also utilize the “IP AnswerGuide,” which provides step-by-step instructions to give you the full perspective you need to make an informed decision.- - - - - - - - - -
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About the AuthorJohn F. Martin has over 25 years of experience leading and growing innovative enterprise software and SaaS companies, focused on emerging market segments. Prior to Innography, John helped drive 50-fold revenue growth in 10 years at IQNavigator, the leader in services procurement solutions for the Global 2000, successively as Chief Technology Officer, Chief Operating Officer and Chief Executive Officer of International Markets. Previously, John held multiple executive positions at Saba Software, including VP Product Management and VP Internet Services, as it grew from no revenue to over $60 million and went public as the leader in learning management solutions. John was also VP Convergence Technologies at CSG Systems, managing all open-systems product lines, as it went public and grew to over $200 million in sales. As a management consultant at McKinsey & Co., for four years in the United States and Europe, John led engagements to create and implement strategies to increase value for clients in a wide range of industries. John also was one of the first employees in Oracle's consulting division, leading consulting teams and territories for four years as Oracle grew from its IPO to a billion-dollar firm. John holds an MBA from Stanford and BS degrees in electrical engineering and computer science from MIT.