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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.

 

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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Posted in: Guest Contributors, IP News, IPWatchdog.com Articles, Patent Litigation, Patent Troll Basics, Patent Trolls, Patents

About the Author

John 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.

 

 


4 comments
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  1. There were no substantive changes made to the MPHJ demand letter. The original letter stated that the recipient “probably” infringed. The NY AG had that changed to “possibly.” The letter clearly stated the patent and explained it in clear language. then it described what infringement is. Then it gave several questions to answer so the recipient could determine if they were infringing. Then it said if you are not infringing to let them know and they will remove you from the list. Changing probably to possibly has no real effect on the demand letter despite the difference in the relative strength of the words. In the context of the letter nobody should believe they are actually infringing until they answer the questions and due to the last part where the recipient could notify MPHJ that they donot infringe, none should believe they do no matter which word was used.

    The reason that this demand letter hit the news is that it was sent to thousands of people in multiple states, it is an election year, and there are millions of dollars pouring into lobbying every month to distort the facts and manufacture a crisis.

    Those upset about this demand letter are upset with the wrong party. The patent can only be infringed by the end user due to the claim language. MPHJ attempted to license it to scanner companies prior to sending demand letters. Only one licensed. The rest just figured MPHJ should sue their customers.

    I’m getting tired of the exceptional level of dishonesty by the anti-patent crowd. If a patent should not be enforced because some consider it impolite, why do we have a patent system?

  2. Some thoughts John:

    Given your extensive relevant background, it’s surprising — and frankly disturbing — to see comments like: “… even though they didn’t design or sell products.” As if that should make a difference in whether or not a demand letter is meritorious.

    Our nation’s laws — for good reasons — have no such “design or sell” requirement in order to assert a patent. Ownership is irrelevant. Validity and infringement are what matter. As they should.

    It would also be helpful if you’d define what you consider a ‘troll.’ Really; given its widely-divergent definitions and the need for effective, worthwhile discussion and dialog concerning this very important subject; it would be great to see all blogs require that anyone choosing to use this pejorative term also be required to provide their definition of it.

    Without them, honest intellectual discussion is not possible.

    Respectfully, your bullet-pointed suggestions are clearly unworkable … and indeed even risky and dangerous for 95%+ of the SMBs receiving such demand letters. Besides the many hours such research would take (hours precious few SMBs could even dare hope to be able to spare), they’re not even going to know what they’re looking at … what it all means … or how to proceed.

    “Who’s doing the assertion?” Why, even the patent office itself often doesn’t know. And you know the law firm who sent them the letter isn’t going to reveal who the real party in interest is.

    “What other patents do they own?” This information is useless or virtually so.

    “What prior art could invalidate the claim?” You don’t really mean this, do you? Even the Courts can’t agree on invalidity. How can you expect the local Subway, UPS Store, or Supercuts franchisee to determine this?

    “Determine if there are other defendants (I assume you mean “letter recipients”).” Now this is a good idea … but then you fail to include any ways to accomplish this.

    Now here’s how really to respond to any such letters:

    Call Gene (or another patent/intellectual property attorney — your local bar association can help you with this), and pay for a consultation. A half-to-full hour consult with the letter in hand will likely give you enough information to make a truly informed decision of how to proceed.

    Now this is information you can actually rely on and use.

    Then you can get back to what you actually DO know how to do — running your business.

  3. Great post Steve.

  4. Steve, Anon-

    Let me take a swing at a couple of things. Having worked with John on the article and editing it to go live I might have some useful insights.

    In terms of the definition of a troll, the reference that provokes that question is likely where he writes about those legitimately characterized as a patent troll. Without getting into the whole debate about who is a troll and who is not, that was really just intended to acknowledge that the term is over used and at least some, perhaps many, that are referred to as patent trolls are appropriately labeled.

    I don’t know that the bullet points are unworkable, and as I pointed out in the Obama on Patents article posted earlier today, the advice is much better than what the USPTO beta suggests, which is just contact the patent owner. Having been sued on several occasions dating back to when I was a litigator (it was a stunt by opposing counsel) and more recently dealing with an Invention Promotion firm, I can tell you first hand that having action items that you can dive into really helps. I also think for at least some, perhaps many, it would be useful to learn as much about the patent owner as possible including whether they have gone after others or have sued others. If you can find out if this entity has sued others that raises the likelihood they will sue you, and it also potentially creates the possibility of entering into a joint representation situation or at least hiring an attorney already familiar with the patent owner and quite possibly the patents.

    In terms of prior art, in many instances the person getting sued will know of at least some prior art or prior usage that could call into question the patent claims. You are 100% correct to say that even Court’s don’t agree, and unsophisticated patent consumers won’t be able to evaluate the prior art, but finding what is available seems a useful task.

    In terms of who is doing the assertion, it can be difficult to know that, but there is a lot of information on the Internet any more so it is conceivable that some information could be obtained.

    I would agree that a consultation with a patent attorney would go a long way. I couldn’t believe the USPTO beta that suggests that an attorney might not even be necessary, which seems like clearly bad advice.

    -Gene