This is going to be a different ride
Most high technology companies have a good grasp of the challenges and solutions for dealing with patent trolls. However, successful high technology startups face a threat beyond patent trolls: large corporate patent asserters looking to license their patents. Companies like Microsoft, Qualcomm, and IBM regularly assert their patents for strategic benefit and profit. These companies are not patent trolls by any typical definition, and companies should adapt their approach to handling patent assertions from these kinds of companies. We explore how we worked with a successful startup client to handle such an assertion.
Large corporate patent asserters are not like NPEs
Our client was faced with a multi-million dollar patent assertion from a corporate patent asserter claiming infringement of several patents. We helped the client adopt a successful strategy that differed markedly from the processes they had in place for handling all of their previous patent assertions from NPEs.
Fundamental to devising a corporate asserter defense strategy is understanding the differences between the corporate asserter and the NPE. As illustrated in Table 1, there are differences in terms of objective, vulnerability, and interaction pattern.
The corporate asserter had a history of litigation and licensing, a portfolio of potentially relevant patents, and a complicated business history with our client. Potential outcomes for our client ranged from not getting the patent license or arranging for a cross-license to paying for the license or going to full litigation. At the outset, we helped our client make it clear that, if the asserter hoped to receive a license fee and a cross-license, the asserter needed to show substantial value in their patent portfolio. From our client’s perspective, there were a number of decision gates that needed to be passed to validate any value proposition and possibly make a deal with the asserter (see Table 2).
There is a path to a patent license, but…
First, we helped the client articulate a clear and consistent policy for dealing with corporate assertions (see Figure 1). By setting a policy and communicating it to the asserter, we were able to show that the client was taking the assertion seriously, which is very important to avoid a knee-jerk patent suit from the asserter. We also showed the asserter that a counter-assertion might occur. Most importantly, communicating the policy showed that no patent license was possible without completing the process. An approach like this is difficult to argue with because a corporate asserter understands that the client’s executive team will expect the legal team to be able to articulate the potential value of any possible patent deal.
Step 1. Understanding the claimed infringement position
The corporate asserter initiated the assertion by sending a letter to our client stating that there was an infringement concern. Here the asserter provided claim charts mapping out how our client’s products infringed on their patents. Our job in the first step of the process was to clarify the asserter’s claims and analysis, what sources of information they used, and what legal, market, and technical assumptions they made.
Making sure to fully understand the infringement position is vital, as miscommunications and misunderstandings result in mistrust between the two parties, thus increasing the risk of litigation.
Step 2. Product analysis
In the second step, we analyzed how the products and features mapped by the claim charts actually worked. Here, interviewing in-house engineers was helpful. Through this step, we assessed the claim chart’s credibility and discovered insights that presented strong arguments for non-infringement.
As is often the case, the claim charts had gaps. The charts combined multiple, distinct elements and included inaccurate assumptions about how the products worked. These assumptions were not marked or referenced by the asserter. Identifying and understanding mistakes like these helped to deflate the asserter’s arguments about the value of their patent portfolio and took specific patents out of the negotiations.
Transparent exchange of information is important, and we shared technical details, such as flowcharts, system architecture diagrams, etc. The idea that you would share elements of how some of how your products work with the patent asserter may sound dangerous, and it can be. However, by this point in the process, we had legal agreements in place, and we had established a level of trust with the other party.
Step 3. Prosecution and prior art analysis
If the first two steps are about understanding the asserter’s value proposition and how it relates to our products, the third step is about “due diligence.”
We used a long list of diligence items, looking for holes in asserted patents. As the asserted patents were US patents, we reviewed the prosecution history to find relevant statements regarding the scope of the claims. We also reviewed international prosecution for any arguments we could repurpose for the US patents. Additionally, we conducted prior art reviews using both simple tools, such as Google Patents, and professional search vendors.
Patent licensing is a 12+ month process
In practice, this process is iterative. In this case, the asserter removed some patents from the negotiation and added others. Additionally, some mappings (infringement theories) were changed or removed, while others were maintained throughout the process. In total, the first three steps took over eighteen months. While the asserter might have preferred that the negotiations move more quickly, that was not possible, given the need for detailed information exchanges, followed by technical follow-ups and legal analysis of the positions.
The best defense is a good offense
After the initial interactions, we looked at whether any of the client’s patents were relevant to the asserter’s business. The client had an active internal patent development and buying program. We were able to find patents from both places to use in the negotiations.
We performed market analysis of the patent asserter, understanding where they made the majority of their money. We used a variety of sources, and we ultimately identified products and services that generated hundreds of millions of dollars for the asserter and also likely infringed the client’s patents.
Unlike NPEs, the corporate asserter often responds to a counter-assertion by going away or offering a lower price or different deal. Without a counter-assertion to present, it would have been harder to affect the asserter’s negotiating position. By counter-asserting, we showed the asserter that they derived value from our client’s patent portfolio. Counter-asserting shifts the dynamics of the negotiation and gives the smaller company more options in the negotiation. You can read more about counter-assertion strategy here.
In the end, the corporate asserter never returned to the negotiations. The combination of communicating the problems with the asserter’s patents and counter-asserting created a different risk-reward dynamic for the asserter. Importantly, this process was much less expensive than patent litigation.
The process of countering a corporate assertion is different from an NPE assertion and should be treated differently. Adopting a clear process aimed at evaluating the value proposition for any prospective patent license enables better communication both internally and with the asserter. The process also helps you communicate with your own internal team as to where you are in the engagement with the corporate asserter.