> They pick on startups because undercapitalized small companies cannot afford to be ideological. When faced with the prospect of extensive legal fees and a huge distraction, they do the pragmatic thing - they settle.
Patent trolling reminds me of a game of chicken. I wonder whether chicken strategies have been tried to combat it.
For example, if the start-up could position themselves so that it is profitable for them to defend themselves if they are sued by a patent troll, and the trolls were aware of this (and rational), the trolls may be scared to litigate. This could be in the form of "insurance" that pays out when the company successfully defends itself against a patent claim. Ideally, the fact that the company is insured would thwart off trolls, so the premiums could be lower than what companies currently pay out in settlements.
That's an interesting idea for a company! An company that insures against patent lawsuits. It would have be staffed by lawyers who know whether there are any possible patent violations but it might work.
As you said, the fact that you are even insured by this company may already signal to the troll to back off.
Nice idea but it doesn't work because when I sue you with a bogus patent troll, you can't make money out of it. All you can do is make the lawsuit go away and lose as little money as possible.
So it's a win-lose scenario. So there is no insurance possible. The best lawyers in your hypothetical insurance company, at best could convince the judge that you are not infringing. But it won't make you any money. So there is no business insuring against patent troll.
The good guys pay me money for insurance, I promise to release my team of ruthless lawyers on anyone that sue them, the patent trolls see my scary lawyers and don't sue. Doesn't that work?
It doesn't work with Patent Trolls (AKA Non Practicing Entities). What is the team of scary lawyers going to do? Since the trolls don't actually have a business or product, you can't sue them for patents they infringe. And their whole business is litigating patents, so tying them up in court is not exactly a deterrent. The trolls themselves are often lawyers, or just a company that employs lawyers on retainer.
> their whole business is litigating patents, so tying them up in court is not exactly a deterrent.
Lawyers can make a considerable amount of money, any disruption to the Patent Trolls' game will severely reduce their numbers. These Patent trolls, as you said, are often lawyers and by tying them up in court you are costing them profitability. Every non-settlement forces them to go to court and actually fight.
This is how the courts work: Out-of-court settlements are frequent and are preferred as it saves a Judge's time for real cases, however mass submission and withdrawal of suits are seen as a waste of the courts time and effort. A fair amount of cases end up in front of a judge before settlement, if these end up being withdrawn (and the judge will know it's withdrawn not settled) you're going to be in bad credence with a judge. Pissing off a judge is a big no-no. Patent Trolls will be pissing off multiple judges, which is like putting a shotgun in your career's mouth and pulling the trigger.
An insurance agency that fights patent trolls would be ideal. Offer $X amount of legal fee coverage for $Y a month, get a few talented lawyers and a fair amount of paralegals. Once word gets out, the majority of the work can be performed by paralegals (essentially everything up until you're standing in front of a jury-or-equivalent can be performed by paralegals) as no troll will want their time tied up. Eventually, only Trolls with a fair-case will fight, you then have 3 options to give your clients: offer them your lawyers' services/suggest settling/wish them good luck elsewhere. It would be a sort of no-case-no-extra-fee's deal.
Lawyer's typically bill by the 6-minute interval, and frequently charge 100's of dollars an hour. In fact 1-2 billed hours is typically a lawyers daily pay, and they may still have 6-8 hours on top of what they're billing clients. If you start consuming these lawyers time, their profitability drops, especially considering they require settlements for their pay. They're invested in the 'easy win', which isn't conducive to fighting a drawn out case. If companies actually start going through with the court battles, the payment is potentially delayed anywhere from 3-months to 3-years.
because a license might cost $1m, but going to court to fight it might cost $100m or more. It's a no-brainer whatever size you look at it. The win-lose equation here is about risk management: it's too risky for Microsoft, with an 'endless budget', to go against a troll.
In this instance, Microsoft's attorneys risk alienation too by playing the chicken game, and they don't want to do that.
How it could work is to find a judge who thinks patent cases like this are ambulance chasers, and then ensure that all the suits against you are relocated into her court. If you have a friendly judge then it becomes much easier to play chicken.
How it could work is to find a judge who thinks patent cases like this are ambulance chasers, and then ensure that all the suits against you are relocated into her court. If you have a friendly judge then it becomes much easier to play chicken.
How exactly do you do this? I've been wondering. It seems trolls are able to get these cases heard in disproportionate numbers by a strange little puppet court down in east texas that has become famous for being troll friendly. (and indeed seems to have based its entire local economy around it)
As a patent holder you are allowed to sue in any jurisdiction where your invention is made, sold, or used. So the trolls naturally pick a friendly court.
Has anyone tried boycotting this area of Texas? It would be amusing for PR purposes alone. Would they be able to run their courts without access to Microsoft products?
Part of my assumption is that if the patent should truly not have been granted, the start-up has a decent chance of winning if they have the resources to fight it. (I do know of some counter-examples, like RIM and D2L)
The trolls don't want to enter a losing battle because of the cost (even if they're in the business of litigation, time spent suing one company is time that could be spent suing another). Also, losing would damage the validity of the patent for future cases. (In my understanding, that is. IANAL)
In my reading, trolls rarely have just one patent. They tend to buy silly, trivial patents in bulk from wherever they can. Since a single lost lawsuit could cause the troll to lose only those patents they assert in the suit, the damage to them is minimal. I think this makes trolling even more insidious -- even if you (as a startup) win, you lose.
For example, if USV is typical and 1/3 of venture-backed companies are being attacked by patent trolls, then the premiums for this insurance would have to be extremely high -- enough to cover a third of the cost of defending a typical case.
There are a couple of other angles you could work here. In some jurisdictions, it's possible to seek damages for the cost of defending a failed lawsuit. I don't know if any of these jurisdictions extend this to patent litigation, or what tax and other implications might be of incorporating there (so that one might legitimately change venue to such a location). The two typical problems with this approach are getting into the right jurisdiction and being able to front the money for the defense in the first place.
Also, if the patent troll is suing a bunch of companies you're insuring based on the same patent, you could attempt to combine the cases, thus consolidating the defense costs. This works because patent trolls work by firing off lots of very similar lawsuits, each for a small enough amount that it's economical to settle. That's what keeps their costs down; such an insurance policy would let the defense leverage the same economy of scale.
The assumption is if you have few assets and the insurance then there would be little reason to litigate. Which would drive down the cost of the insurance.
Here is where insurance can actually increase litigation: a person without assets often isn't worth suing but a person with the deep pockets of an insurance company can become worth suing.
I still think it's good idea to create an anti-patent legal pool but it's important to understand all the angles...
The pool would only cover the cost of litigation not the cost of the settlement. So there is nothing additional to gain gain from suing. (Other than an attempt to put the legal pool out of buissness but that could be extremely cost prohibitive.)
The problem would be maintaining a reputation as someone willing to pay for long legal battles.
In some jurisdictions, especially TEXAS, a person appealing a verdict once had to post a bond equivalent to the settlement. Thus being able to fight and being able to settle were linked. I don't know if Texas still has this stricture in place, however. It seems really dodgey but it is perhaps one of many reasons the state is a favorite of patent trolls.
It could be further augmented by a cross-patenting association and a large common fund to put down enough collateral to allow appeals to continue indefinitely.
Essentially, if you could show that any patent-troll would face an SCO vs IBM situation, I think you could have some plausible deterrence.
That doesn't make any sense. You think an insurance company makes money when you wreck your car? No. Yet there are thousands of them in business. They make money by making the premiums of the insurance cost more than what they have to pay to fix people's cars. This patent insurance would work the same way.
Patent trolling reminds me of a game of chicken. I wonder whether chicken strategies have been tried to combat it.
For example, if the start-up could position themselves so that it is profitable for them to defend themselves if they are sued by a patent troll, and the trolls were aware of this (and rational), the trolls may be scared to litigate. This could be in the form of "insurance" that pays out when the company successfully defends itself against a patent claim. Ideally, the fact that the company is insured would thwart off trolls, so the premiums could be lower than what companies currently pay out in settlements.