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Practical Tips For Combating Patent Trolls In 2016

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POST WRITTEN BY
Lee Cheng
This article is more than 8 years old.

While my official title is “Chief Legal Officer,” I am often known as Newegg’s “Chief Troll Hunter.”  I earned this title after dedicating years to fighting the war against patent trolls both inside and outside the courtroom, in East Texas and elsewhere. I’ve witnessed first hand the way patent trolls have evolved, and seen what tech companies can do to stop the “legal extortion” of trolls. We may all have competitors in the marketplace, but patent trolls are a common enemy that must be stopped as a threat to true innovators and entrepreneurs everywhere.

The negative impact of patent trolls, or those who abusively assert patents, is well-documented, and growing. Over six times as many patent lawsuits are filed today as in 1980 and the number of patent assertions, after taking a brief holiday in 2014, rose steeply in 2015rising. Some estimate that abusive patent assertion drains over $80 billion each year from legitimate businesses and the American economy in the form of settlements, legal judgments and costs and lost productivity and opportunity.

2015 was a huge year for trolls. Despite some positive changes on the legislative front and in courtrooms, abusive assertion hasn’t ended. Instead, trolls have evolved and refocused, driving asserters down a double path. at one level are the “big game hunters” that go after large corporations like Microsoft, Apple and Google using patents that are often technically valid, but in reality added very little real value to anyone’s products or services.

Then there are the “ankle biters” or “nuisance” trolls that file often dozens, and in some cases over a hundred, lawsuits at a time, seeking small settlements with patents that are often pathetically weak. They tend to prey on small to medium sized businesses (SMBs) who can’t afford to fight them, or large companies who would view their five to low six figure demands as a nuisance. Fighting a patent claim is expensive, and small businesses don’t have millions to spend taking a case to trial, so they cut a five or six figure check just to stay in business or as a preferred alternative to spending more on defense even though the suits are almost always meritless.

Today, the ankle biter trolls are responsible for the vast majority of filings, and trend lines show that more lawsuits are being filed against SMBs, which are the engines of innovation and job creation in the US. While a frivolous patent lawsuit hurts companies of all sizes, they have a disproportionate impact on SMBs. Paying a settlement to a patent troll means a small business can’t hire a critical engineer, grow its sales team or adequately fund R&D efforts. The impact of patent assertions extends far beyond damage to one company, stymieing the innovation ecosystem and harming the economy as whole.  Some small companies have had to go out of business after being sued.

That’s the bad news.

The good news is that companies, and even small ones, are far from helpless. There are steps every business can take to protect itself from patent trolls and minimize their risk and cost. In doing so, you also help curb the power of patent trolls and fuel the tech industry’s battle against them.

Fight

One of the most important things you can do is fight. Patent trolls are only able to do what they do because companies are willing to settle quickly to avoid costly lawsuits.  Trolls and their contingency fee lawyers absolutely depend on quick, easy settlements—it’s a critical part of their business model. Trolls are economic terrorists, and at Newegg, we realized early on giving in to terrorists simply encourages more terrorism.

But fighting hard doesn’t mean fighting every battle to the end.  As a practical matter, not every organization has the resources to do so.  However, rolling over quickly helps to feed the beast.  If trolls did not receive enough quick and easy settlements, trolling would no longer be as lucrative or risk free, and fewer people would be doing it.   So the point is that even if one has to settle, or it makes too much sense to settle, settle hard.  Be the biggest pain in the butt you can.

At the same time, it’s important to not just fight hard, but to also fight smart.

There are a number of ways to fight smart.  The most important relates to controlling costs, as trolls depend on the high cost of defense to drive defendants to settle. For starters, avoid expensive defense counsel.  Using defense counsel who bill at high rates virtually guarantees that you will lose the war of attrition against a troll.  Instead, look for lawyers at boutique firms who have successful track records dealing with the specific troll or plaintiffs’ lawyer. Also, try to do as much work as possible in-house.  A lot of the work commonly done by outside counsel or their staff billing by the hour isn’t really rocket science and can easily be done by in-house counsel or even non-lawyers.  Also, require any lawyers you do hire to look for opportunities to collaborate or share costs with lawyers representing joint defendants.  In some cases, you will need to force outside counsel to collaborate efficiently, as they candidly don’t have the same need to be as concerned about your budget that you do.  Conserving resources for a longer fight, whether or not you end up using it, will generally provide a better overally outcome, as trolls absolutely do not want a fight—they want quick settlements.   It’s telling that less than 1 percent of all defendants in suits filed by patent assertion entities (PAEs) are ultimately found guilty.

Find friends

It is critical to find friends. You don’t have to fight this battle alone, and you will fight better if you can share costs and knowledge. Look for defendants and defense counsel who have dealt with a particular troll in the past or who have a successful track record dealing with trolls. Another option is to join a community of companies that have banded together to fight the good fight. There are a number of non-profit and for-profit organizations, such as the LOT Network, Symmetry and Unified Patents that help businesses on how to protect, defend, and even go on the offensive against trolls.

Another strategy when dealing with an ankle biter troll is to bring defendants together to collectively mount a well-funded, well-organized defense. If everyone sued by a troll in a multi-defendant case shared costs, they could mount an incredibly vigorous defense for far less than the cost of settling. A single company may not want to shell out $250,000 on its own, but if 25 defendants contribute $10,000, they could fund a defense that would likely blow the case out of the water, or at least cause the troll and its contingency fee lawyers to either turn tail and run or starve for funding.   It’s simple math.

This approach requires someone or a group of people in-house at defendants to do the work of pulling everyone together and organizing, but the effort is well-worth it. It means you have a viable tactical alternative to settling and a better chance of victory, and you starve the other side of the funding needed to hurt you. Even if you or the rest of the defense group end up settling, it is more than likely that a troll, faced with a fully funded and well-organized defense group, will ratchet down their demands to genuine nuisance levels.

Be loud

It’s a common instinct among lawyers to avoid commenting on patent troll cases because people are afraid of saying the wrong thing or that what they say will be used against them.  However, that attitude reflects risk management by eliminating all risk, and a thoughtful risk manager understands the importance of properly calculating risk and taking ones that will generate positive results.

Speaking out is a tool, like any other. If you take the time to think through what to say, and believe that what you say can help achieve the outcome you want in litigation, then say it. And don’t be afraid of candor. When you think something is wrong, say it’s wrong.  If a patent is a piece of crap, call it out and don’t let the other side hide behind legalese.

I learned this lesson firsthand at Newegg after years of fighting back against patent trolls, and never losing a case (after appeals). We take every patent assertion claim that we do not think is valid and fair to trial. I realized that we could have saved thousands of dollars on cases if we had sufficiently publicized our position, stance and track record, because no trolls or their contingency fee lawyer would think it worthwhile to sue us in the first place.  The world is too full of sheep for trolls to want to target the billy goats in the herd.  Trolls consider themselves “businesspeople” and it’s bad business to sue a party that fights back and encourages others to fight back.

Leverage public opinion to make it clear to plaintiffs and plaintiff lawyers that if they sue your company, they will either outright lose money, or make a lot less.  That warning has a lot of appeal to those whose livelihoods depend on being able to get easy settlements.  If you’re proactive about working with other companies, the message gets even stronger: the troll community, and the plaintiff lawyer community as a whole, will grow to understand that including a company that fights back in a complaint will result in a far less desirable economic outcome.   They will start to avoid you, as they have avoided Newegg.  Our hybrid strategy has proven very effective: Newegg has only been sued twice by patent asserters since 2012.  In both instances, we were dismissed from the lawsuit shortly after the troll realized they bit off more than they could chew.

In Conclusion

For far too long, a patent assertion claim has been the equivalent of diagnosis of a terrible, annoying disease (like a horrible rash) with no cure other than spending time, money and resources for a temporary, unsatisfactory relief.  While not all companies can go “Full Newegg” on a troll, far more tools are available to defendants in 2016, and far more parties are aware of the threat poised by trolls to their businesses, their industries and the American economy.  It’s easier than ever to fight hard, to find friends in a fight against a patent troll, and to use and leverage a growing number of tools and strategies, including PR, to get them to leave your business alone.

It does take more thought, planning, and effort, but I can assure you the outcome is far more satisfying than cutting the quick check.