Monday, April 8, 2013

Patent litigation; Now the cost of doing business?

According to Forbes, patent trolls now account for the majoity of  patent lawsuits in the US. It's clearly been a growth industry as the percentage of troll induced suits grew from 45 to 62% in the last year; more than ten new troll suits evey day. Of great concern to me is that 55% of troll defendants earn less than $10mm in revenue (per Collen Chien, Santa Clara University Law School). My experience is that these firms already have enough roadblocks to success and IP suits, no matter how far fetched, have huge potential to disrupt progress, if not the sustainability of young companies. I am confident that, given the uncertainty of ligitation, and the huge exposure in real dollars, many a financing or potential exit needs to have these matters settled before a buyer proceeds with the transaction. Regardless of the settlement, the cost of litigation, in the many hundreds of thousands of dollars, plus the management distraction are huge issues for all of us.

Below is a chart (credit RPX) showing the marketshare growth of the trolls. This only happens when a business, no matter how nefarious is profitable. In fact, per the PWC report cited below, the annual median damage award was $5.3mm. It's significant that when these cases are heard by juries, the rewards to non-practicing entities tend to be many multiples of those awarded by judges. Therefore, there is a peverse incentive for NPE's to not settle, but to push an average of 2.5 years, for a jury trial. Based on performance, the odds are stacked against the defendants

*non- PAE are non practicing entities, usually corporate shells whose only assets are patents

The present administration is trying to help with the reintroduction of the SHIELD Act and hearings are being held by the House Judiciary committee on the topic. The key provision in the Act is for losers in these suits to bear the costs of both parties, akin to the British system of torts. I am not sure this is a good solution as it always favors the 'deep pockets', but something has to be done.

For more information, here's an excellent PWC report on the topic from 2012.

I applaud the efforts of one of our industry associations, the SIIA  (links to their relevant activities) to help. It would be great if they were joined by the NVCA and others too.