“Patent troll” is a common, arguably derogatory term for non-practicing entities (NPEs) – entities that assert patent rights without ever having practiced the inventions to which the patent rights pertain. Many NPEs are in the business of purchasing patents from small inventors and then asserting those patents against numerous companies that are allegedly practicing the claimed invention. Some argue that NPE are a nuisance with no positive contribution to society. That viewpoint, however, does not consider that NPEs are sometimes the only option for small inventors to monetize their legitimate patents. Regardless of where you fall on NPEs, the approach to handling NPEs can be incredibly strategic.
Two common approaches NPEs use when asserting their acquired patent rights include (1) the homerun swing seeking massive damages from huge companies for patent infringement and (2) requesting a reasonable royalty that is less than the cost of a lawsuit. The first approach is an all or nothing gamble that often takes years to work out in court. The second approach is a volume game. The NPE seeks relatively small settlement payments and it makes more financial sense for the defendant to settle the case than bother fighting it out in court. Sometimes an NPE will use both approaches when asserting a single patent.
We recently handled one such case where an NPE first attempted a homerun swing against one of the largest companies in the world. When that failed, the NPE began asserting the patent against a whole host of companies under the second approach. Our client was one of those companies.
Initially an attorney solicited our client on the promise that he was representing several other defendants and could handle the litigation on a “group rate.” Fortunately, for our client, he wisely consulted us. So, how did we ward off this troll?
First step was due diligence. We researched the prosecution and litigation history of the asserted patent. Because the NPE first attempted the homerun swing, we were able to dig up critical admissions by the NPE in the earlier litigation and a road map to invalidate the asserted patent. The admissions confirmed that our client was not actually infringing the patent and the road map provided us with a rare ability to file a motion to dismiss with relatively minimal legal fees.
Second step was the initial negotiation. The NPE wanted $125,000 to settle. We, however, had the upper hand. We have a nearly ready file motion to dismiss and a clear admission on the record that undercut the NPE’s infringement theory. When an NPE’s own admission renders the infringement theory frivolous, it’s clear that the NPE is a patent troll. So, we countered. Explaining our position and laying out the facts, we suggested that the troll dismiss the case before expending further time and legal fees on a losing case. No settlement was reached.
Third step was applying the pressure. We threatened to file a motion seeking sanctions for filing a frivolous complaint if they didn’t voluntarily dismiss the case. Remember, their own admissions undercut their infringement theory, which arguably supports a position that this case was frivolous from the onset.
Sure, this was an aggressive position, but we are advocating on behalf of our client. And it worked just as planned. The patent troll voluntarily settled the case the next day with prejudice, meaning that the troll is barred from refiling the complaint against our client. Our client didn’t pay the troll a dime to settle the case and hardly racked up any attorney’s fees.
That’s how you ward off a patent troll.