How to Kill a Troll — The Case for Formalized IP Risk Management

troll grilling

What do AT&T, Google, Carbonite and Level-Up all have in common?

All have faced patent litigation costing anywhere from a couple hundred thousand to millions of dollars to defend.

Technology companies of all sizes are falling prey to “patent trolls” or non-practicing entities (NPEs). NPEs are legal entities that have been set up to enforce patent rights but do not manufacture or supply services based on the patents.

While the best known patent infringement cases involve the global behemoths, the truth is, companies of all sizes are at risk.

Plaintiffs don’t care if a start-up’s license fees are paid for by venture funding or public shareholders. In fact, a recent study co-sponsored by the National Venture Capital Association found that one in three start-ups were accused of patent infringement. On the other side of the spectrum, public companies like AT&T, Verizon, Google, Apple and Samsung were hit on almost a weekly basis last year with patent suits brought by NPE’s.

Quick Settlements

Early-stage technology companies looking to innovate and grow usually can’t afford to fight a frivolous claim and are often forced to take the expedient and economically practical route of a quick settlement. The problem with this approach is the perpetuation and continued growth of a system that is diverting much-needed capital and attention from innovation to litigation.

For larger public companies, the litigation becomes a tax on shareholders and consumers.

Of course, not all cases are frivolous and there are those who argue that NPE’s play an important role in providing an avenue for the small-time inventor to “monetize” their creation. Whether or not you believe any individual case has merit depends on where you are seated.

However, there is no denying that patent litigation has increased dramatically.

Protection

So, how does a technology company protect itself when there is perhaps a 1-in-3 chance it will be sued for patent infringement?

  1. Of course, finding a good lawyer is the first step.
  2. After obtaining counsel, developing a formal IP risk management program is critical. IP risk management should be part of every corporate risk management program.

By many accounts, the value of a technology company’s IP assets represents well over 50% of its market cap. For many in the technology and life science sector, IP is the ONLY material asset, yet only a select few have include IP assets in their corporate risk management program.

Given the cost to develop new IP and the incredible future value of these assets, doesn’t it make sense to include these assets in the overall corporate risk management program? Life science companies generally have even more at risk given their extended development timeline and regulatory requirements.

IP Risk Management Programs

The good news is that insurance brokers & risk managers have developed programs to help companies of all sizes manage IP risk, especially those focused on the technology and life science sectors. A good IP risk management program will include the following components:

  • Patent Landscape Identification – This is used to help identify obvious and non-obvious stealth patents that may be of issue. There are various programs available that will use keyword search, semantic search and other metadata search functionality across an international array of databases.
  • Danger Signal Identification – Once the patent landscape has been identified, it’s important to filter out the “noise,” as studies suggest less than 1% of patents filed are ultimately litigated. Danger signs may include:
    • The amount of prior litigation related to the patent.
    • Ownership of the patent – Does the patent have a litigious owner? Was the patent recently sold? If so, was the patent sold to a NPE or a competitor?
    • Does the relevant patent landscape include any seminal patents that are often cited by subsequent filings and may have a substantial footprint on the area of technology?
    • Risk Mitigation – Once the relevant patents have been identified and assessed, what can be done to mitigate the risk of litigation? Can the patent be designed around? Does it make sense to license or buy the IP?
    • Risk Transfer – Should insurance be used as a hedge to protect or enforce my patent or defend me if my company is sued for infringement?
    • Pro-Active Monitoring – Periodic review and re-assessment of the patent landscape followed by danger identification, mitigation and transfer considerations once again.

While there is no substitute for sound legal advice and review once key risks are identified, there are plenty of resources to help those responsible for corporate risk management to adequately assess, mitigate and control IP risk.

Remember, small companies are easy targets because they do not have the resources to fight, and large companies are a target because that is where the money is.

It is an easy step to add IP risk management to your corporate risk management program and certainly worthwhile given the incredible value of IP as compared to the other risks facing technology companies.

Keep your pot of gold for the leprechaun and don’t give it to the troll.

 

About Steve Schoenberger

Steve Schoenberger is Vice President of Corporate Property & Casualty, based in Willis’ Boston office. He joi…
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