Most entrepreneurs think of patent trolls as parasites who obtain questionable patents to extort money from legitimate businesses. The trolls call themselves "patent-assertion entities" that help innovators get paid for their ideas. Whatever your definition, trolls haven't gone away, despite being reined in by the Supreme Court.
Omaha, Nebraska-based startup MyVitalz provides remote patient monitoring via Bluetooth devices and a cellular hub. In September 2016, founder Justus Decher got a letter from My Health accusing MyVitalz of violating U.S. Patent 6612985B2, "Method and System for Monitoring and Treating a Patient." The patent seemed to cover the entire concept of telehealth. He then got a demand for payment.
Decher didn't cave. Instead, he did some research. "I was amazed that all these companies were making agreements with My Health," he says. But some were fighting. My Health made him an offer: $25,000. "This was a licensing fee to cover a period of time," Decher says. "It wasn't going to be a one-time thing."
Fortunately, he discovered that the patent had been invalidated with the Supreme Court's 2014 ruling in Alice Corporation v. CLS Bank. "It sounds corny, but my first name is pronounced justice. I'd done nothing wrong," he adds.
The Alice decision disqualifies patents that are too abstract. But even with Alice in place, patent-assertion entities are filing more than 1,000 suits a year, according to Joe Mullin, policy analyst at the Electronic Frontier Foundation. If you receive a threatening letter from--or are sued by--a troll, here are some things to keep in mind.
1. Respond only through an attorney.
Demand letters can come with a deadline attached, which could prompt you to answer quickly. But trolls sometimes send out a mass mailing of threats, and then focus their attention on the companies that respond, explains attorney Rachael Lamkin, founder of Lamkin IP Defense and an expert on fighting patent trolls.
And remember, just getting a letter threatening a lawsuit doesn't mean one will actually be filed. There are plenty of patent-assertion entities that regularly file lawsuits, but many others send such letters and rarely sue. You need to find out which you're dealing with.
It could be a legitimate inventor, says Gene Quinn, a patent attorney and founder of IPWatchdog.com. "Not everyone who's trying to license a patent is a scammer," he says. Either way, respond only through an attorney. If you try to reason with your opponent, whatever you say will likely be used against you.
2. Do your research. Lots of it.
Start by entering the patent number into a search engine to get some basic information. Lamkin also recommends a service called Docket Navigator, which is priced starting at $79 a month and will tell you a patent's legal history. "If you see it's been litigated 100 times and they all settled early, that suggests it's a nuisance suit," she says. "If they're suing big companies and the litigation has gone on for years, then you're looking at a higher settlement."
3. Don't be in a rush to settle.
Paying a settlement quickly could lead to more demands. V. Sattui Winery in Napa Valley got a letter from a law firm for Landmark Technology, which claims its patents give it licensing rights over "processing business and financial transactions between entities from remote sites"--in a word, e-commerce. Landmark demanded V. Sattui pay $65,000 for a license. V. Sattui president and co-owner Tom Davies sought help from a San Francisco patent attorney, who told him that Landmark would settle for $25,000 or less. Davies nearly agreed, but then he talked to Lamkin. "I found out this patent claim had been asserted 90 times against different companies," he says, including CVS Caremark, Casio, and eBay.
Davies decided to fight and Lamkin filed a motion for a declaratory judgment and may seek legal fees. Davies will likely spend more than the $25,000 a settlement would have cost. "I'm OK with that," he says, "because if no one stands up and fights, it's just going to continue."
How to Choose an IP Attorney
Legal fees can kill your business, win or lose. In 2011, David Bloom, now a general manager at Sterling Talent Solutions, founded Ordrx, an open platform for restaurant ordering backed by Techstars and Google Ventures. A lawsuit was filed against Ordrx in 2012 by Ameranth, a hospitality technology company that had patent claims regarding online menu generation and a connected information and management system. Ameranth also sued Hyatt, Expedia, and Domino's Pizza, among others.
"It was basically a patent on the use of the internet for moving information and taking orders," Bloom says. (A federal appeals court invalidated most of Ameranth's patent claims in November. The company is taking it to the Supreme Court.) Ameranth wanted ongoing licensing payments, which Ordrx couldn't afford. "Every time I needed clarification, it cost me lawyer time," he says. With fees mounting, Bloom closed Ordrx. Ameranth president Keith McNally says Bloom infringed on his firm's patents and was offered generous settlement terms, and that his lawsuit is not the cause of Ordrx's failure.
Rachael Lamkin of Lamkin IP Defense says you can limit your exposure by asking these questions to any lawyer you are considering to represent you.
1. What is your analysis of this case and your strategy to win it? The strategy should be specific to your case, and not a generic approach. And the initial consultation should be free of charge.
2. What is the best way to end this case quickly? And how much will it cost if we achieve that quick resolution?
3. Will you agree to a fee cap? "I'll generally provide a fee cap if I know the troll and have litigated against them multiple times," Lamkin says.