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Tech & Sourcing @ Morgan Lewis

TECHNOLOGY, OUTSOURCING, AND COMMERCIAL TRANSACTIONS
NEWS FOR LAWYERS AND SOURCING PROFESSIONALS

Companies that hold patents so that they can sue companies in an effort to generate revenue rather than create their own goods and services—also known as “patent trolls,” nonpracticing entities (NPEs), or patent assertion entities (PAEs)—are estimated to drain more than $80 billion from the US economy each year. Companies in the tech space are particularly vulnerable, and the vast majority of companies targeted by patent trolls settle rather than engage in costly litigation.

Many companies look for ways to mitigate the risk of patent trolls and the costs of litigation or patent infringement claim settlement. Companies can work together to pool resources, use their own patents as a defensive shield for purposes of countersuit, or purchase insurance to cover claims by patent trolls.

Patent Pools

Patent trolls frequently rely on purchasing patents from operating companies in order to file infringement claims against other operating companies. Patent owners, and sometimes even companies without patents that are concerned about patent trolls, can join one or more “patent pools.” In a patent pool, each member has a license to use the patents owned by other parties in the pool. Generally, these patent pools allow patent owners to continue to license the patents to others and sell the patents. However, by placing patents in a patent pool, the patent owner no longer has the ability to exclusively license the patent, and the patent pool agreement will typically require the license to travel with the patent to the new owner. There may also be costs associated with some patent pools. However, others are free. For example, PAX, Android’s Networked Cross-License, is a patent licensing program for apps in the Android ecosystem. Current members include Google, Samsung, LG, Foxconn, HMD, HTC, Coolpad, BY, and Allview, but PAX is free and open to anyone. Members grant each other royalty-free patent licenses. Currently more than 230,000 patents are covered.

Defensive Use of Patents

Companies with a strong patent portfolio or the right patents may, in some circumstances, be able to countersue a patent troll by claiming infringement of the company’s patents. However, patent litigation can be very expensive, regardless of the circumstances. Many startups do not have the patent portfolio and resources to fight against a patent troll in this manner.

However, the PatentShield program offers startups access to large patent portfolios that can be used in litigation. A company that is a member of PatentShield can take ownership of relevant patents from PatentShield and use those to countersue the other entity. PatentShield is part of Intertrust’s venture group and offers the program to startups in exchange for equity grants.

Insurance

A few years ago insurers began offering patent troll defense insurance to startups. However, these insurance products tend to have a number of exclusions that make it difficult to determine whether the cost of the insurance is worthwhile for a company. In addition, since these insurance products are relatively new, there are no guarantees that the insurance will be available on a longer-term basis, or be a reliable means of protecting a company from infringement claims from patent trolls.