Don't Fear the Patent Trolls

One of the concerns revised by start-ups is fear that their small company will be sued by a Patent Troll (Non-practicing entity). Generally this concern is premised that the software (it is almost always a software start-up which fears patent trolls ) used by the start-up is covered by some obscure software patent.

Much like the Satanic Moral Panic scares of the '80s and 90's, the fear of patent trolls outstrips the actual reality.

Generally, the goal of a NPE is to obtain a lump sum payment for past infringement. Suing a start-up which has not demonstrated any revenue, or even a viable business plan to generate revenue, wouldn't gain any meaningful recovery. In order to recover for patent infringement, you have to show lost profits, reasonable royalty or willfulness. Since NPE's (by definition) do not practice the patent, they have a hard time showing lost profits. Thus, they rely heavily on a reasonable royalty of the Companies' profits.

If your start-up has barely received a series A funding round, the profit motive for litigation is not there. That doesn't mean that a NPE won't send you a letter alleging infringement, thus trying to rattle the tree a bit in the hopes that you have deep pockets. However, if you are a start-up without a lot of revenue, or a famous or wealthy founder, odds are you are not going to find yourself in Court.

However, if you do receive a nasty gram from a lawyer claiming patent infringement, ask the sender to identify the patent and the particular claims alleged as infringed. Wait to hear back from them. If they get back to you in a manner that does not answer those two questions, then it is time to contact a professional IP attorney.

The point is that NPEs suing start-ups are not a wide spread issue. A quick google search shows about half a dozen high profile instances, but that is contrasted against the list of start-ups supported by every major venture firm out there.

Not every start-up is being sued into oblivion on the basis of specious patents. For instance, the Government Accountability Office found that Patent Troll Litigation only counted for 20% of patent litigation cases in the US. The rest were simply run of the mill patent disputes. Of that 20%, most NPEs directed their fire to major multi-national corporations, not 3 man start-ups.

Code, innovate, and create. Don't spend your time thinking that their are monsters under the bed.

Jordan Garner