Advisors who number venture capitalists, startups and emerging growth companies among their clients might already know about a lurking threat to businesses: patent infringement suits brought by nonpracticing entities (NPEs), also known as patent trolls.
Such suits can get expensive, and many young companies don’t have the resources to research the NPE’s claims, find a lawyer or even simply pay up. Some ultimately close up shop.
However, RPX Corporation recently announced that it is offering coverage to small companies “designed to reduce the risks and costs created by patent infringement lawsuits.”
The first time many companies hear about these suits is when they receive a letter from an NPE telling them that the technology they’re using is under patent to a firm with whom those companies have not signed licensing agreements. The NPEs try to get a settlement or a royalty arrangement. Either can cost a company a considerable amount of money even without taking the matter to court.
Some NPEs buy up idle patents and go after companies on the chance they can be intimidated into paying to use technology that may or may not even be related to the patent in question. Others represent, or claim to represent, patent holders who say they’ve been ripped off by a company’s use of technology.
While many suits have been against large companies with potentially big paydays, many others are against companies too small to afford the time and cost of defense. Early this year, Cisco, Motorola and Netgear threw in together to fight the suits brought by Innovatio IP Ventures, which went after chain hotels and coffee shops—hardly hotbeds of technology innovation. Innovatio was asking for relatively small amounts, but boldly asserting a patent claim on, of all things, using WiFi.
Innovatio started filing suits in 2011, claiming infringement of 17 patents and sending 8,000 letters demanding licensing fees in four-figure amounts. In October 2012, the three business biggies brought a lawsuit against Innovatio that alleged RICO violations in its approach to suing the hotels, which was ultimately thrown out by a judge in 2013.