2013-08-26

Co.Labs

How Startups Should Handle Patent Infringement Lawsuits

Rackspace's Alan Schoenbaum has advice for startups receiving their first patent infringement lawsuits:Educate yourself. Fast.



It's hard to find anyone in the technology or business community who doesn't believe America's patent system needs serious reform. The phenomenon of "patent trolling"—where mysterious patent holding firms sue companies for alleged intellectual property infringement, often for everyday technology like scanning documents or online shopping—is commonplace. Even the White House, which rarely intervenes in clashes between entrepreneurs and lawyers, decried patent trolls and called for reform. The root of the problem is that the American patent system developed before the digital economy's rise and is extremely ill-fitted to handling patents for intangible things like bits and bytes. Thus, enter the lawyers and these strange LLCs which patent anything and everything without actually developing the tech.

Alan Schoenbaum, head counsel for Texan hosting firm Rackspace, has been one of the loudest advocates for companies hit by the so-called "patent trolls." Last month, Schoenbaum appeared in the New York Times to discuss his firm's wranglings with IPNav, a "full service patent monetization firm" that has sued over 1,600 companies in the past few years. The big problem many firms are facing is the fact that the patent system currently allows for ambiguous patents to be filed—the same patent system which regulates gears and mechanical devices applies the same criteria to code. But when applied to software, United States patent law doesn't actually require reams of printed out code. Concepts and schematics are enough... which causes an obvious discrepancy between patent holders, troll-like or not, and the technology companies which do the hard work of actually conceiving, designing, manufacturing, and marketing technical innovation.

In a recent telephone conversation with Schoenbaum, Co.Labs explored what patent trolls actually mean to startups, and what to do if a company receives a spurious, and financially aggressive, infringement lawsuit. One thing emphasized in our talk is that not all companies are targeted by troll-y lawsuits; aggressive patent holders tend to go after large corporations, midsize firms, and small companies that are just enjoying their financial success. This leads to a dilemma: A company that is becoming prominent in their field actually puts themselves at risk of a lawsuit.

Unfortunately, the advice Schoenbaum gave for startups and small companies is something close to what you'd expect.

The first advice he gave to firms was to educate themselves, quickly. Schoenbaum is a particular fan of Trolling Effects, a site run by a consortium of organizations including the Consumer Electronics Association, the Electronic Frontier Foundation, and the UC Berkeley Law School. Trolling Effects is designed as a one-stop shop for basic information in patent law and technology. Alongside primers on patent law, the site offers one very important resource. The centerpiece of Trolling Effects is a recently launched archive of legal threats from patent holders that allows sued companies to easily compare and contrast anything they have received.

For tech companies on the receiving end of intellectual property lawsuits, Schoenbaum also recommends further education. He told me that firms receiving threatening letters need to brush up on "Prior art to help defend themselves, and to make sure that a patent has to be unique and non-obvious... something that's never been invented before. There are lots of ways to deal with this."

Then, most importantly, Schoenbaum stressed that recipients of threatening patent infringement letters need to lawyer up as quickly as possible. As he put it, "It's almost impossible to deal with it on your own; the entire system is rigged against ordinary people. But there are great lawyers in Silicon Valley and elsewhere. But the high cost of lawyers is why we need to change this system." Although he did not mention any specific lawyers with background in the area, a quick Google search for patent troll lawyers found hundreds of legal professionals dealing with this area of the law.

Will patent trolls still be a problem five years from now? We simply don't know. Large companies like Intel and Twitter have aggressively begun cataloging patents for defensive purposes only in order to defeat patent trolls. Individual states such as Vermont, Nebraska, and Minnesota are all exploring innovative legal methods for foiling gratuitous patent lawsuits. But federal bureaucracy moves at a legendarily slow speed, and we still don't know how long it will take for reform to bring patent law into the digital age.

[Image: Flickr user Jon Rawlinson]






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