Patent Risk Digest – August 2015

Troll Suits Surge in First Half of 2015

Patent trolls have been turning up the heat in 2015, with smaller companies bearing the brunt, facing more than 1,400 new lawsuits in the first half of the year.

Comparing six-month periods, more troll cases (2,026) have been filed in the first half of 2015 than in any other half-year period since 2012—including the first half of 2013, in which troll litigation peaked at nearly 2,000 suits (see Figure 1).

Figure 1

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Companies with less than $100M in revenue were hit harder by trolls (see Figure 2). The bottom line: small companies are still a big target.

Figure 2

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Blindsided: How Trolls Get a Swift Upper Hand

A widespread lawsuit campaign targeting dozens of companies this year is a prime example of how easily patent trolls put their targets on the defensive and gain immediate advantage.

The cases filed by Texas-based troll Wetro LAN hit businesses as large as consumer electronics giant Vizio and as small as the Southern California-based tech company Hacom, LLC. The campaign—based on a firewall patent that expired in 2012—highlights how patent trolls can leverage the legal system and rules governing patents to get the upper hand on unprotected companies. In this scenario, Wetro LAN could sue despite the expiration of the patent because patent damages can go back six years. The summons and notice of suit that Hacom received in March demanded that the company respond within 21 days—or face default judgment. The case was dismissed months later, but only after Hacom retained counsel and went to court.

Wetro LAN began its litigation campaign in January 2015, filing more than 50 suits in three rounds.

$600,000: Why Are Troll Suits So Costly?

For smaller companies with less than $1 billion in revenues, data shows that the cost of dealing with a patent troll suit averages about $600,000, although this number can run into the millions on the high end. Legal cost is the biggest contributor, at least for cases that settle or end in judgment for $10 million or less. Why?

It’s expensive to get specialized legal help.

Patent law is complicated, and the technology at issue in many patent cases is even more so. Specialized legal help can run from the mid-hundreds to over a $1,000 per hour.

It’s expensive for experts to get up to speed on any given case.

Patent law specialists may be versed in the complexities of patent law—but patent suits often further require specialized knowledge of a particular technology. In such cases, the lawyer needs exponentially more run-up time to understand the nature of a case and how best to respond. Legal counsel also may need the help of additional experts (at further cost) to fill in the knowledge gaps.

Data on trolls and analysis of patents is relatively limited.

Again, getting up to speed often involves securing information on the plaintiff (troll) in a case as well as analyzing the patents at issue—necessities whether the strategy is to fight a case or settle. Such data and information is limited, and tracking it down contributes to the pile-up of billable hours.

Even settling early is expensive.

Trolls often succeed in extracting hefty settlements quickly because they know companies don't want to risk a jury trial, and it’s easy to leverage that fear. Juries in patent cases are particularly unpredictable because they are untrained in the nuances and technological issues on which patent cases often hinge.

Your Patent Litigation Risk

Patent trolls—also known as NPEs or non-practicing entities—have a simple business model. They acquire patents directly from inventors, through patent brokers, or from companies selling off assets, then target operating companies that may be infringing those patents and bring legal action to generate a payment.

The legal costs alone of a single infringement litigation can range from six figures to several million dollars. For large companies it is a frustrating problem that can reduce investment and profitability. For smaller companies, a patent troll attack can be fatal. Patent trolls have increasingly targeted companies—both suppliers and users of patented technologies—in a broadening range of business sectors. That means companies can be vulnerable just by running their websites, managing their E-commerce, providing WiFi access, using mobile devices, or deploying enterprise software solutions—all operations that utilize patented technologies.

RPX provides a suite of business solutions to reduce the expense and likelihood of such litigation. One is NPE Patent Litigation Insurance, which combines a traditional claims-paying policy with select, proactive intervention in the patent market. RPX has a uniquely broad and deep store of litigation cost data, and with it has built a highly accurate actuarial model for patent troll risk and cost. Policies are customized to reflect a company’s size and risk profile.

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