Patent Risk Digest

June 2016

A monthly update on market activity, legal developments, and policy related to patent litigation
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Why Companies Untouched by Patent Trolls Become Prime Targets

Companies that make, sell, or just use technology but have yet to be sued by a patent troll are particularly vulnerable to new lawsuits. More than half of the companies that patent trolls have sued each year in recent years have been “first-time” defendants—those that never before faced such litigation.

Patent trolls persist in seeking out first-time defendants because it is easier to get fast, lucrative settlements from them than from experienced defendants.

Surprise factor: First-time defendants are more likely to be blindsided by a patent troll suit—not only surprised by the attack but lacking expertise to readily evaluate the threat. Plaintiffs leverage the complexity of both subject matter and legal procedure in patent cases to get a fast and firm upper hand on less experienced defendants.

Sticker shock: It is widely understood that legal costs for a single suit can range from tens of thousands of dollars to six and seven figures. Plaintiffs count on first-time defendants to settle fast, motivated by fear of runaway costs and unpredictable results.

Control: First-time defendants are less likely to know about or utilize newer legal tools to fight back. Such tools for challenging the validity of an asserted patent—products of patent reform and the Alice Supreme Court decision—are largely used by well-resourced defendants that have the expertise, time, and budget on hand for such tactics. From a practical standpoint, first-time defendants often lack access to these tools, again giving plaintiffs greater power to pressure settlements.

Getting a Handle on Killer Legal Costs

Legal costs can be a business-threatening wild card in patent troll suits. Typically, legal costs comprise more than half of the expense in matters costing less than $10 million overall. But there is a way to drastically cut—even eliminate—the damage.

For suits costing between $100,000 and $1 million to resolve, 57% represents legal costs and 43% represents settlement or judgment costs, according to data updated through 2015. Legal costs are particularly high in patent troll cases for several reasons—mainly the complexity of subject matter and legal process, which results in extensive time spent by legal and technology experts to handle these cases at up to $1,000+ per billable hour.

Companies get caught in this expensive trap because they confront and try to resolve these cases alone, as they might with other forms of litigation. Patent infringement suits are different.

Patent trolls gain a significant advantage by suing many companies over the same patents. These litigation “campaigns” are a cost-effective strategy for plaintiffs, while the defendant companies each have to shoulder their own high defense and resolution costs.

By collaborating with a third party—one with the expertise and platform to resolve and even prevent such litigation on a larger scale—defendants can reduce both legal and total resolution costs exponentially. More information on this unique protection is located on our RPX insurance solution page.

New Entities Emerged in 2015 to File Waves of Lawsuits

Over 175 new patent trolls filed suit in 2015, more than in any year dating back through 2010, updated data shows. The nature of these entities—which together sued at least 1,000 defendants—sheds some light on the persistence of patent risk:

Some of the 175 are truly new entrants in the industry—indicating some growth and optimism in the business of acquiring patents for the sole purpose of suing and collecting lucrative settlements over them.

Some “new” patent trolls are actually created by familiar players in the market, formed both to protect assets and to obscure the existing troll’s connection to newly launched litigation. This tactic makes cases harder for defendants to assess, giving plaintiffs more leverage. That plaintiffs continue to use this strategy year after year illustrates how many successful patent trolls reinvent themselves to sustain their tactical advantage over defendants, and to continually generate lawsuits and settlements.

New Patent Trolls Filing Suit in 2015

New Patent Trolls chart

Contact Us

For further information on news and data presented in the Patent Risk Digest, or to subscribe now, please contact patentriskdigest@rpxcorp.com.