Wireless Companies Prime Targets for Non-Practicing Entities
The wireless industry is a hotbed of innovation, with consumers and businesses worldwide clamoring for the newest, fastest and most powerful wireless capabilities. That same success makes the industry a prime target for non-practicing entities (NPE) or "patent trolls", whose demands can be remarkably costly for big businesses and can literally bankrupt smaller innovators.
Although any business developing emerging technology is a potential target, there are things every company can do to help protect against patent infringement suits from NPEs.
How NPEs Work
NPEs typically amass a portfolio of patents, seeking to cover a particular field of technology, but do not practice the claimed inventions. After acquiring such patents, they target companies, usually through a cease and desist letter or a licensing offer. They typically offer a license at what the NPE claims is a discounted price from what would be sought if the matter were to go to trial. These demands can range from tens to hundreds of thousands of dollars, usually below the $800,000 to $1.5 million that taking a patent case to trial typically costs.
The recipient of a demand from an NPE is faced with a dilemma: pay a licensing fee, which is often expensive but intentionally less than litigation would cost, or resist, and likely face litigation.
Wireless Companies Targeted By NPEs
Companies in the wireless industry are attractive targets for NPEs because of the plethora of technological innovation and advancement in the market. There are several large NPEs targeting the wireless industry, including Acacia, NTP, Klausner Technologies and Wi-Lan, which is said to have spent nearly $30 million in lawsuits in 2010.
Wi-Lan, for example, has sued companies including Apple, Dell, Intel, Cisco, Comcast, Time Warner Cable and HP – many of them more than once – for allegedly infringing on patents that cover everything from Bluetooth technology to Wi-Fi to cable systems and modems.
NTP, a company whose primary asset is a portfolio of 50 U.S. patents, made headlines in 2006 by winning a $612 million settlement from Research In Motion (RIM), maker of the BlackBerry handheld device, and then suing Apple, Google, HTC, Microsoft and Motorola over mobile email patents again last year.
That's not to say that NPEs only target large companies. With literally thousands of patents issued covering a wide range of technologies, companies of all types and sizes in the wireless industry that have not already been contacted by an NPE can expect to find themselves in the crosshairs in the future, and the results can be devastating.
Minimizing Your Risk
There are several steps companies can take early on in the development process to minimize the risk of being targeted by NPEs. NPEs are looking to monetize their patents by obtaining the most money with the least amount of work – usually through efficient settlements. By quickly and proactively taking steps to minimize future damages, as well as being ready to delve into the merits of the case with deep technical emphasis, you can make yourself a relatively unattractive target.
While the steps below are designed to help avoid being the target of an NPE, they are also a good starting point in the event you do become a target:
- Contact legal counsel that is qualified in both patent law and in your particular field of technology. Counsel will likely:
- Obtain the patent and the file history to determine the actual scope of claims cited, the arguments made by the patentee, and statements made by the patent examiner.
- Determine if the asserted patent is valid.
- Determine if the patentee committed "inequitable conduct" during the prosecution of the patent, rendering the patent unenforceable.
- Carefully review the accused product/system to determine precisely how it works.
- Determine if you infringe upon the patent, and provide a non-infringement opinion if you do not.
- Provide redesign options in conjunction with your design team - even if you do not infringe - to make it more clear there is no infringement and to eliminate future damages.
- Immediately assess what products might be at risk. Even if you don't believe the accused products infringe the asserted patent(s), you should consider changing the design or removing a feature that could be alleged to infringe in order to cut off potential damages. This should be an economic decision based on the overall cost of such a change, including customer reaction. If pride, ego and/or "being right" enter into the analysis, the "cost" to your company might increase greatly. Remember, this is simply an economic transaction for the NPE, and it should be for you as well.
- Avoid liability for past damages by showing that the accused product or method does not infringe the patent, or that the patent is not valid. In-depth knowledge of how one's own product actually works, as well as understanding precisely what the patent claims cover, is critical.
- It's important to meaningfully assess whether your product infringes, and what can be done to make it clear that future products do not infringe.Removing future damages eliminates a potential windfall to the NPE, while digging deeply into the technology forces the NPE to engage in significant amounts of work. Many NPEs engage counsel on a contingency basis. They typically are not well suited to deep technical analysis and may need to engage outside experts, once again increasing the NPE's own costs and reducing the profitability of the transaction.
- Enlist the help of "flat fee" legal counsel.By engaging defense counsel on a flat fee or capped basis, you effectively put an upper limit on a likely settlement. If you engage defense counsel on an hourly basis, without a binding budget, you may find yourself in a common predicament of having to settle the case when you have exceeded your legal budget, in effect having to pay what the NPE demands to avoid incurring additional legal costs.
NPEs offer the predictability of settlement as an alternative to the often-unpredictable cost of defense, positing a settlement offer slightly below what they estimate to be your cost of defending. If you have a finite, predictable cost of defense, you have negated many of the NPE's advantages and equalized the risk among the parties, generally leading to much more favorable settlement terms. Further, with legal costs in check and a known cost of actually proceeding through trial, you can offer a credible threat of going to verdict, and invalidating the patent.
None of the above can stop the seemingly endless line of NPEs seeking to secure a payment from your business. However, when incorporated into a well-designed intellectual property strategy, they have proven to be a successful and cost-effective method of dealing with the inevitable demands you will receive from NPEs.