Should You Follow the Advice of this Start-up if Approached with a Demand Letter by a So-Called ‘Patent Troll’?

0 Comments Written by on March 23, 2015 | Posted in Patent Infringement Litigation

Tech Crunch published an interesting commentary today written by Chris Hulls, Chief Executive Officer of Life360, in which Mr. Hulls shares his story of taking on a patent troll and urges other start-ups to do the same.

For those of you who are unfamiliar with the Life360 patent case, Ars Technica recently published an article on the case, which provided some additional background on Life360’s patent infringement fight against Advanced Ground Information Systems (“AGIS”).  Apparently Life360 received a demand letter after closing a third round of funding for $50 million demanding that Life360 license the AGIS patents, and issued a rather colorful response to the demand letter, which fast-tracked the matter into court.

Mr. Hulls’ commentary is striking on a variety of levels.  His story itself is unusual, as it is not everyday that you hear of start-ups making the gutsy move to fight a patent infringement case.  Of course, even rarer is the occasion when a start-up makes such a decision and achieves a good outcome as a result of the fight.  But beyond the facts themselves, Mr. Hull’s colorful language and editorializing of the case after the fact is noteworthy.

The advice itself that Mr. Hulls offers to start-ups can be summarized in three points: (a) publicly call out the “troll or predatory law firm”; (b) pool resources with other start-ups as a defensive strategy; and (c) commit to the fight without backing down.

While I think this particular story, as well as the takeaway advice provided by Mr. Hulls, merits discussion, and certainly should be viewed by patent holders who might fall in the category of constituting a ‘patent troll’ with concern,  I would urge start-ups in Silicon Valley and elsewhere to be cautious in following in Mr. Hulls’ footsteps and adopting his advice in its entirety.

First of all, I will state the obvious: if you take on a fight like this, you need to have the money to finance it.  While as a start-up, you may find it challenging to pay your attorney bill in normal circumstances, but if you decide to take on any litigation rather than resolving it via settlement, you will most likely incur far more significant legal bills than you will ever incur for any other type of legal matter.  In the discussion after the Hulls’ editorial, Chris Hulls conceded that his legal bill in this matter exceeded $1 million.  Many, if not most, start-ups simply do not have the resources to be able to finance $1 million or more in legal fees.  Of course, even when they do, the investors may not be happy about their burning so much cash–and human resources–on a patent infringement battle that could have been settled.

Second of all, start-ups need to independently evaluate the facts and the legal risks of their particular dispute independently from what happened in Mr. Hulls’ case.  Not every start-up who takes on this type of patent infringement battle will see a favorable outcome to their case, and start-ups should not automatically assume that they will get the same result if they take the same approach.  Seek the counsel of an attorney you trust to advise you on the merits of your particular case, and make an educated decision as to how to proceed only after considering the advice you receive from your trusted counsel.

Third, I would urge start-ups to be cautious about launching a public campaign against a law firm or other third party, as you could easily create new legal problems for your company and yourself by what you say and do in that campaign.  If you are going to take on any third party in the media as a start-up, you want to make sure that you are seeking both legal and public relations advice in conjunction with your strategy.  You definitely are not going to win any friends by taking a campaign against a third party public, so it would be wise to think through your strategy with advisors who are in a position to guide you away from making major missteps in how you approach the campaign.

Having said all this, I agree that the pooling of resources can at times can be a very effective defensive strategy.  Information is power, which is why larger companies have been known to pool resources with other companies in particular situations.  There is no reason why start-ups should not take the same approach when appropriate.  Of course, if your start-up shares information against its own interests, that could backfire, so some caution should be taken before adverse information is shared with any third party, even a fellow start-up.  Also, being prepared to take a strong legal position when the facts are in your favor or the negotiation power is in your hands should be applauded, as start-ups traditionally have a hard time drawing lines in the sand not only against legal bullies but also just in deal negotiation generally.

So, my advice to start-ups reading about this case: be cautious in following in Mr. Hulls and Life360’s example.  This case proves that the little guy can win a patent fight; however, this is a unique story with a highly unusual outcome, and start-ups would likely be wise to view this story in just that light.

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