Successfully Managing Intellectual Property Disputes as an Early-Stage Start-up
TechCrunch posted an article this afternoon written by attorney David Soofian, which caught my attention, addressing the issue of what to do as a young start-up if you are sued for patent infringement. In particular, the article addressed the challenges posed by so-called patent trolls, who use “weak patents to go after young tech startups” seeking licensing deals.
In the article, Soofian recommended that start-ups consider two key strategies to addressing patent suits.
First of all, if the patent at issue is on software, Soofian urged start-ups to challenge the eligibility of the patent, looking to recent court decisions in Ultramercial v. Hulu and Alice v. CLS Bank International for guidance.
Second of all, Soofian advised start-ups to pursue an Inter Partes Review at the Patent Office and to challenge the patent on grounds that it is not innovative and that it is obvious. Soofian explains that while this type of review was not traditionally available until a significant amount of expense had already been incurred in litigation proceedings, recent legislation has now made the proceeding more readily available to a start-up company with limited resources. Soofian identifies a number of advantages to pursuing this type of proceeding as a start-up over federal court proceedings such as the speed of the proceeding, the limited discovery required in such a proceeding, the fact that the burden of proof is lower, and most importantly, the fact that the court proceeding is stayed while the review occurs.
While Soofian’s article suggests that start-ups need not throw in the towel on their business efforts when they find themselves faced with the prospect of patent infringement litigation looming over them, as a transactional attorney who advises entrepreneurs and start-ups, I would caution businesses who receive demand letters–whether patent or otherwise–not to respond to those letters in a way that invites litigation. The mistake I often see many young start-ups and entrepreneurs make is that they either ignore demand letters altogether or they respond without the assistance of legal counsel and do it in such a way that is unhelpful to their position. In most cases, what is really in the best interests of the start-up is to make the claim go away as quickly as possible–not instigating a fight with the claimant.
As Soofian acknowledges in his article, most infringement demand letters are sent with the objective of procuring a license fee from the recipient, and in many cases, it is going to be far cheaper for the entrepreneur or start-up to settle the claim, whether legitimate or not, than to run up legal fees in litigation. While there is no question that so-called patent trolls and other bad actors may take advantage of this reality, the savvy demand letter recipient will conduct his or her due diligence of the available options and respond accordingly with the information in hand.
The bottom line: Soofian’s article should give hope to start-ups facing patent infringement disputes that will not necessarily run out of money and have to shut down simply because they have found themselves in a legal dispute. However, the savvy start-up will still deal with an intellectual property dispute in a timely fashion when it arises and try to resolve the problem long before it gets to the point of a filed complaint.