The scenario can be inverted: patents can be asserted against startups. Generally, many startups do not need to worry about patent licensing or infringement initially because they are not yet successful. They are not big targets for a lawsuit.
However, startups are vulnerable to "patent trolls". Patent trolls target smaller companies more than larger ones. Smaller companies lose more in time, money, and operational impact relative to their size. Startups do not have the financial and legal resources available to larger companies. They prefer settling, to the uncertainty and expense of the courts, even if a ruling would likely be favorable.
Professor Colleen Chien at Santa Clara Law surveyed venture capital investors with patent experience:
75 percent said that an NPE had made a demand on their portfolio. For tech-focused VCs, that number reached 90 percent.For successful or growing startups, they may be sued by larger competitors as well. The larger competitor may seek an injunction, legitimate or not, in order to push the startup out of business.
In a twist of fate, startups have actually partnered with patent trolls in order to litigate against larger competitors.
Recent reform (fee shifting to curb frivolous lawsuits, improved patent quality, and education on responding to patent demands) could have a positive effect in the future.
The stats are interesting. And I didn't know that startups partner with patent trolls to litigate against bigger competitors. A lot of my friends are starting their new startups, and I don't think this is something they would've imagined beforehand. I feel like that's yet another disincentive for new business creation. Patent is protecting innovation but at the same time it is not. Weird.
ReplyDeleteI agree that recent reforms such as fee shifting can help the growing start-ups, but the cost will only be shifted after the ruling, and start-ups still need to have millions in excess to litigate. However, the reform may mean that the VCs can step in with extra funding to help the start-ups defend the case, if they are confident of winning.
ReplyDeleteI agree that fee shifting will be of great help to these microentities become bolder in fighting patent trolls and unfair litigation. Startups are short of three things: time, resources, and money. With your runway rapidly shortening and new sources of cash quickly drying up, a startup can be killed by unfair patent litigation. It would be interesting to see VCs jump in and help. And it would be interesting to see how VC partnership criteria would change from the startup perspective.
ReplyDeleteInteresting point about VC's. There were probably many failed startups that had extraordinary ideas, but shut down due to insufficient funds. I wonder why there isn't a fund just for startups and litigation fees in order to assist these companies in the beginning. If those startups are already funded, why not invest a little more in legal fees to overcome that obstacle (provided that the fees do not exceed potential value of the company itself)?
DeleteSomething really should be done about patent trolls. They hinder innovation and the market, and it's a bummer that they target the smaller guys who have fewer funds and resources. At the same time, I hope not too many startups are partnering with patent trolls. It only justifies what they do and makes things worse in the long run even if in the short run, it seems like the partnership will help things.
ReplyDeleteStartups teaming up with patent trolls to go against larger companies is an interesting strategy. Like you said, if they cannot afford battling these NPE's, might as well join them for the time being.
ReplyDeleteI find it sad that the smaller companies have no other option than to team up with the patent trolls against larger corporations. That will come back to haunt them assuming the Executive Action taken by the White House ends up being implemented. At that time, the smaller companies will definitely want to distance themselves from the patent trolls to avoid any sort of action taken.
ReplyDeleteIt is a tough world for startups out there, even in the patent realm. Agreeing with Roshan's comment above, I find it quite unfortunate that startups are left with no choice but to team up with patent trolls in order to defend themselves. I can't say if this move will be beneficial in the long run, as given the limited resources of startups, more time will be diverted to patent infringement litigations and less to its internal developments. Hopefully some future reform acts could tackle this issue, as startups are at the heart of driving forward innovation.
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