For many startups, not having an adequate IP strategy is a common theme – which can ultimately be problematic in two ways. First, by not filing for a patent, the company is failing to take advantage of the patent system -- which was created to specifically protect and promote innovation. If a company does not have a patent to stop others from using the ideas it has come up with, then other companies can simply copy and use those ideas in their own products. Patents are the primary way a company has to protect its investment in R+D to ensure others don’t simply just take the fruits of their labour. 

The second problem that may come from the lack of a patent strategy is that it may make a company vulnerable to the patents owned by others, particularly patent assertion entities. 

Patent assertion entities or PAEs (sometimes referred to as ‘patent trolls’) are businesses whose only mission is to acquire patents and then infringe those patents against operating companies. What makes startups vulnerable to PAES is the fact that more than half of companies that have been a defendant in a PAE litigation suit, had less than $7.4m GBP in annual revenue.

THE PROBLEM WITH PAEs?

First, to understand the PAE problem, it’s important to understand exactly what a PAE is  and what they’re after.

PAEs do not make products. They are companies whose only goal is to exert pressure on companies with the threat of a patent infringement suit in order to generate revenue. These companies are often shell companies – meaning they don’t actually develop or manufacture any of the products or software they own the patents to.

PAEs acquire patents from companies who are looking to sell their patents as part of a monetisation strategy; or they purchase patents when distressed companies are looking to liquidate assets. PAEs have focused their business model on a buy and assert strategy. PAEs use these acquired patents in infringement cases by taking advantage of companies -- especially those who are unprepared to deal with litigation -- through expensive litigation or from settlements.

It’s important to note that historically, PAEs ramp up their activity during economic downturns because they are able to purchase quality patents at a lower price. Simply put, it’s a business of supply and demand. PAEs are the best at buying patents at a low cost, asserting them cost effectively, and in turn rendering large settlement awards that results in healthy ROI for their investors -- which is why there are many who are willing to invest in this business model today.

With a single lawsuit, PAEs can target multiple startups — most of which aren’t likely to have in-house legal counsel, and many of which won’t have the $2.4m GBP on average it takes to defend against a patent infringement case. This is why many startups are likely to settle; and also why a single PAE litigation suit can bring down an entire company.

HOW TO IMMUNISE YOURSELF AGAINST PAEs

One of the best strategies a startup can implement is being preemptive when it comes to protecting their intellectual property.

What many founders and entrepreneurs often don’t realise is that a company doesn't even have to own or file patents in order to be sued by a PAE. Companies that utilise third party technologies to run their business, such as cybersecurity software, video streaming or even GPS tracking technologies, could put a startup at risk of a patent infringement case.

It’s important for companies to first take stock of their intellectual property. Knowing the technology, software, and overall IP a company owns or uses will help to set them apart from their competitors. This is a good first step in being strategic and preemptive.

Additionally, startups looking to build an IP portfolio may want to consider filing patents. Working with a patent attorney can help guide them through this process and they can help startups determine the best strategy for their portfolio. Patent attorneys and experts are there to support startups with the answers to many questions like: where to file, which countries should be filed in, and more. They can even help with purchasing patents to build a portfolio.

PROTECT AGAINST PAE LITIGATION

Another important strategy is to look at joining a community of like-minded companies who are working to reduce the PAE litigation risks for businesses of all sizes. LOT Network is one such community.

LOT Network is a non-profit community of more than 1,100+ companies who all agree that if and only if a patent owned by a member company falls into the hands of a PAE, that company grants the other members a license to that patent. That means that the patent can no longer be used by PAEs to sue the members of the community. The usual uses of patents, like buying and selling, and suing companies who infringe on your IP, are still preserved. Best of all, membership is free for startups with less than $18.5 million GBP in annual revenue.

Innovative companies from 36 countries have joined LOT Network to protect themselves from these PAE threats. Community members include market leaders such as: Barclays, IBM, Dell, BMW, Volkswagen, Canon, Google, Daimler, Cisco, Amazon, Microsoft, Alibaba and Salesforce, as well as innovative companies and startups across industries. LOT Network now has more than 2.8 million patent assets (and counting) under its agreement.

At LOT Network, we believe that an ounce of prevention is worth millions in litigation. To learn more about our non-profit community or to download the agreement, visit here.