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Patent Wars

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It is difficult to read the business pages without running into a story about patent litigation.  It is, quite frankly, everywhere, and has become a significant element of long-term business strategy for businesses big and small.  We’ve written about this before, of course (in the ever popular post “Are you infringing someone’s social media patent? Probably!”) but given the landscape it is a subject worth returning to in somewhat greater detail. 

So what do I mean by “everywhere”?  Apple and Samsung are engaged in a series of major battles both here and around the world, while Google and Oraclefight it out in California.  I receive news each day listing the newest cases filed around the country, and it is rarely fewer than a dozen on any given morning.  There are publicly traded companies that do nothing other than buy patents and seek license fees.   There are literally thousands of lawyers across America litigating patent disputes at any given moment, and it is rare than a patent case is worth less than seven figures — in fact, litigating a patent case generally costs at least seven figures.

As you might imagine, these cases are not all the same,  and do not follow a “standard” format.  To be ridiculously simplistic about it, there are three different “categories” of cases, and anyone involved in new media needs to understand the substantive differences between them. 

The first type of patent case is the classic one: competitor v. competitor.  For most of American history, this type of action represented the vast majority of all patent disputes.  Kodak sues Polaroid.  Apples sues Samsung.   Historically, companies developed patent portfolios to defend themselves, and often countersued.  In many instances, the action would settle with a complex cross-licensing scheme.  This is the type of case that anyone can (and should) plan for if they enter a market defined by innovation.  You need to determine whether your own innovative activities can help you build a patent portfolio, and you need to determine whether your competitors are doing (or have done) the same.   While the patent system is not exactly transparent, a systematic effort to capture your own innovation and track the efforts of your competitors is simply smart business.

The second type of patent litigation has become quite significant in recent years, and is focused on so-called patent holding companies (or, when being pejorative, “patent trolls”).  These companies either buy patent portfolios.  Their goal: licensing revenue.  Many of these patents were developed by companies that have since gone under, or were purchased from companies that have left a market segment.  These “non-practicing entities” often sue in one of a handful of patent litigation meccas.  For many years, that was the Eastern District of Texas.  More recently, with changes to the patent laws, Delaware and California have become more popular.  The docket sheets are filled with this type of litigation, which rarely goes to trial.  After all, a settlement is the primary goal, rather than having a market impact.  Also in this category are cases brought by companies who suddenly discovery they have random patents in their portfolio that have nothing to do with their current line of business, or Universities looking to monetize some of their patent assets.

Finally, there is litigation spurred on by strange regulatory schemes, such as the ANDA litigationin the pharma space, or litigation brought through the International Trade Commission (which has no ability to award damages, but can exclude imported good from the United States).  These are less relevant in cyberspace, except to the extent that eCommerce platforms are either selling drugs or imported goods.

So what does this mean for all of us? It means that patent litigation is something that must be considered as a risk factor when launching new businesses or product lines.  Do you have competitors that may be developing a patent portfolio?  Have you been developing a patent portfolio?  Were there other companies in the space that have since failed that may have developed patents that could now have found their way into the hands of a licensing organization?  These are things to think about — they shouldn’t stop you, but they should remind you that patents are not just for IBM anymore.