Although these changes limit the effec- tiveness of trolls, there’s no guar- Patent Trolls Prey on antee they will become law, nor is there a date for enactment. In the meantime, here Business Innovation are some suggestions to reduce exposure to trolls. By Craig Hemenway of Dorsey & Whitney Congress is currently debating legisla- First, have your patent counsel or a tion to minimize the impact patent trolls can technologist familiarize themselves with the have on legitimate businesses. The House major trolls and commonly litigated Craig Hemenway is a partner in the of representatives passed H.R. 908 on in your company’s industry. a surprising Intellectual practice group at the September 7, 2007. Among the provisions number of suits and settlements involve a Denver office of Dorsey & Whitney. Associate that might help companies facing a patent very few entities holding frequently-asserted Derek Donahoe assisted with the research of are measures to minimize patents. If you know who these are and what this article. and reduce the locations in which a patent they hold, you can either their suit may be brought. patents or prepare defenses early. ny business discussion of patents Currently, a patent owner can seek a Second, consider having a patent attor- and innovation inevitably turns to reasonable royalty as a matter of course in ney provide a clearance opinion before the subject of “patent trolls.” Patent a suit. The new House entering into a new business line or launch- A bill provides guidance on the royalties due trolls plague companies of every type, often ing a new product. You can reduce the costs forcing companies to pay hundreds of thou- an infringer. Royalties are calculated based of an opinion by having the attorney clear sands, or even millions, of dollars or risk on the entire market value of a product only patents owned by known patent trolls. much bigger exposure in a lawsuit for pat- only if the plaintiff can show the patented Further, in the event you or your company ent infringement. “Patent trolls” are people technology is the primary driver of market are sued, an opinion of counsel can provide or groups acquiring patents, sometimes demand for a product incorporating that a defense against enhanced damages due to from bankrupt firms, not to create new technology. otherwise, royalties may be willful infringement. or products, but to generate rev- based only on the “economic value” that Third, stay in contact with your peers at enue by suing to enforce the patent. Since flows from the improvement of the patented similar companies. Most patent trolls send the cost of defending a patent infringement technology over older technology. Thus, the waves of letters. If a troll suit typically runs well over $1 million, actual damages due to a plaintiff from sales sends out enough letters seeking , it many defendants instead pay for licenses to of a complex device incorporating a minor could be more cost-effective for a group of dubious . piece of patented technology could be quite companies to collectively bring a declara- As home to many technology companies, small compared to current awards. tory judgment action against the troll and Colorado is prolific in generating - The bill also limits the ability of plain- split the legal costs. lectual property (“IP”) that may be at risk. tiffs to choose a venue for patent . Colorado ranks 13th overall in the number In particular, a plaintiff cannot create venue of patents issued to resident inventors since by “assignment, incorporation, joinder, or 2000. More than 20,000 patents have been otherwise” taking actions designed to have issued to colorado inventors and 7,800 a suit heard in a particular court. Plaintiffs patents have been assigned to colorado will no longer be able to transfer a pat- companies in the same period. Since most ent to a holding company solely to get an entities patent only a fraction of IP they infringement suit heard in a specific court. invent, the measure of technology vulner- Plaintiffs can only bring suit in a district able to attacks by patent trolls is much where: ) the defendant has its principal greater. Indeed, many companies choose place of business or is incorporated; or 2) to keep their most valuable technology as the defendant committed “a substantial trade secrets rather than publicly disclose portion of the acts of infringement” and it, as is required to obtain a patent. “has a regular and established facility” In one example of activity in under its control. Colorado, EchoStar Communications Corp. For example, the eastern district of was sued by Forgent Networks Inc. for more Texas is popular for patent suits due to its than $200 million for allegedly violating pro-plaintiff slant. under current law, so a patent on digital video recording. even long as a defendant has substantial contact though echoStar won, it had to mount a with the Eastern District of Texas, a plain- costly legal defense and deal with months tiff can bring a patent infringement action of uncertainty from the lawsuit. Further, against the defendant there. this will not Forgent generated more than $28 million be possible under the proposed laws unless in licensing revenues from other companies the defendant is incorporated in that dis- before EchoStar prevailed. trict or both commits some portion of the infringement there and has a facility within the venue.

Intellectual Property Today MAY, 2008