Invalidating patent claims
Of those 79 respondents that received patent demand letters, 13 had revenue of under 0,000 showing how indiscriminate PAEs can be in their patent assertion campaigns.
The study, using a comprehensive database of patent litigations developed by defensive patent aggregator RPX Corp., also revealed that at least 55 percent of defendants in lawsuits initiated by PAEs make under million a year in revenue.
He specializes in developing IP strategy for young technology companies and blogs on this topic at Startups IP. Patent assertion entities (PAEs or trolls) regularly engage in the practice of sending patent demand letters to unsuspecting startups and small businesses in preparation for going after much larger entities.
A patent demand letter is typically sent by a patent holder to a company it believes is infringing the patent, and in the letter, PAEs offer a license to the patent.
Similarly, the proposed SHIELD Act may force patent trolls to pay the defendant’s legal fees, but the defendant must still first spend time litigating to invalidate or prove non-infringement, and then seek successful collection from the PAE.
Based on responses to Professor Chien’s survey, several strategies appear to be prevalent in response to receiving a demand letter: 22 percent of companies “do nothing”; 18 percent of companies settle; and 35 percent of small companies or startups fight either in court or out of court.
The average settlement cost is 0,000 among 12 respondents, the average in-court cost of fighting is 7,000 among seven respondents, and the average out-of-court cost of fighting is 8,000 among 18 respondents.
In some cases, creative settlement terms have included giving up equity in the company, as well as graduated licensing fees.
The findings of the study are based primarily on responses to a non-random survey of small tech companies and startups, as well as interviews with some key stakeholders.
Of the 223 survey respondents, almost one-third (79) indicated that they had received a patent demand letter.
However, such litigations against smaller targets, with less money on the line, allow PAEs to establish favorable royalty rates and run up a count of parties that have licensed prior to going after larger entities that will provide a more significant return.