NPEs Continue To Leave Their (Land)mark On Small Businesses

The reports of the death of the patent troll are greatly exaggerated.  Alive and well, they continue to have a real impact on small and medium-sized U.S. businesses (SMEs).

Azure Standard

Pretend you run an organic farm.  You start selling your products online, and people like them.  You can expand a bit, hiring more people. And your customers start asking you for products you don’t already grow, so you expand your online store by finding similar organic products to add to your lineup.

And then one day, you get a letter explaining that you owe a company you’ve never heard of and never worked with money because you implemented a commercially available e-commerce system.  Sound like a fairy tale? It’s exactly what happened to Azure Standard last year, when a non-practicing entity (NPE) called Landmark Technology went after them.  

And they’re not the only ones who’ve been targeted by Landmark.

U.S. Safety Gear

Rather than being an organic farmer, maybe you started a company that sells safety gear for manufacturing workers, first responders, and construction workers.  You expand your business over a couple decades and, as e-commerce increasingly becomes a viable avenue for success, begin to sell products online.

And then—this might sound familiar—one day, you get a letter explaining that you owe a company money for selling online.  If that sounds familiar, you might be U.S. Safety Gear, which was sued just last week by Landmark Technology.

SMEs

Even if Azure and U.S. Safety manage to successfully fight back, they’ll see significant financial impacts.  Just to get through the initial phase of understanding the case, the median reported legal fees are approximately $30,000-60,000.  And to actually pursue a meaningful defense, they’re likely to have to spend something closer to $250,000-$550,000.  That number only gets higher if they actually have to go to trial to defend themselves. For an SME, those sorts of legal fees can threaten their entire existence.

There were 3,447 new patent lawsuits in 2018.  Of those, around 35% were filed against SMEs.  And of that 35%, around 40% are filed by non-practicing entities (NPEs) like Landmark.  That means that, in 2018 alone, there were around 480 patent lawsuits involving an SME being sued by an NPE.  Even if we assume that the average expenditure by an SME defendant is $150,000, far less than the cost to take a case through the initial motions phases, that’s still $72,000,000 SMEs will have spent defending against NPE lawsuits—most of which will fail.

And of course, that ignores the significant number of patent demands which don’t wind up with infringement litigation.  By one estimate, around 70% of all patent demands are never litigated, meaning that those 480 lawsuits are likely to represent at least another 1,120 unlitigated demands.  And even an unlitigated demand has significant economic impact on a targeted company.  Combining our previous conservative estimate of $31,600 per unlitigated demand with the 1,120 additional demands, that’s another $36,000,000.  The real total is likely higher, but $108,000,000 is a reasonable lower bound for the negative financial impact on SMEs created by NPEs.

Reversing Course on Patent Reform Harms SMEs

The best estimates show that the AIA and Alice decision have only reduced patent litigation to levels similar to those around the time the AIA passed—they’ve stopped the increase, but haven’t eliminated the problem that already existed.  Efforts (like the soon to be re-introduced STRONGER Patents Act) to roll back inter partes review, overturn Alice, or re-institute automatic injunctions would reverse those successful reforms and impose new burdens on all American innovators and businesses ranging from Azure to U.S. Safety to Zillow (another Landmark target, back in 2015.)

Joshua Landau

Joshua Landau is the Patent Counsel at the Computer & Communications Industry Association (CCIA), where he represents and advises the association regarding patent issues.  Mr. Landau joined CCIA from WilmerHale in 2017, where he represented clients in patent litigation, counseling, and prosecution, including trials in both district courts and before the PTAB.

Prior to his time at WilmerHale, Mr. Landau was a Legal Fellow on Senator Al Franken’s Judiciary staff, focusing on privacy and technology issues.  Mr. Landau received his J.D. from Georgetown University Law Center and his B.S.E.E. from the University of Michigan.  Before law school, he spent several years as an automotive engineer, during which time he co-invented technology leading to U.S. Patent No. 6,934,140.

Follow @PatentJosh on Twitter.