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Defending Against Non-Practicing Entities in Patent Litigation (Part 2)

According to a recent study by UC Hastings’ Professor Robin Feldman, non-practicing entities (or patent trolls or NPEs) file 40% of all patent infringement cases, a number that increased from 22% in 2007 to 40% in 2011.  This statistic does not even tell the whole story and may even understate the effect of non-practicing entities.  For example, the number does not account for the percentage of non-practicing entities threats that lead to settlements outside of court. In addition, patent litigation has increased overall, which means the number of non-practicing entities may have increased much more than the numbers suggest.  While non-practicing entities usually focus on bigger corporations due to deep pockets, these numbers suggest that non-practicing entities may now have an eye on start-ups and smaller businesses that are not as established but have raised substantial revenue.

There are many common techniques used by companies to protect themselves from competitors which are not effective against non-practicing entities.  After all, many non-practicing entities sue on bogus claims and fail to do pre-filing investigations.  They may file suit merely because your business uses a single term in advertising your product, which happens to be mentioned on a patent owned by the non-practicing entities.

Nevertheless, some companies may minimize and limit their exposure to non-practicing entities.  For example, businesses can routinely monitor new patents and published patent applications.  Some businesses do a clearance search for patents or pending patent applications that may cover important features of a product.  These searches would usually occur prior to initial development or commercial introduction.  In addition, it may possible to design a product around the claims of past patents.  If there is a pending application that may be problematic, one can file a protest to alert the United States Patent and Trademark Office of any prior art.

If there are any patents that arguably overlaps with the proposed product, businesses can attempt to buy those patents before they are sold to non-practicing entities.  Sometimes the patents are held by individual inventors who may be willing to sell the patent at a low price.  This strategy, called defensive patent aggregation, is a practice used by some companies that purchase patents or patent rights from patent owners so that the patents do not end up in the hands of non-practicing entities or other entities that can assert those rights.

If a new product involves areas where patents rights may be unclear (i.e. Software or business methods), patent infringement insurance may be possible to help reduce the risk.  Conversely, some businesses merely take the risk and opt for early settlement once sued.

This article is the second part of a continuing series.  The first part can be found here.

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