When was the last time you were bullied? When have you ever been the victim of a shakedown, where someone with a lot of muscle threatened you unless you paid him?
Fortunately, few of us have been victims of this type of intimidation since elementary school, if ever. But these days you can become the victim of an even more powerful sort of bully than the one that terrorized your playground if you make this one mistake: you invest sweat, time, and all your money to build a successful company.
Sadly in the United States, chances are that a successful company will eventually be sued by a patent assertion entity, colloquially known as a “patent troll”. Trolls use the patent system and the expensive cost of trial litigation to shake down productive companies over bogus infringement claims. They are generally a tiny group (sometimes just a single person) who procure patents with the sole goal of attacking companies, asserting bogus infringement, and demanding “license fees” (e.g. extortion). They attack companies in multiple industries, and according to the Consumer Electronics Association, they extract $1.5 billion per week from the US economy.
Since I’ve spent my career in the technology industry I have seen many patent trolls, and they always make my blood boil. Money and management time we would otherwise use to hire employees and create better products for our customers is instead paid to our own (expensive) attorneys for defense. Usually the trolls prefer to sue big corporations for the same reason that Willie Sutton robbed banks: because that’s where the money is. On the other hand, the big guys can spend to defend themselves in a way that the small company cannot, so the small company will eventually be hassled by the trolls as well.
The math is simple: faced with millions of dollars in potential litigation costs, many companies will gladly pay out hundreds of thousands to trolls in order to avoid the cost and business disruption.
The system is rigged to encourage this. Even the company’s own investors often push the company to pay off the troll since they don’t want the growing company to spend it’s limited time and capital fighting a bogus claim. On the other side, the troll doesn’t have to worry about traditional business competitors or shipping the next product to an important customer. They are happy to string things along.
I’ve often thought that the industry needs to call out and publicly shame the trolls, although there is a fine line between “shaming” and “defamation”. So it was with great delight that I read about one such innovator who stood up to the bullies and won.
Chris Hulls is the CEO of family networking company Life360, and after one of those against-all-odds stories of entrepreneurial perseverance (to include sleeping in a friend’s closet for a period of time) he built a company that was successful enough to raise fifty million dollars in financing. Not coincidentally, a troll sued them that same week. His written response to the attack has become the stuff of legend in the technology industry, along with his eventual victory. You can read more about it at TechCrunch.com (“I Beat A Patent Troll And You Can Too”).
Here’s my favorite quote from Chris’s article: “There is nothing that trolls or predatory law firms hate more than being publicly called out for what they are. They expect that you’ll listen to your lawyers, stay quiet and pay them to go away. In our case, we refused to let AGIS Inc. and its lawyers Mark Hannemann and Thomas Makin of Kenyon and Kenyon LLP, hide in the background.”
My suspicion is that Mark and Thomas were uncomfortable having their names attached with a predatory shakedown attempt that was anti-business, anti-innovation, and anti-jobs.
Trolls and their attorneys probably have convoluted ways to describe what they do when they meet people at the little league game or neighborhood barbeque to obscure the real story. After all, it doesn’t sound too good when you say “I have a company with no employees and no customers, but I sue companies with employees and customers because they usually find it cheaper to pay me off than to defend themselves”.
There is legislation pending in Congress to address this issue. The trick will be to protect against the trolls while upholding the ability for small innovators to defend their intellectual property rights.
We are lucky that our culture churns out entrepreneurs who sacrifice to build great companies, even though their success increases the likelihood that someday they’ll be mugged.
Originally published March 31, 2015