blogWhat to do when your start-up business is hit with an allegation of patent infringement?

June 28, 20130

Back in the .Com era and early days of the Internet, technology companies were diligent in patenting their technology.   As financing and rapid growth became increasing difficult, many companies cut their intellectual property registration budgets.  And today, registering a patent is far down the “to-do” list of most web and software start-ups.

Recently, we received a call from the founder of a successful Web services business.  The founder had recently received a “friendly” letter from a mature (some-might-say, “decrepit”,) software company (hereinafter such a company is referred to as an “Old Company”).  The tone of the letter was friendly but the letter was nonetheless threatening and the founder was “freaking out”.

The letter informed the start-up founder that his Web services infringed one of the Old Company’s patents and that the Old Company would like to discuss licensing “opportunities” with the start-up founder.   He didn’t know what to make of the letter, but he knew enough to be concerned. Our advice to the start-up founder was to stay calm and view this letter as the Old Company fishing for new revenue.

Once upon a time, such letters were only received from Patent Pools and Patent Trolls.  However, in today’s world of ever-tightening margins and organic growth conundrums, some Old Companies are being innovative in how they approach their expensively acquired intellectual property.

The following discussion focuses on how to respond to an Old Company’s revenue motivated allegation of infringement, but you would likely approach a contact from a Patent Pool or Patent Troll in a similar manner.

So, what do you do if you receive a friendly letter asserting your technology infringes an Old Company’s patents?  First, don’t panic.  This is the first contact attempt and if you choose to ignore it, the sky will not fall and expensive and time consuming litigation is not imminent.   Most likely, the Old Company will follow-up with another letter and another request for a meeting and this could continue for months and possibly years.

We typically recommend to our clients not to respond to the first volley but to have a look at the Old Company’s claim and to assess the threat.  The Old Company’s letter likely references one or more patents by registration number.  Both the Canadian and US patent databases are available to the public.   Find the referenced patents and do your own assessment of whether your technology/software may infringe.  If you need help with this assessment, or if the results of your assessment worry you, hire a lawyer to provide an opinion regarding the Old Company’s claim.  The results of your assessment should guide your decision if and how to respond to the Old Company’s claim.

If you do end up in discussions with the Old Company, remember it wants revenue and to avoid lengthy and expensive litigation.  If you are one of its first potential licensees, look for a sweetheart licensing arrangement.  This is because your acceptance of a license is ammunition for the Old Company to use to validate its patent claims against other targets.   If you eventually accept a license with a royalty, push for a “most favored nation” clause in your license agreement.   This provision requires the Old Company to offer you the very best licensing arrangement it offers any of its licensees.

Starting a business is incredibly challenging and the last thing you need is an infringement claim.  The success of your business will depend on your ability to overcome obstacles such as an allegation of patent infringement.   Remember: you are not alone and help is only a phone call or email away.

 

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