With several actions related to patents appearing in the geospatial industry in past years, software developers may want to take steps to avoid being the target of a licensing demand or litigation. Joel Kauth is a partner at KPPB, an Irvine, California-based intellectual property law firm. He explains what can happen and how to protect your company and products.
Over the past several years, a particular type of patent-holder has drastically altered the balance of patent litigation and is having a significant impact on the geospatial industry. This patent-holder is what is referred to as a “non-practicing entity” (NPE) or “patent troll,” and finding yourself in the crosshairs of one can be devastating to an unsuspecting technology innovator.
An NPE holds patents, but does not practice the claimed inventions. These entities typically amass a portfolio of patents, seeking to cover a particular field of technology or industry. Once they have acquired such patents, they notify those in the target field or industry, usually through a cease and desist letter or a licensing offer. These demands typically offer a license at what the NPE claims is a discounted price from what would be sought if the matter were to go to trial. The demands vary depending on the industry, and can range from tens to hundreds of thousands of dollars, usually below the $800,000 to $1.5 million that taking a patent case to trial will typically cost.
The recipient of a cease and desist letter from a patent troll is faced with a dilemma: fight the lawsuit, usually at a significant expense, or pay a licensing fee, usually for less than litigating the matter would cost. If a targeted company elects to litigate, the typical defenses or counterclaims are based on non-infringement, invalidity or unenforceability of the patent.
GPS Companies Targeted By Patent Trolls
Because the GPS/telematics industry is a hotbed of technological innovation and advancement, companies in the geospatial industry are being actively targeted by NPEs. For example, as previously covered
in this publication, Telematics Corporation, a subsidiary of well-known NPE, Acacia Research, has filed several suits against defendants in this space .
In a lawsuit filed Nov. 18, 2010, Telematics asserted six patents which it alleges relate to vehicle location and/or fleet management against a number of players in the industry: Actsoft, Inc.; FleetMatics USA, Inc.; Fleetilla LLC; Geotab, Inc.; Intergis LLC; Networkfleet, Inc.; OnStar, LLC; PROCON, Inc.; Skypatrol, LLC; and Wireless Matrix USA, Inc. This was very similar to a prior lawsuit filed in November 2008 asserting the same six patents against a different group of defendants.
Another example is Lunareye, Inc. While Lunareye has filed and subsequently settled a number of lawsuits, its most recent suit, filed Sept. 2, 2010, named a plethora of defendants in the GPS field: Enfora, Inc.; Guardian Global Technologies, Inc.; Globalstar, Inc.; GuidePoint Systems LLC; Hughes Telematics Inc.; Portman Security Systems (USA) Co., Ltd.; Procon, Inc.; Spot LLC; Xirgo Technologies, LLC; and Zoombak LLC. (See Lunareye, Inc. v. Enfora, Inc. et al, Case No. 9:10-cv-00119-RC currently pending in the Eastern District of Texas.)
In the GPS field, technologies such as geo-fencing, fleet tracking, and vehicle bus-based monitoring and diagnostic systems are all being targeted. With literally thousands of patents issued covering a wide range of technologies, companies in this industry that have not already been contacted by an NPE can expect to find themselves in the crosshairs in the future, and the results can be devastating.
Minimizing Your Risk
There are several steps companies developing emerging technology can take early on in the development process to minimize the risk of being exposed to and being targeted by patent trolls.
NPEs are looking to monetize their patents by obtaining the most money with the least amount of work – usually through efficient settlements. By quickly and proactively taking steps to minimize future damages, as well as being ready to delve into the merits of the case with deep technical emphasis to avoid past damages, you can make yourself a relatively unattractive target.
Being proactive includes keeping up with litigation in your industry. If certain portfolios of patents are being asserted against your competitors, they will likely be asserted against you as well, and patent-informed strategic decisions might lessen possible damages, or avoid infringement altogether. Once you have identified such patents, you should consider the following (and while the steps below are designed to help avoid being the target of an NPE, they are also a good starting point in the event you do become a target):
1. Contact legal counsel that is qualified in both patent law and in your particular field of technology. Counsel will likely do at least the following:
Obtain the patent and the file history to determine the actual scope of claims in light of the prior art (“prior art” refers to materials that existed prior to the patent, and include patents, publications and even actual devices) cited, the arguments made by the patentee, and statements made by the patent examiner.
Determine if the asserted patent is valid.
Determine if the patentee committed "inequitable conduct" during the prosecution of the patent by failing to disclose necessary material, or by improper arguments, rendering the patent unenforceable.
Review the accused product/system with great detail to determine precisely how it works.
Determine if you infringe the patent. Provide a non-infringement opinion if you do not infringe.
Provide redesign options in conjunction with your design team, even if you do not infringe, to make it more clear there is no infringement, and to eliminate future damages.
2. Immediately assess what products might be at risk. Even if you don't believe the accused products infringe the asserted patent(s), you should consider changing the design or removing a feature that could be alleged to infringe in order to cut off potential damages. This should be an economic decision based on the overall cost of such a change, including customer reaction. If pride, ego and/or "being right" enter into the analysis, the "cost" to you might increase greatly. You should understand that this is simply an economic transaction for the NPE, and it should be for you as well.
3. Avoid liability for past damages by showing that the accused product or method does not infringe the patent, or that the patent is not valid. In-depth knowledge of how one's own product actually works, as well as understanding precisely what the patent claims cover, is critical. Further, the more knowledge you have about your industry, including its technological history, the more likely you will be to identify invalidating prior art, or at least to know where to begin the search.
In order to follow the above steps, you must know precisely how your own technology works. Only then can you and your counsel meaningfully assess whether your product infringes, and what can be done to make it clear future products do not infringe. Removing future damages eliminates a potential windfall to the NPE, while digging deeply into the technology forces the NPE to engage in significant amounts of work. Many NPEs engage counsel on a contingency basis. They typically are not well-suited to deep technical analysis, and may need to engage outside experts, once again increasing the NPE’s own costs and reducing the profitability of the transaction.
Enlist the help of “flat fee” legal counsel. By engaging defense counsel on a flat- rate or capped basis, you effectively put an upper limit on a likely settlement. If you simply engage defense counsel on an hourly basis, without a binding budget, you may find yourself in a common predicament of having to settle the case when you have exceeded your legal budget, in effect having to pay what the NPE demands to avoid incurring additional legal costs. As expected, this leads to very unfavorable settlement terms.
Only after securing defense counsel and an acceptable budget can you truly afford to defend a case on the merits. While counsel will attempt to resolve the case in your favor at various points during the litigation, you must be prepared to continue through to trial. Accepting a budget that you cannot actually afford with the hope that the matter will settle before trial can lead to disaster. You may lose all leverage when you exceed your true budget and may be forced to settle on unfavorable terms.
NPEs offer the predictability of settlement as an alternative to the often unpredictable cost of defense, positing a settlement offer slightly below what they estimate to be your cost of defending. If you have a finite, predictable cost of defense, you have likely negated many of the patent troll’s advantages and equalized the risk among the parties, generally leading to much more favorable settlement terms. Further, with legal costs in check and a known cost of actually proceeding through trial, you can offer a credible threat of going to verdict, and invalidating the patent.
None of the above are magic bullets that can stop the seemingly endless line of NPEs seeking to secure a payment from your business. However, when incorporated into a well-designed intellectual property strategy, they have proven to be a successful and cost-effective method of dealing with the inevitable demands you will receive from patent trolls.