Start-Up Launchpad Blog

Patent Trolls Take a Toll on Startups - August 26, 2013

Patent trolls, who buy vague and overly broad patents to demand fees from companies, have recently started targeting tech startups with patent infringement lawsuits.

The patent trolls, nicknamed so because they resemble the fictional trolls that extort payment from unsuspecting travelers for a bridge crossing, specifically eye startups that have raised money through investors. In many instances, companies must decide whether or not to pay license fees because the time and expense of litigation, even if ultimately successful, are too great for the company to bear.

Patent trolls usually assert that their patent covers some basic functionality of a device or software application. For example, a well-known troll contends that scanning a document and emailing it to employees infringes on its patent, while another asserts that its patent for fax machine technology broadly covers software that allows for in-app purchases.

The problem has become so significant that President Barack Obama, Congress and individual states are trying to curtail activity. Obama has published 12 actions designed to protect innovators from trolls, and Congress has at least six bills in committee targeting this issue.

Additionally, Nebraska and Vermont have fought trolls using the states' consumer protection acts, and Vermont has passed legislation aimed at helping the victims of trolls deal with the lawsuit in a less expensive manner.

While patent trolls have historically targeted companies on the coasts, we have seen an uptick in Iowa companies receiving demand letters from trolls. When confronted with such a letter, it is important to not panic.

Conducting research into the company and the patents asserted can help you decide your next steps. Besides consulting with an attorney, additional resources include online groups such as Electronic Frontier Foundation and Engine Advocacy.

Both organizations are developing databases of information about specific patent trolls, their tactics and how to combat them.