Professor Chien defines significant operational impact resulting from a demand letter as being a business strategy pivot, product change, delay in hiring or meeting operational milestone, reduction in value of the company, and/or shutdown of the business.Īmong the survey respondents, about half of companies making less than $100 million in revenue reported that receiving a patent demand letter had a significant operational impact, while none of the companies with revenues above $100 million reported any significant operational impact as a result of receiving a patent demand letter.īased on responses to Professor Chien’s survey, several strategies appear to be prevalent in response to receiving a demand letter: 22 percent of companies “do nothing” 18 percent of companies settle and 35 percent of small companies or startups fight either in court or out of court. While patent litigation is expected to affect a business, the study’s finding that PAE’s use of demand letters against small companies can have a significant operational impact on those companies is troubling. In this way, small business may be considered the appetizer to the large company entrée. ![]() However, such litigations against smaller targets, with less money on the line, allow PAEs to establish favorable royalty rates and run up a count of parties that have licensed prior to going after larger entities that will provide a more significant return. In contrast, practicing entities (non-PAEs) only initiated patent litigation about 16 percent of the time against defendants making under $10 million a year.Ĭonsidering the expense of patent litigation, targeting companies with such small revenues would not ordinarily appear to be a wise strategy. ![]() The study, using a comprehensive database of patent litigations developed by defensive patent aggregator RPX Corp., also revealed that at least 55 percent of defendants in lawsuits initiated by PAEs make under $10 million a year in revenue. Of those 79 respondents that received patent demand letters, 13 had revenue of under $100,000 in cash advance showing how indiscriminate PAEs can be in their patent assertion campaigns. Of the 223 survey respondents, almost one-third (79) indicated that they had received a patent demand letter. The findings of the study are based primarily on responses to a non-random survey of small tech companies and startups, as well as interviews with some key stakeholders. Specifically, Professor Chien focused her study on the effect that receiving patent demand letters sent by PAEs has on these companies. In a recent study entitled Startups and Patent Trolls, Professor Colleen Chien of Santa Clara University School of Law finds that PAEs have a strong effect on small companies and startups. Small businesses receiving such demand letters often lack the overhead necessary to determine and execute an effective strategy with which to respond, which can have serious ramifications on the operations and viability of a small business. Typically, such demand letters ask for an upfront payment for past damages and royalties on sales going forward. A patent demand letter is typically sent by a patent holder to a company it believes is infringing the patent, and in the letter, PAEs offer a license to the patent. ![]() Patent assertion entities (PAEs or trolls) regularly engage in the practice of sending patent demand letters to unsuspecting startups and small businesses in preparation for going after much larger entities. Editor’s Note: This post first appeared on TechCrunch
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