The Idea in Brief
Technology firms face a serious menace: patent sharks. These predators collect patents through acquisitions in bankruptcy proceedings, licensing agreements, or their own R&D efforts. They hide their intellectual property—to deliberately trap tech firms into inadvertent patent infringements. Then they sue.
And the awards are typically huge. Pure patent holding company NTP, for instance, sued best-selling BlackBerry maker Research in Motion in 2006 for violation of NTP patents. Under threat of an injunction that would have shut down the mobile e-mail service, RIM settled for over $600 million—even though several NTP patents were later declared invalid.
How to shark-proof your company? Don’t rely on legal remedies, Henkel and Reitzig advise. Instead, reinvent your R&D processes. For example, make your technology modular, so you can remove and replace components that may be patented. And collaborate with your competitors to spot potential patent problems early.
The Idea in Practice
Henkel and Reitzig offer these recommendations for fending off patent sharks:
Recognize the limits of legal. Recent decisions by the U.S. Supreme Court have created a somewhat less hospitable environment for sharks in the United States. For example, these decisions have eliminated automatic injunctions for patent infringements. But current law doesn’t prevent sharks from orchestrating infringements on patented technologies embedded in complex products.
Streamline your patent portfolio. Most high-tech firms’ patent portfolios are stuffed with small, insignificant patents. Why? Companies believe that they can collectively mitigate the risk of extortion by cross-licensing patents to one another, thus creating technological interdependence.
But this approach doesn’t defend against sharks, since sharks have no interest in exchanging technology.
Also, by flooding patent offices with applications for these defensive patents, you continuously lower the bar for obtaining patents—making it easier for all players to secure protection for simplistic inventions. Result? A dream environment for patent sharks, where trivial patents can exist, may be hidden, and can be enforced.
Create modular technology designs. If a shark’s patent is built into a technology standard, and your company can’t stop using it or switch to a feasible alternative, you’re trapped. So design your technology in modular form. If a patent problem occurs, you can then swap out an infringing module. And if industries simplify their standards, there’ll be fewer irreplaceable core components to worry about.
Cooperate with competitors to stave off sharks. Pool your R&D resources and cooperate with direct rivals early on in your development efforts to avoid coming up with products that are prone to subsequent shark attacks. Exchanging knowledge about where your company is heading may make you uncomfortable—but it’s better than being blackmailed.
Companies that focus heavily on research and development generally have more value tied up in intangible assets—patents and other intellectual property—than they do in material assets. Different sectors take very different approaches to managing those resources. Pharmaceutical companies, for example, play hardball—they’ll do anything to protect a key patent. That’s not so surprising when you consider that a single patent can sometimes safeguard an entire product. Technology companies, however, have to cooperate with one another because a complex product can incorporate several thousand patents, many of which are held by other organizations. The patents, therefore, become a form of currency exchanged among them.