SMEs – the unseen victims of patent trolling [10.03.2020]

By Patrick Oliver, Executive Director of IP2Innovate

As the European Commission turns its attention to helping improve the regulatory environment for SMEs here is a true story about how patent trolls broke the back of a successful small European business.

The person telling it insists on remaining anonymous, partly out of pride and partly because he doesn’t want to attract more attention from patent-asserting entities like the one that turned his life upside down a few years ago.

This unwillingness to go public about a troll attack is common among small firms. The cases that do get reported usually involve large firms, but it’s clear from this story about a Spanish software firm, that patent trolls systematically target small firms just as much, or even more than the big names.

“Trolls sharpen their knives on small firms they know can’t afford a legal fight. Then they take on the big guns. It’s a common pattern, and it’s what happened to us,” said the former finance director of the small Spanish firm that was attacked just over a decade ago.

His firm was sued for alleged breach of a patent. The litigant – a non-practising entity – then went after larger competitors in the sector.

Efforts were made to pool resources in the form of a group defence to fight the patent troll. However, the astronomic costs of seeking outside legal counsel, combined with the inevitable internal disruption sparked by the attack persuaded the Spanish firm to cave in.

It paid a seven figure sum to the patent troll. As a result the firm had to ask investors for additional funds to pay the legal bill.

It didn’t end well for the firm. Within a few years it sold out to a larger US rival, and later this year the new owner is scrapping the Spanish firm’s product altogether.

“There’s no doubt that the patent attack was a turning point for the firm,” the former finance executive said.

“Not many patent troll victims will speak out about their experiences, partly because they fear further attacks and partly because no one wants to admit publicly to having paid millions to prevent a bogus patent lawsuit,” he said, adding: “You’d have to be very principled and very rich to speak out against the trolls.”

Thanks to efforts by the Obama Administration the US has seen a sharp fall in the amount of litigation sparked by patent trolls over the past five years. Not surprisingly many have migrated from the U.S. to Europe in search of greener pastures.

While patent disputes in the US declined 37% between 2015 and 2019 (Source: research firm Unified Patents), the number of legal actions by patent trolls in Europe rose on average 19% per year between 2007 and 2017, according to patents research firm Darts IP.

SMEs are on the front line in new tech-related patent-heavy fields such as the Internet of Things. Inevitably over time they are going to be exposed to more complex intellectual property issues. The problem of attacks from opportunistic patent trolls is one that could literally sink them.

Europe needs to address this with measures that will ensure proportionality in all patent claims. Reforms of Germany’s patents system under way now will help. But there needs to be guidance from the European Commission too, because its main legislation in this area clearly isn’t working.

An attack from a patent troll is probably the last thing an SME wants to experience.

“At the time it felt like we were dealing with an organized crime syndicate. It was very stressful, and it wasn’t a good feeling once we paid up either,” the former finance director said.

“How can anyone argue that the patent system works properly when it allows such harmful acts to be carried out with little or no consequence for the perpetrator?” he asked.