LEARNING FROM TECH TO REDUCE LEGAL RISKS AND COSTS
Over the past year, companies and industries have been forced to adapt to a global pandemic that has changed the way business is done. Companies that wanted to stay one step ahead of the challenges needed to quickly incorporate or implement technology to operate – for example, by adding new technologies that improve the interactions between customers and employees. The pandemic was a catalyst that accelerated the adoption of many different technologies.
A recent McKinsey survey of global executives found that “Companies have accelerated the digitization of their customer and supply chain interactions, as well as their internal operations, by three to four years”.
However, implementing new technologies can bring potential risks. Certainly there are always potential issues with fraud, data breach, and malware. However, most companies do not consider the threat posed by patent filing authorities (PAEs, or sometimes referred to as “patent trolls”) as part of their risk assessment.
PAEs are companies whose main purpose is to assert patents against operating companies in order to monetize them. PAEs do not develop or manufacture products. They typically acquire patents from companies looking to outsource their assets as part of a monetization strategy or as part of a distressed sale.
PAEs buy technology-oriented patents and enforce the same patents against companies that make, use, or sell technology. According to Unified Patents, around 90% of all high-tech litigation in 2019 was traced back to PAE allegations against high-tech companies.
This increase in PAE activity shows no signs of slowing either. Indeed, PAE infringement cases are increasing with declining economies as patent filing companies can purchase quality patents at a lower price. This is one of the unfortunate business side effects that the current global pandemic can have.
PAEs OF THE PAST AND PRESENTATION
Historically, during the Great Recession of 2008, the most recent economic downturn in the US, we saw a tremendous surge in companies that failed and got into distress. This, in turn, led many companies to sell their patent portfolios in order to save or monetize their sources of income. This created a great buying opportunity for PAEs. PAEs have been known to purchase patents at a low cost, enforce them inexpensively, and in return give large billing rewards that result in healthy ROI for their investors. Today the numbers continue to rise. Corporate patent sellers supplied PAEs with more than 70% of the 2,100 assets sold in the first six months of 2020, according to a recent Cipher report.
The big difference between 2008 and today is that the process costs (billions and billions) were only intended for the high-tech industry. In recent years, however, PAEs have expanded their reach to a much wider audience by targeting all industries where technology has been integrated at some level. This means everyone from oil, gas, and chemicals to medical technology, consumer products, and retail is at risk of a PAE infringement lawsuit. Almost all modern businesses today use technology in ways that could put them on the path of a PAE suit.
And for the unsuspecting company, the cost of litigation or even settlement can have a devastating impact on the bottom line – and even force some to close their doors – especially if the average cost of defending a PAE lawsuit is more than $ 3 .2 million US dollars.
DEFENSE AGAINST PAEs
Preventing PAE litigation should be a top priority for companies in various industries and around the world. One of the most cost-effective preventative measures a company can take to prevent PAE risks is to join defensive communities.
By merging and joining communities, companies can protect themselves from potential PAE lawsuits with minimal investment. Downstream, low-cost (and for some free) organizations like LOT Network make pacts between companies that, just as their assets fall into the hands of a PAE, immunize all other members with those assets from PAE litigation. Further upstream, groups like AST work together to defensively acquire patents. Both solutions allow members to retain all of the traditional uses of patents such as buying and selling, as well as enforcing intellectual property infringement.
An ounce of prevention is worth millions in saved process costs. Be proactive – it pays off.