Citing the emerging trend of frivolous patent lawsuits filed against startups and technology companies, Massachusetts Attorney General Martha Coakley announced that her office is exploring ways to end baseless patent trolling.Patent trolling is the practice of legal shell companies, which do not invent or make the products, but instead acquire patents in order to sue the technology companies for licensing fees or patent infringement in the hope of settling for large sums of money. Those companies are often forced to pay hundreds of thousands of dollars to defend against these suits or settle the matter.
A recent survey by the University of California shows that one in three startups have been sued for patent infringement, and 70 percent of venture capitalists nationwide have received similar threats of suit. Almost all reported that the number of claims have risen dramatically in the past five years and reduce the likelihood that a venture capitalist would invest in a startup company.
“These frivolous lawsuits are serving as an anchor on our start-up companies and our innovation economy as a whole,” said AG Coakley. “We must look at both federal and state legislative solutions to address this, and my office is also exploring our legal options.”
On a tour of tech firm LevelUp in Boston this month, Coakley heard from leaders at the innovative startup about the impact that patent infringement litigation has had on their business and the Massachusetts innovation economy.
LevelUp has designed a pay-by-phone system that is growing rapidly, but its executives say the company has recently been forced to respond to inquiries searching for potential patent violations. The company says it has already spent hundreds of thousands of dollars defending against three separate lawsuits, money that could have been used to grow the company and hire new employees.
“The Massachusetts economy suffers from patent troll lawsuits as they divert capital meant for new product research and development, hiring additional highly skilled employees, opening new offices, or otherwise contributing to legitimate business growth,” said Seth Priebatsch, CEO of LevelUp.
“LevelUp estimates that we would have hired 10 additional people if not for the expenses associated with our patent troll litigation. The bottom line is that while patents used appropriately to foster innovation are clearly good, patent trolling has become a disturbing and expensive trend that’s harming innovation in Massachusetts,” Priebatsch said.
Coakley has pledged to explore the issue further, in order to determine whether federal or state legislation could address this issue. She also pledged to determine whether other legal remedies are available to fend off frivolous suits and protect Massachusetts businesses on the cutting edge of innovation.
Defending a patent lawsuit can cost a small company hundreds of thousands of dollars, which is a huge hurdle for many startups and often forces those businesses to settle lawsuits regardless of whether the infringement claims would hold up in a court of law.
Currently three bills are pending in Congress that seek to inhibit patent trolls from filing frivolous lawsuits. And recent legislation passed in other states, such as Vermont, helps prosecutors and judges distinguish legitimate patent claims from those executed in bad faith.
Source: Massachusetts Attorney General’s Office
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