LEGAL RISKS

LEARNING FROM TECH TO REDUCE LEGAL RISKS AND COSTS

Over the last year, companies and industries were forced to adapt and adjust to a global pandemic that has shifted the way business is done. Companies looking to stay ahead of the challenges had to quickly incorporate or implement technology in order to operate — like adding new technologies that enhanced customer or employee interaction. The pandemic has been a catalyst that has accelerated the adoption of many different technologies.

ASSESSING THE RISK

A recent survey of global executives by McKinsey showed that “companies have accelerated the digitization of their customer and supply-chain interactions and of their internal operations by three to four years.”

However, the implementation of any new technology can bring on potential risks. Certainly there’s always the potential issues with fraud, data breaches, and malware; however, most companies don’t consider the threat of patent assertion entities (PAEs or sometimes referred to as “patent trolls”) as part of their risk assessment.

PAEs are companies whose primary purpose is to assert patents they own against operating companies in order to monetize them. PAEs don’t actually develop or manufacture products; they typically acquire patents from companies who are looking to offload their assets as part of a monetization strategy or as part of a distressed sale.

PAEs buy technology-centric patents and assert those same patents against companies who make, use, or sell technology. According to Unified Patents, about 90% of all high-tech litigation in 2019 was attributed to PAE assertions against high-tech companies.

This rise in PAE activity doesn’t show signs of slowing down, either. In fact, with downturns in economies, PAE infringement cases go up because patent assertion entities are able to purchase quality patents at a lower price. This is one of the unfortunate side effects for businesses that the current global pandemic can have.

PAEs OF THE PAST AND PRESENT

Historically speaking, during the Great Recession of 2008, the US’s most recent economic downturn, we saw a huge increase in companies failing and becoming distressed. This in turn led many companies to sell off their patent portfolios in an effort to salvage or monetize their revenue streams. This created a great buying opportunity for PAEs. PAEs are known to purchase patents at a low cost, assert them cost effectively, and in turn render large settlement awards that results in healthy ROI for their investors. Today, the numbers continue to climb. According to a recent Cipher report, for the first six months of 2020, corporate patent sellers have supplied PAEs with more than 70% of the 2,100 assets sold.

The big difference between 2008 and today is that the litigation costs (billions and billions) were targeting just the high-tech industry. However over the last couple of years, PAEs have expanded their reach to a much broader audience by targeting all industries that have incorporated tech at some level. This means that everyone from oil, gas, and chemicals, to med-tech, consumer products, and retail are at risk of a PAE infringement lawsuit. Nearly all of today’s modern businesses leverage technology in some way that could be putting them in the path of a PAE suit.

And for the unsuspecting company, the cost to litigate or even settle can have a devastating impact on their bottom line — even forcing some to shutter their doors — especially when the average cost to defend against a PAE lawsuit is more than $3.2 million.

DEFENDING AGAINST PAEs

Preventing PAE litigation should be a top priority for businesses across industries and across the globe. One of the most cost-effective, preventative measures a company can take to thwart PAE risks is a membership in defensive communities.

Banding together and joining communities enables companies, with minimal investment, to protect themselves against potential PAE lawsuits. Downstream, low-cost (and for some, free) organizations like LOT Network form pacts between companies that if, and only if their assets fall into the hands of a PAE, they will immunize all other members against PAE litigation using those assets. Further upstream, groups like AST collaborate to defensively purchase patents. Both of these solutions allow members to retain all the traditional uses of patents, like buying and selling, and asserting infringements on their IP.

An ounce of prevention is worth millions in litigation costs saved. Be proactive — it pays.

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