Patent Trolls Target Small Businesses With Lawsuit Threats. Here’s How One Startup Fought Back
When fitness ring maker Motiv got a threat from MHM, it went public with the response.
PHOTO CREDIT: Getty Images
Patent trolls are back, and now they're targeting small businesses. But if one comes after you, don't panic. And don't be in a hurry to pay.
Imagine you open your mail to find a letter from a company you've never heard of. It says it has a patent on attaching scanned documents to emails, and since your employees have been doing that, it wants $1,000 per employee or else it will sue you in federal court. You only have 10 employees, and intellectual property attorneys cost something like $1,000 an hour. Do you pay up?
For many small companies, the answer is an easy "yes," especially since many patent assertion entities (as they call themselves) are willing to negotiate down to a fraction of their original demands. You have a business to run and besides being costly, litigation will take a lot of your time away from that job. For most business owners, it seemingly makes sense to just pay a relatively manageable sum, and then forget about it.
Many patent assertion companies count on businesses making exactly that calculation. But for the businesses they threaten, there are some problems with taking the quick way out. One of them is that these companies and their attorneys know each other, and may pass information around. Once you've shown yourself willing to pay up, you could get more demands from other other companies claiming patent infringement.
Why are they targeting small businesses?
For years, these entities made their money by suing or threatening to sue large corporations with deep pockets. This worked well because they could take advantage of the rule that companies can be sued anywhere they do business and large companies tend to do business in every state. Patent trolls found a few federal court districts where they had greater odds of winning. From their point of view, life was good.
But in May 2017, the Supreme Court issued a ruling that companies could only be sued for patent infringement in the state where they reside. That made collecting much harder for patent assertion entities. Many turned their attention to small companies and startups for whom the cost of defending a patent case could pose an existential threat. They began sending letters containing a simple proposition: Pay us a (relatively reasonable) one-time fee and we'll sell you a permanent license and drop our planned lawsuit.
In January, a lawyer for a company called Motivational Health Messaging (MHM) sent such a letter to Motiv, a startup that makes fitness-tracking rings and has fewer than 50 employees. Motiv's app, like many fitness apps, sends automatically generated encouragement messages to people using its products. The letter claimed that by doing so, Motiv was violating MHM's patent on the automated-motivational-message concept.
It wasn't the first time Motiv had faced such a threat. "We have had a number of interactions with trolls," says CTO and co-founder Curt von Badinski. "Every interaction takes away valuable time and money from the business to evaluate the claims and engage legal council to address the assertions. It is very frustrating to have to stop working on amazing products to deal with trolls whose sole purpose is to drive by and shake down small businesses for a quick buck."
This time, Motiv decided not only to fight, but also to make the entire matter public in the hopes of slowing the onslaught against small businesses. So MHM's letter is now available for anyone to peruse on the Electronic Frontier Foundation website. So is Motiv's response, painstakingly drafted by Rachael Lamkin of Lamkin IP Defense who specializes in defending such suits. In it, she not only explains the baselessness of MHM's claim, she notes that the company's owners appear to be the former leaders of a company called Shipping & Transit that filed patent infringement lawsuits found baseless by the courts.
Then she turned the tables. If patent assertion entities count on the fear of financial harm to get a quick payment, she leveled a threat of financial harm at them. She wrote:
"Should MHM file a complaint against Motiv, at the outset of litigation, we will ask the court to issue an order mandating that MHM post a bond covering any award of attorney's fees given the likely award of fees and given the tendency of the people behind MHM...to refuse to honor sanctions awards."
And what's more:
"In addition, should MHM file a complaint against Motiv, we will ask the court to join as parties the individuals behind MHM and/or issue an order making said individuals personally responsible for any sanction or fee award."
Asked what she thinks will happen next, Lamkin says she considers it unlikely that MHM will now go ahead with its threatened suit. (The attorney for MHM has not responded to my request for comment. If he does, I will update this piece.)
Don't think it can't happen to you.
Motiv is a venture-funded high-tech startup, but non-tech small companies of every kind have become patent troll targets. That threat of being sued for scanning a document and attaching it to an email actually happened to many small businesses before a panel of judges at the U.S. Patent Office declared that patent invalid. And there are many other seemingly everyday processes patent assertion entities hold patents for. With one of those patents in hand, a patent assertion entity can send out letters demanding licensing fees.
What should you do if you get one? Please note that the following suggestions do not constitute legal advice from either Lamkin or Inc. Every case is different and your best option is always to obtain your own counsel. That said, here are some ideas you can try:
1. Do nothing.
Often, the best response if you receive a threatening letter from a patent assertion entity is no response at all. If you think about how lead generation generally works, a patent assertion entity that has sent out 500 letters may focus its attention on the 100 companies that respond and forget about the rest. So if you've only gotten one letter, you might try ignoring it and see if there's any follow-up. If you do get follow-up, more action may be needed. Motiv, for instance, did not respond until after the sixth letter it got from MHM.
Whatever you do, don't try explaining why the patent assertion company is in error about your patent in the hopes that they'll understand and drop the threat of a lawsuit. Any response should either come from a lawyer, or after you've received expert legal advice.
2. Google the patent.
A little time spent on internet research can help you a lot, Lamkin says. Begin by searching the entity suing you. Find out who the company's leaders are and what they've done in the past. Some patent assertion entities threaten often but rarely sue, others file frequent lawsuits. For instance, Shipping & Transit, the company previously led by MHM's apparent heads, filed more than 500 suits for patent infringement--over package tracking. In some cases, they sued companies simply for emailing package tracking numbers to customers.
Any threat over patent infringement will include the number of the patent that the patent assertion entity claims was infringed. (In Motiv's case it was U.S. Patent 9,069,648.) If you do a search on that patent number, you can find out whether it's previously been the subject of any lawsuit. Of course, the fact that you find no previous lawsuit over a particular patent is no guarantee that you yourself won't be sued. But, as Lamkin says, it's a "data point" that can help indicate whether a lawsuit is likely or unlikely.
3. Get some advice.
Intellectual property attorneys are indeed very costly. But most of them won't charge for an initial consultation to evaluate your situation. If you don't know whom to ask, you can contact the Electronic Frontier Foundation. Lamkin also says she's happy to do a quick initial evaluation to help determine whether a threat is potentially serious or not.
4. Whatever you do, don't panic.
Being threatened with a lawsuit is always frightening, and doubly so when it involves something as arcane as patent law. But keep in mind that the threat of a lawsuit may not lead to an actual lawsuit. You can and should take a little time to determine how serious the threat is. And if you do decide that it's safer and easier to pay for a license than to fight, you can likely negotiate that payment down, perhaps to a small fraction of the originally proposed sum.
"Don't just sit there and be afraid," Lamkin says. "And don't feed the trolls until you get some advice."