Life for a startup on the receiving end of a patent law suit
pandodaily.com
pandodaily.com
There are villains in this world. They used to hide beside the road and beat then rob travellers. Later they rode around in rusty pickups with ak's killing and robbing villagers. Their weapons change but their tactics don't. The measure of civilization is how we choose to deal with them. I'm afraid they'll always be with us. It all comes down to where our sense of justice meets our apathy.
Nah. They've always been lawyers.
This is nothing more than legal (for now) extortion.
The problem with a US based LLC is that you open up free access to thousands of patent trolls waiting to eat your hard earned money. This isn't a problem if you can afford a decent Lawyer for $5000-15000, but for businesses like mine, which are bootstrapped, it's totally unaffordable.
Well funded startups usually have a separate legal department to resolve these issues, but when you're running a startup totally from your own pocket, it becomes extremely hard and annoying. I was wondering for a solution until a very good friend of mine suggested me something nice.
If you set up a company somewhere in India (or some other popular, Start-up friendly developing country), these patent trolls have little access to you in terms of licensing, etc. Usually a patent troll will send you a legal letter threatening you about violation of some kind of absurd technology patent, etc. But, when you start up elsewhere, these become nulled[1]. Meaning, they can't touch you. Worse-case scenario, even if someone DID sue you, the lawyers are really cheap in such developing countries. We're talking about price ranges of $50-1000. And for $500 bucks you can get some really nice lawyers to get the job done.
There's also a LOT of start-up friendly exemptions for companies in such developing countries simply because they don't have enough of them and they want more people to start up.
So, even though these countries are often referred to as 'third worlds', they are really good places to start up. If you know of anyone wanting to start up from those countries, you should probably team up with them as their co-founder and that should be good enough.
Of course, all this assuming that you aren't interested in seeking funding and you want a bootstrapped start up. But then, if you are seeking funding, you'll probably have enough cash to afford a $5000 lawyer anyway.
One potential issue you may find running a startup from a developing country is the access to decent payment gateways. But then, if you don't mind sharing an extra 1% with the gateway provider, you can probably use someone like skrill.
It doesn't matter where you're located. What matters where you want to do business.
I feel like there are options here that may not have been tried. Presumably a patent troll could try to tell your payment service and US based servers not to do business with you, but I haven't heard of that either, aside from credit card companies blocking Wikileaks and the US govt seizing servers suspected of hosting illegal stuff. I forgot why the US govt seized servers in VA a few years back but the point is that is pretty unusual too and I wonder how far a patent troll would go or how difficult it would be for them to get through all that.
The only way China blocks Facebook, for example, is through a massive firewall, and their businesses generally don't accept any foreign credit cards. The US seems unlikely to put in a huge firewall or modify DNSs to go after small businesses for patent trolls..
Most companies though prefer to settle out of court because the court is quite a gambling, that's why we do not hear it more often.
Companies that settle out of court are, from what I have read, small to medium sized US based companies that can face legal action if they do nothing.
What I am talking about is a small company that is foreign based in a place that does not comply with US patents. Has there been one that has ignored US patents and been shut down by having their domain blocked or their US payments disallowed?
Try to get bigger though or get a investment round, and troll will come after you.
It is not a coincidence that the company in the article's got trolls about the same time it's got an investment.
Only if you're a hardware startup.
If you're doing software as a service and you can deal with latency issues, you can operate many places where US patent law doesn't apply to you or to your customers. Canada and Mexico have high speed connections to the USA and Germany or Korea aren't so slow either.
Example:
http://www.ca.com/ca/en/news/Press-Releases/na/2013/CA-Techn...
"... seeking ... an injunction against AppDynamics prohibiting the infringement of CA Technologies patents"
In case CA wins, the court will prohibit AppDynamics to sell any product that violate CA's patents.
Yes, one may host the company in Canada. How to sell to US customers though? VISA, MC and AMEX all have US presence and will comply with the court order (CA's lawyers will undoubtfully provide a copy). Paypal and other various Stripes are just facades to the very same VISA et all.
Without ability to charge for the product, where the business is going to be?
Getting an injunction against a company outside the USA for software running outside the USA is not within the claimed jurisdiction of US patent laws.
Now, step two: US trolls will not sue a company doing business outside of US; too much trouble. But any company doing business in US is a subject to local laws, and most SaaS companies want to work on US market simply because it is the biggest one.
"Doing business in US" means, among other things, having US customers and using US payment processors.
http://www.nestmann.com/nevis-llcs/
Edit: I see you're from Bolivia. A Panama corporation might be a better choice for you. They'd have to first hire a translator to sue you : )
Why would they do that? o_O
They will file at their local US court. You're free to sell to Nevis all that you want -- but do not come with your product into US until the US litigation is won.
Some third-party trust or nonprofit or somesuch, so you no longer have control of the money and the patent troll can't force you to give the money to them to pay a judgment against you. 2% - 10% of your contribution can be used for their general expenses, the other 90% - 98% can only be given to a party who gets a specific patent invalidated, which you specify when you donate.
So when the troll tells you that Patent #1234567 is being infringed by your company and you need to pay $100k a year or they'll sue you, you can roll over if it's your own best decision from a risk/reward perspective -- but you can also make a one-time donation of $100k, or whatever you can afford, to the '567 bounty pool.
The troll extorts ten companies, suddenly there's a million-dollar reward for somebody to take them out, and it changes the risk-reward equation for the companies and lawyers involved (especially if companies are investor-backed and aren't the sole source of income for the majority of their owners.)
I suggested this a while ago [1] and it got a lot of upvotes.
It kinda surprises me that none of these extortion cases have escalated to that sort of thing. When someone puts 5-10 years of sweat, blood and tears into a company, it would surprise me if there wasn't a single example in the country where one of those entrepreneurs reacted violently to this kind of extortion racket.
They would make sure you're behind bars in no time.
After all, what's the ROI on legitimacy if the state can't protect you from banditry?
"First, we kill all the lawyers" - Shakespeare, Henry VI
http://99percentinvisible.org/post/16570523049/episode-46-vu...
I've done similar things with both government officials (got a penalty reduced in half) as well as attorneys working on behalf of someone else. Once again you can't be threatening you have to be nice. Waste as much time as you legitimately can is the bottom line.
We are not talking about hours and hours all at once either. We are talking about being a constant time waster and pain in the ass a little bit at a time or as much as possible while still flying under the radar and appearing not to be doing it on purpose (which you are).
At a certain point people will act in their self interest and perhaps give you what you want. At least that has been my experience when I've followed this path.
Patent trolls are what happens when the patent system is taken to its logical conclusion. So if patent trolls are evil, then the patent system itself is evil.
The fact that some or even many patent holders _aren't_ evil is beside the point.
Imagine, for example, that there was a law which gave husbands permission to rape their wives. Presumably only _some_ husbands would take advantage of this law. So one might conclude that the law isn't bad, it's just that society has to find some way to deal with those bad husbands, the so-called "marital sex trolls", who take advantage of such a law.
And the bad husbands would say something like: "Morally, I think husbands deserve some reward for the benefits that they bring to a marriage."
This is my opinion.
Here mathematical algorithms cannot be patented, nor can anything 'obvious'. While it is possible to patent software here, realistically you can't really do it, and the legal system is kind to defendants if someone is brave enough to sue you.
The patent system in the US looks ridiculous to anyone outside the US...
He's just joking, right? Surely he has neither tools nor intentions to put someone out of business?
Let's assume that's happened before anyway..
What if you use a foreign domain name?
What are the non-US based methods of receiving payment online?
Are there any viable foreign servers that are fast enough to service the US but whose country does not have patent agreements with the US?
You see? The online purchases are not as unregulated as they may seem. There are laws about them, and the online companies do follow those laws.
Trying to sell banned service to US customer is not much easier than trying to sell banned food. One may try but the interested troll only need to send a cease-and-desist to yet another payment processor one uses to sell to US, and the service is on square one, again.
Let's say that you received a summons in the mail informing you that your startup was being sued. First of all, why are you receiving it in the mail? Why can't the Secretary of State ask for your e-mail address (as some do) and actually use it for service of process? (Answer: because the courts aren't even sure they want to allow a technology as sophisticated as Certified Mail to be permitted for service of process, let alone fax. E-mail? You must be joking.)
Once you get the summons, assuming you can even understand what it means, what do you do? Look up the case on-line? Probably not. That would require you to have a PACER account, which costs money beyond $15.00 per quarter in fake-page access at $0.10 per fake-page. It would also require you to know how to navigate the system, which isn't particularly easy. Assuming that you could, and could understand the legal documents, you might be able to learn a lot right there.
Instead, what most people would do is pay a lawyer to handle all of this for them, at anywhere from $300 to $600 per hour. But what does lawyering really involve? Copying and pasting from Microsoft Word templates, turning Word files into PDFs, attesting to obvious things ("I have caused this envelope to be placed in the mail as of this date") and occasionally reading a similar case to cite. But mostly it's not that difficult. There are definitely aspects that require skill and logical thinking. That's maybe 5% of the work.
So why are we paying $300 to $600 per hour for highly indebted people to do things that computers could? Because the courts won't let computers into the picture. They won't even let companies represent themselves through their founders, even though Citizens United guarantees corporate freedom of speech (everywhere except inside the courtroom, apparently). If they did allow technology to enter the picture, handling a patent infringement assertion might actually be fairly trivial--something you could do in a few minutes on a web form--and at worst, as annoying as calling customer service.
The USPTO isn't blameless either. For more on that you can look at some slides from a presentation I gave at the USPTO Software Patent Round Table in February, 2013.
Slides http://www.aarongreenspan.com/technology/20130212.softwarepa...
Video http://helix-1.uspto.gov/asxgen/20130212_SoftwarePartnership...
Patent law is federal law, and nearly all the relevant federal opinions are available for free online. I do think it is problematic, in principle, that very small corporations cannot represent themselves pro-se. That said, pro-se litigants are an enormous burden on courts because they have no idea what they're doing. A federal judge will have hundreds of cases on her plate at any given time. They need litigants to get in, make their case, and get out.
> But what does lawyering really involve? Copying and pasting from Microsoft Word templates, turning Word files into PDFs, attesting to obvious things ("I have caused this envelope to be placed in the mail as of this date") and occasionally reading a similar case to cite.
My mom thinks that programming just involves "typing things into the computer." What you're describing is paralegals' work if not secretarial work. Most of lawyer's work involves researching case law, writing memos and briefs, doing factual investigation, interviewing witnesses, taking depositions, etc. Clients are sophisticated. They're not paying $500/hour lawyers to turn Word documents into PDF's, not when you can get droves of bar-admitted lawyers to work for $20/hour on Craigslist.
> Because the courts won't let computers into the picture.
Invent a computer program that can apply the law to the specific facts of a case and generate a helpful brief and we'll talk. In reality, many college and law-school educated people of well above average intelligence can't write a helpful brief.
The legal industry has been adopting computer technology as it becomes available. A good example is document review. Computers excel at searching through large amounts of information looking for potentially-relevant documents, so law firms increasingly use computers to flag such documents (though many/most clients still prefer to have this outsourced to low-cost contract attorneys). Most work that used to be done by secretaries is automated. Document management systems produce blacklines, track changes is used to enter revisions, etc. Again, clients are sophisticated. They're not paying $500/hour for a lawyer to manually enter hand-markups.
The legal industry has been adopting some computer technology as it becomes available. The courts have barely changed since the 1700s.
I'm not just guessing here. I just spent a year as a fellow at Stanford Law and heard all about it from people on both sides. I also have a friend who just quit his job as an associate at one of the top valley firms. His job was to do transactional work, i.e. prepare legal documents for top valley VCs. He graduated from Harvard Law School, which meant that the firm could bill much higher rates for his time, and told me that he spent most of his 16-hour day copying and pasting Word documents--which is largely why he quit.
Your friend's characterization of his work seems phat. The first year transactional associates I know are summarizing term sheets, conducting due diligence, etc. It's fairly rote, but it's stuff that's just context-sensitive enough not to be automatable. And as a practical matter, entry-level positions in any field, maybe outside of valley startups, tend to be pretty rote. Some of my friends might sum up their entry-level programming roles by saying that their jobs just involved "changing colors of widgets in the UI in response to support tickets." It's training, work that prepares the associate to do more complex tasks down the road. Speaking broadly, training entry-level people, in any field, is part of the cost of business. In law firms as in any other business, those costs get passed onto consumers.
As a counter-example, I'll offer my own experience as a first year litigator. I spent 75% of my time doing legal or factual research (including researching several issues of first impression), drafting research memos, preparing interview outlines, and summarizing expert testimony.[1] I spent 25% of my time reviewing discovery documents, and that process was heavily automated/outsourced. We were generally only looking at documents that had been marked potentially significant by either a contract attorney ($35/hour in NYC, less in India) or a predictive coding algorithm. The exception was when a batch of documents was too small to be worth dealing with the set-up overhead of putting a contract team together or training the predictive coding software.[2]
[1] Electronic access to case research is of course a big boon to making that sort of work more efficient. However, I should note that at the end of the day, using Lexis/Westlaw saves the client a lot of money. Google Scholar is so spectacularly bad for legal research that it takes much longer to get an answer, and you feel less confident in the answer you get. The limitations of Google Scholar when it comes to legal and scientific research are very telling insight into the limits of automation with existing technology. Google is amazing, but fundamentally its not actually intelligent. It suggests to you what you might want to look at based on what other people looked at. When that popularity heuristic is inapplicable, it becomes really unhelpful.
[2] This is a flip-side to automation technology that gets glossed-over. In a mega-litigation, predictive coding is a huge boon because you might have hundreds of thousands of documents. But in a more run-of-the-mill litigation, the time it takes to train the predictive coding engine might negate any advantage over just having a first year associate look at the documents.
Actually the extreme is likely to be in the millions.
The number of hours billed is very dependent on the structure of the law. One of the goals of courts is to streamline the law so that cases that don't have merit can be dismissed quickly and easily. If you follow litigations in the popular press, you'll see that a lot of lawsuits get dismissed on "technicalities" (i.e. procedural rules). E.g. the EFF's NSA litigation is in danger of getting dismissed for a lack of standing (i.e. dismissal because the plaintiff can't show actual injury). Courts create these procedural barriers because getting to the merits (i.e. looking at the facts) of litigation is time-consuming and expensive. Courts also create other barriers. For example, in a shareholder suit, there is something called the business judgment rule: i.e. in the absence of a conflict of interest or something like that, a court will defer to management's superior business judgment. Rules like that allow shareholder suits to be evaluated and dismissed based on facts that are easy to prove without having to reach facts that are expensive to investigate and prove.
In patent litigation, there is precious little of that. Patent litigations very quickly become a very fact-intensive process of interpreting a complex and voluminous patent, getting expert witness testimony about exactly how the defendants product works, etc. Once a lawyer is sitting down with an engineer looking over code, the clock really gets going.
The Supreme Court has been very reluctant to create categorical rules in terms of patentability, and that's largely because the Patent Act is written in a way that makes such categorical rules inconsistent with the intent of the law. But the fact is that categorical rules (e.g. no software patents, deference to business judgment) make litigation cheaper, and that's an important consideration too.
And one of the goals of (relatively) rich plaintiffs who sue (relatively) poor defendants is to drag out the case as much as possible to impose costs and inconveniences on the defendant.
I wouldn't say very reluctant. There were four votes for a rule putting software and business methods outside patentability in Diehr (450 U.S. 175 (1981)) and again in Bilsky (561 U.S. ? (2010)). If Obama gets a chance to replace one of the pro-software patent justices (Roberts, Alito, Kennedy, Thomas, Scalia), the result could be different next time.
Note that in both those cases, the justices that were skeptical of software patents were those typically classified as the "left"-wing justices. I have no idea why that happens. Dr. Lessig had a theory in Eldred v. Ashcroft that he could win over "right"-wing justices for textual literalist copyright reform but it was only the "left" justices that finally agreed with reason in that case; even then it was only the most avid patent reformers he won over: Stevens and Breyer.
I must be living under a rock as I only barely recognized the name. That all read bad enough but then the part where they are likely putting stuff on pirate bay to then prosecute people...the more of this I read the more outlandish it seems.
Ignore them and they will only win by default.
If you're not a corporation, AFAIK you can go pro se (be your own defense attorney), but in that route you're not just risking the business -- if you lose and the damages are more than the business can pay, they'll be able to seize your house, your car, and your kids' college fund. And your credit rating will be ruined if you have to declare bankruptcy personally, so you might not be able to get credit cards for a decade or two afterwards.
Also, the website is a little unclear about what exactly customers are buying. "Search for prior art" -- it sounds like you're charging people $10k to copy-paste the sentences from their product's specs one-by-one into Google. What exactly are your customers paying for? It's not clear on your website.
Remember, you probably have a decent understanding of patent law if you have a JD, but your customers don't. Your target audience is (I'm guessing) similar to much of HN -- intelligent hackers who have a good business sense but little formal training in law or business. Hackers'll want to know the "how" and "why" of what they're buying, but your explanations don't explain legal jargon like "examining applications," "prior art search," or "ex parte".
Also, I would suggest offering services on contingency-fee basis -- you only get paid if you actually bust one or more patents at least dimly related to your customer's business, or produce some other sort of tangible result for the customer. To make this financially viable for you, you may need to substantially increase your fee for contingency clients, and have cash reserves in case you lose multiple re-examinations in a row.
Also it'd be nice to show patents you've busted. If you don't have any yet, you might consider looking for easy patents to target, and self-funding a re-examination of them, or (if you don't have the money or it's against the rules for a lawyer to bring such a case on their own initiative) approaching the EFF or somebody to ask if they'll fund you.
I originally created this page as an exercise in "marketing driven development" aka just testing the waters to see if there is a market for this sort of thing.
I did consider your last point of busting a bogus patent and self-funding the ex parte filing fee. I was considering going for a particular linked list implementation which was patented in the 2000s. My approach was more or less to grep / lucene a wide range of open source projects with extensive timestamps of publication dates (e.g. linux kernel).
It turns out that is a lot of work, and since I got no response to the site, I figured this kind of legal service is not really appealing -- for reasons I don't understand. At least, not enough demand to spend a bunch of time on it, since I have other projects I enjoy working on more.
Thanks again for the thoughtful response.
Just putting a website on the internet is no guarantee people will find you. There might be a lot of people interested in your service, and it could be that your site is too hard for them to find.
The fact that our system allows folks to invent but not manufacture led to substantial growth in our country and also to the entrepreneurial culture we all enjoy.
PAEs are abusing this and absolutely need to be stopped.
Insurance companies don't sweat big lawsuits and have all the resources to put up a fight and spread the risk.
It's only a matter of them viewing it as an opportunity. It will happen. And they will be able to effectively (at scale) jerk around the trolls till the cows come home.
The trolls will either settle for a nominal amount (think of it as a protection racket) or pick a different house to break into without an alarm.
Other examples with high claim amounts, flood insurance, health care, etc.
It doesn't matter how high the minimum cost is, and you cant judge any kind of insurance based solely on that. The chance of it happening is just as important. Let's say 1% of all companies get sued for patent disputes every year (I don't know the stats on this, just an example), with an average defense costing $500 000. The insurance company also wants to make money, so let's have them charge 150% over cost.
$500k x 1.5 = $750k (amount of revenue per 100 customers)
$750k x 0.01= $7500 (cost per customer per year)
$7500 / 12 = $625 (cost per customer per month)
Now even that number isn't that high, and I assume 1% of companies getting hit with patent lawsuit per year is bigger than the real figures.
Average cost of a car claim (ignoring glass) is probably in the $5,000 range. The average person gets in <0.5 accidents a year, so coverage is <$2,500 for the average person.
Average cost of a patent claim is, say $200,000 (that is a minimum, but we will treat it as an average). Average company gets 0.05 patent claims per year (1 in 20). Coverage would be $1,000 a month. Not too bad.
Now lets add what happens after the first time you pay out an insurance claim within 6 months. Someone in your company gets $200,000 for a client list, your patent claims per year just became 10 per client. Good luck.
They all want to help erase software patent abuse anyway, right? Are they serious about it?
If so, they could put together this insurance at reasonable/subsidized rates for startups, and immediately get the opportunity to fight 90%+ of all patent troll cases relevant to their interests.
But the companies I mentioned don't actively engage in shakedowns, as far as I know; I left Microsoft off of that list because of its poorly disguised attempts to destroy Linux through patent trolling, and Apple because of the Samsung case, and Oracle because of the Java case, and Amazon because of one-click ...
In contrast, I don't see something like this necessarily being against the best interests or modus operandi of the companies I mentioned.
I can see it being unpractical, unlikely or unattainable for a variety of reasons, but those companies have de-facto monopolies, not state-granted monopolies (patents), and that they seem to prefer to operate in a world where you're allowed to innovate.
when are you losers going to wake the hell up?
and oh yeah, Aaron Shwartz, never forget.
edit: you know theres a business opportunity right there. you know crowd funding? how about crowd voting? that'll teach em.
promissory note.
UK patent law, 'relaxed' personal taxation, zero corporation tax, good motor bike racing, English widely spoken, good transport links with mainland, temperate climate, funky passport. I imagine remote ownership is possible.
On a more serious note, patent protection was designed to promote innovation by providing a monopoly in exchange for full disclosure so others could understand and further improve. In the US this purpose is (apparently) not being achieved so as others have said, time for some politics.