Formerly Practicing Entities: Part II

Jason Bourgeois

IP Portfolio Manager

Read Part I

Small businesses fail. They do it all the time, it is an expected part of the entrepreneurial ecosystem. Many of these businesses are in low-tech areas; the failure of these businesses leaves the owners with little or nothing to show for their efforts. For the owners of fledgling high-tech businesses, though, sometimes there is a ray of light shining in the darkness. Their patent portfolio is often times one, if not the only, salvageable asset of the company. From this point forward, I will refer to these companies as “formerly practicing entities”. The allure of a high-tech start up is that they are often based around a highly innovative and hugely beneficial concept. The downfall of many, however, is that basing a new company on a single idea is very risky and often very expensive. The rate of failure of such companies has been variously pegged at between 75 and 90%. In hopes of mitigating this risk, these companies will often seek patent protection for their inventions. Sometimes the goal is to drive up the asking price for potential acquirers. Others seek to produce assets (IP Rights) that can be sold or licensed in lieu of a direct revenue stream if, perhaps , their first product is many years off. Regardless of the reason, the patents are often the only thing left when the company goes under.

Adrift and without apparent recourse, the owners of the now defunct company may see competitors who have implemented and exploited their (the patent owners) contribution to the industry and are now profiting from the innovator’s demise. Were they to enforce their rights, they would be labeled “patent trolls”. How can a company that was once operating in the marketplace and was forced out, by unjust and unfair means mind you, now be morally derelict for seeking recompense from those that harmed it and those that profited from that harm? The answer the companies that have profited most from this parasitism, large powerful groups, have directed the dialog of the patent space to their benefit. Formerly practicing entities have been demonized by large corporations. For years, these corporations have pushed the United States patent system away from its intended purpose towards one that actively discourages small businesses from competing in the marketplace. This has been coupled with a PR campaign to malign any company that enforces its intellectual property while not actively participating in the marketplace. The climb up the entrepreneurial ladder is tough enough, society does not benefit from a policy that now retracts the ladder from current and future entrepreneurs.

So, what is a formerly practicing entity to do with their IP? If they believe they were not simply out-competed and that their IP rights were violated, they should seek to enforce those rights. The hypothetical above is not conjecture, it is the story of many of our clients. We have worked with inventors in this situation since the founding of our group. We provide a total monetization solution: licensing, sale, and litigations support. We provide top notch analysis by working with industry professionals and we have decades of experience leveraging assets others have trampled over.