May 17, 2011

Staving Off Patent Trolls: Four Initial Steps to Protect Your Company

Holland & Knight Alert
R. David Donoghue

Patent trolls1 have been the scourge of technology-based industries for years. It can cost just as much to defend a case against a patent troll as against a competitor, but the defendant in a patent troll case has little or no opportunity to use competitive pressure or counterclaims to defend itself and create exposure for the plaintiff, as you might do in a case against a competitor. Until recently, retailers, hotels, restaurants and other primarily brick and mortar businesses have avoided the cost and frustration of patent troll litigation. But that is changing.

One of the most egregious examples of a patent troll attacking brick and mortar businesses is Innovatio IP Ventures, LLC (“Innovatio”).2 In February 2011, Innovatio incorporated in Delaware, with a business address at a Southern California home, and two weeks later acquired a family of thirty patents allegedly covering all wireless Internet (“WiFi”) technology from Broadcom. In March, Innovatio filed suit in the Northern District of Illinois (Chicago) accusing 10 defendants in three broad business segments – restaurants (Au Bon Pain, Caribou Coffee, Corner Bakery, Cosi and Panera Bread), grocery stores (Meijer and Dominick’s Supermarkets) and hotels (Accor North America, Kimpton Hotel & Restaurants, and La Quinta) – of patent infringement based upon wireless Internet service that each allegedly provides in its establishments. Innovatio seeks a license based upon the number of locations in which an entity offers WiFi, either for customers or for its internal business uses. For many retailers with locations across the country or even a region, the per location fee can quickly jump into the high seven figures.

Unfortunately, Innovatio is not just accusing the 10 defendants in the Chicago case. They have also sent a wave of letters to other retailers, and more are expected. There is anger at the injustice of the suit and amazement that the defendants are being sued instead of the real alleged infringer, i.e., the company that made the wireless router that creates the WiFi networks. And it is a good point: Innovatio should be accusing the wireless router manufacturers. Unfortunately, however, Innovatio is free to accuse, and sue, anyone who makes, uses or sells the accused technology. That means that Innovatio can go after the retailer that has WiFi in its stores, leaving each retailer to fight a patent litigation involving WiFi technology about which it likely has no deep understanding.


A retailer that receives a cease and desist letter from Innovatio is often facing the unfamiliar territory of its first patent litigation, and must quickly decide whether and how to fight the case, or to pay Innovatio a significant license fee. The key question for the retailer is how to minimize its risk while maximizing its ability to successfully end the case. Here are four straightforward steps every retailer can take to protect its interests after being accused of infringement.

1. Retain Knowledgeable Counsel

It is key to have patent litigation counsel advising you from the beginning. In cases such as this one, when all defendants have products that are largely identical, it makes sense to join together with other co-defendants and accused entities to share counsel. A joint representation removes barriers to information exchange between the accused parties and it allows the parties to split shared costs. Additionally, because the products all operate using the same wireless protocol, there is a diminished risk of conflicts arising between each parties accused product or system. Cost savings are critical, because in patent troll cases fees and costs are an even larger consideration than they are in a more standard case against a competitor involving core technologies or core business issues.

2. Gather Facts

The old saying is true – knowledge is power. Institute litigation holds and begin gathering documents and information regarding your WiFi systems. Critical questions to answer include: (1) did you hire a service provider or purchase wireless routers and self-install them; (2) which of your locations have wireless service, how good is the wireless coverage and how long has each location had coverage; (3) do your WiFi-related agreements provide for indemnification; and (4) what information do you have regarding your particular WiFi hardware.

3. Seek Indemnification

Your service and hardware providers are the entities with the most knowledge about the WiFi devices and services you may offer. Ask them to defend the case for you. Once you have identified your service and hardware providers, tender your defense to them.

4. Begin a Conversation

In cases like these, your business competitors often become your legal allies. Work with counsel to protect your attorney-client privilege and work product while reaching out to others in your industry that face the same threats or suits. Together you can identify defenses and formulate strategies.

1 Patent trolls or non-practicing entities secure patents and enforce them across an industry, without any intent to manufacture or market the patented invention. Patent trolls often offer "discount" licenses for those that settle without getting sued or going to trial – although in this case, the "discount" may leave many retailers with a significant license fee.

2 While Innovatio is used as an example in this article, other current patent trolls include GeoTag, Landmark Technology, SFA and various subsidiaries of Acacia.

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