Patent Trolls Are Killing Startups — Except When They’re Saving Them

By Vinayak on Tuesday, September 10, 2013 with 2 comments

Kate Endress was living the startup dream. Two years out of Stanford’s business school, she was running a website, Ditto, that offered a way of trying on glasses without actually trying them on, and the operation was on the verge of raising its first round of venture capital.
Then came the lawsuit. Wellpoint, the owner of 1-800-Contacts and, sued Ditto for patent infringement. “Just like that, we were faced with an ‘injunction’ threat from a $25 billion competitor,” Endress remembers. “I was terrified our years of hard work were for naught.”
Her account of Ditto’s ongoing tangle with a patent-wielding behemoth arrives as part of a new survey published by the New America Foundation’s Open Technology Institute, a not-for-profit organization that seeks to promote a more open exchange of ideas in the world of digital technology. The study details how the startup world is affected by so-called patent trolls — companies that use patents merely to attack other companies — and as you might expect, it’s not pretty reading.
For the study, conducted earlier this year, Santa Clara University School of Law Professor Colleen Chien surveyed about 300 venture capitalists and venture-backed startups. Seventy-five percent of the VCs said their portfolios had been on the receiving end of patent actions, and that rate rose to nearly 90 percent among VCs that deal specifically in digital tech. The rate among individual startups surveyed was much lower — 20 percent — but the impact on those that were targeted was sometimes severe.

The current patent system can severely hamper the growth of software startups here in the U.S., but as this new study arrives, Congress is considering changes to the system, and some startups are finding new ways of fighting back. In their ongoing effort to stay alive, Endress and Ditto are taking a rather counterintuitive approach to the Wellpoint suit. They’ve enlisted the help of someone derided by his critics as a patent troll pioneer.
In her account, Endress alleges that Wellpoint filed suit with a patent that it purchased only after seeing Ditto’s tech — tech for which Ditto itself was seeking patents. “I can only speculate that they fear that the patents we filed (which take years to issue!) will become a weapon towards them down the road,” she writes as part of the Open Technology Institute study. “But if they would have just called me before filling a lawsuit against us, they would know we applied for those patents for defensive purposes, not offensive ones.”
In other words, she insists that Ditto is only interested in defending its turf, not in attacking competitors, as Wellpoint has done. This is a common stance in Silicon Valley — Twitter made such a policy explicit last year — but it only goes so far in deterring suits.
In response to questions from WIRED, 1-800-Contacts blasted Endress’ claims. “Like most other companies operating a business that depends on technology, 1-800-Contacts purchased this patent for a reason — the patent potentially covered what the business was doing so the patent either needed to be licensed or purchased,” the company says, pointing out that the patent was granted in 2006, though the company purchased it in 2012. “Ditto could have licensed or purchased the same patent, but chose to ignore it and launched their website with an infringing virtual try-on feature anyway.”

Category: Intellectual Properties



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