For many tech entrepreneurs, the latest episode of “Silicon Valley” — which has Richard (Thomas Middleditch) squaring off against a slimy lawyer who boasts a history of targeting tech startups with patent lawsuits — hit too close to home.
If you missed it, Richard is beside himself when a “patent troll” looks to scam him out of $20,000 for patent infringement. Rather than take the easy route and just pay him off, Richard looks to create a unified front against the troll with other storage companies — except they end up abandoning him.
Richard wiggles his way out of the lawsuit, though, when he finds a copyright violation by the troll — leading him to milking $20,000 out of the troll. Unfortunately, his triumph is offset by Jared telling him his litigation fees for his failed coalition comes out to be $22,000.
Richard’s struggle is a storyline straight from the bowels of life in Silicon Valley.
A 2014 study from the Stanford Law Review found patent trolls are especially keen on targeting small companies. “At least 55 percent of unique defendants in troll suits make $10M or less per year,” according to the study. Of the study’s 79 respondents targeted by trolls, 13 made less than $100,00 in revenue.
While small companies would seem to bring minor returns for the trolls, think of the move as an investment; many of the startups are forced to cut the trolls in on a licensing agreement, allowing them to cash in if the company takes off.
It’s often cheaper than the alternatives, though, with the average settlement cost upwards of $350,000, according to the study. And fighting in court is even more of a black eye, with the average cost coming in at $857,000.
And apparently, there isn’t much you can do as a founder to shield yourself from the trolls.
“One of the big issues with trolls is that there is no reciprocal liability and no vulnerability to patents, which allows trolls to be aggressive and operate with near impunity,” said Ira Blumberg, vice president of intellectual property at Lenovo, in an article for TechCrunch. “There is nothing a product company can use to offset its exposure to the troll’s patents.”
In other words, the ugly mix of incentive and lack of repercussions give trolls all the reason they need to go after startups.
These unnecessary battles add up. A 2014 study from the MIT Sloan School of Business found VC investment in the preceding five years “would have likely been $21.772 billion higher… but for litigation brought by frequent litigators.” That’s a lot of cash out the window, even by Silicon Valley standards.
While “Silicon Valley” does an excellent job of routinely skewering the absurdity of the startup world, this episode truly highlighted the lowest of the low in the tech ecosystem.