Companies Can Inoculate Themselves Against Patent Trolls Through Their Supply Chain

By Tim Wilson

The well-worn phrase “no man is an island” may reflect a fundamental truth about the human condition, but it also provides wisdom into how to protect your company against patent trolls.

Organizations aren’t islands either. Every business operates in an interconnected ecosystem of partners, competitors, vendors, customers, and unfortunately, patent trolls. Companies must use a multi-pronged approach to combat patent trolls, but one critical prong has been overlooked: the supply chain.

To help keep patent trolls at bay, each company in a supply chain should inoculate itself against patent trolls or risk becoming a glaring Achilles heel that trolls can exploit. No vendor, regardless of size, is immune, especially in the tech, financial tech and automotive industries, which are primary patent troll targets.  Reducing any company’s exposure to patent trolls improves the business environment for the entire supply chain.

Self-Inflicted Damage

With the rise of the internet and increasing globalization, supply chains across industries are more complex than ever before. For example, General Motors uses over 800 suppliers to produce the Chevy Volt and Apple has suppliers in more than 30 countries round the world. Software supply chains have also grown more complex as open source software has exploded, with 78 percent of companies running on an amalgam of open-source software (a number that has doubled since 2010).

At the same time, patent trolls have also grown more aggressive. The Boston University School of Law published a study which found that over six times as many patent lawsuits are filed today as in 1980. More than 10,000 companies have been sued at least once by a patent troll and litigation by patent trolls using acquired patents is increasing at an alarming rate.  Last year, patent trolls scooped up over 6,000 high tech patents, creating additional exposure for all companies. Where did the patent trolls get these patents?  More than 80 percent of patents litigated by patent trolls are acquired from operating companies, and nearly 1,000 companies have transferred patents directly to patent trolls in recent years. In the hands of patent trolls, patents are weapons and the damage those weapons caused is somewhat self-inflicted.

First, Do No More Harm

When a supplier is facing a patent assertion claim, everyone in the supply chain suffers. Companies concerned about increasing risk of patent assertions can help mitigate that problem by involving their supply chain. One thing we do at SAS is to encourage our vendors to tell us how they are addressing the patent troll problem during the RFP process.

We think this is important for a number of reasons. For one, it helps to protect our business. Buying from a supplier at risk of patent assertions increases the vulnerability of our supply chain. Once we buy a product and it’s on our premises, we could be hit by a patent infringement lawsuit related to that item. Even if the supplier provides indemnification, we still have to deal with the litigation process and all of the potential negative outcomes. Therefore, we prefer to work with suppliers that can demonstrate they are thinking about the patent troll problem strategically and are, at a minimum, not selling patents to patent trolls. If a supplier has taken measures to curb the patent troll problem, it demonstrates good corporate citizenship.

The impact of this effort will not be felt until a critical mass of corporations, whether they make cars, mobile phones or financial software, ask potential suppliers what steps they have taken to inoculate themselves and the supply chain against patent trolls. Only then will suppliers be highly motivated to find ways to do so. They will think twice before selling a patent to a troll if it means potential contracts are at risk.

So what steps can suppliers take? The most effective is to join a community that works together to curb Patent Troll activity.

Today, there are a number of communities out there, run by both nonprofit and for-profit organizations, that help keep patents away from trolls. For example, the non-profit LOT Network, of which SAS is a member, represents a coalition of companies wherein any time a member company’s patents fall into the hands of a troll, all other member companies are granted a license to it, thereby providing immunity against patent troll litigation for the affected patents.

If a supplier participates in LOT Network, it shows that they’re concerned about the patent troll problem and are committed to working against it. It elevates the level of trust we have with that supplier and reduces our concern about getting hit with a patent assertion claim through our supply chain.

Squashing patent trolls must be a collective effort. The supply chains of all major industries must work together to effectively diminish the ability of patent trolls to thrive. To cure our economy of patent trolls requires a widespread, top-down, bottom-up, and across-the-board approach.

Tim Wilson

Tim Wilson began his legal career working in private practice at the law firm of Jones Day primarily focusing on patent litigation. He then worked in the law firm of Brown, Raysman in New York, NY, before joining the Legal Division of SAS Institute Inc. in 1998. He currently leads the patent team at SAS. Mr. Wilson is admitted in Pennsylvania, Ohio and New York. He is a member of the American Intellectual Property Law Association and the North Carolina State Bar Association. Tim is a member of the Editorial Board of Intellectual Property Magazine. Mr. Wilson graduated from Pennsylvania State University in 1989 and received his J.D. from the Syracuse University College of Law in 1992.

Image Credits: SAS