Patent Wars: The New Fight For Startups

Non Performing Entities(NPE),that has till now been familiar to large technology companies are of late beginning to affect a new set of companies: startups along with their venture capital firms.

These NPEs represent startup friendly institutions and serve as agents for investors by acquiring patents. They claim patent infringement and licensing fee from entrepreneurs and their investors . This is why these NPE are commonly referred to as ‘Patent trolls ‘ in the Silicon Valley.

It was earlier the larger and more successful companies that were hit by notices of alleged patent infringement.

 Today startups with their large amounts of money and substantial revenue raised have now become a new target for these NPEs as observed by Venture capitalists like David Cowan and George Zachary of Bessemer Venture Partners and Charles River Ventures respectively- break the para into sentences

With the patent system emerging more as a threat rather than a support for innovation, startup companies now seem to be in a situation of mounting legal risk . While some companies and their investors put up a fight, the others are faced with a situation that can either make or break them. In fact a company can even face the risk of injunction and be barred from selling its products.

"I would say it came up in zero out of ten companies a year ago," said Brian O'Malley of Battery Ventures, talking about patent strategies. "Now it comes up in three out of ten companies."

In fact it has been argued by VCs that Patent production should not be afforded by software products at all.

For eg, Cloud Storage Startup Box is now facing a lawsuit after having been accused by a Texas based company, Titanide Ventures, of violating three of its cloud patents.

To take another example, e-tailer Gilt Groupe, has been recently been accused by TQP, a Texas company, for violating an encryption patent, thus facing a lawsuit.

Sometimes the compensation sought by these patent holders run into millions. While many companies would readily pay up, new and idealistic entrepreneurs refuse to pay and rather put up a fight with their patent holder.

"There probably is a growing tendency of young companies to defend these cases," says Robert Taylor, a lawyer at Arnold & Porter, who says he feels misgivings over the trend. "For a small company, particularly one needing infusions of capital in order to grow, I'm not sure I would agree it's a sound strategy to fight every patent case that comes down the pike."-articles.economictimes.indiatimes.com

Also Venture Capital firms encourage companies to amass patents though they later complain about patents. Some Venture Capitalists even fear that NPEs will soon be inspired to file more infringement notices.

Non Performing Entities(NPE),that has till now been familiar to large technology companies are of late beginning to affect a new set of companies: startups along with their venture capital firms.

These NPEs represent startup friendly institutions and serve as agents for investors by acquiring patents. They claim patent infringement and licensing fee from entrepreneurs and their investors . This is why these NPE are commonly referred to as ‘Patent trolls ‘ in the Silicon Valley.

It was earlier the larger and more successful companies that were hit by notices of alleged patent infringement.

 Today startups with their large amounts of money and substantial revenue raised have now become a new target for these NPEs as observed by Venture capitalists like David Cowan and George Zachary of Bessemer Venture Partners and Charles River Ventures respectively- break the para into sentences

With the patent system emerging more as a threat rather than a support for innovation, startup companies now seem to be in a situation of mounting legal risk . While some companies and their investors put up a fight, the others are faced with a situation that can either make or break them. In fact a company can even face the risk of injunction and be barred from selling its products.

"I would say it came up in zero out of ten companies a year ago," said Brian O'Malley of Battery Ventures, talking about patent strategies. "Now it comes up in three out of ten companies."

In fact it has been argued by VCs that Patent production should not be afforded by software products at all.

For eg, Cloud Storage Startup Box is now facing a lawsuit after having been accused by a Texas based company, Titanide Ventures, of violating three of its cloud patents.

To take another example, e-tailer Gilt Groupe, has been recently been accused by TQP, a Texas company, for violating an encryption patent, thus facing a lawsuit.

Sometimes the compensation sought by these patent holders run into millions. While many companies would readily pay up, new and idealistic entrepreneurs refuse to pay and rather put up a fight with their patent holder.

"There probably is a growing tendency of young companies to defend these cases," says Robert Taylor, a lawyer at Arnold & Porter, who says he feels misgivings over the trend. "For a small company, particularly one needing infusions of capital in order to grow, I'm not sure I would agree it's a sound strategy to fight every patent case that comes down the pike."-articles.economictimes.indiatimes.com

Also Venture Capital firms encourage companies to amass patents though they later complain about patents. Some Venture Capitalists even fear that NPEs will soon be inspired to file more infringement notices.

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