(Editor’s note: Jonathan Fritz is a partner in the Venture Best industry group of Michael Best & Friedrich, LLP. He submitted this story to VentureBeat.)
Recently Groupon Inc was sued for patent infringement. If it loses the case, the company could be forced to shut down, causing millions of users to take their business elsewhere.
CY Technology Group LLC and MobGob LLC allege the popular deal-of-the-day company is infringing on a patent issued in March 2010. Not only does the lawsuit request damages associated with infringement of the patent, but it seeks a permanent injunction, which could potentially mean the end of Groupon.
That’s unlikely, of course – even if the company loses the fight. Fast-growing firms have a way of surviving legal defeats through payouts. But smaller businesses aren’t always so lucky. That’s why it’s important to know how to assess infringement risks at an early stage. Even if you offensively pursue patent protection, you’re still exposed to patent infringement.
The best way to avoid this sort of risk – or at least reduce it – is through a freedom to operate (FTO) search and analysis.
An FTO analysis begins with identifying the activities of your company, including products sold and/or processes practiced. It then conducts a search of the patent record focused on these activities, including both issued patents and published patent applications – sometimes with a focus solely on the U.S., other times it includes other countries as well. The search identifies potentially problematic patent documents, then compares those to your business activities. Ultimately an FTO serves as a legal determination as to whether your company’s activities infringe upon the claims of the uncovered patent documents.
The risks don’t end with issued patents, unfortunately. Pending patent applications can be just as problematic. To mitigate this risk, it’s smart to search and monitor the progress of pending applications, which are generally publicly available 18 months after they’re filed.
It’s a practice that could have helped Groupon. The site was launched in November 2008, while the patent at the center of the battle wasn’t formally issued until March 2010. The patent application was first published in August 2006, though.
So, if Groupon had conducted a FTO search, it’s likely they would have uncovered the potentially problematic patent application – and been able to track its progress and (more importantly) assess the risk it posed.
For your business, if you discover a patent or pending patent that is a concern, it’s certainly worth considering obtaining a license or purchasing it outright. By failing to do either, you company risks being seen as willfully infringing the patent and could face dire penalties.
Every startup is confronted with risks that need to be addressed and weighed against the company’s business goals. Offensive and defensive IP strategies may not be part of a start-up budget, but they’re important to consider as you grow your business. By understanding the risks, you can take steps to mitigate and balance them with your business plan and goals.