The decision to litigate is a tough one for any business. And for tech companies especially, the number of lawsuits filed each year continues to increase. Some of the FAANG companies like Google, Facebook, and Apple have dozens of lawsuits filed against them every year—and many of these lawsuits ultimately end up being decided in a courtroom.
Below, Robert McKinley, Attorney discusses some of the most high-stakes cases that have shaken the tech industry, as well as how tech companies can protect themselves in the modern environment.
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IP Litigation in the 21st Century
In 2006, the Supreme Court decided eBay Inc. v. MercExchange LLC, which significantly limited the ability of smaller tech companies to get an injunction against larger ones for patent infringement. The Court ruled that companies need to prove that they would be irreparably harmed where before it was presumed.This has, expectedly, reduced the leverage against Big Tech, which means that smaller firms often feel they need to focus their attention on operating and growing their company instead of pursuing Intellectual Property (IP) litigation or chasing down potential patent violations.
However, this trend skewed toward Big Tech may slowly be changing. The increased availability of litigation funding options (or “litigation financing”) has helped equalize market power for these cases, allowing smaller companies to fight hard to protect their intellectual property—and sometimes, these companies win. What’s more, these cases can create binding precedent. The tide is also turning for small businesses on the trademark side. In 2020, Congress enacted the Trademark Modernization Act, which made it a law that trademark owners do not need to prove irreparable harm anymore to get an injunction.
On the other side of the aisle, Big Tech companies continue to lobby for IP reform, urging Congress to weaken patent laws to reduce their exposure to expensive and time-consuming litigation. These companies have become accustomed to being able to use the existing patent laws in their favor, dragging smaller competitors into court for expensive legal battles that almost never turn out in the smaller company’s favor.
Shift in Strategy
“This skew toward Big Tech has been in place for decades,” McKinley explains. In many cases, whenever one tech company became threatened by a competitor, it would file a patent infringement lawsuit to attempt to bog the competitor down in depositions and discovery requests until it could no longer remain a viable business. Just like the phrase “death by a thousand cuts,” many tech companies died by a thousand discovery requests.
With the advent of more and more tech startups, the companies that were once proud to be the “disruptors”—Google, Apple, Amazon, Oracle, Facebook, Netflix, and others—are now the ones being disrupted. As a result, these established companies are now more likely to go after startups and levy copyright, trademark, patent, and trade secret lawsuits to squash any potential avenues of dissent and even potentially poach new talent. By making an example of these smaller companies, Big Tech hopes to frighten away other would-be competitors.
Today, particularly after the Defend Trade Secrets Act took effect in 2016, tech companies’ litigation toolsets now include trade secret protections—which means that it’s far easier to prevent former employees or competitors from absconding with confidential information. And with the advent of litigation financing, smaller companies are more likely than ever to push back to gain access to the platforms, markets, and ecosystems they need to thrive.
New Avenues to Finance Litigation
One of the ways that smaller tech companies can avoid being steamrolled by Big Tech involves litigation financing. Because contingency fee-based litigation is uncommon in the tech sector (as compared to say, personal injury or medical malpractice), deeper-pocketed companies tend to have a natural advantage when it comes to litigating intellectual property law.
But with litigation financing, companies with a viable claim against a competitor can pursue it without worrying about cash flowing the attorney fees. If the lawsuit is ultimately successful, the litigation fee will be paid from the proceeds; if the lawsuit is unsuccessful, any fees collected will cost far less or not at all. Litigation financing requires some level of screening for merit before a case will be pursued, but allows attorneys to essentially take cases on a contingency fee basis by investing its own capital in the case even if this option wouldn’t otherwise be in the cards.
Because startup tech companies often lack the cash to fund expensive legal battles, litigation financing has been a game-changer when it comes to pursuing, protecting, and defending intellectual property. It’s more important than ever for tech firms to align their litigation strategies with their business models to ensure that they can continue to survive—and thrive—in today’s ultra-competitive market.
About the Author:
Robert McKinley is a prominent attorney who has held a number of prestigious leadership roles. He has extensive expertise in intellectual property, litigation, and corporate law and has practiced in New Jersey and Philadelphia and has served as local counsel. Throughout his career, he’s managed assets for over 150 clients. His department was voted Best IP Law Firm for two years in a row by South Jersey Biz. He has 25 years of patent, trademark, and commercial litigation experience.
No Legal Advice or Attorney-Client Relationship: These materials have been prepared for general informational purposes only and are not legal advice.