As we move further into the digital space, it’s not enough to walk blindly into the technology wilderness anymore. Marketers, especially on the agency side, need to be careful when they are creating applications for their clients. Without forethought, they may be hit by what is  becoming a growing concern in digital: Patent trolls.

Brad Gross, Intellectual Property and Technology Law attorney, works with digital agencies, production and new media companies to help protect them from this new predator.

Patent trolls are a growing phenomenon, which threaten to undermine the viability of creative and production companies of all sorts and sizes.  The trolls enjoy a unique but peculiar existence: they wield tremendous power in the form of intimidation and fear, yet they produce nothing.  They are the bastard children of corporate gambling and greed, spawned in an economic environment in which it is far easier to surrender than it is to fight.

As Gross explained at yesterday’s SoDA report launch, patent trolls look for companies using the similar technologies found within the troll’s patent portfolio. At that point, they either demand payment of licensing fees or they file litigation against the targeted companies. Usually these companies are far enough into development that they prefer a quick settlement so they can continue to build with technology they have grown reliant on. This “seek, sue and license” paradigm, as Gross calls it, has produced billions of dollars in licensing revenues each year. Sadly, a large amount of this is coming from creative agencies and production companies.

Surprisingly, more than eight out of ten patents held by patent trolls were deemed unenforceable when challenged in court. The good news is 90% of businesses who challenge patent trolls will win but it’s the cost of winning that could bankrupt you.

If you think you’re covered by blanket IP insurance, think again. When you make something for yourself and accidently use a technology that is already patented, you are covered but if you make it for someone else (like an agency may do), you have no protection. 

For agencies, it’s time to allocate risk. It is not enough to cap liability in your contract. Most of the time, indemnification for patent infringement is excluded from liability. So you need to tackle patent infringement head on and figure out a way to make fiscal sense to take it on if you are served with a lawsuit. But how do you convince in house counsel that it is fair and equitable thing to do?

You have to imagine, if you were sued, could you pay back everything you made and then some? If yes, then put that as the cap on liability for patent infringement into your contract. If you could only risk a portion of the money you’ve made, then that’s what you need to set the cap as. To get this included, you may have to be more lenient in other areas such as breach of contract. Patent infringement is where the expense is. Gross has never seen anyone bankrupted by breach of contract but if you are sued for IP infringement, you could lose your company. That is the life threatening stuff and agencies have to start protecting themselves from the start of projects.

As Gross states in the new SoDA report, “It’s simple math: a $500,000 project simply isn’t worth $10 million in risk.”

There is one bit of good news. America Invents Act has come into practise in 2011. This allows patents to go to the “first to file” instead of the “first to invent.” Basically, whoever runs the fastest wins. But there is now a provision that states that companies who are suing are no longer able to sue an entire group of infringers, but instead have to sue individuals. This should mean there is will be a reduction in lawsuits by patent trolls as they will have a higher cost to file.

It doesn’t mean patent trolls won’t still be out there. In fact, the more we create in the digital space, the more we may be putting ourselves at risk. So it’s time to get smart. Make sure you allocate the risk. Patent trolls are a growing trend and it’s only going to get worse from here on in.