Many of the headlines relating to today’s patent system absurdity involve big companies like Google, Oracle, Apple and Samsung. And for good reason: they have big money, and the most to gain (or lose) when it comes to patent disputes.
But patents are increasingly affecting smaller companies and upstarts, and not in a good way. In fact, it’s getting so bad that startups raising capital might not want to celebrate their funding too loudly these days.
Hipmunk is just one of a number of young companies learning that the hard way. As detailed by GigaOm’s Jeff John Roberts, just days after the travel startup announced that it had raised $15m, a patent troll came calling.
According to i2z Technology LLC, a attorney-run company that apparently doesn’t make or sell anything, Hipmunk is infringing on a 1994 patent that “covers a method for displaying data in multiple computer windows.” So it wanted Hipmunk to use some of its new cash to buy a license, or else. The else, of course, is a lawsuit which would most likely be filed in a region of Texas that has become a hot-spot for patent trolls due to its patent troll-friendly courts.
Hipmunk, almost certainly realizing that i2z Technology would be just the first in a long line of patent trolls hitting it up for cash if it settled, has instead filed a lawsuit in San Francisco asking a judge to declare that it’s not infringing the patent in question, and that said patent is invalid.
Roberts notes that in Hipmunk’s lawsuit filing, the company states:
Though its funding is intended for innovation, Hipmunk elects to defend its technology rather than spend its hard-earned venture capital paying for a license it does not need.
In other words, Hipmunk would rather pay attorneys to defend it than give a cent to i2z Technology.
That, of course, is a noble approach, and is probably the right approach given the likelihood that Hipmunk would become an even bigger target if it rolled over and settled. But that doesn’t mean it’s ideal. Money spent is money spent, and for startups, money spent on attorneys is rarely money that moves a young business forward.
So what are startups like Hipmunk to do? While there are a number of steps some companies can take to protect themselves from patent trolls, it appears that one of the best may be keeping funding events as quiet as possible. In some instances, a company may arguably want to go further, structuring its financing so that it doesn’t become a big, juicy target overnight.
These, of course, aren’t perfect solutions. No matter how quiet a startup tries to remain, funding events often become public knowledge through government filings. And there can be a downside to not popping the champagne: funding, for better or worse, is often a validation event that helps cement relationships with customers and potential customers.
Unfortunately, until there’s meaningful reform of the patent system, many startups will find themselves facing one certainty: cutting big checks to lawyers, either to those defending them or to those who increasingly run firms that patent troll.
Proving once again the sad fact that some of the best internet business models today are lawsuit-related.