To slay, or not to slay.
Rackspace, a leading cloud service provider, made a blog about their story of fighting against a patent troll just today. Last year, a company named Rotatable Technologies sued Rackspace for “having the functionality to rotate screen from portrait mode to landscape mode in their app”. As absurd as this might sound, Rotatable Technologies asked $75,000 for this patent. However, Rackspace fought back, and even went further by invalidating this patent in USPTO and therefore essentially making Rotatable Technologies “out of business”.
In this blog post, Rackspace suggested that “patent trolls lose 88 percent of the time when defendants go all the way” according to recent studies. If patent trolls lose so frequently, why would they still sue against companies for patents?
One of the comments on Hacker News, by the CEO of Life360, provided an explanation of patent trolls’ behaviour. In the website, http://www.stopagis.com/ , the CEO nicknamed “crhulls” described how his company was sued by a company branded as AGIS for “having a location marker on a map” in their app. Life360 decided to fight back for this reason:
Many start-ups simply do not have the resources to go to court, and risk losing the company or a huge chunk of capital if they take on these patent trolls. Patent trolls know this, and they prey on new targets time and time again.
Here, we see a live example of Nash Equlibrium. The two players involved are the patent trolls and the company being sued. The payoff chart would roughly be:
—————————————————– Defending Companies
———————————————Pay them Go to court Slay them
Patent Trolls Sue (100, -100) (10, -150) (-500, -200)
———————–Not sue (0, 0) (0, 0) (0, 0)
Let me explain some of the figures in this chart. As we mentioned before, the defending comapny wins 90% of the time when they go all the way against patent trolls, so in case (Sue, Go to Court), the Patent Trolls’s payoff is 10% * 100. However, you might wonder, why would going to court have a lower Payoff than Paying them, if the Defending Companies win most of the time? First, no matter whether they’d win or not, the time, laywer cost, effort involved in defending can be costly, especially for small companies. Second, they couldn’t afford to lose. Money aside, losing such cases could be devastating to the public images of these companies. As for the Defending Companies’ Payoff when “Slayinging them”, it’s -200 because there’d be more time and effort involved than just defending themselves in court.
As we can see from the chart, Suing isn’t a strictly dominant strategy for Patent Trolls. Then why would they keep doing it? Well, when being sued, the Defending Companies’ best strategy is, surprisingly, to pay the Patent Trolls. Since (Sue, Pay them) is the best strategy for both parties when one of them choose this action, this is a Nash Equilibrium. Since the Payoff is extremely low when the Defending Companies choose to “slay them”, taking this move is highly unlikely as this is their worst strategy. And as small companies have less money and resources to fight back in court, Patent Trolls can target specifically on them to keep the possibily of (Sue, Slay them) low.
With more Patent Trolls hanging around, it’s harder for startups to develop healthily. When the Defending Companies get sued, no matter what they do, they either lose money or time/effort in dealing with the Patent Trolls. It is a honorable move for Rackspace to slay this Patent Troll, but what’s more honorable is the fightback of Life360, which is more humble in size and has less resources compared to Rackspace. Toast to Rackspace and Life360.
http://www.rackspace.com/blog/another-patent-troll-slain-you-are-now-free-to-rotate-your-smartphone/
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1677785
https://news.ycombinator.com/item?id=8353493
http://www.stopagis.com/