Intellectual Property Risks

Taking Down Trolls

With patent infringement litigation still going strong, companies seek methods of protection.
By: | May 6, 2015 • 8 min read

Patent trolls are a thorn in the side of many companies.

Even when infringement claims are weak, many firms opt to settle just to avoid having to spend millions defending them in court, experts said.

To be sure, the terms “patent troll” or “non-practicing entity” (NPE) are often used to paint with too broad of a brush, as some NPEs have legitimate reasons to sue for patent infringement, said Rudy Telscher, a partner at Harness Dickey & Pierce law firm in St. Louis.


Many individuals, smaller companies and universities that innovate don’t have an interest or resources to bring products to the market, Telscher said. Alternatively, they may have tried to make a go out of commercializing their patent, but found the competition too stiff. These entities determined that they would be better off having other companies pay them a royalty to use their invention or patented technology in their own products, and if others refuse to pay but still use their patent, then the NPEs rightfully sue.

An example of true patent troll abuse stems from when firms bought broadly worded patents that were issued by the U.S. Patent Office during the bubble of the late 1990s and early 2000s.

Those patents were analyzed by the government under less strict standards than those used today, Telscher said.

Patent trolls typically sue 20 or more companies to lower their own filing costs, then settle with individual defendants.

Rudy Telscher, partner, Harness Dickey & Pierce

Rudy Telscher, partner, Harness Dickey & Pierce

“Patent troll companies invest significant time and money to pan for gold, by trying to find these old, broadly worded patents and then assert them against industries to get royalties not reasonably owed by using the high cost of patent litigation as a coercive weapon,” he said.

Fortunately, the Supreme Court’s 2014 Octane decision made it easier for defendants to get their court fees paid by trolls if they choose to defend patent cases, Telscher said.

Moreover, the Supreme Court’s 2014 Alice decision has been used by district courts to strike down software and other patents having claims drawn to “abstract ideas,” and its 2014 Nautilus decision has been used to strike down patent claims that are vague and indefinite regarding claim scope coverage.

“While the Supreme Court cases of the last year have deterred some patent trolls from asserting the weakest of patent cases, many entities are still filing such cases,” Telscher said.

“In no case do we give NPEs any money, since we believe paying NPEs only ‘feeds the beast,’ ” — Shawn Ambwani, chief operating officer, Unified Patents

The 2011 Leahy–Smith American Invents Act (AIA), which determined how many defendants could be sued in a single case, has also had some impact on patent infringement litigation — but not as much as defendants in such cases would have liked, said Brian Howard, a legal data scientist at Lex Machina, a Menlo Park, Calif., firm that tracks district court litigation.

Insignificant Decrease in Claims

Since the new rules generally caused plaintiffs to sue defendants in separate cases rather than in a single combined case, Lex Machina counted the combinations of defendants and cases after the AIA became effective (a lawsuit by one plaintiff against three defendants is now counted as three cases for the purposes of tracking).

The company found that the new rules did not drastically reduce patent case filings. The statistics from late 2011 to mid-2013 followed a trajectory consistent with that of 2009 to early 2011. Overall, 2014 saw a steady increase in case filings through April, followed by sharp drop in May and a flat remainder of the year, leaving total filings down 21 percent from 2013.

That was “not the dramatic reduction that many were expecting,” Howard said.

Intellectual Property Insurance Services Corp., based in Louisville, Ken., offers a patent troll defense policy, said President Bob Fletcher.

If a policyholder is sued by a patent troll, the insured can solicit counsel of their choice to determine whether they would have a 51 percent chance of winning “by a preponderance of evidence,” in which case the policy would then pay for the defense. The policy covers “non-core activities” because that is the focus of many of the “bad” broadly worded patent lawsuits.


“Let’s say a firm has an Internet connection, a computer and they email something — a patent troll would sue for infringement,” he said. “For that kind of case we would not pay a settlement but would fight it to the end, because those patents never should have been granted and we would likely win. We want to teach trolls that when a client has insurance they will not settle, which will destroy the trolls’ livelihoods.”

London-based CFC Underwriting offers a variety of insurance products based on infringements of any type of intellectual property, including patents, said Erik Alsegard, intellectual property practice leader. The policies cover lawsuits regardless of whether it is a non-practicing entity or a competitive company that is suing the insured.

Before insuring, CFC reviews how companies operate, their patent risks, whether they work with a patent attorney and, where suitable, whether they run “freedom to operate” searches to mitigate the risk of patent infringement and intellectual property claims, Alsegard said.

“However, risk management and IP searches can’t 100 percent prevent claims, so that’s why insurance is really important,” he said. “The lawmakers and the courts are trying to change the behavior of patent trolls, but it is unlikely to entirely remove this risk to operating companies as the more sophisticated entities will adapt.”

Often companies will ask their suppliers to indemnify them on patent infringement lawsuits based on the product they supply, but the ability to transfer such indemnity to a supplier will depend on the strength of each party in the negotiation.

Erik Alsegard, intellectual property practice leader, CFC Underwriting

Erik Alsegard, intellectual property practice leader, CFC Underwriting

“Smaller companies are less likely to be able to negotiate away risk through contracts,” Alsegard said. “On the other hand, if a company does have to indemnify its customers, then this contractual indemnity can be insured so in a sense the insurance works as a business enabler.”

Mary Castiglia, a senior vice president at Hub International Ltd. in San Francisco, said that in the past she had been unsuccessful getting her clients to consider coverage because it had been a “fairly cumbersome underwriting process.” But now there are more options in the marketplace and firms have eased both the underwriting and claims processes. Castiglia typically works with RPX Insurance Services in San Francisco, which offers a holistic insurance and claims-settling service solution.

“We’re starting to see more interest in the marketplace to offer this type of insurance because more people are getting hit with letters from trolls,” she said.

Unified Patents in Los Altos, Calif., protects technology companies from NPE assertions using various tools, challenging patents they consider invalid using the AIA’s new “inter partes review” process, said Shawn Ambwani, chief operating officer. Since starting the challenges in 2012, United has invalidated two patents and has settled two others in which the NPEs agreed to not sue Unified’s members.

“In no case do we give NPEs any money, since we believe paying NPEs only ‘feeds the beast,’ ” Ambwani said.

Problems for Startups

Lori Johnson, a shareholder and intellectual property lawyer in the Atlanta office of law firm Chamberlain Hrdlicka, works with several large companies that budget for patent infringement claims by trolls and other entities rather than buy insurance.

However, startups should consider buying insurance, because many troll suits target the software within their websites.

“The asserted patents may have little to do with the underlying business the startup is engaged in,” Johnson said.

“It’s very easy to name call and put everyone in the same category,” he said. “But we say, hold on a second! Let’s not throw away 225 years of patenting innovations that have built value in the economy.” — Phil Hartstein, president and chief executive officer, Finjan Holdings Inc.

Startups should also consider requesting indemnification from their web development company, she said. If the development company is using off-the-shelf software, they may feel comfortable providing indemnity, but if they’re using cutting-edge software, “it’s a red flag if they do not even want to talk indemnification.”

“Most firms don’t want to indemnify if they can help it, but if they’re not even willing to talk about it, that would make me nervous,” Johnson said. “I would recommend shopping for another web developer that might be more willing to indemnify or more capable of handling a suit.”

One NPE that is fighting against the patent troll stigma is Finjan Holdings Inc. in East Palo Alto, Calif., said Phil Hartstein, president and chief executive officer. Finjan was formed in 1997 first as a software company and then as a hardware company, raising $65 million in capital over a number of rounds between 1998 and 2006 to develop content inspection technologies.

In 2005, the company struck its first licensing deal with Microsoft, without having to litigate, Hartstein said. Finjan ultimately divested the technology company. Today, it’s a publicly traded entity that seeks first to make licensing deals with companies using its patents before litigating. Major funds and companies have invested in Finjan, including Cisco Systems Inc.


“It’s very easy to name call and put everyone in the same category,” he said. “But we say, hold on a second! Let’s not throw away 225 years of patenting innovations that have built value in the economy. Let’s focus instead on giving those that exhibit positive, ethical behaviors the freedom to continue down this road.”

Finjan has posted four core values and seven best practices based on such behaviors on its website, and is working with the American Intellectual Property Law Association and the Licensing Executives Society to build certification programs for licensing entities. The American National Standards Institute has agreed to be the governing body for the “LES Standards Pilot Program.”

“If there is an opportunity for us to participate in establishing credibility in the licensing industry by disseminating best practices, that enables us to move out of the shadows of litigation arbitrage and back into the credible exchange of ideas for invested capital,” Hartstein said.


Katie Kuehner-Hebert is a freelance writer based in California. She has more than two decades of journalism experience and expertise in financial writing. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Employment Practices


Sexual harassment is a growing concern for corporate America. Risk managers can pave the way to top-down culture change.
By: | March 5, 2018 • 12 min read

The #MeToo and #TimesUp movements opened up Pandora’s Box, launching countless public scandals and accusations. The stories that continue to emerge paint an unflattering picture of corporate America and the culture of sexual harassment that has permeated it for decades.


“The clock has run out on sexual assault, harassment and inequality in the workplace. It’s time to do something about it,” reads the official tagline of Time’s Up, one of the most vocal groups demanding change.

The GoFundMe campaign that supports the Time’s Up Legal Defense Fund raised more than $16.7 million in less than a month, making it the most successful GoFundMe initiative on record.

Funds will be used to help victims of sexual harassment and assault bring legal action against harassers, as well as provide public relations consultation to manage any media attention such suits might attract.

The problem was never really a secret.

In surveys conducted since 1980 by the U.S. Merit Systems Protection Board, 40 percent of women and 15 percent of men consistently reported being sexually harassed at work.

In a sweeping meta-analysis of 25 years’ worth of research data, published in “Personnel Psychology,” an average of 25 percent of women reported experiencing sexual harassment at work. When respondents were given clear definitions of harassing behavior, that figure shot up to 60 percent.

The current climate is just now pushing awareness to the forefront. It was reported last November that law firms in the nation’s capital are seeing a spike in inquiries about sexual harassment cases.

Laura Coppola, regional head of commercial management liability in North America, Allianz Global Corporate & Specialty

In addition, the Equal Employment Opportunity Commission (EEOC) website is seeing visits to its harassment web page double.

There’s no question the costs to businesses can be staggering. Twenty-First Century Fox reportedly incurred $50 million in costs tied to the settlement of sexual harassment and discrimination allegations in its Fox News division, as well as a $90 million settlement of shareholder claims arising from sexual harassment scandals.

In June, the company disclosed in a regulatory filing that it had $224 million in costs during the fiscal year related to “management and employee transitions and restructuring” at business units, including the group that houses Fox News.

If time is indeed up, it won’t just impact Hollywood, Silicon Valley or Capitol Hill. It will impact every workplace, in every industry.

“It affects everybody,” said Marie-France Gelot, senior vice president and insurance & claims counsel for Lockton’s Northeast Claims Advisory Group.

“I think anybody in corporate America — at some point — has seen it or been aware of it or been around it.”

“This particular phenomenon is certainly at a much wider scope than we’ve seen in the last decade or so,” said Laura Coppola, regional head of commercial management liability in North America, Allianz Global Corporate & Specialty.

“This is going to touch many industries, many segments, and many people.”

Employers are beginning to wonder if their workplace could be next.

“I think if you’d been asking [insureds] a year ago, ‘Are you interested in hearing about sexual harassment prevention?’ I think the answer would have been, ‘No, we’re good, we’ve got it,’ ” said Bob Graham, vice president, HUB International Limited.

“But I think now everyone’s saying ‘Sure, yes, we’d like to hear something.’ ”

Leading the Conversation

As American workplaces come under increasing scrutiny, the time is ripe for a large-scale pivot in the way employers manage risks related to sexual harassment.

The co-chairs of the EEOC’s select task force on the study of harassment in the workplace expressed it aptly in 2016:

“With legal liability long ago established, with reputational harm from harassment well known, with an entire cottage industry of workplace compliance and training adopted and encouraged for 30 years, why does so much harassment persist and take place in so many of our workplaces? And, most important of all, what can be done to prevent it? After 30 years — is there something we’ve been missing?”

Experts in the management liability field unanimously told Risk & Insurance® these issues should be elevated to the board level and the C-suite.

“Just as cyber liability shifted rapidly from an IT discussion to a board level discussion, so too will the harassment and discrimination discussion go beyond HR and be elevated to the highest levels,” said Coppola. It will become a corporate-wide, enterprise-wide conversation.

“It’s going to take some time to get to that board level, but it’s going to have to happen,” said Paul King, national practice leader, management and professional services, USI Insurance Services.

“Risk management and HR cannot go down parallel paths, not understanding one another. Not anymore. There’s too much at stake.” — Paul King, national practice leader, management and professional services, USI Insurance Services

Risk managers, said Kelly Thoerig, U.S. employment practices liability coverage leader, Marsh, are well suited to lead this conversation, which means actively partnering with human resources, the legal department, the general counsel’s office and outside counsel.


“Just like the quarterback depends on the offensive line, on receivers, on the running backs, it’s not a one-man show,” said King. “This can’t be the risk manager operating in a vacuum; they have to be liaising with multiple parts of the organization.”

Added King, “Risk management and HR cannot go down parallel paths, not understanding one another. Not anymore. There’s too much at stake.”

Connecting with outside counsel can also be of great benefit to risk managers, said Coppola.

“[They can] provide a very independent objective view of what they see in the overall market and how their knowledge of the individual client’s best practices can be improved and enhanced to ensure that they are protecting employees and the organization.”

Brokers and carriers also may be able to offer insights and services. Unfortunately, that piece is often lost because risk management and HR are siloed.

“The [knowledge of the] services that come with the insurance policy end up with the policy — in a drawer in the risk manager’s office,” said Tom Hams, employment practice liability insurance leader, Aon.

“HR doesn’t know that they exist. Even if they’re just online blogs or something like that, they could be more meaningful to the HR department than they are to risk management.

“So it’s important to make sure that companies are aware they’ve got those tools and — more importantly — to share them internally.”

Expediting Cultural Change

The X factor that underpins every aspect of these efforts is culture, experts agreed.

“It’s not so much ‘does the company have best-in-class policies and procedures in place;’ I think many of them do. I think that a significant change needed is doing a full overhaul of corporate culture, and that’s no small feat,” said Gelot.

Paul King, national practice leader, management and professional services, USI Insurance Services

True culture change can only come from the top level. But that isn’t likely to happen unless everyone at the top understands what the scope of the exposure could be if it’s not addressed appropriately on the front end. And for that, money talks, said Thoerig, who will be presenting on the topic at RIMS 2018 in San Antonio.

“Nothing is more instructive than real tangible claims examples and settlement amounts. Arm yourself with … recent, relevant claims examples specific to the industry and the jurisdictions the company operates in.”

In addition, said King, HR and legal should be regularly feeding claims information to risk managers to share at quarterly meetings of the board and give specific updates around these issues.

Armed with that level of intelligence, top brass can set the goals that will drive all anti-harassment efforts, said experts, putting an emphasis on identifying and correcting behavior that could potentially expose a company to liability.

Better Training and Reporting 

The best anti-harassment programs are multilayered, said Hams, with each facet carefully tailored to suit the employee population, the industry and the organization’s goals. A clearly defined policy is essential, stating that harassment will not be tolerated and neither will retaliation against those who report it.

The policy should be clear that employees are expected to report harassment or unacceptable behavior. Hams said he’s seen companies go so far as to state employees who don’t speak up are in violation of the policy.

“At least it should give them pause to stop and think about what they might have seen before they click the button or sign the document,” he said.

Companies should consider how uncomfortable employees may be about speaking up. An open-door policy is a start.

But there should also be multiple reporting points throughout the organization, said Hams, and an anonymous hotline for those reluctant to bring the matter up with anyone in their chain of command, and a multilingual hotline as well.

An effective training plan will have multiple moving parts and should touch every level of the organization from the executive suite to managers and supervisors to the rank and file. Comprehensive training is especially critical for the managers and supervisors who might receive or investigate complaints.

Many large employers already have training programs that can be considered best-in-class. Small to midsized employers, however, may still be using the cookie-cutter compliance-centric training that has dominated the field for decades.

The goal of this training is to hit all the bases related to Title VII of the Civil Rights Act, ticking off a list of acts or speech that would be considered illegal and affirming the company will not tolerate illegal behavior.

Overwhelmingly though, this type of training misses the mark. Studies have shown that this one-size-fits-all training is ineffective, especially when it’s a rote check-the-box exercise. Employees get the message their employer doesn’t take the subject too seriously.

Worse, it can even aggravate tensions, creating more discriminatory behavior from men who avoid working with women just to eliminate the chance of being accused of anything.

One study even found that men were more likely to place blame on the victim of sexual abuse after they’d received that type of anti-harassment training.

Even at best, compliance-centric training will still fail, because it only addresses behaviors that violate the law. But there is a broad array of behavior that — while not quite illegal — shouldn’t be tolerated.

When this kind of activity is allowed to flourish unchecked, the environment becomes increasingly toxic for those on the receiving end. It also tells employees that the company will tolerate harassment as long as it’s not overly egregious. In that case, it’s just a matter of time before the company is faced with a serious claim.

“Nothing is more instructive than real tangible claims examples and settlement amounts. Arm yourself with … recent, relevant claims examples specific to the industry and the jurisdictions the company operates in.” — Kelly Thoerig, U.S. employment practices liability coverage leader, Marsh

In its 2016 report, the EEOC’s harassment task force recommended changing tactics, exploring alternative training models such as respect-based civility training — what some call professionalism training.


The theory is “if you train them to act in a professional manner, these things tend not to happen at all,” said Hams.

The EEOC also suggested bystander intervention training, which is designed to empower employees to intervene when they witness harassing behavior.

Experts agreed whatever training programs or modules a company chooses, it’s important the training material reflect the workforce and be continuous and regularly refreshed.

A certification scheme also should be put in place to ensure the training is hitting the mark. While the law does not yet require companies to prove the effectiveness of their programs, some suggest it’s only a matter of time before the courts catch up to the problem.

What’s more, said Coppola, it’s simply the right thing to do for companies that want to confirm they’ve created a culture where all employees can expect to be treated professionally.

Zero Tolerance

Gelot and others believe a zero-tolerance policy should be a key component of an effective anti-harassment program.

“There are many companies that have Harvey Weinsteins and Matt Lauers and Kevin Spaceys working in their midst and those people are tolerated. Employees know about them — it’s not a secret.”

Bob Graham, vice president, HUB International Limited

Particularly when the harasser is a high-level executive, companies may wrestle with the decision to look the other way or lose a key rainmaker. In a zero-tolerance environment — one that starts at the top — the decision would be clear.

“What we saw with Matt Lauer and Charlie Rose — they were terminated immediately as the accusations came out. That’s zero tolerance. That’s sending a message to all of the employees within the company that this is completely unacceptable, we won’t tolerate it, and [it] clearly sends a message to the public at large.”

Employers should promote a workplace culture where all forms of harassment and discrimination are unacceptable and reportable, said Gelot. That’s the only way to take the fear and the stigma out of reporting.

That said, the EEOC offers a word of caution on zero-tolerance policies applied militantly without regard for common sense. Employers should hash out the specifics of which acts merit immediate termination versus a warning.

Overzealous application of the zero-tolerance doctrine can backfire if an employee fears her coworker’s children will go hungry if she reports his lewd or sexist jokes.

Creating a Dialogue

As with managing any other exposure that touches everyone, robust sharing of ideas and best practices has the power to improve the risk profile of entire industry sectors.

Facebook raised eyebrows in December, making public its sexual harassment policy in full.

“I hope in sharing it we will start a discussion, both to help smaller companies thinking about this for the first time, and to improve our own practices by learning from other companies,” wrote Lori Goler, Facebook’s global VP of people, about the company’s bold move.


That level of disclosure is making some risk professionals uncomfortable. But others acknowledge the wisdom of it.

“Any time you can share best practices that’s probably a great idea, because no one has all the answers … or at least not all the right answers,” said Graham.

“There’s a reason they did that, and I think it’s for all the right, positive reasons. They want to drive the momentum that is going to reduce or even eliminate what we have seen in corporate America over the last 50-plus years. They want to lead by example, they want to be the model and rightly so,” added Coppola.

“I think we are at a perfect time in our economic environment that allows the evolution of equality in our workplace.”

Part of that should involve making the workplace more egalitarian, said Gelot, and figuring out “how to make female employees not feel ostracized by a ‘boys’ club’ atmosphere, and actively championing the ascension of women into senior rolls.”

“We can’t focus on the past,” said Coppola. “But we can work very hard collectively as a community, and within the insurance industry specifically, to move forward.” &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]