Column: Risk Management

Storm Clouds Brewing

Every morning I pull my smartphone off its charger. The electricity that charged my battery came from my local power utility — a network of cables, wires, shared resources, inventions and capabilities that exploit economies of scale.

I pay my electricity bill every month. Every month I feel I’ve purchased my power fair and square.

With my charged phone in hand, I check my email, scan the news, listen to music from my internet music provider, and do a quick internet search.

All that information got to my phone through my wireless internet service and a behind-the-scenes “cloud” service — an internet-based computing system that, like a utility, uses shared resources, inventions and capabilities to provide my device with on-demand services and applications.

I pay my internet provider every month, but does that mean I purchased access to all the cloud services and innovations too? Have the inventors and patent holders of the cloud capabilities been fairly compensated behind the scenes?

When company data and services move to the cloud, there are risks we manage. Issues around shared access, as clouds are multi-tenanted all using the same computing resources. Questions arise as to data ownership. Resiliency of the cloud service may come into question when systems fail or become unavailable, and the ever-growing threat of unauthorized cloud access is also a concern.

But do risk managers of organizations that use cloud services assess if they are infringing on cloud patents? Is cloud patent infringement even on their risk radars?

I’ve learned recently that it should be. The cloud is full of complex and often foggy technological definitions, making those organizations using cloud services more vulnerable to hungry patent pirates, sharks and trolls.

“For an enterprise with annual revenues of $10 to $25 million, each patent infringement lawsuit typically represents a financial risk of $3 to $5 million.” — Jess Marinez, president, Tout Virtual Inc.

Patent trolls are not mythical characters from an adventure novel. They are companies that profit from using coercive and extortion-like practices.

Patent troll companies buy broadly worded patents on secondary markets and then assert them against you, demanding overpriced royalties or possibly costly patent litigation. If you choose to fight them, note that litigation that goes to trial can cost upwards of $3 million, and result in damage awards that can exceed tens of millions. Trends show that trolls are getting their way and their bounty is growing.

More and more, patent trolls are turning their attention to the cloud market where intellectual property policy is failing to keep pace with technological developments. Trolls don’t necessarily always go after the big companies; they go after the weak, where legal costs and damages could cripple the organization.

Cloud risk management services and cloud patent litigation insurance should be considered by a lot more organizations, specifically start-ups.

“For an enterprise with annual revenues of $10 to $25 million, each patent infringement lawsuit typically represents a financial risk of $3 to $5 million,” said Jess Marinez, president of Tout Virtual Inc., a company that offers cloud risk management services and patent licenses to their cloud patent portfolio. “60 percent of patent infringement lawsuits are targeted at companies with annual revenues of $100 million or less.”

Proactive risk management is a way to blunt the onslaught of trolls seeking to exploit existing cloud and emergent companies through patent infringement lawsuits.

With stormy clouds like this brewing, ensure you have a good umbrella. Specialty risk mitigation services coupled with cloud patent infringement insurance should help you to not get too soaked.