Can a patent troll sue an overseas company?
Consider a common situation.
A patent troll owning US patents finds a fresh target, decides to threaten it, his lawyer looks up the company address and surprise! it's not in the US. Let's say it is EU-based, say in the Netherlands, or perhaps in Hong Kong. His next step?
The company does not sell a product to US customers, but is purely online service free of charge for end-users, earning through advertisement.
Would the patent troll go to a US court and attempt to sue an overseas company? Knowing the company would most likely ignore any ruling since it is only subject to their local laws? The nature of the company does not imply anything illegal or immoral.
Btw, does being hosted in US change anything or it is the incorporation location that only matters?
P.S. It is not an attempt for a US-resident to hide from US courts. I'm not based in the US in the first place and incorporating in US is certainly not the first choice when it comes to it.
2 Answers
It doesn't matter where your company is. What matters is where you do business.
Generally, you can only be sued for infringing a U.S. patent if the infringement occurs in the United States. The relevant law is 35 USC 271(a).
If you:
- don't sell any products to customers in the U.S., and
- don't have any servers in the U.S.
then it will be difficult to sue you for infringing a U.S. patent.
More importantly, it is rare for a startup to get sued for patent infringement unless that startup is very successful. If you don't make that much money, then it is not worth the attorneys' fees to sue you.
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Not true. Patent trolls don't look at the entity they are targeting at first. They send out blanket 'demand letters' on the basis that 90% will pay, particularly if they are small businesses or startups. The cost of defense in a patent case is typically $1m-3m and most startups & small businesses cannot afford it. So in order for the troll to go away, they pay the "shakedown money". It doesn't matter if you are a $100K company or a $100 million. This approach works in volume. – K0d3g3ar 10 years ago
You definitely can be sued in EU, although technically it will be hard and expensive.
You should look into something else. You may want to set up an offshore legal entity and licence this technology to your company in EU for a fee, but make sure you personally are not listed as this offshore company's founder, and that the offshore company does not have assets that can be taken away if it comes to the lawsuit.
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But that would require me to assign my IP to that offshore company? What if I wish to personally keep my IP? License it to the offshore company which will license it to the EU company? – Borr 12 years ago
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If you personally hold your IP (although you say a US company holds it in US), you will liable with your personal possessions if it comes to a lawsuit. If an offshore company (e.g. in Panama, Belize etc) holds IP and you only license it, the IP holder will be sued. But if you are not an owner of this company and the company itself has no assets, the party suing will pretty much not be able to get anything, but you EU-based company will not be hassled. But consult a lawyer before you do this. – Mvbl Fst 12 years ago
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If you gift the IP to an offshore company which you don't "own", but somehow control, then you'd be in a bad shape if the original IP owner went after your arms-length company. It is no good to say you still magically "own" the IP after all, and do it all again. Either you own it or you don't. – Steve Jones 12 years ago
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"although you say a US company holds it in US" - I never said that. Please read the question. – Borr 12 years ago
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@Steve Jones: I'm sorry I can't make sense of your comment. – Borr 12 years ago
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All of you guys who -1 my comment are probably Americans who either don't know what offshore companies are or who are simply afraid of the term itself. Narrow minded, that is. – Mvbl Fst 12 years ago
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I actually think that moving the IP to an offshore entity is a better strategy. The reason for this is that there are two parts to this question - 1. Can the entity be sued by a Patent Troll. I think that the answer is probably here. But the second part is... 2. Can the prevailing party in the law suit collect on their judgment? That's where the offshore part of this more likely comes in. If the chance is minimum and the costs are high, then then troll will move past your business and onto your neighbor, in the same way that a criminal cases a house prior to stealing from it. – K0d3g3ar 10 years ago
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The only issue with all of this is that "offshore corporation" might bode well for avoidance of lawsuits. But for a "US person" its pretty much a guarantee of a Tax audit. The IRS considers anyone operating anything offshore, that is a US taxpayer, as a tax evasion stunt and you are basically guilt until proven innocent. The other problem is that recent changes in international banking and agreements mean that you have to declare everything to the IRS up front, fill out a ton of paperwork that will stump most US CPAs and if you fail to do it, or do it wrong, the penalties are prison time. – K0d3g3ar 10 years ago
