The American Association of Advertising Agencies has issued a new guidance document that offers its constituents helpful advice about dealing with the threat of patent suits in the world of e-commerce.
The 4As released a guidance directive, “Web Functionality Software and Tools: Patent Infringement Risk Management,” that offers suggestions on how ad agencies can protect themselves against the increasing chance of patent litigation. Several suits have been filed against companies utilizing mobile device applications. Last year, GeoTag Inc. filed lawsuits against almost 400 companies, claiming their apps infringe the company’s patent on using geo-location data. Other suits have been filed over patents relating to product-placement advertising and the digital manipulation of photographs (for example, the OfficeMax app “Elf Yourself” resulted in a suit by PixFusion against the office supply company and its ad agency).
While an ad agency may design the app software themselves or license it from a third party, both the agency and the company are at risk for a patent suit. The numbers of patent applications and patent lawsuits continue to rise each year, and the 4As notes that the defense of such suits can cost millions of dollars. For this reason, the guidance emphasizes one key point: that ad agencies make clear in client agreements that clients assume all risks associated with patent infringement. The 4As also recommends that “agencies give serious consideration to adjusting price in situations where they take on risks that have not historically been factored into their pricing models.” If an agency decides to provide some form of indemnity from suit, the 4As suggests that the indemnity include a monetary cap and other limitations.
Agencies can further protect themselves by using market-tested components, watching for problems in the marketplace, purchasing patent infringement defense insurance, and in some situations, conducting a freedom-to-operate study where a particular function will be used repeatedly for several years.
To read the guidance, click here.
Why it matters: The threat of patent litigation poses a serious concern for ad agencies and marketers. While Congress is currently considering patent reform legislation that addresses some of the problems associated with patent trolls, for now the risks of potential litigation “can be reduced through appropriate contractual relationships with clients and through a number of proactive steps that may help to identify and quantify risks,” according to the 4As guidance. “Agencies, or at least parts of them, have become software development companies and face the risks that software development companies face. Accepting that reality and preparing accordingly is the best weapon agencies have in their arsenal.”