Patent troll is a pejorative term used for a person or company that enforces its patents against one or more alleged infringers in a manner considered unduly aggressive or opportunistic. A related, less pejorative expression is non-practicing entity (NPE) which describes a patent owner who does not manufacture or use the patented invention.^[1]

Definition and etymology

"Patent troll" is a controversial neologism, susceptible to numerous definitions, none of which are considered satisfactory from the perspective of understanding how patent trolls should be treated in law.^[2] Definitions include a party that:

• "Purchases a patent, often from a bankrupt firm, and then sues another company by claiming that one of its products infringes on the purchased patent;"^[3]
• Enforces patents against purported infringers without itself intending to manufacture the patented product or supply the patented service;^[4][5]
• Enforces patents but has no manufacturing or research base;^[6] or
• Focuses its efforts solely on enforcing patent rights.^[7]
• Do not research or develop the technology or products related to their patent but wait for others to invent and market products independently, suing only after the newcomers are locked into the technology.^[8]

The term was used as early as 1993 to describe companies that file aggressive patent lawsuits.^[3] The Patent Troll was depicted and originally popularized in "The Patents Video" which was released in 1994 and sold to hundreds of corporations, universities and governmental entities. In "The Patents Video," an unsuspecting victim is surprised by the Patent Troll who strategically positioned himself to collect patent licensing revenue.^[9] Years later, it was again popularized in 2001 by Peter Detkin, former assistant general counsel of Intel,^[10] who applied it to entities that purchase patents at low prices from inventors, rather than inventing or actively developing a technology themselves, then broadly assert the patents across an industry to encourage settlements.^[11]

Causes

Patent trolls may buy patents cheaply from entities not actively seeking to enforce them. For example, a company may purchase hundreds of patents from a technology company forced by bankruptcy to auction its patents.^[12]

The cost of defending against a patent infringement suit, as of 2004, is typically $1 million or more before trial, and $2.5 million for a complete defense, even if successful.^[13]. Because the costs and risks are high, defendants may settle even non-meritorious suits they consider frivolous for several hundred thousand dollars.^[13] The uncertainty and unpredictability of the outcome of jury trials also encourages settlement.^[14].

It has also been suggested that distortions in the patent market, such as those caused by long patent application pendency, promotes patent trolling.^[15]

Effects

A core criticism of patent trolls is that "they are in a position to negotiate licensing fees that are grossly out of alignment with their contribution to the alleged infringer?s product or service",^[16] not their non-practising status or the possible weakness of their patent claims. The risk of paying high prices for after-the-fact licensing of patents they were not aware of, and the costs for extra vigilance for competing patents that might have issued, in turn increases the costs and risks of manufacturing.

Some claim that patent trolls benefit the patent system and the economy, suggesting the more neutral term "patent dealer", or simply calling them what they are, for example a licensor, patent pool or a patent holding company. Patent licensing is considered procompetitive because it encourages investment in bringing new products to market.^[17] By creating a secondary market for patents, patent trolls make the ownership of patents more liquid, thereby creating incentives to innovate and patent.^[18][19]. Aggregating patents in the hands of specialized licensing companies facilitates access to technology by more efficiently organizing ownership of patent rights.^[20][21]

Mechanics

Patent trolls operate much like any other company that is protecting and aggressively exploiting a patent portfolio. However, their focus is on obtaining additional money from existing uses, not from seeking out new applications for the technology. They monitor the market for possibly infringing technologies by watching popular products, news coverage and analysis. They also review published patent applications for signs that another company is developing infringing technology, possibly unaware of their own patents. They then develop a plan for how to proceed. They may start by suing a particularly vulnerable company that has much to lose, or little money to defend itself, hoping that an early victory or settlement will establish a precedent to encourage other peer companies to acquiesce to licenses. Alternately they may attack an entire industry at once, hoping to overwhelm it.

An individual case often begins with a perfunctory infringement complaint,^[13] or even a mere threat of suit, which is often enough to encourage settlement for the nuisance or "threat value" of the suit by purchasing a license to the patent. In the United States, suits are often brought in United States District Court for the Eastern District of Texas, known for favoring plaintiffs and for expertise in patent suits.^[22] The cost of defending such a suit as of 2004 is typically $1 million or more before trial, and $2.5 million for a complete defense, even if successful.^[13]. Because the costs and risks are high, defendants may settle even non-meritorious suits they consider frivolous for several hundred thousand dollars.^[13]

The uncertainty and unpredictability of the outcome of jury trials also encourages settlement.^[14]. If it wins, the plaintiff is entitled as damages an award of at least a "reasonable" royalty determined according to the norms of the field of the patented invention.^[23]

Patent trolls are at a disadvantage in at least two ways. First, patent owners who make and sell their invention are entitled to awards of lost profits. However, patent trolls, being non-manufacturers, typically do not qualify. Further, patent owners' rights to bar infringers from manufacture, use, or sale of technologies that infringe their patents has recently been curtailed in the court decision eBay Inc. v. MercExchange, L.L.C.. Rather than automatically granting an injunction, the US Supreme Court stated that Courts must apply a standard reasonableness test to determine if an injunction is warranted. Writing in Forbes magazine about the impact of this case on patent trolls, writer Jessica Holzer concludes: "The high court's decision deals a blow to patent trolls, which are notorious for using the threat of permanent injunction to extort hefty fees in licensing negotiations as well as huge settlements from companies they have accused of infringing. Often, those settlements can be far greater than the value of the infringing technology: Recall the $612.5 million that Canada's Research in Motion forked over to patent-holding company NTP to avoid the shutting down of its popular BlackBerry service." ^[24]

Defenses

Some believe patent trolls have an unfair advantage over manufacturers since they are relatively immune to the typical defensive tactic large entities use against small patent plaintiffs, because the cost of litigation tends to fall more heavily on an accused infringer than on a plaintiff with a contingency-fee lawyer, and because trolls have an almost-unrestricted ability to choose their preferred plaintiff-friendly forums, most prominently the Eastern District of Texas.^[13] Such defense tactics can be perceived as both good and bad. Among the common techniques rendered ineffective are monitoring patent activities of competitors to avoid infringing patents (since patent trolls are not competitors, productive companies usually have no way to find out about the troll or its patents until after significant investments have been made to produce and market a product); going on the offensive with counterclaims that accuse the patent plaintiff of infringing patents owned by the defendant (the mutual threat often leads the parties to arrive at a mutually beneficial cross-licensing arrangement); or a "scorched earth" defense designed to drive up litigation costs (which is equally ineffective because patent trolls plan for and have the finances to fully litigate a case.^[13] In fact, some are able to draw on hedge funds and institutional investors to finance their patent cases.^[25]). Patent "pooling" arrangements where many companies collaborate to bring their patented knowledge together to create new products are also inapplicable to patent trolls because they operate outside the system.

Substantial companies that attempt over-reaching patent litigation are subject to losing their patent rights to a defensive claim of patent misuse. However, defendants find it difficult to charge patent trolls with misuse because the antitrust violations typically involved require significant market power on the part of the patent holder.^[26] Nevertheless, manufacturers do use various tactics to limit their exposure to patent trolls. Most have broader uses as well for defending their technologies against competitors. These include:

• Design arounds can be a defense against patent trolls. The amount of license fee that a patent troll can demand is limited by the alternative of the cost of designing around the troll's patent(s).^[27]
• Patent watch. Companies routinely monitor new patents and patent applications, most of which are published, to determine if any are relevant to their business activities.

Early Woodward light bulb patent purchased by Thomas Edison to preclude challenges

• Clearance search. A standard practice is to perform a clearance search for patents or pending patent applications that cover important features of a potential product, before its initial development or commercial introduction. For example, a search by Thomas Edison uncovered a prior patent by two Canadian inventors, Henry Woodward and Mathew Evans for carbon filament in a non-oxidizing environment, (), the type of light bulb Edison wanted to develop. Edison bought the patent for US$5,000 ($100,000 in 2006 US currency) to eliminate the possibility of a later challenge by Woodward and Evans.
• Opposition proceeding. In Europe, third parties may conduct a proceeding to oppose overly broad patents. There is a more limited process in the United States, known as a reexamination. As an example, Research In Motion, filed reexaminations against broad NTP, Inc. patents related to BlackBerry technology.
• Litigation. Whereas some companies acquiesce to a troll's demands, others go on the offensive by challenging the patents themselves, for example by finding prior art that invalidates their patentability. They may also broadly challenge whether the technology in question is infringing, or attempt to show patent misuse. If successful, such a defense not only wins the case at hand but destroys the patent troll's underlying ability to sue. Knowing this, the patent troll may back down or lessen its demands.
• Early settlement. An early settlement is often far less expensive than litigation costs and later settlement values.
• Patent infringement insurance. Insurance is available to help protect companies from inadvertently infringing a third party's patents.

In order to counteract problems caused by patent trolls a group of 11 high-tech companies including Cisco Systems, Ericsson, Google, Hewlett-Packard, and Verizon formed in 2008 Allied Security Trust with the goal of identifying and obtaining key patents prior to falling into the hands of patent trolls. ^[28].

Criticism of the term

• Vagueness. The term "patent troll" is criticized as vague and its use as subjective.^[8]
• Overbreadth. Defining trolls broadly as patent holders that do not practice or promote the patented invention would include holding companies, most US universities and many individual inventors, for example, Thomas Edison, in the definition.^[19] Large businesses typically have separate licensing departments, and may have separate patent holding companies, that are distinct from their research and development operations.
• Misapplied. Accusations of trolling may be conflated with broader criticisms of the patent office, or of patent rights in general, by those who claim the patent system is "broken",^[29] when in fact problems like poor quality patents, and patent thickets, are issues distinct from patent trolling.^[19] Critics of the term argue that it is misguided to use it to criticize the patent system, because there are already mechanisms in place to restrain troll-like behavior. The two primary factors are the limited patent term and the obligation to disclose.^[30] However, others, such as former Assistant Attorney General Viet Dinh, make the case that that the need for patent reform is made all the stronger by the existence of patent trolls who exploit vulnerabilities in the existing patent law.^[31]
• Political agenda. The term is used in a partisan manner by companies seeking to gain benefit at trial or by public relations by accusing competitors of being trolls, and also those objecting to or wanting to change the current patent laws on equitable grounds^[32]

Former Microsoft Chief Technology Officer Nathan Myhrvold alleged that use of the expression "patent troll" is primarily a public relations tactic that large corporations use to intimidate individual inventors in an effort to tilt the playing field in their favor.^[33] Parties that themselves actively enforce and license patents they do not practice, may criticize other companies for trolling when it suits their interest to do so. ^[34]

• Legality of conduct. Private ownership of property generally, and intellectual property in particular, is a well-established right that cannot be overturned in the United States without raising significant concerns.^[35]. Under US law patent owners need not commercialize the invention to enforce their patents. They may charge any amount they wish as a royalty to others in exchange for a right to make, use or sell the patented invention, or to not use or license the patent at all (UK and European patent law, by contrast, contains provisions for compulsory licenses, something that ameliorates patent trolling). Moreover, the owner of a patent need not be the inventor. Patents are legally transferrable in the sense that they can be bought, sold and licensed to entities other than the inventor(s).^[12]

Non-practicing entity

A non-practicing entity (NPE) is "a patent owner who does not manufacture or use the patented invention, but rather than abandoning the right to exclude, an NPE seeks to enforce its right through the negotiation of licenses and litigation." ^[1]

According to Miranda Jones,

Others argue all this talk about ?patent trolls? is pure hype. According to the 1898 Rude et al. v. Westcott et al. SCOTUS case [130 US 152, 9 S Ct 463, 32 L Ed 888] inventors have been selling and partnering with other parties to enforce their patents at least since 1874. Without doing so, few inventors and small companies can afford to enforce their patents, meaning larger competitors can easily beat them out of the market they created and run them into bankruptcy.

Some rail against firms who license patents they do not themselves commercialize, yet many of the large firms who are most critical of the practice do it themselves. Out licensing is now an important profit center of most every firm. Often, as a result they end up licensing out patents covering technologies they themselves do not use.

Others respond by saying, Call it what you will...patent hoarder, patent troll, non-practicing entity, etc. It all means one thing: ?we?re using your patent and we?re not going to pay?.

See also

• Allied Security Trust
• Design around
• Independent inventor
• Patent ambush
• Patent misuse
• Patent pirate
• Patent thicket
• PatentFreedom
• Rent seeking
• Richard Frenkel, once anonymous author of the Patent Troll Tracker blog
• Submarine patent

References

Further reading

• Maggie Shiels, Technology industry hits out at "patent trolls", BBC News, June 2 2004, http://news.bbc.co.uk/1/hi/business/3722509.stm
• Lorraine Woellert, A Patent War Is Breaking Out On The Hill, Business Week, July, 2005, http://www.findarticles.com/p/articles/mi_kmbus/is_200507/ai_n14783315
• Joe Beyers, Rise of the patent trolls, CNET News.com, October 12 2005 http://news.com.com/Rise+of+the+patent+trolls/2010-1071_3-5892996.html
• Raymond P. Niro, The Patent Troll Myth, Professional Inventors Alliance web site, August 4 2005 http://www.piausa.org/patent_reform/articles/raymond_p_niro_08_04_2005
• Raymond P. Niro, Who is Really Undermining the Patent System ? ?Patent Trolls? or Congress?, 6 J. Marshall Rev. Intell. Prop. L. 185 (2007).
• Jennifer Kahaulelio Gregory, "The Troll Next Door", 6 J. Marshall Rev. Intell. Prop. L. 292 (2007).
• Simon Phipps, On Cane Toads, Fire Ants and Patents, SunMink, February 13 2005, http://blogs.sun.com/webmink/entry/on_cane_toads_fire_ants
• Bakos, Tom, "Patent Trolls", Insurance IP Bulletin, Vol. 2005.3, June 2005 http://marketsandpatents.com/IPB%2006152005.mht
• Ferrill, Elizabeth, "Patent Investment Trusts: Let's Build a PIT to Catch the Patent Trolls", N.C. J. of Law & Tech., Vol 6, Iss. 2: Spring 2005.http://www.jolt.unc.edu/Vol6_I2/pdf/Ferrill%204-23-05.pdf.
• Kurt Leyendecker, "Patent Trolls!", Control, Protect & Leverage, A Leyendecker & Lemire Blog, March 14 2006. http://www.lld-law.com/2006/03/patent-trolls.html

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