Patent Trolling

Patent trolling refers to the practice where individuals or companies, known as patent trolls, acquire patents not to develop products or services, but to enforce patent rights against alleged infringers. These entities often target established businesses, claiming that their products or services infringe on patents they hold, and they typically seek financial settlements rather than pursuing legitimate innovation. This practice can lead to costly legal battles and often disproportionately affects small companies that may lack the resources to defend against such claims.

Patent trolls typically operate in a legal environment where patent laws can be complex, allowing them to exploit loopholes for profit. Critics argue that this behavior stifles innovation and creates a chilling effect in the technology sector, as companies may hesitate to develop new ideas due to fear of litigation. However, some defend the practice, suggesting that it can help protect intellectual property rights. Overall, the debate surrounding patent trolling highlights the tensions between protecting innovation and the potential for abuse within the patent system.

Published in: 2021

By: Zimmer, Scott

Subject Terms

Patent Trolling

Abstract

Patent trolling is a practice engaged in by a patent holder who asserts patent rights against alleged infringers but does not itself use the patents it owns to produce products or services of value. The practice is widely viewed as objectionable because some entities develop or acquire patents with the express intention of using them in this way, in effect seeking to extract rent payments from companies and individuals who attempt to put the creative content of the patent to productive use. Patent trolling is viewed as interfering with economically productive activity for the purpose of financial gain.

Overview

The first references to the practice of patent trolling began to appear in the mid-1990s. The patent system exists to provide an incentive for individuals to create products beneficial to society. It does this by providing a temporary monopoly to the inventor. The fear is that if patent protection were not available, then as soon as an inventor created a new product, others would copy the product and sell it for their own profit, making it more difficult for the original inventor to profit from her own invention. On the other hand, if an inventor were granted an endless monopoly on her invention, then she and her successors in interest would be able to exert total control over the market for her invention, in perpetuity (Cohen et al., 2014). The inventor could set any price she wished, and if the invention were sufficiently important—an artificial heart, for example—people would be forced to pay the price. To avoid either of these unpleasant results, patent protection provides the inventor with a monopoly that terminates after a set period of time. During the period of patent protection, the inventor has control over how her invention is used, and may grant or withhold permission for others to make use of the invention at a price she determines. When the period of patent protection ends, the patent enters the public domain and others may use it without the inventor's permission.

It often happens that multiple inventors claim what amounts to the same patent. These patent contests have been resolved in different ways at various times in the past, with the most reliable method being reference to the date of filing for patent protection—the party who files first wins, because the earlier filing date is viewed as proof that the party was the first one to come up with the invention. This means that the party who is granted the patent may assert it against others who are using it, to stop them from their infringing conduct (Watkins, 2013). In the business world, this usually happens when a patent holder asserts its patent rights against another company to stop the company from using the patent to create its products. The patent holder can require compensation from the company so that the company can continue to use the patent; this is known as licensing the patent, because the company is granted permission to use the patent under conditions specified by the patent holder (Feldman, & Price II, 2014).

Patent trolls are entities that usurp this process for their own financial benefit. Whereas the patent system is designed to protect inventors of useful products and encourage the creation of useful inventions, patent trolls use its features to extract license fees from companies. This practice can be illustrated by a somewhat oversimplified example. An enterprising patent troll might file for patent protection for an invention that is described as a "portable touchscreen-based communication device." If the patent troll obtains this patent, whether through oversight or error at the patent office, the troll may then approach almost any company manufacturing cell phones with touchscreens and demand that they pay license fees or cease production (Scott Morton & Shapiro, 2014). In some cases companies charged with infringement will simply pay the license fee in order to avoid expensive and lengthy patent litigation which could ultimately be decided for or against their interests. In other cases, if the license fees being demanded are too high or the company feels its position is strong, it may opt to litigate the case. Either way, the action of the patent troll has diverted the company's resources in a manner not envisioned by the architects of the patent protection system; many have referred to the conduct of patent trolls as nothing short of blackmail in the business arena (Brown, Roth, & Practising Law Institute, 2012).

Patent trolls have a variety of methods for acquiring their patents and building a portfolio. Sometimes a non-practicing entity will purchase a patent directly from an inventor, who may be willing to sell the patent because it would be too expensive to put it to use as an individual, or too time-consuming to work with financial institutions to assemble the capital needed to begin production and marketing of the invention (Feldman, 2012). In other cases, a non-practicing entity might purchase a patent from a company that is going out of business or one that has declared bankruptcy; patents are an asset that bankrupt companies can sell in order to pay their creditors.

Once a patent troll has put together a portfolio of patents, the troll's next step is to locate potential targets for a lawsuit. Trolls do this by searching the marketplace for products that use some or all of the intellectual property covered by their patents. After potential targets are identified, patent trolls will assess each target to determine which ones are most vulnerable to an infringement suit. Targets must have products that arguably fall under or are at least related to the patent claimed by the troll, and it is obviously preferable that the target be financially successful and thus capable of paying the troll's license fee or settlement (Feldman & Price II, 2014). A target is usually considered more desirable if it has a small legal department, because this makes it less likely that the target will consider fighting the infringement claim and more likely that the target will instead settle the case by paying the troll.

Viewpoints

The problem of patent trolling is often traced back to the system the United States uses to allocate litigation costs in patent cases. Under the U.S. system, regardless of how the case turns out—in the troll's favor or against it—each party to the dispute pays its own court costs and attorney's fees. In the European Union, in contrast, the party who loses the patent litigation is required to pay the costs and attorney fees for both sides; this system is known informally as "loser pays." Under a loser pays system there is much less of an incentive for patent trolls to sue for infringement, because if they have a weak case and wind up losing, they will be on the hook for a substantial amount of money. As might be expected, patent trolling in Europe has been much less common than it is in the United States (Kieff & Paredes, 2012).

Another reason that patent trolling has been so effective is that much of the patent trolling that occurs is directed against large companies whose defenses against patent litigation have been designed with a different type of opponent in mind. Most large firms with extensive patent portfolios anticipate being sued for patent infringement by their competitors in the marketplace. If company A and company B both manufacture cell phones, then A is aware that it may be sued by B, and vice versa. One of the most useful defensive strategies in situations like this is for the party being sued to assert a counterclaim of its own against the party, suing it. Thus, if A is sued by B for allegedly infringing a touchscreen patent, B is likely to respond by suing A on the theory that B's touchscreen patent is actually superior to A's, which if true would mean that A is the infringing party rather than B. Because both A and B are engaging in activity based on the patent at issue, both parties are potentially vulnerable to charges of infringement—it all depends on which party is determined by the court to own the patent. When one of the parties is a patent troll, however, the dynamics of defending against the suit are fundamentally different. This is because the patent troll is not engaging in potentially infringing activity, because it is not actually using the patent to do anything (Abramowicz, Daily & Kieff, 2015).

One industry that has been particularly affected by the practice of patent trolling is that of computer software. Traditionally, patents were primarily awarded for tangible inventions like engine parts or the proverbial better mousetrap. It is only in the last few decades that patent protection has also become available for computer software. Software patents are a difficult subject because they exist as abstractions rather than as concrete, physical items (Lee Johnson, 2014). In order to determine if a piece of software is unique and useful enough to warrant patent protection, a patent agent must have the time and expertise to analyze what the software does and what mechanism it uses to accomplish that end, and must then compare this with information about other software that already exists.

This is necessary because patents are not supposed to be awarded for items or processes that already have patent protection registered to another inventor—these pre-existing inventions are referred to as "prior art"—nor are patents supposed to be awarded to items or processes that are obvious to everyone. If these limitations were not in place, then multiple parties could have patents covering the same invention, and people could patent everyday articles, such as pencils and erasers, and demand license fees from anyone who produced them without permission. With software, it can be difficult to determine when two applications are performing the same task such that one is essentially a copy of the other. There are so many different ways to write a computer program to perform a given task that it can often be argued that multiple patents for software to perform that task are all valid because they describe different processes to achieve the same goal. It is not uncommon for cases surrounding software patents to descend into philosophical debates about whether different means of achieving the same end are really different enough to deserve a patent (Watkins, 2013).

In the United States, patent trolling has grown to have a significant impact on the economy, particularly on the technology sector, and is seen as an increasing threat which may stifle innovation if not checked (Kieff & Paredes, 2012). More than half of all patent suits filed in the United States are now brought by "patent assertion entities" (a more polite term for patent trolls), and the annual cost to U.S. businesses of this litigation is now in the tens of billions of dollars. In addition to the monetary expense of trying cases and paying judgments, there is also a cost to the marketplace in terms of uncertainty. This is because of the possibility that the patent office may award a patent that preempts an existing technology, as in the touchscreen cell phone example above. This means that companies with newly patented technology are not the only ones which must guard against patent trolls; even firms that have been using a particular technology for years may suddenly find themselves the target of patent trolling.

Furthermore, it is not just the firms targeted by patent trolling that pay a high price (Copeland, 2013). These firms argue that because of the proliferation of patent trolling, they must pay more for legal fees to fight trolls' cases and to prepare their own patent filings in ways that will make them less vulnerable to trolls. This has direct consequences for the firms' ability to bring innovative products to consumers, because each additional dollar spent on litigation and litigation prevention is a dollar that the company no longer has available to spend on research and development. This issue actually has a greater impact on companies that are more innovative than others, because in the world of patent trolls, each patent an entity files for represents an additional point of vulnerability for others to try to take advantage of.

A contrary view has also been asserted. It has been argued that non-practicing entities' enforcement of patents is actually a positive step and indicates the direction in which the intellectual property marketplace needs to evolve. Proponents of this view suggest that from a marketplace perspective it makes more sense and in the long run works out to be more efficient to have patents controlled by entities that exist primarily to manage patents and license fees, rather than to have individual companies produce patents and jealously guard them until their expiration. Some go on to argue that the effects of patent trolling on the economy are not as great, nor as detrimental, as they have been portrayed in the media. Skeptics of the patent troll problem point out that most of the concern over the issue is being driven by the same large companies that are most affected by the assertion of patents, and that allowing these companies to control the terms of the debate over intellectual property will stifle the voices of small firms and individual inventors who are legitimately trying to assert their rights against powerful entities that have appropriated them without permission.

Several measures have been proposed that would seek to rein in the practice of patent trolling. One of these is compulsory licensing, which would involve enacting legislation requiring the holder of a patent to either put the patent to use or allow others to do so at a reasonable fee. Another proposal is to expand the budget of the U.S. Patent Office, so that patent agents would have more time to review patent applications; theoretically this would result in fewer erroneous patents being issued, which would in turn result in fewer infringement suits being filed. There have also been calls for the United States to implement a loser pays system like that used in Europe, and to limit the ability of patent trolls to select what forum to sue in (at present, patent suits are often filed in courts that have a history of rulings sympathetic to patent plaintiffs). A step in this direction was the US Supreme Court case Octane Fitness, LLC v. ICON Health & Fitness, Inc. (2014), which eased the rules for courts to enforce payment by the losing party in suits determined to be frivolous.

Terms & Concepts

Compulsory licensing: This is a reform measure that has been urged by parties seeking to prevent patent trolling from continuing at its current pace. Compulsory licensing would force the holder of a patent to license the patent at a reasonable rate if the holder has not begun using the patent itself within a reasonable time frame. This would mean that patent trolls could not simply amass patent portfolios and then sue at their leisure.

Loser pays system: A type of patent litigation regime in which the party losing the litigation is responsible for paying the court costs and attorney's fees of both sides to the action. This method is used in the European Union and is believed to explain the E.U. 's lower rate of patent trolling compared with that of the United States.

Non-practicing entity: While this phrase occasionally refers to patent trolls, it also includes legitimate patent holders who license their inventions for use by other entities. An example of a non-practicing entity would be a university that holds a patent developed by one of its research faculty, and which licenses a company to make use of that patent for a fee.

Patent assertion entity: This phrase is sometimes used as a synonym for patent trolls. It describes a person or company that exists only to use patents to extract license fees, as opposed to using patents to create useful products and services.

Patent infringement: Conduct by a party other than the owner of the patent which amounts to making use of the patent without permission of the owner.

Patent portfolio: The collection of patents owned by an individual or entity and used to further that entity's business interests.

Bibliography

Abramowicz, M., Daily, J., & Kieff, F. S. (2015). Perspectives on patentable subject matter. Cambridge, UK: Cambridge University Press.

Brown, P., Roth, M. S., & Practising Law Institute. (2012). Information technology law institute 2012: Innovations in apps, e-books, cybersecurity, mobile technology, privacy and social media. New York, NY: Practising Law Institute.

Cohen, L., Kominers, S. D., Gurun, U., & National Bureau of Economic Research. (2014). Patent trolls: Evidence from targeted firms. Cambridge, MA: National Bureau of Economic Research.

Copeland, S. P. (2013). Patent assertion litigation and the patent "trolls" debate. New York, NY: Nova Science.

Feldman, R. (2012). Rethinking patent law. Cambridge, MA: Harvard University Press.

Feldman, R., & Price II, W. N. (2014). Patent trolling: Why bio & pharmaceuticals are at risk. Stanford Technology Law Review, 17, 773–808. Retrieved March 22, 2015 from EBSCO Online Database Academic Search Complete. http://search.ebscohost.com/login.aspx?direct=true&db=a9h&AN=100407650&site=ehost-live

Kieff, F. S., & Paredes, T. (2012). Perspectives on commercializing innovation. Cambridge, UK: Cambridge University Press.

Lee Johnson, D. (2014). Facing down the trolls: States stumble on the bridge to patent-assertion regulation. Washington & Lee Law Review, 71, 2023–2075. Retrieved March 22, 2015 from EBSCO Online Database Academic Search Complete. http://search.ebscohost.com/login.aspx?direct=true&db=a9h&AN=99417648&site=ehost-live

Lindemans, J. (2016). Unified patent court: Non-practicing and patent assertion entities. Intellectual Property & Technology Law Journal, 28(4), 17–19. Retrieved December 8, 2016 from EBSCO Online Database Business Source Ultimate. http://search.ebscohost.com/login.aspx?direct=true&db=bsu&AN=114124499&site=ehost-live&scope=site

Scott Morton, F. M., & Shapiro, C. (2014). Strategic patent acquisitions. Antitrust Law Journal, 79, 463–499. Retrieved March 22, 2015 from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=100761669&site=ehost-live

Watkins, W. J. (2013). Patent trolls: Predatory litigation and the smothering of innovation. Oakland, CA: The Independent Institute.

Patent Trolling

On this Page

Subject Terms

Patent Trolling

Abstract

Overview

Viewpoints

Terms & Concepts

Bibliography

Suggested Reading