Patent troll is a pejorative term used for a person or company
who conducts
patent
litigation against one or more alleged
infringers in an aggressive or opportunistic manner, with no
intention to manufacture or market the patented
invention.[1]
Etymology
and definition
The term "patent
troll"
was used as early as 1993 to describe companies that file aggressive
patent lawsuits.[2]
The Patent Troll was originally depicted in "The Patents Video" which
was released in 1994 and sold to corporations, universities and
governmental entities. In "The Patents Video", an unsuspecting victim is
surprised by the Patent Troll who strategically positions himself to
collect patent licensing revenue.[3]
The metaphor was popularized in 2001 by
Peter Detkin, former assistant
general counsel of
Intel,[4]
who chose the term from amongst a number of suggestions during a
discussion with Anne Gundelfinger, Vice President and Associate General
Counsel at Intel.[5]
Detkin first used it to describe
TechSearch, its CEO, Anthony O. Brown, and their lawyer,
Raymond Niro, while Intel was defending a patent suit against them.[6]
Detkin had previously used the term "patent extortionist" to refer to a
number of companies who were suing Intel for patent infringement and who
were trying to "make a lot of money off a patent that they are not
practising and have no intention of practising and in most cases never
practiced."[4]
After Intel was sued for libel, he began using the term "patent troll"
instead.[4]
Those accused of being patent trolls typically viewed Intel as being a
large and manipulative company who had stolen their ideas.[4]
By 2005, Detkin believed that the term was being used to mean any
unpopular plaintiff, a more broad definition than he had originally
intended.[7]
Some definitions could be applied to Intel themselves, contrary to
Detkin's intention, in view of their routine practice of asserting
patents that they had bought but were not practising.[7]
Patent troll is currently a controversial term, susceptible to
numerous definitions, none of which are considered satisfactory from the
perspective of understanding how patent trolls should be treated in law.[8]
Definitions include a party that does one or more of the following:
- 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;[2]
- Enforces patents against purported infringers without itself
intending to manufacture the patented product or supply the patented
service;[1][9]
- Enforces patents but has no manufacturing or research base;[10]
- Focuses its efforts solely on enforcing patent rights;[11]
or
- Asserts patent infringement claims against non-copiers or
against a large industry that is composed of non-copiers.[12]
The term "patent pirate" has been used to describe both patent
trolling and acts of patent infringement.[13]
Related expressions are "non-practising entity" (NPE)[14]
(defined as "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"[14]),
"non-manufacturing patentee",[15][16]
"patent shark",[17]
"patent marketer",[15][18]
"patent assertion company",[19]
"patent licensing company",[citation
needed] and "patent dealer".[20]
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.[21]
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.[22]
Because the costs and risks are high,
defendants may settle even non-meritorious suits they consider
frivolous for several hundred thousand dollars.[22]
The uncertainty and unpredictability of the outcome of
jury trials also encourages settlement.[23]
It has also been suggested that distortions in the patent market,
such as those caused by the
examination backlog, promote patent trolling.[24]
If the patent office accepts claims that have been invented,
published or even patented before, ignoring material
prior
art, then even existing technologies in use are subject to patent
trolling.
Reexamination to invalidate the patent based on prior art can be
requested, but these occur rarely (0.33% of patents in U.S.)[25]
and often in conjunction with an infringement lawsuit.[26]
Only the patent holder will participate in this process, and the party
requesting the reexamination has no right of appeal and is
estopped from using the same evidence in any subsequent civil
action; this risk keeps the popularity of reexamination low despite its
lower cost.[27][self-published
source?] Furthermore, the most common outcome is
not the validation or invalidation of the patent, but narrowing the
scope of the claims.[26]
There is also no obligation to defend an unused patent immediately,
thus manufacturing companies may produce the patented product for years
until the patent troll sues them. For example, the
JPEG
format, intended to be free of license fees, was subject to two
patent attacks, one by
Forgent Networks during 2002–2006 and another by Global Patent
Holdings during 2007–2009. Both patents were eventually invalidated
based on prior art,[28][29]
but before this, Forgent collected more than $100 million in license
fees from 30 companies and sued 31 other companies[30]
(see
JPEG#Patent issues and references therein).
Effects
In 2011 patent trolls cost US bodies direct costs totalling 29
billion dollars in the United States alone.[31]
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",[32]
notwithstanding 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 been issued, in turn
increases the costs and risks of manufacturing.
On the other hand, the ability to buy, sell and license patents is
seen by some as generally productive. The Wall Street Journal
argued that by creating a
secondary market for patents, these activities make the ownership of
patents more liquid, thereby creating incentives to innovate and patent.[20][33]
Patent Licencing Entities also argue that aggregating patents in the
hands of specialized licensing companies facilitates access to
technology by more efficiently organizing ownership of patent rights.[34][35]
In an interview conducted in 2011, former U.S. federal judge
Paul R. Michel regarded "the 'problem' [of non-practising entities,
the so-called "patent trolls"] to be greatly exaggerated." Although
there are a number of problems with the U.S. patent system, i.e. "most
NPE infringement suits are frivolous because the defendant plainly does
not infringe or the patent is invalid", "patent infringement suits are
very slow and expensive", and venue abuses, "[...] NPEs may add value to
the patents by buying them up when manufacturers decline to do so.
Inventors may have benefited from the developing market in patent
acquisition."[36]
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,[22]
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.[37]
The uncertainty and unpredictability of the outcome of
jury trials also encourages settlement.[23]
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.[38]
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.[citation
needed] Further, patent owners' rights to bar
infringers from manufacture, use, or sale of technologies that infringe
their patents has recently been curtailed in the 2006 court decision
eBay v. MercExchange. 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
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,
Inc., to avoid the shutting down of its popular
BlackBerry service."
[39]
The non-manufacturing status of a patent troll has a strategic
advantage, in that the target infringer cannot counter-sue for
infringement. In litigation between businesses who make, use or sell
patented technology, the defendant will often use its own patent
portfolio as a basis to file a counterclaim for infringement. The
counterclaim becomes an incentive for settlement, and in many
industries, discourages patent infringement suits. Additionally, a
patent suit carries with it the threat of an injunction or mutual
injunction, which could shut down manufacturing or other business
operations.[40]
If a patent owner does not make, use or sell technology, the possibility
of a counter-suit for infringement would not exist. For this reason a
patent troll is able to enforce patents against large companies which
have substantial patent portfolios of their own. Furthermore, patent
trolls may use
shell companies.[41]
Benefits
from patent trolls
Many small inventors[vague]
have difficulty benefiting from their inventions. For example, sometimes
the inventors are not able to commercialize their products and they
cannot afford defending their patents. Then selling the patent to a
patent troll may be a way to benefit from the invention, thus
encouraging innovation and promoting science and technology.[42]
An alleged patent troll chief says that the companies are just leveling
the playing field between big companies and inventors and small patent
holders, who previously "were getting their rights steamrolled by big
companies."[43]
The costs and benefits caused by patent trolls have also been documented
in a study by Boston University.[44]
Defenses against patent trolls
Patent troll "companies have no interest in using the patents... but
instead hope to reap large sums of money from the lawsuits themselves."[45]
This gives them an 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.[22]
Many common techniques used by companies to protect themselves from
producing competitors are rendered ineffective against patent trolls.
These techniques include 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;[22]
in fact, some are able to draw on
hedge funds and
institutional investors to finance their patent cases).[46]
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 don't produce products.
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.[47]
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).[48]
-
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.
-
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,
(U.S.
Patent 181,613), the type of light bulb Edison wanted to
develop. Edison bought the patent for US$5,000 ($120,414 in
present-day terms[49])
to eliminate the possibility of a later challenge by Woodward and
Evans.
-
Opposition proceeding. In Europe (under the European Patent
Convention), any person may initiate
proceedings to oppose a European patent. 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.
-
Defensive patent aggregation, the practice of purchasing
patents or patent rights from patent holders so they don't end up in
the hands of an individual or enterprise that can assert them.
Increasingly aggregations are focused on purchasing patents and
patent rights off the open market, or out of NPE assertion and
litigation, which directly impact the businesses of the
aggregation's members. The aggregator then provides members a broad
license to everything it owns in exchange for an annual fixed-fee.
Patent defense companies have been formed In order to counteract
problems caused by patent trolls in the high technology industry:[50]
- 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.[51]
- In 2008
RPX Corporation introduced the RPX Defensive Patent Aggregation
service to help e-commerce, financial services, hardware
manufacturing, networking, software, and wireless companies reduce
the risk of NPE assertion and litigation by purchasing patents off
the open market.[52][53]
Criticism of
the term
- Overbreadth. Defining trolls broadly as patent holders
that do not practice or promote the patented invention includes
holding companies, most U.S. universities and some individual
inventors (e.g.
Thomas Edison).[20]
Some of these entities might not intend to profit from the tactics
described above: For instance, 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",[54]
when in fact problems like poor quality patents, and
patent thickets, are issues compounded by patent trolling, but
distinct from it.[20]
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.[55]
However, others, such as former Assistant Attorney General Viet
Dinh, make the case 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.[56]
-
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[42]
Nathan Myhrvold, the co-founder of
Intellectual Ventures, an alleged patent troll firm, accused the
use of the expression "patent troll" as primarily a public relations
tactic that large
corporations use to intimidate individual inventors in an effort
to tilt the playing field in their favor.[57]
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.[58]
- Legality of conduct[59]
Under US law patent owners need not commercialize the
invention to enforce their patents. Patent owners may negotiate
any royalty others can be convinced to pay in exchange for a license
to not be prohibited from making, using or selling the patented
invention, but the only right conferred by holding a US patent is
the right to sue to prevent others from making, using or selling the
invention or to collect damages for the breach of that right (UK and
European patent law, by contrast, contains provisions for
compulsory licenses). 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).[21]
See also