The Truth About Patent Trolls

A patent troll is in the field of intellectual property, and more specifically that of licensing. It is the name given to a company or an individual who uses the licensing and patent litigation as the main economic activity. The patent troll name was used in 1993 to describe companies who bring multiple patent infringement litigation cases. The term was popularized by Peter Detkin in 2001 when he worked for Intel.

This type of company is more commonly referred to as Non Practicing Entity (NPE) (“corporation without activity”) since their main feature is not to produce any good or service. This model is akin to blackmail: the company acquires one or more patents in the technical field that it does not operate itself. It then seeks to contract operating licenses of its equity ownership from companies producing the goods or services by threatening a summons to court for infringement of said patents. This action is often based on disputed patents whose legal strength is weak. Thus, a major part of litigation involving patent trolls, are based on software patents or business method patents. Their targets can be large companies as well as small technology companies that cannot raise the necessary funds for a trial.

Companies often pay the troll because in the worst case scenario, the company is prohibited from using the technology claimed in the patent, and in the best case scenario, legal costs are well above what is asked by the troll, even if the case is won. The activity of trolls is limited to the acquisition, valuation and sale of patents.

A troll can also be paid to protect a company against another patent troll. If another patent troll sues the company, the Patent Troll protector will counter-attack this patent troll with the use of other patents. The patent trolls agree to settle amicably this kind of situation.

Note that more and more manufacturing companies use the services of NPEs to aggressively develop their patent portfolios, and at the same time obtain cross licensing of portfolios held by NPEs.

In 2006, RIM, maker of the BlackBerry mobile phones paid $ 612.5 million to NTP in order to stop litigation instigated in U.S. courts. Although this practice is yet mostly concentrated in the US, it is already happening in Europe, evidenced by the dispute of Nokia and HTC facing IPCom.

To combat this abuse, a global reflection on the purpose and function of patent law as it is perceived today seems necessary. The activity of patent trolls can restore a balance of power between individual inventors and large groups against which they would otherwise have no defense against infringement. The average cost of a lawsuit for infringement has reached hundreds of thousands of dollars.

Strategies of trolls are legal. It is only the right available to any owner looking to enforce an operating monopoly that is conferred by obtaining a patent. The definition of NPE could apply to many groups including IBM. This company sells patent licenses in a technical field that it does not operate itself.

The current reform of patent law in the United States raises a debate on the role of these practices. The Obama administration has set up a first series of strong measures capable of limiting the power of patent trolls. Among the barriers, one in particular should make it mandatory to disclose to the court all of the persons or entities that may have a financial interest in the complaint. For the Obama administration, the measures have very clear objectives to increase the functional costs of patent trolls since the upstream work of the judicial process would be much more important.