What is the fuss about patent trolls?

The term patent troll was used as early as 1993 and popularized by Peter Detkin, former general counsel of Intel.  The term was used to describe a company whose sole purpose was to hold patents and assert them against companies that make products.  Over the years, people have tried to move away from the negative connotation of the phrase patent troll and came up with other phrasing for patent trolls such as non practicing entities and patent assertion entities.  The problem with these other terms is that they include “good” non practicing entities.

For example, a solo inventors obtains a patent but the business model fails for one reason or another.  In an attempt to recoup costs, the solo inventors asserts the patent against a successful competitor and derives substantial revenues.  Is this solo inventor a patent troll?  How about a University that asserts its patents.

Under U.S. patent laws, a patentee need not make a product or provide a service covered by its patent.  Rather, patentees have the option to pay the maintenance fees and merely sit on the patent until the patent term expires.  It is their perogative.  The patent system is analogized to a contract with the government.  The inventor discloses the invention to the public.  The government grants an exclusionary right for a limited period of time in exchange for such disclosure of the invention.  Provided that this contract is acceptable, then no problem exists with merely holding and asserting a patent.  Eventually, all patents are pushed into the public domain and is free for all to use and exploit after the term of patent protection.  The U.S. government does not require patentees to make and use a patented invention.  Opponents of patent trolls, non practicing entities or patent assertion entities want more than just a public disclosure of the invention.

If the definition of a patent troll hinged on whether the company made products or provided a service covered by the patent, then many large companies would be considered patent trolls.  Large companies with a substantial patent portfolio may not make products covered by all of their patents.  Are they hybrid patent trolls?  They would be susceptible to all of the criticisms of pure patent trolls.

Why would these companies maintain these patents?  Mainstream small businesses are primarily interested in obtaining patents which protect their products.  However, patent are valuable beyond its ability to exclude competitors from making and selling a particular product.  Patents are also used as a deterrent against patent litigation.  When one company sues another for patent infringement, the other company looks into its patent portfolio to see if they can make a counter claim of patent infringement.

Patent Freedom (now RPX Corp) refines the definition so that only non practicing entities that derive substantial revenue from their licensing activities would be considered a patent troll.  This would exclude the inventor with the failed business scenario above.  However, it seems odd that a patent holder is labeled a non practicing entity (i.e., patent troll, wink wink) merely because it is successful in its licensing activities.

Colleen Chien recharacterizes patent trolls as patent-assertion entities.  This implies that a non practicing entity that merely asserts its patent classifies the entity as a patent troll.

Professor Chiang moved the focus away from the entity and toward identifying patents which are used in a trolling manner.  In my opinion, it appears that he is moving in the right direction.  Interestingly, he points out that one of the characteristics of a troll patent is one where the patent is asserted against a non-copier of the patented technology.  This raises an important point.  Patents are meant to facilitate the spread of technology.  If the non practicing entity, patent troll or patent assertion entity asserts a patent against a defendant who learned something new from the patent’s disclosure or the patentee, then the practicing entity has received a benefit from the patent’s disclosure and should not cry fowl when sued by the owner of the patent.  The patent system has worked perfectly in this situation.  The inventor was granted a patent on his/her invention in exchange for public disclosure of his/her invention.  The public or in this case the defendant learned something new from the patent’s disclosure.  The patent system worked as it should.

Opponents of non practicing entities say that patent trolls do not benefit society.  They do not make products or provide services.  Their only function is to sue practicing entities and collect a rent (i.e., royalty) on the use of the patent.  However, these non practicing entities paid for the rights granted in these patents.  The monies paid went to inventors or creditors who are pleased to have received payment even if small.  Ipauctions.com sells patent portfolios.  Some may argue that the monies paid is not a meaningful amount.  The open market is meant to bring the value of the thing being sold to its current market value.  It appears that the argument is that this isn’t the most efficient system.

Professor Bessen from Boston University School of Law recently published a paper regarding the costs imposed on society due to patent trolls.  (The private and social costs of patent trolls).  Whether you agree with his analysis or not, he raises an important point that the key problem with patent trolls is that the patents asserted by non practicing entities are fuzzy in scope.

I agree that patents are fuzzy in scope.  Every patent has an inherent built in fuzziness which the law considers important.  The scope of patent protection afforded under a patent is defined by the claims.  The claims are construed literally.  However, even if patent infringement is not found by a literal reading of the claim language, patent infringement may still be found under the doctrine of equivalents which states that infringement may still be found if there is an insubstantial difference between the alleged infringing product and the claims.  The insubstantial difference standard is inherently fuzzy and is designed so that patents are harder to design around.Examiners at the United States Patent and Trademark Office must cite to prior art references in rejecting a patent.  For new technology such as the Internet, Examiners at the Patent Office had less prior art available to them to reject these new technology inventions.  As a result, patents that should not have been granted a patent did receive a patent.  The Patent Office recently stated in its yearly report that patent quality is at 95%.  This means that 5% of the patents should not have been granted.  The Patent Office admits that there are questionable patents out there.  The question is whether the patent system has achieved an acceptable level of quality patents that still spurs innovation.

Labeling an entity a patent troll is more name calling and is not really dealing with the systemic problems with our patent system.  It detracts from the real discussion of identifying unfair rules.

The America Invents Act(AIA) includes a provision which partly deals the problem of patent trolls.  Before the AIA, non practicing entities would sue multiple defendants and hail them all into court in a single lawsuit.  This is very efficient for the non practicing entity.  Unfortunately, this would pressure small defendants to settle out rather than go through the expense of defending a law suit.  The AIA prohibits joining multiple defendants when the commonality between the defendants is solely the patent.  This makes lawsuits less efficient for non practicing entities and facilitates a more level playing field.The courts have also worked to resolve the problem with patent trolls.  During Blackberry litigation from NTP, service of Blackberries were threatened because NTP (i.e., patent holding company) could demand an injunction against RIM the makers of Blackberries.  This would have affected numerous businesses and government offices that relied on the security of the blackberry in delivering emails.  Such an injunction would have been very detrimental to consumers.  Thereafter, in a different but seminal case, the court held that the general rule that an injunction is granted after patent infringement is proven was struck down.  Now, injunctions in patent infringement cases are granted after considering four different factors one of which includes an analysis of the public interest.  Ebay v. MercExchange.  The holding in Ebay reduced the power of patent holding companies to force defendants to settle for fear of being enjoined.