Patent trolls are usually thought of as bad for innovation, bad for business, and bad in general. The common narrative is that patent trolls should be wiped out and restricted in whatever way possible. But is this view fair? Patent assertion entities are clearly contemplated by the patent laws and thus must serve some important purpose. In fact, some are good for innovation and good for business. So what makes a patent troll lovable? What separates the good from the bad?
The troll is not new
Generally speaking, the term “patent troll” applies to any entity that makes nothing, sells nothing, distributes nothing, and imports nothing. The troll instead generates all of its income from fees or judgments collected from third parties accused of infringing its patent rights. Tales of these trolls bringing technology giants like Blackberry or Microsoft to their knees with patent infringement suits are legendary in patent circles. Many speak of these trolls as if they are a new development or a new problem that has only arisen within the patent system within the past decade. But the truth is that patent trolls have been around since the advent of the patent system in the U.S. and that longevity has much to do with the legitimate purposes they can serve and the positive role they can play.
The troll as equalizer
Whether called patent trolls, patent assertion entities, or some other name, the fact is these entities have been around a long time. Part of the reason for that longevity is the role they play in the patent system. In the U.S. patent system, patents can be obtained by anyone. From huge tech players like Microsoft, Google, or Apple, to single inventors who develop the latest and greatest technology in their garages or basements.
The patent, and its ability to prevent others from practicing the technology, is the great equalizer. It is the patent right that allows an individual inventor to negotiate and tangle with the largest players in the field. The right of the patent holder to exclude others from the marketplace gives inventors the power to crush industry behemoths. It gives garage inventors the power to negotiate on a level playing field with giants. And the patent holder need not have any ability to practice the invention herself to take advantage of this power. That the garage inventor lacks the manufacturing capability or working capital to produce the patented technology is irrelevant to her ability to keep the technology from being made, used, sold, offered for sale, or imported without the payment of a fair license. That the garage inventor has never exercised these rights is irrelevant to her ability to prevent others from doing so.
Without patents (and the ability of patent holders to stop infringement), there would be nothing to stop large manufacturers from stealing any and all technology they come across in the marketplace. Without this power, there is nothing to stop my company from stealing your patented technology because you cannot afford to sue me or to stop me as I gobble up market share while you struggle to get off the ground. And just as it protects the inventor or the patent holder, it too protects those who invest in the inventor or the patent holder. And this is where the real power comes from.
The troll as investor
Patent rights allow for the monetization of technological achievement. Anyone can see the benefit of a technology after it has been commercialized and proved successful. But without patent protection to prevent others from entering the space, you would be hard pressed to find investors in new technology. Patent rights allow the small innovator to find funding or license its technology on the merits of the technology. It allows third parties to invest in technology before it is commercialized — and when the investment is most desperately needed.
This investment by or to patent trolls allows small players to commercialize their ideas. It also provides alternative income until the market for the invented technology matures. And, it can provide seed investment to take the small player to another level.
So what makes a troll ‘bad?’
The problem with bad patent trolls is one of conduct — not title. Bad patent trolls abuse the system, rather than use it as intended. Bad trolls attempt to enforce patents having dubious claims or vague claim scope, knowing that it is very expensive to fight claims of patent infringement. Bad trolls are those who do no pre-filing investigation before levying accusations of infringement because they know fighting the accusation is too expensive for the accused. Bad trolls set licensing fees based on the cost of litigation for the defendants rather than on the value of the technology at issue. Bad trolls inflict litigation costs and extract licensing fees for patents having little value and for technology that is not worth the fees charged. They are not inherently evil because they do not practice their own technology or seek licensing income. Bad trolls are bad because they take advantage of the system.
All of this adds to the difficulty of finding a solution to bad trolls. Chief among the difficulties is defining who or what constitutes a bad patent troll. Almost every definition that attempts to address such actors is either too narrow to do any real good or too broad to avoid imposing unfair burdens on unintended patent holders. Legislative fixes struggle because they, by necessity, must treat all non-practicing entities the same. Judicial fixes can be much more individualized, but they are more unpredictable — especially at first — and can vary greatly from circuit to circuit.
Ultimately, the solution may lie in some combination of all of the above. But that is not likely to happen quickly.
It is important to remember, however, that this blog and its references to patent trolls are not necessarily directed to all non-practicing entities. Non-practicing entities perform valuable services and play a vital role. Rather, we scrutinize NPEs that abuse the system or take advantage of disparities in the system to leverage payments far beyond the value of the technology at issue.