"Patent trolls" are often thought of as a nasty group of people who extort money out of small businesses. Recently, I took part in advocating for "patent trolls" for a CLE course. Naturally, I wasn't too excited about it at first because I figured everyone was going to hate patent trolls no matter what I said. But I did a little digging to see if patent trolls did indeed deserve a bad reputation, and to figure out what I would say. And here's what I found.
Patent Trolls v. Non-Practicing Entities
Not all patent trolls are cut from the same cloth. And for those entities that hold patents without developing or practicing it, I prefer to call them "non-practicing entities" (NPEs). Your average inventors working in their garages, universities, and research institutions are all technically NPEs. Even big companies like Apple, Google, and Microsoft have small departments for asserting their patents that they're not practicing.
There are many reasons why patent holders don't practice their patents. One reason is a lack of resources. This is particularly true for individual inventors. Sometimes it makes more business sense for patent holders to license their patents out to someone else who is better suited to manufacture the invention, sell the invention, or otherwise develop it.
Number of Lawsuits Not as High as You'd Think
According to a GAO study, patent trolls only file 20% of patent suits. This is good to know because most people (myself included) used to think that it was a lot more (maybe 50%?). Yes, it is true that it is relatively easy to file a lawsuit, and that the cost of litigation is much easier to bear for a well-funded patent troll than for a small start up who is forced to defend the lawsuit.
Last time I checked, infringement suits cost about $700k if you have less than $1M at risk. Infringement suits can cost up to $5.5M if you have more than $25M at risk. This isn't even considering the time that parties have to invest into one lawsuit. So it's no brainer for people to figure out that it is much easier to settle before the litigation unfolds.
While it is a problem for patent trolls to file frivolous lawsuits and extort settlement from small companies, you must admit that it is a business strategy. Not a very popular one, but nonetheless a business strategy in its purest form. And what these patent trolls are doing is enforcing their patent rights.
Value of Patents
Current proposed patent reform legislation seeks to increase the burden on patent trolls when filing a lawsuit, which would make it more difficult to file a patent lawsuit. This is a good news for small companies who are generally the targeted victims of patent trolls. But the reform can pose other problems. The reform also makes it difficult for patent owners to enforce their patents, which can cause patents to lose its value. If some of the most valuable assets of a company is its intellectual property (mostly patents), will the value of the company decrease as well? Logic tells me that it certainly is possible.
I'm no advocate for patent trolls. I do think it's wrong to extort money from small companies in the interest of enforcing a low-quality patent. But in many cases, a patent lawsuit may be legitimate, and it may call for a licensing agreement or a good settlement.