Patent Trolls (Blog Post)

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© edegan.com, 2016

Abstract

A Blog Post on what patent trolls are and some potential ways to combat them.

Blog Post

From the bridges of our favorite storybooks to the deepest parts of internet forums, trolls seem to persistently haunt mankind. Thanks to a practice disproportionately located in the Eastern district of Texas they now seem to haunt our courtrooms. Patent trolls, sometimes mistakenly referred to as non-practicing entities (NPEs) or patent assertion entities (PAEs), don't wield clubs like their fantasy namesakes but could be every part as dangerous and troublesome. As reported by Wired, 95% of patents are never used commercially and are rather held by NPEs. Most non-practicing entities, universities being a good example, file patents off of in-house innovations with no intent to commercialize or derive profit.

This is in contrast to patent assertion entities, which generate a majority of their revenue through licensing the patents they own. For example, a large firm may buy up a thousand patents. Instead of creating products derived from those patents, they license these patents to other firms that wish to create those products. With most NPEs and PAEs, if another entity infringes on a patent, the NPE or PAE would in good faith send a demand letter to the infringing entity with a warning. This demand letter warns the infringing entity that they are subject to a lawsuit if they do not acquire the proper licensing of the patent.

Patent trolls push this practice to the extreme. Whereas NPEs and PAEs might assert the fair value of their patent against the infringing entity, patent trolls usually inflate the amount of damages due deserved. Patent trolls may further threaten a firm with exorbitant lawsuit costs, and then provide an easy means out of the lawsuit through expensive licensing or settlement. The accused infringing entity, who may not have even infringed on any patent, often times pays the licensing fees or settles out of court to avoid bad publicity, legal fees or the time spent resolving the situation.

Patent trolls may also target a slew of companies that tangentially intersect the sphere of a patent. One famous example of a patent troll is MPHJ Technology Investment, who claimed to have patents that cover any networked "scan-to-email" function. MPHJ sent demand letters to more than 16,000 small businesses, each letter demanding license fees of at least $1000 per worker. Patent trolls also seem to disproportionately affect small businesses. eDekka, widely considered one of the top patent trolling firms, filed lawsuits against 101 companies for patent infringement in 2015, 55% of which are considered small businesses under SBA regulations.

The best way to combat these trolls seems dubious at best, so what can be done? Thankfully, most evidence shows that true patent trolling accounts for only a tiny fraction of overall patent litigation. While specifically anti-trolling legislation like the recently proposed STRONG Patents Act appears to gives the FTC the power to determine that certain demand letters are in "bad faith" and penalize the companies that issue these letters, Congress last passed comprehensive patent reform only 5 years ago in 2011, and the unintended consequences from those changes still appear to be manifesting. Without carefully analyzing the potential effects of broad reform, Congress may want to avoid rushing to combat the small amount of abusive litigation activity with sweeping changes that could negatively affect everyone.

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