Trolls of lore were ugly creatures who lived under bridges. They charged travelers to safely cross the raging waters and threatened harm to those who refused to pay. Trolls and their kindred spirits have haunted the nightmares of our children for generations.
But Peter Detkin, a co-founder of Intellectual Ventures, repurposed the term to represent the activities of non-practicing entities (NPEs) or patent assertion entities (PAEs). Perhaps our collective subconscious childhood fears of the trolls of old make it too easy for the media, our elected leaders and even some savvy CEOs to vilify modern trolls for everything they represent. I bet Mr. Detkin now wishes he used a more attractive term to describe the activities of his company.
What defines a troll? Most would agree that a company that does not make products, but buys up patents to assert against others, would be in the category. However, there seem to be as many permutations to this basic formulation as there are companies. What about large manufacturing companies with divisions that purchase patent portfolios for the purpose of assertion? What about companies that spin-off their unused patent portfolio to wholly or partially owned subsidiaries that assert those patents? What about companies that buy up portfolios for defensive purposes, compelling membership by companies that join for protection? What about universities? They don’t make products. Most would say that universities don’t fit into the category of trolls, because they license to companies that make the products covered by their patents. But what if the university sells its patents to a patent assertion entity with an agreement to share in the profits?
As revealed above, defining a troll is very difficult. Some would even assert that Thomas Edison, one of our most prolific inventors, was an early troll in seeking licenses for patents that he did not plan to manufacture. The monetization of patents in the marketplace can spur innovation and drive economic growth and job creation. Many inventors just like to invent. Some have no interest in manufacturing anything, but would prefer to go back to the lab and hunt for the next new breakthrough. And, in trolls, inventors and others in the secondary market have a purchaser willing to pay for valuable patents, an entity that will help them reap the benefits of their efforts. We recognize that patents are property and, like any other property, can be freely bought and sold, so long as there are no antitrust issues.
Until the advent of the troll era, small inventors, creditors in bankrupt companies with large patent portfolios, and companies with many patents in technologies that they no longer planned to use, had few options to monetize these assets. Some large companies refused to purchase or license from them, gambling instead that they could continue infringing as the costs of asserting patents preempted the owner’s ability to enforce her rights. Some in the financial services industries and in emerging technologies were unfamiliar with the patent world or chose not to play in the patent sandbox. The evolving use of patents required new strategies and new business plans for many powerful companies. The disruption in the corporate world has caused uncertainty and fear. And, where we usually applaud innovation both in the scientific arena and in the creation of wealth in the challenging world of the money markets, the rise of the troll has many crying foul!
What is the problem?
There are many problems!
The quality of the patents being asserted has become a frequently repeated lament in way too many instances. Plaintiffs are using low quality patents to extort settlements from small companies that cannot afford to defend themselves at trial and are seeking licensing fees from large companies that only want to make the costly and time-consuming case go away.
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The costs of litigating invalidity and/or non-infringement of a patent claim asserted against a small company in the US can bankrupt it striking fear in the heart of a CEO just embarking on a business endeavor. This fear leads many small businesses that rarely have in-house patent counsel into arrangements that significantly weaken their ability to grow. And the legal fees to defend multiple extortion threats can devastate a company.
Owners of mom-and-pop shops across the United States who might be unsophisticated in the arena of patent law are receiving vague legalistic demand letters for alleged infringing uses of common office products like copying machines or scanners or shipment tracking technology or basic WIFI. They are the end-users who legitimately purchase equipment from well-known manufacturers but are targeted first, by the thousands, with lower licensing offers to build an arsenal to attack the more well-heeled maker.
A more thorough understanding of the environment in which you innovate would be aided by knowing whom you are dealing with. A common tactic of the frequent plaintiff is to transfer patent interests to shell companies, masking the ultimate ownership of a particular right and preventing the potential licensee from knowing whether they have rights to all of the commonly owned patents to cover the product they wish to produce. Without knowing the real-party-of-interest, a licensee can be repeatedly attacked by the same parent entity.
The above-enumerated problems of the current patent system are real and barriers to further innovation and job creation. But the solutions do not require a comprehensive definition of a troll to fix the patent system. Lady Justice is blindfolded for a purpose. Justice in the US should be meted out objectively regardless of identity. So too in the instant situation. It is not the identity of the actor that needs to be evaluated, but the character of the action. We need to assure that frivolous, predatory actions are penalized and prevent the abusive tactics used by many that harm our innovative culture.
The recently enacted America Invents Act took a significant step forward in providing several quicker and less expensive procedures for removing improvidently granted patents from the system. Inter Partes review allows for the challenge of any granted patent based upon earlier prior art. Post Grant review allows for the challenge of any first-to-file patent on any statutory grounds within the first nine months of issue. And the recently enacted Transitional Covered Business Methods procedure permits a challenge on any grounds for a non-technical financial service or product patent. These procedures are new, and it will take some time to evaluate the full impact they have on the patent system; but they can be used as an inexpensive way to challenge patents that should never have issued from the USPTO, thereby limiting the ability of anyone to use these patents in a frivolous lawsuit.
Probably the most effective way to remove overly broad and invalid patents and reduce predatory activity is to make certain that bad patents don’t issue in the first place. Trolls don’t issue their own patents! The USPTO is a fee-funded agency, yet for years Congress has diverted funds paid by applicants for the examination of their applications. Without those diverted funds, the agency is unable to acquire all the available databases of prior art needed for an accurate search of what is already in the public domain and unable to provide the examiners with the full time needed to properly examine the applications. In addition, inadequate funding hits training first, and examiners are not trained to focus on enabling disclosures and well bounded claims, leading to more uncertainty and more unnecessary litigation.
In spite of their exaggerated focus on trolls, Congress and the Administration are again seeking patent reform that may further curb abusive practices, regardless of the definition of the actor. The House of Representatives, in arguably the most polarized of times, has passed patent reform legislation that now awaits Senate action. Some of the current discussions address the real-party-of-interest, and legislators are trying to find ways to identify the owner without making the requirements of stating their interests overly burdensome. Other provisions relate to a form of loser pays provisions where frivolous suits are discouraged by requiring the loser to pay all attorney’s fees of both parties. Ideally, some of the provisions will ease the current standards for the award of attorney’s fees, but give the courts some discretion in evaluating the situation as they are closest to the proceedings and allow the Judicial Conference to develop regulations.
Still other portions of the bill under consideration relate to the specificity of pleadings and a curb on the abusive use of demand letters. If properly crafted, both could improve the transparency of the system and help reduce predatory activities. One provision rightfully dropped from consideration in the House passed bill would have made the recently enacted Transitional Covered Business Method procedure permanent and would have expanded it to include any computer implement invention. As the original CBM procedure is only about a year old and has resulted in few decisions and very limited juris prudence, it is premature to amend it at this time. Expanding that new procedure now with all of the other significant changes recently enacted. and more likely to be enacted, could have serious deleterious consequences. In addition, providing more uncertainty in the emerging technologies of computer implemented inventions will make it harder for small businesses to secure funding in this competitive environment.
While the fear of trolls seems to have driven our legislative activities to address some of the problems of our patent system, we must judiciously focus our attentions on the potential for abuse by anyone. Making a fairer, more transparent system will benefit our economy and job creation and spur innovation to create new inventions to improve the human condition.