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From Wikipedia, the free encyclopedia

In international law and business, patent trolling or patent hoarding is a categorical or pejorative term applied to a person or company that attempts to enforce patent rights against accused infringers far beyond the patent's actual value or contribution to the prior art,[1] often through hardball legal tactics (frivolous litigation, vexatious litigation, strategic lawsuits against public participation (SLAPP), chilling effects, etc.) Patent trolls often do not manufacture products or supply services based upon the patents in question. However, some entities (such as universities and national laboratories), which do not practice their asserted patent, may not be considered "patent trolls", when they license their patented technologies on reasonable terms in advance.[2]

Other related concepts include patent holding company (PHC), patent assertion entity (PAE), and non-practicing entity (NPE), which may or may not be considered a "patent troll" depending on the position they are taking and the perception of that position by the public. While in most cases the entities termed "trolls" are operating within the bounds of the legal system, their aggressive tactics achieve outcomes contrary to the origins of the patent system, as a legislated social contract to foster and protect innovation; the rapid rise of the modern information economy has put the global intellectual property system under more strain.[3]

Patent trolling has been less of a problem in Europe than in the United States because Europe has a loser pays costs regime.[4] In contrast, the U.S. generally employs the American rule, under which each party is responsible for paying its own attorney's fees. However, after the U.S. Supreme Court's decision in Octane Fitness, LLC v. ICON Health & Fitness, Inc. on April 29, 2014, it is now easier for courts to award costs for frivolous patent lawsuits.

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Transcription

Hi, I'm Stan Muller. This is Crash Course: Intellectual Property and today we're talking about patent law. That's why I'm wearing these fancy patent leather shoes. They're a little too small and uh, I had a hard time putting them on. If only somebody would invent a new useful and non-obvious tool for forcing feet into too small shoes. Mark, can I take these off now? A patent is a grant by a government that allows an inventor to maintain a monopoly on the use and development of an invention for a limited time. Patents allow inventors to prevent or exclude other people or companies from manufacturing, selling, or using their patented inventions. Governments grant these exclusive rights in exchange for the clear and detailed public disclosure of inventions. So here's the deal. You invent something awesome, explain how you did it in patently obvious terms, we'll let you be the sole owner for a couple of decades or so which should give you enough time to make some money off the thing. Ideally, you'll get rich for your inventive efforts before the term expires or maybe you'll pour all that money into more research and develop new patents. The notion of giving talented inventors and innovators a limited monopoly in exchange for their instructing the rest of their less talented fellow citizens is not new. It's generally accepted that the first systematic patent law was developed in Venice, a hotbed of Renaissance Industrial activity. The 1474 Venetian patent statute sums up the economic rationale of patent law pretty nicely. "We have among us men of great genius, apt to invent and discover ingenious devices; and in view of the grandeur and virtue of our city, more such men come to us every day from diverse parts. Now, if provision were made for the works and devices discovered by such persons, so that others who may see them could not build them and take the inventor's honor away, more men would then apply their genius would discover, and would build devices of great utility and benefit to our commonwealth." Wow. These Venetians really thought a lot of themselves. "Grandeur and virtue of our city." This idea of granting exclusive rights to inventors to encourage discovery, spread throughout Europe, into England and then to the United States, where it was incorporated into the U.S. Constitution. In order for an innovation or invention to be patentable, the invention must satisfy five requirements. We'll look at all of these requirements generally, and we'll look at the patent for our trusty liquid-filled die agitator containing a die having raised indicia on the facets thereof. Magic 8 Ball's patent was issued in 1964 and did it meet all these requirements? Yes. So this seems a little circular, but the first requirement is that the patent's subject matter be patentable. The categories for patentable subject matter are defined as broadly as any process, machine, manufacture, or composition of matter, or improvement thereof. The Supreme Court has interpreted this to mean that anything under the Sun that is made by human beings is patentable. However broad this definition might be, certain things like, the laws of nature, physical phenomenon, abstract ideas, have consistently been held not to be patentable. The distinction here is that the innovation has to be the product of human inventiveness, and not the product of nature. The Supreme Court recently looked at this issue in a 2013 case involving a biotech firm that had isolated human DNA linked to ovarian and breast cancer. The company argued that it had developed an innovative process for looking for mutations that might lead to cancer and isolating. They argued that the isolated genes were the product of human inventiveness and therefore patentable. The court disagreed, finding that a naturally occurring DNA segment is a product of nature and not patent eligible merely because it's been isolated. The Magic 8 Ball is certainly the product of human inventiveness, although it would be fantastic if these were formed by nature, like if they washed up on beaches or maybe there was a Magic 8 Ball tree. I use fantastic here in the sense that this is obviously a fantasy. But, uh, mmm, what a world that would be. So are you patentable subject matter or what? It is certain. The second requirement for patentability is that the invention be useful, which means both that it has some identifiable benefit and that it's capable of being used. Patent law often refers to a person of ordinary skill in the art. What they're talking about here is an engineer or fellow inventor that can understand the technical information included in the patent. This differs from like tort law, where the law often refers to a reasonable person standard. Understanding patents requires a little more technical expertise. I mention this because the second requirement relies on a person skilled in the art to accept that the invention described in the patent is useful and that it works. The Magic 8 Ball is very useful. It functions in the way that the patent claims it does. It displays answers to yes-or-no questions such as, "Should I join the Merchant Marines?" or "Will I die alone?" Are you useful? It is decidedly so. The third requirement for patent protection is that the invention be new or novel. Basically, if somebody else already invented or patented a similar invention, you can't get a patent. Going back to the case of our Magic 8 Ball, despite the fact that its application notes that similar devices exist, the novelty of the 1964 version lies in the shape of the die, which allows for a better question-and-answer experience. Are you novel? Outlook good. The innovation must also be non-obvious. The test for non-obviousness is whether the innovation and the prior art, by which I mean all that which has come before the innovation, are such that the innovation as a whole would not have been obvious to a person having ordinary skill in the art at the time the invention was made. This is kind of a difficult theoretical task for a judge or patent examiner. Sometimes the most inventive leaps of logic yield solutions that are so elegant that they seem obvious once you've seen it. The Magic 8 ball 1964 patent was for an improvement to the original invention. The inventor added many more sides to the die and also added the all-important raised indicia: the raised lettering, so as to prevent bubbling between the viewing screen and the die. It doesn't seem obvious to me. Magic 8 ball, are you non-obvious? Without a doubt. The final requirement is enablement. Technically, this means "the specification of the patent shall contain a written description of the invention, and of the manner and process of making and using it, in such full, clear, concise, and exact terms as to enable any person skilled in the art to which it pertains to make and use the same, and shall set forth the best mode contemplated by the inventor of carrying out his invention." Whoever wrote this doesn't understand the terms clear and concise. What they're saying is that the plan submitted with the patent have to be clear and complete enough for someone else to recreate the invention without too much trouble. Beyond this, the applicant has to describe the best mode of making this thing happen. The inventor can't give people the runaround. If there's a best way to recreate the invention in question, the inventor is required to disclose it. This final step is essential to the underlying rationale of patent law. Without a clear and accurate explanation of how to make and use the innovation, the public gets nothing in return for granting the limited monopoly. So, what's it gonna be, Magic 8 ball? Can we make or use you based on the patent's description? As I see it, yes. There are 3 types of patents issued by the Patent & Trademark office: utility patents, design patents, and plant patents. The 5 requirements we just talked about refer to utility patents. Design patents cover any new, original, and ornamental, rather than useful, article of manufacture. Apple is famous for their design patents and their utility patents. Plant patents are granted to persons who first noticed the distinctiveness of a plant, then reproduced it asexually, by grafting or cloning, rather than growing it from a seed. If you grow it from a seed, you can't patent it. The plant must be novel and distinctive to be granted a patent, which basically means that it has to have at least one significant distinguishing characteristic to establish it as a distinct variety. So this is what a plant patent looks like. Not a lot of them get issued relative to utility or design patents. On a related note, the human-made plant, or a plant that's been genetically engineered, can also be the subject of a utility patent. Provided it meets all the 5 requirements we talked about. Often, these are plants that are resistant to certain herbicides or are better suited to shipping. There's even a man-made variety of cotton that's resistant to pests. Patents don't last forever. The term of protection for utility patents is 20 years, measured from the date of filing. There are extensions of up to 5 years allowed for drugs, medical devices, and additives. The current term of protection for design patents is 14 years, and that's also from the date of filing. So patents are all about the money. Let's talk about that in the Thought Bubble. In terms of economic impact, patent law is arguably the most important branch of intellectual property. There are legitimate questions about the role of patents and what types of research and development patent law encourages. Does the law encourage more research into highly lucrative erectile dysfunction medications than stuff like anti-malarial drugs? Should developing nations be able to create public health exceptions for life-saving proprietary medications? If so, then how would companies be able to pay for the development of these medications or future life-saving medications without the assurance of patent protection? And then there are non-practicing entities, often called patent trolls, that go around acquiring huge patent portfolios, and then threaten to sue pretty much everybody. Patent trolls bring these lawsuits despite the fact that they have no interest in developing or manufacturing any actual products. This is their business model. Because of the high cost of litigation, costs can range from about a $1,000,000 to $5,000,000 if this goes to trial and the threat of massive damage awards. Most companies sued by patent trolls settle or agree to pay a licensing fee to the trolls. There's legislation pending in Congress designed to address this issue. Thanks, Thought Bubble. So the policy issues around patents are incredibly complex and controversial, and this video is only a basic overview. The underlying purpose of patent law, which is to reward inventors for their skill and effort, is often in direct opposition to the public's interest in accessing those innovations. Whether it be life-saving medications that costs thousands of dollars per pill or water treatment technologies that developing countries can't afford to license. The trick is to strike a balance between providing inventors with incentives and ensuring public access. How we attain that balance is still very much an open question. Thanks for watching, we'll see you next week. Crash Course Intellectual Property is filmed in the Chad and Stacey Emigholz Studio in Indianapolis, Indiana, and it's made by all of these nice workers for hire. If you'd like to keep Crash Course freely available for everyone forever, you can support the series at Patreon, a crowdfunding platform that allows you to support the content you love. Speaking of Patreon, we'd like to thank our Headmaster of Learning Thomas Frank and our Vice Principals, Kathy and Tim Philp and Linnea Boyev. Thank you so much for supporting Crash Course. You can get awesome rewards for your support, but you don't get ownership of our Crash Course copyright. You do, however, get to help people learn. Thanks for watching. We'll see you next week.

Etymology and definition

The term patent troll was used at least once in 1993, albeit with a slightly different meaning, to describe countries that file aggressive patent lawsuits.[5] The 1994 educational video, The Patents Video also used the term, depicting a green troll guarding a bridge and demanding fees.[6][7] The origin of the term patent troll has also been variously attributed to Anne Gundelfinger, or Peter Detkin, both counsel for Intel, during the late 1990s.[8][9]

Patent troll is currently a controversial term, susceptible to numerous definitions, none of which are considered satisfactory from the perspective of understanding how patent trolls should be treated in law.[10] Definitions often include a party that does one or more of the following:

  • Purchases a patent, often from a bankrupt firm, and then sues another company by claiming that one of its products infringes on the purchased patent;[5]
  • Enforces patents against purported infringers without itself intending to manufacture the patented product or supply the patented service;[11][12] (some argue this could be true even for the original inventor, whereas other draw a clear distinction on this point)[13]
  • Enforces patents but has no manufacturing or research base;[14]
  • Focuses its efforts solely on enforcing patent rights;[15] or
  • Asserts patent infringement claims against non-copiers or against a large industry that is composed of non-copiers.[16]

The term "patent pirate" has been used to describe both patent trolling and acts of patent infringement.[17] Related expressions are "non-practising entity" (NPE)[18] (defined as "a patent owner who does not manufacture or use the patented invention, but rather than abandoning the right to exclude, an NPE seeks to enforce its right through the negotiation of licenses and litigation"),[18] "patent assertion entity" (PAE),[19] "non-manufacturing patentee",[20] "patent shark",[21] "patent marketer",[20][22] "patent assertion company",[23] and "patent dealer".[24]

Confusion over the usage of the term "patent troll" is clear in research and media reporting. In 2014, PricewaterhouseCoopers published research into patent litigation including a study of non-practicing entities including individual inventors and non-profit organisations such as universities.[25] In quoting that research, media outlets such as the Washington Post labelled all non-practicing entities as patent trolls.[26]

Legal and regulatory history

According to RPX Corporation, a firm that helps reduce company patent-litigation risk by offering licenses to patents it owns in exchange for an agreement not to sue,[27] patent trolls in 2012 filed more than 2,900 infringement lawsuits in the US (nearly six times higher than the number in 2006).[28]

In addressing the America Invents Act (AIA) passed by Congress in September 2011 reforming US patent law, U.S. President Barack Obama said in February 2013 that US "efforts at patent reform only went about halfway to where we need to go." The next indicated step was to pull together stakeholders and find consensus on "smarter patent laws."[29]

As part of the effort to combat patent trolls, the Patent Trial and Appeals Board was empowered to begin conducting the inter partes review (IPR) process in 2012. IPR allows an executive agency to review the validity of a patent, whereas previously such a review could only be conducted before a court. In 2018, the Supreme Court upheld the constitutionality of the IPR process in Oil States Energy Services, LLC v. Greene's Energy Group, LLC.[30] In 2015, 45% of all patent cases in the United States were filed in the Eastern District of Texas in Marshall, and 28% of all patents were filed before James Rodney Gilstrap, a court known for favoring plaintiffs and for its expertise in patent suits.[31] However, in May 2017, the Supreme Court of the United States ruled unanimously in TC Heartland LLC v. Kraft Foods Group Brands LLC that patent litigation cases must be heard in the state in which the defendant is incorporated, shutting down this option for plaintiffs.[32]

On June 4, 2013, President Obama referenced patent trolls and directed the United States Patent and Trademark Office (USPTO) to take five new actions to help stem the surge in patent-infringement lawsuits tying up the court system. Saying "they don't actually produce anything themselves, they're just trying to essentially leverage and hijack somebody else's idea and see if they can extort some money out of them," the President ordered the USPTO to require companies to be more specific about exactly what their patent covers and how it is being infringed.[33]

The Administration further stated the USPTO will tighten scrutiny of patent claims that appear overly broad, and will aim to curb patent-infringement lawsuits against consumers and small-business owners using off-the-shelf technology. The President asked Congress to enact legislation to more aggressively curb "abusive" lawsuits.[34][35] David Kravets said "[t]he history ebooks will remember the 44th president for setting off a chain of reforms that made predatory patent lawsuits a virtual memory."[36]

In the U.S. Congress, Senator Orrin Hatch (R-Utah) sponsored legislation in 2013 intended to reduce the incidence of patent trolling. The bill, called the Patent Litigation Integrity Act, would help judges make patent trolls pay for the cost of the lawsuits, especially if the trolls lost the lawsuits.[37]

In February 2014, Apple filed two amicus briefs for cases pending in the U.S. Supreme Court, claiming to be the #1 target for patent trolls, having faced nearly 100 lawsuits in the preceding three years.[38]

In November 2014, the U.S. Federal Trade Commission (FTC) settled its first consumer-protection lawsuit against a company, for using "deceptive sales claims and phony legal threats".[39] The FTC found that defendant MPHJ had sent letters to more than 16,000 small to mid-size businesses threatening patent infringement lawsuits if the companies did not comply with its demand for licensing fees of $1,000 to $1,200 per employee, but never making preparations for such lawsuits.[39] The 2014 settlement provided for a $16,000 fine per letter that MPHJ or its attorneys would send.[40]

State responses in the United States

In May 2013, Vermont's Consumer Protection Act took effect. The Vermont law prohibits bad faith infringement threats, with bad faith indicated by: lack of specificity of the alleged infringement, settlement demands or damage claims that include excessive licensing fees, and unreasonably short deadlines for payment of demanded monies.[41] Vermont's statute gives recipients of threat letters the right to counter-sue in state court, thus making it a less lucrative business model to send out large numbers of threat letters.[41] As of August 2013, the Vermont legislation had not been tested in court as to violation of federal preemption, the legal principle that bars states from interfering in matters regulated or administrated by the federal government (such as aviation), or enforcement of federal law.[41]

In August 2013, Nebraska's Attorney General sent warnings to a patent troll's law firm, asserting that to send frivolous licensing demands to Nebraska businesses may constitute unfair and deceptive business practices and violate Nebraska's unfair competition law.[42]

In 2013, Minnesota's Attorney General obtained a settlement prohibiting MPHJ Technology Investments LLC from continuing its licensing campaign, Minnesota said to be the first state to obtain such a settlement.[43]

In April 2014, the Wisconsin governor signed legislation that would make patent-trolling Wisconsin companies more difficult. The legislation imposes strict notification duties on the entity claiming infringement, and there are potentially strict penalties for non-compliance with the notification process.[44]

In the 2014, legislative session, Idaho Lieutenant Governor Brad Little sponsored Senate Bill 1354, or the "Patent-troll" bill which protected companies from "bad faith assertions of patent infringement", in which a patent holder frequently harasses businesses for purportedly infringing on a patent in order to collect an extortionate licensing fee.[45][46]

Causes

The cost of defending against a patent infringement suit, as of 2004, was typically $1 million or more before trial, and $2.5 million for a complete defense, even if successful.[47] Because the costs and risks are high, defendants may settle even non-meritorious suits they consider frivolous for several hundred thousand dollars.[47] The uncertainty and unpredictability of the outcome of jury trials in the United States also encourages settlement.[48]

It has been suggested that examination backlog, which does not give patent examiners sufficient time to examine patent applications, but rather favors speedy issuance of invalid or partially invalid patents, facilitates patent trolling.[49]

There is also no obligation to defend an unused patent immediately,[clarification needed] thus manufacturing companies may produce the patented product for years until the patent troll sues them. For example, the JPEG format, intended to be free of license fees, was subject to two patent attacks, one by Forgent Networks during 2002–2006 and another by Global Patent Holdings during 2007–2009. Both patents were eventually invalidated based on prior art,[50][51] but before this, Forgent collected more than $100 million in license fees from 30 companies and sued 31 other companies.[52]

Effects

In 2011, United States business entities incurred $29 billion in direct costs because of patent trolls.[53] Lawsuits brought by "patent assertion companies" made up 61% of all patent cases in 2012, according to the Santa Clara University School of Law.[54] From 2009 through mid-2013, Apple Inc. was the defendant in 171 lawsuits brought by non-practicing entities (NPEs), followed by Hewlett-Packard (137), Samsung (133), AT&T (127), and Dell (122).[55] Patent troll-instigated litigation, once mostly confined to large companies in patent-dependent industries such as pharmaceuticals, came to involve companies of all sizes in a wide variety of industries.[41] In 2005, patent trolls sued 800 small firms (those with less than $100 million annual revenue), the number growing to nearly 2,900 such firms in 2011; the median defendant's annual revenue was $10.3 million.[56] A July 2014 PricewaterhouseCoopers study concluded that non-practicing entities (NPEs) accounted for 67 percent of all patent lawsuits filed—up from 28 percent five years earlier—and though the median monetary award size has shrunk over time, the median number of awards to NPEs was three times higher than those of practicing companies.[57]

A 2014 study from Harvard University, Harvard Business School and the University of Texas concluded that firms forced to pay patent trolls reduce R&D spending, averaging $211 million less than firms having won a lawsuit against a troll.[58] That 2014 study also found that trolls tend to sue firms with fewer attorneys on staff, in effect encouraging firms to invest in legal representation at the expense of technology development.[58] The 2014 study reported that trolls tend to opportunistically sue firms with more available cash, even if the firm's available cash was not earned in the technology that is the subject of the patent lawsuit, and targeting the firms long before a product begins turning a profit, thus disincentivizing investment in new technologies.[58]

Emphasis became progressively focused on patents covering software rather than chemical or mechanical inventions, given the difficulty in defining the scope of software patent claims in comparison to the more easily defined specific compounds in chemical patents.[59] A GAO study concluded that the proportion of patent lawsuits initiated by trolls hadn't changed significantly from 2007 through 2011, the GAO speculating that the raw numerical increase in both troll and non-troll instituted lawsuits may be due to the "inherently imprecise" language and a lack of common, standardized, scientific vocabulary in constantly evolving emerging technologies such as software.[60] Software patents were described as "particularly prone" to abuse because software is "inherently conceptual", with research indicating that a software patent is four times as likely as a chemical patent to be involved in litigation, and a software "business method patent" is thirteen times more likely to be litigated.[61]

On June 4, 2013, the National Economic Council and Council of Economic Advisers released a report entitled Patent Assertion and U.S. Innovation [62] that found significant harm to the economy from such entities and made recommendations to address them. The report further stated: "Specific policies should focus on fostering clearer patents with a high standard of novelty and non-obviousness, reducing disparity in the costs of litigation for patent owners and technology users, and increasing the adaptability of the innovation system to challenges posed by new technologies and new business models, would likely have a similar effect today."[29]

A core criticism of patent trolls is that "they are in a position to negotiate licensing fees that are grossly out of alignment with their contribution to the alleged infringer's product or service",[63] notwithstanding their non-practising status or the possible weakness of their patent claims. The risk of paying high prices for after-the-fact licensing of patents they were not aware of, and the costs for extra vigilance for competing patents that might have been issued, in turn increases the costs and risks of manufacturing.

On the other hand, the ability to buy, sell and license patents is seen by some as generally productive. The Wall Street Journal argued that by creating a secondary market for patents, these activities make the ownership of patents more liquid, thereby creating incentives to innovate and patent.[24][64] Patent Licensing Entities also argue that aggregating patents in the hands of specialized licensing companies facilitates access to technology by more efficiently organizing ownership of patent rights.[65][66]

In an interview conducted in 2011, former U.S. federal judge Paul R. Michel regarded "the 'problem' [of non-practicing entities, the so-called "patent trolls"] to be greatly exaggerated." Although there are a number of problems with the U.S. patent system, i.e. "most NPE infringement suits are frivolous because the defendant plainly does not infringe or the patent is invalid", "patent infringement suits are very slow and expensive", and "NPEs may add value to the patents by buying them up when manufacturers decline to do so. Inventors may have benefited from the developing market in patent acquisition."[67]

This view was supported in an article in 2014 that suggests that the pejorative term patent troll works in the benefit of large organisations who infringe patents and resent smaller inventors being represented by someone with the clout to take them on. The argument against the use of the term is that NPEs, in the main, return the majority of a settlement to the original inventor.[68] Similarly, New York Times columnist Joe Nocera wrote that legislation on patent reforms considered by the United States Congress that are "allegedly aimed at trolls" often instead "effectively tilt the playing field even further towards big companies with large lobby budget".[69]

Therefore, the main problem with patent trolls is the issuance of invalid patents by the USPTO in the first place. And this problem stems from backlog of unexamined patent applications, which encourages patent examiners to issue rather than to reject patent applications.

Mechanics

Patent trolls operate much like any other company that is protecting and aggressively exploiting a patent portfolio. However, their focus is on obtaining additional money from existing uses, not from seeking out new applications for the technology. They monitor the market for possibly infringing technologies by watching popular products, news coverage and analysis. They also review published patent applications for signs that another company is developing infringing technology, possibly unaware of their own patents. They then develop a plan for how to proceed. They may start by suing a particularly vulnerable company that has much to lose, or little money to defend itself, hoping that an early victory or settlement will establish a precedent to encourage other peer companies to acquiesce to licenses. Alternately they may attack an entire industry at once, hoping to overwhelm it.

An individual case often begins with a perfunctory infringement complaint,[47] or even a mere threat of suit, which is often enough to encourage settlement for the nuisance or "threat value" of the suit by purchasing a license to the patent. In the United States, patent suits previously could be filed in any United States District Court, allowing plaintiffs to "shop around" to find the court with the highest chances of success; in 2015, 45% of all patent cases were filed in the Eastern District of Texas in Marshall, as this court was known for favoring plaintiffs and for its expertise in patent suits.[31] However, the Supreme Court of the United States ruled in a unanimous May 2017 decision in TC Heartland LLC v. Kraft Foods Group Brands LLC that patent litigation cases must be heard in the state which the defendant is incorporated, shutting down this option for plaintiffs.[32]

The uncertainty and unpredictability of the outcome of jury trials also encourages settlement.[48] If it wins, the plaintiff is entitled as damages an award of at least a "reasonable" royalty determined according to the norms of the field of the patented invention.[70]

Patent trolls are at a disadvantage in at least two ways. First, patent owners who make and sell their invention are entitled to awards of lost profits. However, patent trolls, being non-manufacturers, typically do not qualify.[citation needed] Further, patent owners' rights to bar infringers from manufacture, use, or sale of technologies that infringe their patents has been curtailed in the 2006 court decision eBay v. MercExchange. Rather than automatically granting an injunction, the US Supreme Court stated that courts must apply a standard reasonableness test to determine if an injunction is warranted. Writing in Forbes about the impact of this case on patent trolls, writer Jessica Holzer concludes: "The high court's decision deals a blow to patent trolls, which are notorious for using the threat of permanent injunction to extort hefty fees in licensing negotiations as well as huge settlements from companies they have accused of infringing. Often, those settlements can be far greater than the value of the infringing technology: Recall the $612.5 million that Canada's Research in Motion forked over to patent-holding company NTP, Inc., to avoid the shutting down of its popular BlackBerry service."[71]

The non-manufacturing status of a patent troll has a strategic advantage, in that the target infringer cannot counter-sue for infringement. In litigation between businesses who make, use or sell patented technology, the defendant will often use its own patent portfolio as a basis to file a counterclaim for infringement. The counterclaim becomes an incentive for settlement, and in many industries, discourages patent infringement suits. Additionally, a patent suit carries with it the threat of an injunction or mutual injunction, which could shut down manufacturing or other business operations.[72] If a patent owner does not make, use or sell technology, then the possibility of a counter-suit for infringement would not exist. For this reason, a patent troll is able to enforce patents against large companies which have substantial patent portfolios of their own. Furthermore, patent trolls may use shell companies.[73]

Responses to patent trolls

Early Woodward light bulb patent purchased by Thomas Edison to preclude challenges

Patent trolls are neither using nor marketing the inventions covered by their patents, but instead plan to make money by threatening or filing lawsuits.[74] Using the justice system to make money gives patent trolls a financial advantage because patent troll plaintiffs are typically immune from defense strategies large business employ against legitimate smaller patent plaintiffs (e.g., litigation costs are significantly higher for the defendant or infringer than for a purported damaged plaintiff who has a "no recovery, no fee" contingency-fee lawyer; until recently trolls had an almost-unrestricted ability to choose plaintiff-friendly forums, frequently the Eastern District of Texas).[47]

Strategies used by companies to protect themselves from legitimate competition are ineffective against patent trolls. Defensive techniques include: monitoring patent activities of competitors to avoid infringing patents (since patent trolls are not competitors, productive companies usually have no way to find out about the troll or its patents until after significant investments have been made to produce and market a product); going on the offensive with counterclaims that accuse the patent plaintiff of infringing patents owned by the defendant (the mutual threat often leads the parties to arrive at a mutually beneficial cross-licensing arrangement); or a "scorched earth" defense designed to drive up litigation costs (which is equally ineffective because patent trolls plan for and have the finances to fully litigate a case;[47] in fact, some are able to draw on hedge funds and institutional investors to finance their patent cases).[75] Patent "pooling" arrangements where many companies collaborate to bring their patented knowledge together to create new products are also inapplicable to patent trolls because they do not produce products. It is possible to perform offensive techniques to ward off patent trolls with the open source release of concepts preemptively via patentleft licence to prevent patent trolls from establishing intellectual property on building block technology.[76] A Google-led initiative, LOT Network, was formed in 2014 to combat PAEs by cross-licensing patents that fall into the hands of enforcers.[77] Another Google-affiliated organization, Unified Patents, seeks to reduce the number and effectiveness of patent trolls by filing inter partes reviews (IPR) on patents owned by trolls.[78]

Large companies who use patent litigation as a competitive tool risk losing their patent rights if a defendant claims patent misuse. However, the misuse defense is difficult against a patent troll because antitrust violations typically involved require significant market power on the part of the patent holder.[79] Nevertheless, manufacturers do use various tactics to limit their exposure to patent trolls. Most have broader uses as well for defending their technologies against competitors. These include:

  • Design arounds can be a defense against patent trolls. The amount of license fee that a patent troll can demand is limited by the alternative of the cost of designing around the troll's patent(s).[80]
  • Patent watch. Companies routinely monitor new patents and patent applications, most of which are published, to determine if any are relevant to their business activities.
  • Clearance search. A standard practice is to perform a clearance search for patents or pending patent applications that cover important features of a potential product, before its initial development or commercial introduction. For example, a search by Thomas Edison uncovered a prior patent by two Canadian inventors, Henry Woodward and Mathew Evans, for carbon filament in a non-oxidizing environment, (U.S. patent 181,613), the type of light bulb Edison wanted to develop. Edison bought the patent for US$5,000 ($157,862 in present-day terms[81]) to eliminate the possibility of a later challenge by Woodward and Evans.
  • Opposition proceeding. In Europe (under the European Patent Convention), any person may initiate proceedings to oppose a European patent. There is a more limited process in the United States, known as a reexamination. As an example, Research In Motion, filed reexaminations against broad NTP, Inc. patents related to BlackBerry technology.
  • Litigation. Whereas some companies acquiesce to a troll's demands, others go on the offensive by challenging the patents themselves, for example by finding prior art that calls into question their patentability. They may also broadly challenge whether the technology in question is infringing, or attempt to show patent misuse. If successful, such a defense not only wins the case at hand but destroys the patent troll's underlying ability to sue. Knowing this, the patent troll may back down or lessen its demands.
  • Early settlement. An early settlement is often far less expensive than litigation costs and later settlement values.
  • Patent infringement insurance. Insurance is available to help protect companies from inadvertently infringing a third party's patents.
  • Defensive patent aggregation, the practice of purchasing patents or patent rights from patent holders so they don't end up in the hands of an individual or enterprise that can assert them. Increasingly aggregations are focused on purchasing patents and patent rights off the open market, or out of NPE assertion and litigation, which directly impact the businesses of the aggregation's members. The aggregator then provides members a broad license to everything it owns in exchange for an annual fixed-fee.[82] Defensive aggregators purchased 15% of all brokered patent sales in 2014.[83]
  • Action for unjustified threats. In Australia,[84] the UK[citation needed] and other countries[citation needed], a legal action may be brought against anyone who makes unjustifiable threats to begin patent infringement proceedings. Concerning the Australian threats provisions, Lisa L. Mueller says that "if a patent troll is found to have engaged in a threat, the only way it could defend itself against an injunction or an award of monetary damages would be to commence patent infringement proceedings and have the court find that infringement occurred."[84]
  • Bounties. Monetary bounties have been offered to the public to find prior art or provide other information, such as arguments showing the obviousness or material defects in a patent application, that would invalidate a patent troll's patents. This tactic has been used not only against the patent in question but also against other patents held by the patent troll in order to undermine its business model.[85]

See also

References

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Further reading

  • Christian Helmers, Brian Love and Luke McDonagh, 'Is there a Patent Troll Problem in the UK?,' Fordham Intellectual Property, Media and Entertainment Law Journal 24 (2014) 509–553 – available at SSRN
  • Catherine Tucker, The Effect of Patent Litigation and Patent Assertion Entities on Entrepreneurial Activity, Arstechnica 2014 [2]
  • Connell O'Neill, The Battle Over Blackberry: Patent Trolls and Information Technology, The Journal of Law, Information, and Science, 2008, Vol. 17, pp. 99–133. [3]
  • Maggie Shiels, Technology industry hits out at "patent trolls", BBC News, June 2, 2004. [4]
  • Lorraine Woellert, A Patent War Is Breaking Out On The Hill, Business Week, July 2005.[5]
  • Joe Beyers, Rise of the patent trolls, ZDNet, October 12, 2005.[6]
  • Raymond P. Niro, The Patent Troll Myth, Professional Inventors Alliance web site, August 4, 2005.[7]
  • Raymond P. Niro, Who is Really Undermining the Patent System – "Patent Trolls" or Congress?. 6 J. Marshall Rev. Intell. Prop. L. 185 (2007).
  • Jennifer Kahaulelio Gregory, "The Troll Next Door", 6 J. Marshall Rev. Intell. Prop. L. 292 (2007).
  • Simon Phipps, On Cane Toads, Fire Ants and Patents, SunMink, February 13, 2005.[8]
  • Bakos, Tom, "Patent Trolls", Insurance IP Bulletin, Vol. 2005.3, June 2005. [9]
  • Ferrill, Elizabeth, "Patent Investment Trusts: Let's Build a PIT to Catch the Patent Trolls", N.C. J. of Law & Tech., Vol 6, Iss. 2: Spring 2005.[10]
  • Kurt Leyendecker, "Patent Trolls!", Control, Protect & Leverage, A Leyendecker & Lemire Blog, March 14, 2006. [11] Archived October 25, 2006, at the Wayback Machine
  • Steven Rubin (March 2007). "Hooray for the Patent Troll!". IEEE Spectrum.
  • Colleen V. Chien, Of Trolls, Davids, Goliaths, and Kings: Narratives and Evidence in the Litigation of High-Tech Patents, 87 N.C. L. Rev. 1571 (2009), available at SSRN. Summarized at Jotwell.
  • Ranganath Sudarshan, Nuisance-Value Patent Suits: An Economic Model and Proposal, 25 Santa Clara Computer & High Tech. L.J. 159 (2008).
  • Ruth Simon; Angus Loten (May 21, 2014). "States Revise Laws to Curb 'Patent Trolls'". The Wall Street Journal. Retrieved May 27, 2014.
  • Emily Sharp (December 28, 2018). "How to Defend Your Business Against Patent Trolls". Brainfalls. Archived from the original on January 28, 2019. Retrieved January 28, 2019.
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