8
Oct
Patent Troll villain

Patent Troll: The Villain in Intellectual Property.

A patent troll by definition is a person or company who enforces patent rights against accused infringers with an objective to collect licensing fees but does not manufacture products or supply services based upon the patents in question.

Mechanism

A patent troll obtains the patents being sold at auctions by bankrupt companies attempting to liquidate their assets. The troll will then use these patents as weapons and send demand letters threatening to file a patent infringement suit against the company unless the alleged infringer agrees to pay a licensing fee decided by them.

Examples:

  • LODSYS is a company that makes no products but specializes in suing innovators. It has sued Apple and Google for patent infringement claiming the use of in-app purchasing technology.
  • 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.
  • FORGENT NETWORKS attacked the JPEG format from 2002-2006 making more than $100 million in license fees from 30 companies.
  • NTP received a license fee of $612.5 million from Research in Motion to avoid the shutting down of its popular BlackBerry
  • SMART FLASH received a license fee of $533 million from Apple for a patent related to data storage and access systems.

Factors adding ‘POWER’ to Patent Trolls

  • A litigation process:

Cost of a patent infringement suit can make defendants settle non-meritorious suits for several hundred thousand dollars.

  • Counter sue by Infringer not possible:

The target infringer cannot counter-sue the patent troll for infringement because it does not make, use or sell technology which allows trolls to enforce patents against companies having substantial patent portfolios of their own.

  • Quality of Patents:

Patent Office grants patent status to patents that are overly broad or vague that cover commonly used technologies by leveraging the distortions in the patent market thereby promoting patent trolling. Software patents particularly are “more prone” to abuse because the software is “inherently conceptual” which makes it difficult to define the scope of the software patent.

  • Ability to threaten via Legalistic demand letters:

Small businesses across the globe are receiving vague legalistic demand letters alleging infringing uses of common office equipment such as copying machines, scanners, shipment tracking technology or basic Wi-Fi. Despite purchasing equipment from well-known manufacturers, they are being sued by patent trolls for license fees. Small firms like to go for settlement rather than investing in legal costs.

  • Ignoring Prior Art:

Request to invalidate a patent using prior art is made only after a lawsuit is filed or threatened which makes existing technologies to use subject to patent trolling. Only the patent holder can participate in this process, and the party requesting the reexamination has no right of appeal and is stopped from using the same evidence in any subsequent civil action.

  • Transfer of patent interests to shell companies:

Companies working together towards a product are unaware of their rights to all of the commonly owned patents covering the product they wish to produce making it vulnerable to attacks from the same parent entity.

  • Difficult to identify a Patent Troll:

Since patent trolls are not competitors, 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.

Patent TrollMisuse of ‘POWER’ by Patent Trolls

  • Unnecessary Litigation: Until 2013, according to WIPO statistics, Apple Inc. was the defendant in 171 lawsuits, followed by Hewlett-Packard (137), Samsung (133), AT&T (127), and Dell (122). A July 2014 PricewaterhouseCoopers study concluded that non-practicing entities (NPEs) accounted for 67 percent of all patent lawsuits filed.
  • Reduce R&D spending: Encourages firms to invest in legal representation thus disincentivizing investment in new technologies and discourages them to innovate.

How the ‘POWER’ can be reduced?

  • Design Around: The amount of license fee that a patent troll can demand is limited by the alternative to the cost of designing around the troll’s patent(s).
  • Clearance Search: It covers important features of a potential product, before its initial development or commercial introduction.

Example: Thomas Edison uncovered a prior patent for carbon filament in a non-oxidizing environment, the type of light bulb Edison wanted to develop. Edison bought the patent for US$5,000 ($122,190 in present-day terms) to eliminate the possibility of a later challenge by Woodward and Evans.

  • Prior-Art: Declaring the patent of patent troll invalid via prior art will reduce their power considerably.

Example: Global Patent Holding had threatened to sue a company on JPEG format but the patent was invalidated by prior art thus saving the company to pay license fees.

  • Reduce Predatory activity: Removal of overly broad and poor quality patents and ensuring that vague patents whose scope cannot be defined don’t get issued can prevent the distortions in the patent market. 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.
  • Patent Aggregation: A company can purchase the desired patent from the owner in the open market or out of patent troll assertion and litigation to increment its patent portfolio which will efficiently organize the ownership rights on that patent.

Example: Google acquired Motorola’s patents directly and has saved itself from any misuse by a patent troll.

  • Loser pays costs regime: The party who loses in court should pay the other party’s attorney’s fees. This makes it harder for trolls to use the extraordinary expense of patent litigation to force a settlement.
  • Transparency: Patent trolls should reveal the parties that would actually benefit from the litigation called the “Real Parties in Interest” which are forced into litigation by the defendant to pay if the patent troll cannot pay.

Conclusion:

Countries across the world should come together in the fight against the abuse of patents to stifle innovation. New legislative reforms can be enforced onto their existing rules. The USA has made an effort with its new America’s Invention Act through a series of strengthened mechanisms which is a good step forward and can help in clearing out some of the problems with the current system. There’s still much more to be done, as plenty of patent trolling lives on…

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