Patent troll
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.
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:
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]
Effects[edit]
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[edit]
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. 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]
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: