Patent trolls are also commonly known as NPEs or non-practicing entities who go against one or more infringers in an aggressive and unethical way with no intention to market the patented invention. Basically, these companies have no plans to use the patent to develop and market new products. Instead, they make their revenue by threatening and suing active companies for patent infringement. Patent trolls are also called non-manufacturing patentees, patent marketers, and parent dealers.
The term patent troll comes from Peter Detkin, formerly with Intel, who was sued by TechSearch. He originally coined the term “patent extortionist,” because he believed TechSearch made a lot of money from a patent they were not practicing and had no prospects to practice. Then, when he was sued for libel, he changed the term to “patent troll.”
Wikipedia says patent trolls encompass individuals who do any of the following:
- Purchase patents (sometimes from bankrupt entities), and then sue a party for infringement
- Enforces patents against purported infringers without intent to market products
- Enforces patents but has no manufacturing or research base
- Focuses efforts only on enforcing patent rights
- “Asserts patent infringement claims against non-copiers or against large industries composed of non-copiers”
Patent trolls act from these motives from the beginning. They purposely choose to purchase many patents from companies, which do not actively seek to enforce patents. In addition, they get these at really inexpensive rates and then, want to make profits off of the lawsuits. Typically, they find weak companies and win a few lawsuits over them. Then, they prey on larger companies.
One of the biggest red flags about this industry is the increase over the past decade. From 1994 to 2002, 527 patent lawsuits were filed by or against the 219 NPEs, which were tracked by PatentFreedom. This acted as 2.7 percent of patent lawsuits filed in the United States. There was a dramatic increase between 2003 and 2007 with more than double that number. These lawsuits increased to 1,210 in half the time from 8 years down to 4 years. The representation of patent lawsuits was 8.4 percent. In 2008, 389 suits were filed, compared with 297 the previous year. As of last year, 219 patent trolls have more than 800 subsidiaries. Together, those companies have more than 12,500 patents. Of course, these numbers could be off as some patent trolls acquire more patents and do not always disclose everything.
The worst thing about non-practicing entities versus product-developing companies is that the NPEs have nothing to lose, as they have zero assets, minus their patent. However, if product-developing companies take on each other, then the lawsuit is more evenly balanced. This has really off-set the patent system.
As far as the logistics behind these patent lawsuits, if the plaintiff wins, damages are awarded in the form of royalties, varying with each industry.
Many of the advocates behind patent trolls claim that companies should be allowed to defend themselves and not be criticized for holding others accountable, who infringe on their rights. However, the truth is that really these patent trolls are not out to defend what they created. Most of the time, they patents are not their inventions. As stated above, they purchase these patents for almost nothing and acquire as many as possible. Then, they pursue lawsuits, which make up their revenue—not monies gained from marketing patented products. The cycle is vicious.
Should patent trolls be made illegal? This is a constant debate. I have stated my argument above. However, in the end, I believe this industry will come to fall. These NPEs do not produce any viable products or services, and employ unethical business practices.