patent trolls

These Aren’t The Patent Trolls You’re Looking For

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A Chat With Maxim Lobovsky, Co-Founder Of Formlabs

Editor’s note: Leonid (“Lenny”) Kravets is an IP attorney focusing on corporate development and strategy at InterDigital Communications, which develops technology for mobile devices, networks, and services. Lenny is a member of InterDigital’s Innovation Partners team, helping to create market value through external sourcing and incubation of technologies complementary to InterDigital’s internal innovation. All of the views expressed in this article are his alone and do not necessarily reflect the views held by InterDigital Communications, Inc., or any of its affiliates, officers or employees.

Over the past few years, the debate over so-called “patent trolls” has risen to a fever pitch. Businesses of all sizes have complained about the “horrible” effects of patent trolls. Legal scholars are performing studies to determine their impact. Every branch of the federal government has become involved in attempts to limit their efficacy: President Obama has issued Executive Orders on the issue; several patent reform bills are being debated in Congress; and the Supreme Court will hear a record number of patent cases in the 2014 term. All this, but no one has yet defined what a patent troll is.

Defining a patent troll

For the most part, the focus has been on the entity enforcing a patent in trying to determine who is and who is not a patent troll, but such definitions simply do not work. Some argue that patent trolls are synonymous with non-practicing entities (“NPEs”), companies that own or license, and sometimes enforce, patents even though they don’t actively manufacture products. This definition would include entities that perform what most of us would consider valuable activities, such as companies and universities who conduct research and development, but do not commercialize their own products.

Whether an entity is practicing a patented invention should not have any bearing in determining whether it is a “patent troll.”

Some have gone so far as to call companies such as IBM and Apple patent trolls simply because they have sometimes chosen to enforce patents that cover technologies that they are not currently practicing. These companies only seek a fair return on their research and development investment. It is precisely the return on investment provided by patents that allows these entities to invest the significant resources required for long-term research and development in a variety of areas.

Whether an entity is practicing a patented invention should not have any bearing in determining whether it is a “patent troll.” As we know, it has become incredibly cheap to start a company based on any idea. Setting up a small business that practices an invention is an insignificant expense compared to the costs of patent enforcement.

How would we require an asserting entity to prove they are an operating company? Would it be enough to have office space? Employees? Customers? Revenue? Regardless of the standard, requiring patents to be asserted only by practicing entities (or entities practicing the invention) would be an insignificant burden for any well-funded asserting entity.

Still others define patent trolls in terms of where their patents come from. Enforce your own patents? Great, go right ahead! Enforce patents you acquired? Patent troll! But the mere fact that the patent being enforced has been acquired from another entity should have no bearing on whether an entity is a “patent troll,” or whether they should be allowed to enforce.

Enforcing patents

Patents, at their core, are property rights, much like homes and cars. Companies maximize efficiency by outsourcing needs that fall outside the scope of their core competencies to third parties. Sometimes, it makes sense to outsource tasks such as technology development and enforcement to third parties. In the case of technology development, the transferability of patent rights is important to the research and development process because it allows companies to share technology in a well-defined and protected manner.

Labeling someone a patent troll immediately makes them appear to be un-innovative, a nuisance or, worse, a drain on the economy.

In the case of enforcement, often the only way to address wrongful conduct is by transferring the patent to an entity with the funding and experience to take on the wrongdoer. Simply transferring the asset to another interested party should not preclude or limit this type of justified enforcement. Furthermore, the transferability of patents helps reduce the risk to banks and investors in investing in certain classes of companies because when a business fails, patents are often the only valuable asset that remains.

A small minority seems to think that any kind of patent assertion is undesirable, and therefore that anyone who asserts a patent is automatically a patent troll. Infringers have been quick to take advantage of this strategic opportunity.

Regardless of the merits of a case, labeling someone a patent troll immediately makes them appear to be un-innovative, a nuisance or, worse, a drain on the economy. The label leads to the so-called patent troll receiving significant negative attention in the press and the public, which can be a disadvantage in front of a jury. It is akin to calling someone a “bully” just because they pushed someone, without knowing anything more about the situation. The result is that anyone daring to assert a patent, no matter how legitimate, risks being labeled a patent troll.

Determining abuse

Instead of worrying about who is asserting a patent, we should focus on whether the asserting entity is abusing the patent system. Analyzing the conduct of an entity rather than just looking at its identity is necessarily more complex. However, such an analysis allows us to focus on eliminating the objectionable activities that we perceive as being detrimental. I propose that there be two main types of objectionable conduct: the enforcement of low quality patents, and the enforcement of patents without a reasonable basis for assertion.

First, assertion of low-quality patents (patents that likely should not have been allowed by the Patent Office in the first place), regardless of the entity doing the enforcing, should be eliminated. Such enforcement results in wasting time and resources by the opposing party in determining the merits of the case. Often, such patents are asserted in the hope of receiving nuisance settlements for less than the cost of litigation.

Instead of worrying about who is asserting a patent, we should focus on whether the asserting entity is abusing the patent system.

While these types of cases are generally only a nuisance to large companies that can quickly determine the merits of such a case, they can be a significant disruption to smaller companies that do not have the same resources. In addition, low-quality patents are generally readily available on the market (often at a low price) because they draw less acquisition attention from large companies and defensive patent aggregators. This allows abusive entities to readily and cheaply acquire and enforce these low-quality patents.

Long term, the best way to deal with the problem of low-quality assets is by improving patent quality. Improving patent quality will require investment on both the part of the USPTO and the patent-filing community at large. Unfortunately, the focus on improving patent quality seems to have been lost in all of the debate regarding patent trolls, as witnessed by the fact that none of the bills at various stages of debate in Congress even mention patent quality.

Second, any enforcement of a patent right (regardless of the quality of the patent) should require some reasonable investigation of whether a defendant is actually practicing the patented invention. The added burden and cost of an investigation will prevent the enforcement of patents against parties that do not have any relationship to the patented technology.

Under the current law, little-to-no investigation is necessary to launch a patent litigation. As a result, some entities have filed frivolous lawsuits in order to attempt to settle for nuisance amounts. Furthermore, this low bar for filing a patent lawsuit has allowed some patent owners to indiscriminately send demand letters to hundreds of recipients, without any investigation of the potential infringement, or any explanation how the patent applies to the recipient.

Demand letters notify the recipient of the sender’s patent rights and request that the recipient take a license to the patent or face a lawsuit. The recipients of such demand letters are typically unsophisticated in patent matters, and the receipt of such a letter can cause a significant disruption. The indiscriminate sending of such letters is not meant to enforce any legitimate patent rights, but only to fund the war chest of the sending entity, and to establish favorable royalty rates for the patent owner.

Requiring a pre-filing investigation of infringement, and raising the available sanctions for parties bringing frivolous patent cases (judges already have the discretion to apply sanctions under the so-called Rule 11, though they rarely exercise it) will help to eliminate this type of conduct, because parties will be more loathe to indiscriminately send demand letters if their access to courts for enforcement is limited.

Focusing on eliminating the enforcement of low-quality patents, and requiring some amount of investigation into infringement before enforcing a patent, will go a long way toward addressing the problem of abusive patent enforcement. Of course, there are many other proposals that attempt to deal with this problem, but such proposals often focus on the wrong issues, such as the identity of the enforcer and the recipient. Any type of entity can enforce a legitimate patent right, and similarly, any type of entity can abuse patent rights. Therefore, proposals that do not focus on the patent being enforced are unlikely to be effective in dealing with the actual problem of abusive patent enforcement.