Patent troll facts for kids

Imagine someone owns a special idea, like how to make a new type of robot. This special idea is protected by something called a patent. A patent gives the owner the right to stop others from making, using, or selling their invention without permission.

Now, imagine a company or person who buys up these patents, but they don't actually make any products or offer any services using these inventions. Instead, they use these patents to sue other companies. They claim these other companies are using their patented ideas without permission. This practice is often called patent trolling or patent hoarding.

People use the term "patent troll" because these companies often try to get a lot of money from others, even if their patent isn't that important or if the other company didn't really copy their idea. They might use strong legal tactics to scare companies into paying them. This can be a big problem because it can stop new ideas and products from being made.

Some groups, like universities, also own patents but don't make products. However, they usually license their ideas fairly, so they are not seen as patent trolls.

In the United States, patent trolling has been a bigger issue than in Europe. This is because in Europe, if you lose a lawsuit, you often have to pay the other side's legal costs. In the U.S., each side usually pays their own costs, which can make it easier for patent trolls to file many lawsuits. However, new rules in the U.S. have made it a bit easier for courts to make people pay costs for lawsuits that aren't serious.

What Is a Patent Troll?

The term "patent troll" has been around since at least the 1990s. Some say it was first used by people working at Intel, a big computer company. It was even in a video in 1994, showing a green troll guarding a bridge and asking for money!

Today, "patent troll" is a debated term, but it generally describes a company or person who:

• Buys a patent, sometimes from a company that has gone out of business. Then, they sue another company, saying its product uses their purchased patent.
• Enforces patents but doesn't plan to make or sell the patented product or service themselves.
• Doesn't have a factory or a research lab. Their main goal is just to enforce patent rights.
• Sues companies that didn't actually copy their idea, or sues many companies in a whole industry.

Other names for these groups include "patent pirate," "non-practicing entity" (NPE), or "patent assertion entity" (PAE). It can be confusing because not all NPEs are considered "trolls." For example, a university that licenses its inventions is an NPE but not a troll.

How Laws Changed to Fight Trolls

Patent trolls filed many lawsuits in the U.S. In 2012, they filed almost six times more lawsuits than in 2006! This caused a lot of problems for businesses.

Because of this, the U.S. government started to make changes. In 2011, a new law called the America Invents Act was passed. Then, in 2013, U.S. President Barack Obama said more needed to be done. He wanted "smarter patent laws."

One important change was giving the Patent Trial and Appeal Board the power to review patents. This process, called "inter partes review" (IPR), allows a government agency to check if a patent is valid. Before, only a court could do this. This made it easier to challenge patents used by trolls.

For a while, many patent lawsuits were filed in a specific court in Texas. This court was known for being favorable to the companies bringing the lawsuits. However, in 2017, the Supreme Court of the United States ruled that patent cases must be heard where the company being sued is based. This stopped patent trolls from picking courts that were easier for them to win in.

President Obama also told the United States Patent and Trademark Office (USPTO) to make companies be more specific about what their patents cover. This helps prevent very broad patents that trolls could use to sue many different companies. He also asked Congress to pass laws to stop "abusive" lawsuits.

In 2014, the U.S. Federal Trade Commission (FTC) took action against a company called MPHJ. This company had sent letters to over 16,000 small businesses, threatening lawsuits if they didn't pay licensing fees. The FTC found this was deceptive and fined the company.

States Fight Back Against Patent Trolls

Some U.S. states also passed their own laws to fight patent trolls.

• In May 2013, Vermont passed a law to stop bad faith threats. This law made it easier for companies to sue back if they received unfair threats.
• Nebraska's Attorney General warned a patent troll's law firm in August 2013 that their actions might be illegal.
• Minnesota's Attorney General stopped MPHJ Technology Investments LLC from continuing its licensing campaign in the state.
• In April 2014, Wisconsin passed a law making it harder for patent trolls to sue companies there.
• Idaho also passed a "Patent-troll" bill in 2014 to protect businesses from unfair patent claims.

Why Do Patent Trolls Exist?

One big reason patent trolling happens is the high cost of defending against a patent lawsuit. In 2004, it could cost $1 million or more just to prepare for a trial. A full defense could cost $2.5 million, even if you won! Because it's so expensive and risky, companies might just pay a few hundred thousand dollars to settle, even if they think the lawsuit is unfair.

Another reason is that sometimes, the United States Patent and Trademark Office (USPTO) might issue patents that are not very strong or valid. This can happen because patent examiners might not have enough time to check every application thoroughly. If a patent is not very strong, a troll might still try to use it to sue others.

Also, a company might make a product for years without knowing it's using a patented idea. The patent owner might not sue right away. For example, the JPEG image format was supposed to be free to use. But two companies later claimed they had patents on parts of it. Even though these patents were later found to be invalid, one company collected over $100 million in fees!

How Patent Trolls Affect Businesses

Patent trolls cause real problems for businesses. In 2011, U.S. businesses lost $29 billion because of patent trolls. Lawsuits from "patent assertion companies" made up 61% of all patent cases in 2012.

Big companies like Apple, Hewlett-Packard, and Samsung have faced many lawsuits from these groups. But it's not just big companies. Many small businesses with less than $100 million in yearly earnings were also sued.

A study in 2014 found that companies forced to pay patent trolls spent less money on research and development (R&D). This means less money for creating new and better products. The study also found that trolls often sue companies with fewer lawyers, encouraging businesses to spend money on legal help instead of new technology.

Software patents are especially targeted by trolls. This is because it can be hard to clearly define what a software patent covers. A software patent is four times more likely to be involved in a lawsuit than a chemical patent.

A report in 2013 from the U.S. government found that patent trolls cause "significant harm to the economy." They said that patents should be clearer and that the costs of lawsuits should be fairer for everyone.

One main criticism of patent trolls is that they ask for licensing fees that are much higher than what their patent actually contributes. This increases the costs and risks for companies that want to make new products.

However, some people argue that buying and selling patents can be good. They say it creates a market for ideas, which can encourage people to invent and patent new things. They also argue that patent licensing companies can help organize patent rights, making it easier for others to access technology.

Some experts, like former U.S. federal judge Paul R. Michel, believe the "problem" of patent trolls is "greatly exaggerated." They argue that many lawsuits by trolls are not serious, but also that trolls can help inventors by buying their patents when bigger companies don't want them.

Others say the term "patent troll" is used by large companies to make smaller inventors look bad. They argue that these smaller inventors often get most of the money from settlements. So, the main problem might be that the USPTO issues patents that are not strong enough in the first place.

How Patent Trolls Operate

Patent trolls act like other companies that protect their patents. But their main goal is to make money from existing uses of technology, not to find new uses.

They watch the market for products that might be using their patented ideas. They also look at new patent applications to see if other companies are developing similar technology, perhaps without knowing about their patents.

Then, they plan their attack. They might sue a company that seems easy to win against, hoping that an early win will encourage other companies to pay up. Or they might sue a whole industry at once, trying to overwhelm them.

Often, a case starts with a simple complaint or even just a threat of a lawsuit. This is often enough to make companies settle, because settling is cheaper than fighting a long, expensive legal battle.

Patent trolls have some disadvantages too. They usually don't make products, so they can't claim they lost sales or profits. Also, a court decision in 2006 made it harder for patent owners to automatically stop others from making or selling their inventions. This was a blow to patent trolls, who often used the threat of stopping a business to get large payments.

However, patent trolls have a big advantage: the company they sue cannot sue them back for using a patent. When two manufacturing companies sue each other, they often have their own patents and can threaten to sue each other back. This often leads to a deal where they both agree to use each other's patents. But since a patent troll doesn't make anything, this kind of counter-suit isn't possible. This allows them to sue large companies that have many patents of their own.

How Companies Fight Back Against Trolls

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

Companies use different ways to protect themselves from patent trolls. These methods are also useful for defending against other competitors.

• Designing Around Patents: Companies can change their products or methods to avoid using the patented idea. The cost of doing this limits how much a patent troll can demand.
• Watching New Patents: Companies regularly check new patents and applications to see if any are related to their business.
• Checking Before Launching: Before making a new product, companies often search for existing patents that might cover important parts of their invention. For example, Thomas Edison bought a patent for a light bulb idea from other inventors to avoid problems later.
• Challenging Patents: In some places, like Europe, anyone can challenge a patent. In the U.S., there's a similar process called "reexamination." Companies can try to show that a troll's patent is not valid, perhaps by finding "prior art" (evidence that the idea already existed). If they succeed, the patent troll can't use that patent to sue anymore.
• Settling Early: Sometimes, settling a lawsuit early on is much cheaper than fighting it in court.
• Patent Insurance: Companies can buy insurance to help protect them if they accidentally use someone else's patent.
• Buying Patents for Defense: Some groups buy patents from their owners so that these patents don't fall into the hands of patent trolls. They then offer licenses to their members.
• Actions for Unjustified Threats: In some countries, you can sue someone who makes threats about patent infringement without good reason.
• Offering Bounties: Some companies offer rewards to the public to find "prior art" or other information that could prove a patent troll's patents are invalid. This can weaken the troll's business model.