Patent troll facts for kids

Kids Encyclopedia Facts

In the world of international law and business, "patent trolling" is a term used to describe a person or company that owns patents but doesn't actually make products or offer services based on those patents. Instead, they try to make money by suing other companies, claiming these companies are using their patented ideas without permission. This is called patent infringement.

These "patent trolls" often use strong legal tactics to get money, even if their patent's value isn't very high. They usually don't create anything new themselves. However, some groups, like universities, might own patents and license them (let others use them for a fee) without being called "trolls" if they do it fairly.

Other similar terms include "patent holding company" or "non-practicing entity." While these groups usually follow the law, their aggressive actions can go against the original idea of patents, which is to encourage new inventions and protect them. The fast growth of the modern information economy has made the global intellectual property system more complicated.

Patent trolling has been less of a problem in Europe than in the United States. This is because in Europe, the losing side in a lawsuit usually has to pay the winner's legal costs. In the US, each side typically pays its own legal fees. However, a 2014 decision by the US Supreme Court made it easier for courts to make people pay costs for lawsuits that aren't serious.

What is a Patent Troll?
How Laws Have Changed
- State Actions in the US
Why Patent Trolling Happens
Impacts of Patent Trolling
How Patent Trolls Operate
How Companies Fight Back
See also

What is a Patent Troll?

The term "patent troll" has been around since at least 1993. It was used in a 1994 video that showed a green troll guarding a bridge and asking for money. People like Anne Gundelfinger and Peter Detkin, who worked for Intel, are also said to have used the term in the late 1990s.

Today, "patent troll" is a debated term with many different meanings. It's hard to agree on a single definition for legal purposes. But generally, a "patent troll" is a company or person that does one or more of these things:

They buy a patent, sometimes from a company that has gone bankrupt. Then, they sue another company, saying its product uses their purchased patent.
They try to enforce patents against companies they claim are infringing, even though they don't plan to make or sell the patented product or service themselves.
They enforce patents but don't have a factory or a research department.
They focus only on enforcing patent rights, not on creating or selling anything.
They sue companies that didn't copy their invention, or they sue a whole industry of companies that didn't copy.

Other names for these groups include "non-practicing entity" (NPE) or "patent assertion entity" (PAE). These terms describe patent owners who don't use their invention but try to make money by licensing it or through lawsuits.

It's easy to get confused about the term "patent troll." For example, in 2014, a study by PricewaterhouseCoopers looked at patent lawsuits by non-practicing entities, including individual inventors and non-profit groups like universities. But some news outlets, like The Washington Post, incorrectly called all these non-practicing entities "patent trolls."

How Laws Have Changed

According to RPX Corporation, a company that helps reduce patent lawsuit risks, "patent trolls" filed over 2,900 lawsuits in the US in 2012. This was almost six times more than in 2006.

In 2013, US President Barack Obama said that changes to US patent law (like the America Invents Act of 2011) only went "halfway" to solving the problem. He wanted to bring people together to create "smarter patent laws."

To fight patent trolls, the Patent Trial and Appeal Board started a process called inter partes review (IPR) in 2012. This allows a government agency to check if a patent is valid, which used to only happen in court. In 2018, the Supreme Court said this IPR process was constitutional.

For a while, many patent cases in the United States were filed in the Eastern District of Texas in Marshall. This court was known for favoring the plaintiffs (the ones suing). However, in May 2017, the Supreme Court of the United States decided that patent lawsuits must be heard in the state where the company being sued is officially registered. This stopped plaintiffs from choosing specific courts.

On June 4, 2013, President Obama spoke about patent trolls. He told the United States Patent and Trademark Office (USPTO) to take five new steps to help stop the rise in patent lawsuits. He said patent trolls "don't actually produce anything themselves, they're just trying to essentially leverage and hijack somebody else's idea and see if they can extort some money out of them." He ordered the USPTO to make companies be more specific about what their patent covers and how it's being infringed.

The government also said the USPTO would look more closely at patent claims that seem too broad. They also aimed to stop lawsuits against regular people and small businesses using common technology. President Obama asked Congress to pass laws to stop "abusive" lawsuits more aggressively.

In Congress, Senator Orrin Hatch worked on a bill in 2013 to reduce patent trolling. This bill, called the Patent Litigation Integrity Act, would help judges make patent trolls pay for lawsuit costs, especially if they lost.

In February 2014, Apple Inc. told the US Supreme Court that it was the biggest target for patent trolls, facing nearly 100 lawsuits in three years.

In November 2014, the US Federal Trade Commission (FTC) took action against a company for the first time for using "deceptive sales claims and phony legal threats." The FTC found that MPHJ Technology Investments LLC had sent letters to over 16,000 small businesses, threatening lawsuits if they didn't pay licensing fees. MPHJ never actually planned to file these lawsuits. The settlement in 2014 meant MPHJ would be fined $16,000 for every letter it sent.

State Actions in the US

Some US states have also taken action. In May 2013, Vermont's Consumer Protection Act started. This law stops bad-faith threats of patent infringement. "Bad faith" could mean not being specific about the infringement, asking for too much money, or giving very short deadlines for payment. Vermont's law allows companies who receive these threats to sue back in state court.

In August 2013, Nebraska's attorney general warned a patent troll's law firm that sending silly licensing demands to Nebraska businesses could be unfair and illegal.

In 2013, Minnesota's attorney general reached a deal that stopped MPHJ Technology Investments LLC from continuing its licensing campaign in the state. Minnesota was the first state to get such a deal.

In April 2014, the Wisconsin governor signed a law making it harder for patent trolls to target companies there. This law requires the company claiming infringement to give very specific information. There can be big penalties if they don't follow these rules.

In 2014, Idaho Lieutenant Governor Brad Little supported a bill to protect companies from "bad faith assertions of patent infringement." This means stopping patent holders from constantly bothering businesses for supposedly infringing a patent, just to get a lot of money in licensing fees.

Why Patent Trolling Happens

Defending against a patent lawsuit can be very expensive. In Texas, around 2004, it typically cost $1 million or more before a trial, and $2.5 million for a full defense, even if the company won. Because the costs and risks are so high, companies often settle lawsuits, even if they think the lawsuit is silly, just to avoid the higher costs of fighting it in court. The unpredictable nature of jury trials in the US also encourages settlements.

Some people think that a large number of unexamined patent applications, or not enough time for patent examiners to check them properly, helps patent trolling. This can lead to patents being issued that are not fully valid.

Also, there's no rule that says you have to defend an unused patent right away. So, manufacturing companies might make a product for years before a patent troll sues them. For example, the JPEG image format was supposed to be free to use. But it faced two patent attacks, one from Forgent Networks (2002–2006) and another from Global Patent Holdings (2007–2009). Both patents were later found to be invalid because older inventions already existed. But before that, Forgent collected over $100 million in fees from 30 companies and sued 31 others.

Impacts of Patent Trolling

In 2011, businesses in the United States lost $29 billion directly because of patent trolls. Lawsuits filed by "patent assertion companies" made up 61% of all patent cases in 2012. From 2009 to mid-2013, Apple Inc. was sued 171 times by non-practicing entities (NPEs). Hewlett-Packard (137), Samsung (133), AT&T (127), and Dell (122) also faced many lawsuits.

Patent troll lawsuits, which used to mostly target large companies in industries like medicine, started affecting companies of all sizes in many different industries. In 2005, patent trolls sued 800 small companies (those with less than $100 million in yearly income). This number grew to nearly 2,900 such companies in 2011. The average yearly income of a company being sued was $10.3 million. A 2014 study found that NPEs were responsible for 67% of all patent lawsuits, up from 28% five years earlier.

A 2014 study from Harvard University found that companies forced to pay patent trolls spent less money on research and development (R&D). They spent, on average, $211 million less than companies that won lawsuits against trolls. The study also found that trolls tend to sue companies with fewer lawyers, which encourages companies to spend money on legal help instead of developing new technology. Trolls also tend to sue companies with more cash, even if that cash wasn't earned from the technology involved in the lawsuit. They often target companies long before a product starts making a profit, which discourages investment in new technologies.

The focus of these lawsuits shifted more towards software patents, rather than chemical or mechanical inventions. This is because it's harder to define what a software patent covers compared to specific chemicals. A GAO study found that software patents are four times more likely to be involved in a lawsuit than chemical patents. A software "business method patent" is thirteen times more likely to be sued over.

A main criticism of patent trolls is that they "negotiate licensing fees that are wildly out of line with their contribution" to the product or service, even if their patent claims are weak. The risk of paying high fees for licenses they didn't know about, and the costs of checking for other patents, increases the costs and risks for companies that actually make things.

On the other hand, some people believe that being able to buy, sell, and license patents is generally good. They argue that it creates a market for patents, making them easier to trade. This encourages people to invent and patent new things. Patent licensing companies also say that gathering patents in the hands of specialized companies makes it easier for others to access technology by organizing patent rights more efficiently.

In 2011, former US federal judge Paul R. Michel said that the "problem" of non-practicing entities (patent trolls) was "greatly exaggerated." He noted that while there are problems with the US patent system, NPEs can add value by buying patents that manufacturers don't want. Inventors might benefit from this growing market for patents.

This idea was supported in a 2014 article. It suggested that the negative term "patent troll" helps large companies that infringe patents and don't like smaller inventors being represented by someone strong enough to challenge them. The argument against using the term is that NPEs usually give most of the money from a settlement back to the original inventor. Similarly, New York Times writer Joe Nocera wrote that patent reform laws in Congress that were "allegedly aimed at trolls" often "effectively tilt the playing field even further towards big companies with large lobby budget."

How Patent Trolls Operate

Patent trolls work like any other company that protects and uses its patent portfolio. However, their main goal is to get more money from existing uses of technology, not to find new ways to use it. They watch the market for technologies that might be infringing their patents. They look at popular products, news, and analyses. They also check published patent applications for signs that another company is developing technology that might infringe on their patents.

Then, they make a plan. They might start by suing a company that is easy to target or doesn't have much money to defend itself. They hope that an early win or settlement will set a pattern that encourages other companies to agree to licenses. Or, they might sue an entire industry at once, hoping to overwhelm it.

A case often starts with a simple complaint about infringement, or even just a threat of a lawsuit. This is often enough to encourage a settlement, where the company pays a fee to license the patent, just to avoid the trouble and cost of a lawsuit.

The unpredictable outcome of jury trials also encourages settlements. If the patent troll wins, they are usually given money as damages. This is at least a "reasonable" royalty based on what's normal for that type of invention.

Compared to patent owners who actually use their patents, patent trolls have more limited enforcement rights. First, patent owners who make and sell their invention can get money for lost profits. But patent trolls, who don't make anything, usually don't qualify for this.

Also, patent owners' rights to stop others from making, using, or selling technologies that infringe their patents were limited by a 2006 court decision, eBay v. MercExchange. Instead of automatically stopping the infringing activity, the US Supreme Court said courts must decide if stopping it is reasonable. This decision made it harder for patent trolls to use the threat of stopping a company's business to demand huge fees. For example, Research in Motion (maker of BlackBerry) paid NTP, Inc. $612.5 million to avoid having its popular BlackBerry service shut down.

A strategic advantage for a patent troll is that the company being sued cannot sue the troll back for infringement. In lawsuits between companies that make or sell patented technology, the company being sued will often use its own patents to sue the other side back. This mutual threat often leads to a cross-licensing agreement, where both companies agree to let each other use their patents. This also discourages patent lawsuits in many industries. If a patent owner doesn't make or sell technology, then there's no chance of a counter-suit for infringement. This is why a patent troll can sue large companies that have many patents of their own. Also, patent trolls might use shell companies to hide their identity.

How Companies Fight Back

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

Patent trolls don't use or sell the inventions in their patents. They just plan to make money by threatening or filing lawsuits. This gives them an advantage because companies being sued can't use the same defense strategies they would against a normal competitor. For example, lawsuit costs are much higher for the company being sued than for the patent troll, who might have a lawyer who only gets paid if they win.

Strategies that companies use to protect themselves from normal competition don't work well against patent trolls. These include:

Monitoring patents: Companies usually watch what patents their competitors are getting to avoid infringing them. But patent trolls aren't competitors, so companies often don't know about the troll or its patents until they've already spent a lot of money making and selling a product.
Counter-suing: Companies often sue back, accusing the patent owner of infringing their own patents. This mutual threat often leads to a deal where both companies agree to use each other's patents. But this doesn't work against patent trolls because they don't make anything.
"Scorched earth" defense: This means trying to make the lawsuit so expensive that the other side gives up. But patent trolls plan for this and often have enough money to fight a long case. Some even get money from hedge funds to pay for their lawsuits.

Patent "pooling" (where many companies share their patented knowledge to create new products) also doesn't apply to patent trolls because they don't make products.

Some companies try to prevent patent trolls by releasing ideas as open source early on. This is called patentleft and it stops patent trolls from getting intellectual property rights on basic technologies. A Google-led group called LOT Network was formed in 2014 to fight PAEs. They do this by sharing licenses to patents that end up in the hands of enforcers. Another Google-related group, Unified Patents, tries to reduce the number of patent trolls by filing inter partes reviews (IPR) on patents owned by trolls.

Large companies that use patent lawsuits as a competitive tool risk losing their patent rights if a company they sue claims "patent misuse." However, this defense is hard to use against a patent troll because it usually requires the patent holder to have a lot of power in the market.

Still, manufacturers use different tactics to limit their risk from patent trolls. Many of these tactics also help them defend their technologies against competitors:

Design arounds: Companies can try to design their product differently so it doesn't use the patented idea. The amount of money a patent troll can demand is limited by how much it would cost a company to design around the patent.
Patent watch: Companies regularly check new patents and patent applications to see if any are important to their business.
Clearance search: Before developing or selling a new product, companies usually search for patents that cover important parts of it. For example, Thomas Edison found an earlier patent by two Canadian inventors, Henry Woodward and Mathew Evans, for a carbon filament in a light bulb. Edison bought their patent for $5,000 to avoid any future challenges.
Opposition proceeding: In Europe, anyone can start a process to challenge a European patent. The US has a more limited process called a reexamination. For example, Research In Motion challenged broad patents owned by NTP, Inc. related to BlackBerry technology.
Litigation: While some companies give in to a troll's demands, others fight back by challenging the patents themselves. They might find prior art (older inventions) that show the patent shouldn't have been granted. They might also argue that their technology doesn't infringe, or try to show patent misuse. If they win, this not only solves the current case but also destroys the patent troll's ability to sue others with that patent. Knowing this, the patent troll might back down or ask for less money.
Early settlement: Settling a case early is often much cheaper than fighting it in court or settling later.
Patent infringement insurance: Insurance is available to help protect companies if they accidentally infringe on someone else's patents.
Defensive patent aggregation: This is when companies buy patents or patent rights from patent holders so that these patents don't end up with a patent troll. These groups then give their members a broad license to everything they own for a yearly fee. In 2014, defensive aggregators bought 15% of all patents sold through brokers.
Action for unjustified threats: In countries like Australia and the UK, you can sue someone who makes threats to start patent infringement lawsuits without good reason. If a patent troll is found to have made such a threat, the only way they could defend themselves would be to actually start a lawsuit and prove that infringement happened.
Bounties: People have offered money rewards to the public to find prior art or other information that would make a patent troll's patents invalid. This tactic is used to undermine the patent troll's business model.