Do You Want a "Patent Troll" Under Your Bridge?

By: Jim Dossey, MS, MBA, JD

A patent "troll", also known as a patent assertion entity (PAE) is a person or entity that acquires rights to patents for the primary purpose of suing infringers to collect licensing fees. Patent trolls do not use the patents to manufacture new products or provide services. Several of the largest patent trolls include Intellectual Ventures, RPX Corporation and General Patent Corporation.

In response to pressure from high profile technology companies, the US government has stepped up its rhetoric criticizing the practices of patent trolls. In 2011, the Federal Trade Commission (FTC) put patent trolls on notice that it planned to start investigating trolls. In June 2013, President Obama said that 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."

As evidence of the negative impact of the rise of patent trolls, 2900 patent infringement suits were filed in 2012 nationwide, nearly 6 times more than were filed in 2006. In 2012, approximately 61% of patent infringement suits were instigated by patent trolls. The typical cost of providing a defense against such a suit typically costs between $1 and $2.5 million, even if the defendant is successful. For this reason, most defendants settle for a few hundred thousand dollars, even for suits they believe are frivolous.

On the positive side, by providing a secondary market for patents, patent trolls provide an important source of liquidity for firms wanting to sell their patents. For example, many start-ups have a portfolio of valuable patents, but need to raise capital to pay bills, build infrastructure, and continue to grow. Selling their patents to patent trolls can be a very good way for these firms to turn non-revenue producing patents to better use within their company. Additionally, by providing a market for inventors to sell their patents, patent trolls may actually encourage innovation by providing an incentive to invent and obtain patents.

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