Imagine going into work every day, sitting down with your coffee, and figuring out whom you are going to sue today. That is the life of a “patent troll.”
For those not familiar with the term, a patent troll (“troll”) is a subset of a larger group of organizations that own patents but do not manufacture anything or provide any services. The troll is the “bad actor” of the subgroup that begins license negotiations with a patent infringement lawsuit. Typically, the troll is an entity that holds a single patent or small group of patents and owns no other assets, making the troll judgment proof (see 1 Encyclopedia Britannica for a formal definition). When the troll acquires a new patent or portfolio, they create a new company. The patents held by the troll are historically of poor quality and overly broad software or business method patents (2 Barajas, 2014).
The troll files suit against potential licensees (“licensees”) and settles the suit soon after filing suit. The licensees typically have around 100M in revenue and a relatively large amount of cash on hand. Settlements are thought to be in the range of $300,000, which coincidentally is an estimate of the lower bound of the early stage litigation cost of defending a patent infringement suit (3 AIPLA, 2013). The cost to defend a patent lawsuit rises quickly. In patent disputes in which between $1 million and $25 million is at stake, an average defense costs around $1.6 million for discovery and $2.8 million for trial (4 Goldberg, 2013). The troll offers settlements that are very enticing to the licensees.
In a typical patent lawsuit, both sides have a great deal at risk. However, the troll has no product to target a patent infringement countersuit. At least historically, the troll was able to proceed with litigation without any obvious repercussions (5 Rantanen, 2006).
The trolls gained traction in the early 2000s and were allowed to operate unobstructed for more than a decade. Eventually, however, trolls caught the attention of the public and more importantly, that of Congress.
I suggest that life became harder for the trolls beginning in 2011 with the passage of the Leahy-Smith America Invents Act. This federal statute became law on September 16, 2011 and is also known as the AIA. Here is a brief listing of how the landscape has changed since the passage of the AIA:
- Patent invalidation available in the district court as well as the US Patent Office
- Supreme court raises bar on patentability in the Alice case 8
- USPTO seems to be rejecting the broadest/weakest under Alice
- Opportunity to invalidate patents in federal court using motions 12(b)(6) and/or summary judgement
- Enhanced invalidation procedures at the USPTO appeals board (PTAB)
- High invalidation rate in the federal court and PTAB when the process started. The rejection rate leveled off to about 50% (this figure is subject to discussion, but if a patent is accepted for review by the USPTO for review, then the patent owner has a reason for concern)
- Trolls can no longer drop the cases in Texas – E.D. Tx.; 7
- Notice type patent infringement suits no longer accepted;
- Federal form 18 deleted
- Twombly and Iqbal now govern pleadings 9
- Difficult for trolls to consolidate potential licensees in to a single suit; (section 299 of the AIA)
- Now easier for courts to shift legal costs to the loser; (see Octane Fitness) 10
- Courts now more likely to penalize attorney in patent infringement cases under FRCP Rule 11 using a reasonable expectation standard;
- This action should heighten attorney due diligence and reduce weak cases taken on contingency
- About ½ of the states now have a demand letter statute
It is clearly getting harder for trolls to do business. This cycle has taken over a decade to come full circle. The result is higher quality patents and arguably an improved business climate. Businesses should no longer believe that being on the wrong end of a patent suit is an automatic death sentence for their company. While getting sued is never fun or cheap, it is now a situation that you can survive. If you are a budding troll and looking to get into the business – be careful.*
* An interesting side note is that there is evidence that trolls are showing up in China. With a rapid rise of patent filings in China, it is not surprising that trolls looking at the opportunities.
1 Eric Gregerson, Patent Troll, ENCYCLOPEDIA BRITANNICA (Jan 6, 2015),
2 Ivan Barajas, Meet Newegg’s Chief Troll Hunter, UNSCRAMBLED: THE OFFICIAL NEWEGG BLOG (May 23, 2014), http://blog.newegg.com/lee-cheng-holds-reddit-ama-explains-fights-patenttrolls/.
3 The American Intellectual Property Law Association (AIPLA), which periodically surveys the costs of patent litigation, recently reported that the cost of defending an NPE patent litigation through the end of discovery, which litigation budgets typically use as a milestone for filing any summary judgment motions, is between $300,000 and $2,500,000, depending on the amount in controversy. AM. INTELLECTUAL PROP. LAW ASS’N, REPORT OF THE ECONOMIC SURVEY 35 (2013) [hereinafter AIPLA 2013 REPORT OF THE ECONOMIC SURVEY]. Although there are more recent AIPLA reports, the FTC uses the 2013 survey here because 2013 is the last full year for which it collected data.
4 Phil Goldberg, Stumping Patent Trolls on the Bridge to Innovation, (Progressive Policy Institute) (Oct 2013), http://www.progressivepolicy.org/wp-content/uploads/2013/09/10.2013- Goldberg_Stumping-Patent-Trolls-On-The-Bridge-To-Innovation.pdf
5 Jason Rantanen, Slaying the Troll: Litigation as an Effective Strategy against Patent Threats, 23 SANTA CLARA HIGH TECH. L.J. 159 (2006).
6 Elizabeth D. Ferrill, Patent Investment Trusts: Let’s Build a PIT to Catch the Patent Trolls, 6 N.C. J.L. & TECH. 367, 367—78 (2005).
7 28 USC § 1400
8 134 S.Ct. 2347 (2014)
9 Twombly – 550 U.S. 544 (2007); Iqbal – 129 S. Ct. 1937 (2009)
10 134 S. Ct. 1749 (2014)