In fairy tales, trolls lurk under bridges, waiting to trap people who unwittingly venture into their territory. Although such creatures are confined to the pages of storybooks, their real-life equivalents, patent trolls, are very much alive in the world today.
The term “patent trolls” is slang for non-practicing entities (NPEs) or patent assertion entities (PAEs). These entities hold patents but don’t use them to produce or create anything. In fact, some NPEs accrue patents for the sole purpose of threatening litigation against other companies that allegedly commit patent infringement. Patent trolls accrue patents for the sole purpose of threatening litigation against other companies.
Patent trolls accrue patents for the sole purpose of threatening litigation against other companies.
Granted, not all NPEs are trolls. They’re not all “bad guys” that do nothing but file frivolous lawsuits. According to UpCounsel attorney Gloria Steinberg, “NPEs also include a lot of universities or other educational institutions, startup companies and individuals” that have legitimate reasons why they don’t use the patents they hold. For instance, Steinberg says that an NPE might not have the means to produce the products claimed in the patent. Alternately, the patent owner might want to license the patent out to someone with more resources, experience or knowledge who can better practice the invention.
These are not the kind of NPEs that should make businesses anxious.
The Power of Patent Trolls
Nevertheless, there are some patent trolls that are worth worrying about. If you’re at all skeptical, consider that in October of 2015, Google was ordered to pay $85 million to patent troll SimpleAir, and in February of 2016, Apple was forced to pay $626 million to patent troll VirnetX.
However, large companies like Apple and Google represent a minority of patent troll targets. Steinberg says that patent trolls usually threaten “fledgling startups, mom-and-pop businesses, and individual inventors.” For example, take the case of patent troll MPHJ. Beginning in 2013, MPHJ sent letters to more than 16,000 small businesses threatening lawsuits unless it received a licensing payment of $1000 per employee. The patent in question? A piece of technology that allows scanners to send documents to email, in use in millions of offices across the nation. Few companies can afford to challenge patent trolls in court, so patent trolls’ scare tactics are reliably profitable.
Few companies can afford to challenge patent trolls in court, so patent trolls’ scare tactics are reliably profitable.
According to Steinberg, there’s a simple reason why patent trolls like MPHJ typically go after smaller companies. “Patent trolls target individuals who are unable to defend themselves and are likely to settle without being fully informed of all of their options,” she said. Unfortunately, small businesses fit the bill, since they often cannot afford to fight a patent troll’s claims.
This reluctance to take matters to court is key to patent trolls’ success. “Patent trolls are generally vague about the claims that they assert,” said Steinberg. Additionally, they often exaggerate the patent’s real worth or the extent to which the patented material contributed to the product under consideration. This means that if a patent troll’s claim were to be contested in court, there’s a significant chance that the defendant would emerge victorious. However, few companies can afford to challenge patent trolls in court, so patent trolls’ scare tactics are reliably profitable.
The Law Is On Your Side
Fortunately, several laws, such as the America Invents Act (AIA) of 2011, have been enacted to help curb the activity of patent trolls. “The AIA allows defendants to challenge patents that may not be valid before the Patent Trial and Appeal Board by using patent challenge tools like the Post Grant Review, Inter Partes Review, and Covered Business Methods,” said Steinberg. “These tools are pretty powerful – the federal circuit precedent suggests that once a claim is found invalid by the PTAB, the ruling of invalidity can trump a finding of validity in the courts if the infringement case is not completed.” “Do not succumb to the pressures of patent trolls and be willing to fight.”
“Do not succumb to the pressures of patent trolls and be willing to fight.”
Steinberg also cited the Protecting American Talent and Entrepreneurship Act (PATENT Act) of 2015, which heightened pleading requirements, increased transparency in demand letters and shifts legal fees to the plaintiff if the defendant could show that the plaintiff’s claims were not “objectively reasonable.” This last stipulation will make it possible for companies with a smaller budget to dispute patent trolls’ claims in court. Steinberg noted that these provisions are “similar to many European rules, where patent trolls are less of a problem.”
When Patent Trolls Attack
Unfortunately, if Apple’s multimillion dollar settlement is any indication, these laws cannot fully protect businesses from patent trolls. Therefore, companies should take additional steps to protect themselves from falling prey to patent trolls. First and foremost, if you receive a demand letter, you should never ignore it. Steinberg warns that failing to carefully consider a demand letter could prove detrimental in the future.
She also recommends that you conduct an infringement analysis. “Determine whether there are valid claims to decide on your next course of action,” she said. “Do not succumb to the pressures and be willing to fight.”
Additionally, Steinberg suggests that companies maintain ownership of patents and resist selling them to patent trolls. “Most of the time, patent trolls purchase patents from someone else,” she said. “Don’t give them any more ammunition than they already have.”