Patent Troll: Everything You Need to Know
A patent troll is a someone that buys patents from other companies, files lawsuits against businesses for patent infringement, then profits from the lawsuits.6 min read
What is a Patent Troll?
A patent troll is a person or business that buys patents from other companies, files lawsuits against other businesses to blame them for patent infringement, and then profit from the lawsuit instead of producing its own goods or services.
What Do They Do?
Patent trolls typically follow this pattern:
Patent trolls send letters to businesses in distress or other targets and offer to buy their patents.
After the companies sell their patents, the patent trolls find their victims. Their victims can be businesses that might use a process or design that's like the patents they've just bought.
Trolls then threaten to sue those companies for patent infringement.
Patent lawsuits can cost millions of dollars. As a result, companies often pay licensing fees which is often cheaper than fighting the case in court.
Although they're often called patent trolls, you'll find other names for these people and businesses. Patent trolls usually don't make their own products or use their patents for commercial reasons. Patent trolls are sometimes called nonpracticing entities (NPEs), patent assertion entities (PAEs) or "patent pirates." However, a patent pirate can also mean someone who poaches an existing patent. Other names for patent trolls are:
- Patent shark
- Patent dealer
- Patent marketer
- Patent assertion company
You won't find exact definitions for these names.
Several different types of businesses can fall prey to patent trolls:
- Businesses that face bankruptcy and must sell off their assets
- Small businesses that can't afford to protect themselves against patent trolls
- Companies that have many patents and have not acted on them commercially
However, any business can find itself threatened by a patent lawsuit.
Why Are Patent Trolls Dangerous?
Many companies have filed for bankruptcy while fighting a patent infringement lawsuit in court. Others have had financial problems while paying costly licensing fees to patent trolls. Each time a troll gets paid — whether through court judgments or licensing fees — more trolls seem to copy their success.
Twenty-seven states have anti-patent troll legislation that has either revised or created state laws that punish patent trolls. Nine states passed legislation in 2015, and 17 did so in 2014 — but, trolling still takes place in the United States. Although lawmakers have introduced patent trolling legislation in Florida, Maine, and Mississippi, the legislation failed to pass in those states.
Legitimate businesses often stay away from commerce areas that attract trolls. When businesses don't do their research and build upon existing ideas, new products and processes never get created.
Harvard Business Review reporter James Bessen says that patent troll lawsuits have hurt research and development spending and innovation. Patent troll cases threaten commerce across the world. Current legislation also hasn't been able to fully stop PAEs from suing and making money from their victims.
How Can You Protect Yourself Against Patent Trolls?
No law exists that encourages companies to defend themselves against patent lawsuits. Unfortunately, patent trolls use the fact that many companies believe they can ignore patent trolls against those companies in court. Here are some common strategies:
If you receive a demand letter from a patent troll, give the letter to a patent lawyer as soon as you can. Not paying attention to a demand letter can be dangerous, especially if a PAE decides to move forward with a lawsuit.
Do not agree to any licensing arrangements before you talk to a lawyer and a lawyer reads your letter.
You can also combat patent trolls by hiring a professional to look into the infringement case. NPEs don't always have strong cases. An investigation can help you protect your patent rights and avoid claims of prior art, the evidence that people know about your invention. You might also want to think about taking out intellectual property insurance for any designs or processes you or your company has created.
Federal Protections and Patent Watches
You can also use federal protections against PAEs and other patent trolling entities. You'll state your cases before a Patent Trial and Appeal Board of the United States (U.S.) Patent and Trademark Office (USPTO). If the Board finds that your products don't infringe on a patent, the patent troll's possible civil case weakens.
Some companies choose to do a patent watch which is when they watch the news for new patents that might affect the patents that the business already has. A patent watch might help you find patent trolls before they contact you.
Ways That Patent Trolls Make Money
Unfortunately, trolls have many patent monetization options:
- Licensing the patent technology to any company that might use it
- Getting their targets to agree to a settlement
- Taking businesses to court and suing over patent infringement
- Hurting the target's reputation in the media so that the person or business pays licensing fees or gives into a settlement
To keep yourself from falling victim to these tactics, decide that you won't give in to patent trolls.
Examples of Patent Troll Cases
Several high-profile aggressive patent lawsuits filed by patent trolls have made headlines over the last few years. Sometimes, the victims win and they don't end up paying huge licensing fees. In others, the NPEs win because they successfully argue for prior art.
What Could Happen If You Give In to PAEs?
In July 2016, Apple paid Network-1 Technologies $25 million to settle over a patent infringement lawsuit. The same patent was the topic of a $625 million lawsuit only a few years earlier before Network-1 Technologies bought the patent.
Many PAEs target smaller businesses. Martin Kelly Jones, a well-known patent troll, has sent demand letters to hundreds of U.S. small businesses instead of Fortune 500 companies over supposed patent infringement.
What Might Happen If You Win Against Patent Trolls?
Some companies have won against patent trolls even after they got demand letters and faced lawsuits. In 2013, PAE Soverain sued Newegg, an e-commerce electronics store, over two patents. Newegg fought back in court and won against the patent troll which helped reverse other judgments that Soverain gained.
Companies often throw away demand letters or ignore demand calls from patent trolls. Ignoring them could give the trolls a stronger case in the future. Additionally, if you reply too quickly and strongly, you might present yourself as an unattractive target for a lawsuit. PAEs typically want to take the easiest route possible to getting their payments.
Companies can work their patents into their corporate policies. They can ask executives not to sell patents to potential trolls, which can help keep an organization from becoming part of the problem. If you decide to sell a patent, research the buyer carefully to make sure that buyer isn't a PAE.
Frequently Asked Questions
- Why do patent trolls continue to win in court?
Since many NPEs go after small businesses, their victims don't have the money necessary to create an effective defense. Additionally, patent trolls often buy simple technology patents with broad possible uses. They have many targets, so they're likely to win a few court cases. Also, examination backlogs can lengthen times between patent filing and patent approval which might give patent trolls more time to research possible targets.
- How does the patent system prevent trolling?
The USPTO has cut back on the number of business practice patents it issues which might help stop junk lawsuits over broad patents. The USPTO has also created internal methods for patent disputes. Additionally, most patent troll cases that make their way to the U.S. Supreme Court ultimately fail. This level of failure has begun to discourage PAEs and NPEs from taking their cases to the Supreme Court.
- Can victims of patent trolls get back any legal fees?
Two Supreme Court decisions have made it easier for victims of PAEs to get back their legal fees after winning frivolous lawsuits. In both cases, the Supreme Court granted those damages, which paves the way for other victims of NPEs.
Another Supreme Court decision allows companies to more easily challenge a vague or overly broad patent when it ruled that "indefiniteness" in the patent description could make infringement lawsuits invalid.
The Supreme Court also heard the case of Alice v. CLS Bank and decided that businesses can get or defend patents that simply change an existing business practice over to digital form.
- How much money do you need to fight a patent infringement lawsuit?
The cost to defend against a patent troll case depends on the money at stake. For a case worth less than $1 million, defendants can expect to pay about $650,000 according to CNET reporter Jim Kerstetter. A case worth more than $25 million can cost more than $5 million to defend.
Government agencies and big companies have taken a stand against patent trolls, but people and organizations still need to protect themselves. Junk lawsuits ultimately weaken the economy by slowing innovation. If companies don't feel safe building upon existing technology, the world can miss out on great products and processes. Additionally, PAEs can walk away with multimillion-dollar judgments that they don't deserve.
If you get a letter from a patent troll, ask one of UpCounsel's patent lawyers for help. You can post your legal need here and get free custom quotes from the top 5% of legal professionals at UpCounsel to fight back against patent trolls.