Understanding Patent Trolls and How to Defend Against Them

Key Takeaways

• A patent troll (or patent assertion entity) profits from enforcing patent rights rather than producing goods or services.
• These entities often target small and mid-sized businesses, exploiting high litigation costs to pressure settlements.
• Over 60% of U.S. patent lawsuits are filed by patent trolls, many in patent-friendly jurisdictions like Texas.
• Some states, such as North Carolina, have enacted anti-patent troll laws, but such statutes can create jurisdictional challenges for legitimate patent holders.
• Defensive strategies include patent insurance, prior-art investigations, and early engagement with patent counsel.
• Systemic reform is needed — experts argue that flaws in the U.S. patent system allow trolls to thrive.

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:

1. Patent trolls send letters to businesses in distress or other targets and offer to buy their patents.
2. 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.
3. 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 Patent Trolls Exploit the Legal System

Patent trolls thrive by leveraging ambiguities in patent law and the high costs of litigation to extract settlements. They often file in plaintiff-friendly jurisdictions, like the Eastern District of Texas, where historically juries favored patent holders. Because defending a patent infringement case can cost millions, even companies confident in their defenses may settle to avoid legal expenses.

A 2012 study by Professor Colleen Chien found that 61% of all U.S. patent lawsuits that year were filed by patent assertion entities (PAEs). This reflects how deeply patent trolling has become embedded in the litigation landscape. Many patent trolls hold broad or vague patents, often related to software, e-commerce, or networking technologies — areas prone to overlapping claims.

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:

1. 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.
2. Do not agree to any licensing arrangements before you talk to a lawyer and a lawyer reads your letter.
3. 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.

State and Federal Responses to Patent Trolling

In response to growing abuse, several states have enacted anti-patent troll laws to curb bad-faith litigation. For instance, North Carolina’s General Statutes Chapter 75, Article 8, targets “bad faith assertions of patent infringement.” However, as legal experts have noted, such laws may unintentionally penalize legitimate patent owners who attempt to enforce valid rights across state lines.

At the federal level, the America Invents Act (AIA) introduced the Patent Trial and Appeal Board (PTAB), offering a streamlined process for challenging questionable patents. PTAB reviews, including inter partes review (IPR), have helped invalidate many overly broad or abusive patents before they reach trial.

Despite these advances, federal reforms remain incomplete. Critics, including policy analysts at the Cato Institute, argue that patent trolls are a symptom of deeper systemic flaws — particularly the over-issuance of low-quality patents and inefficient enforcement mechanisms that fail to deter exploitation.

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.

Economic and Innovation Impacts of Patent Trolling

Patent trolling doesn’t just affect the defendants — it creates ripple effects throughout the economy. Studies show that R&D spending declines in industries targeted by PAEs. Innovators may avoid developing certain technologies for fear of litigation, stifling progress and increasing costs for consumers.

Small businesses are hit hardest: many cannot afford prolonged litigation or expensive settlements. The result is a chilling effect on innovation, discouraging startups from entering patent-dense sectors like software, telecommunications, or biotechnology.

Industry advocates continue to push for reforms such as:

• Fee-shifting provisions, making losing patent trolls pay defendants’ legal costs.
• Stricter patent quality reviews to prevent issuance of overly broad claims.
• Transparency requirements, forcing PAEs to disclose the real parties in interest behind shell companies.

These measures aim to balance protection of genuine inventors with deterrence of predatory litigation.

Common Mistakes

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

1. What is a patent troll in simple terms?
   A patent troll is a company or individual that buys patents not to use them, but to sue or threaten others for infringement and collect settlements.
2. Are patent trolls illegal?
   Patent trolling itself isn’t illegal, but bad-faith assertions and frivolous lawsuits can violate state unfair trade laws or be penalized under anti-troll statutes.
3. Why are patent trolls so successful?
   They exploit the cost asymmetry between filing and defending lawsuits. It’s often cheaper for targets to settle than to fight in court.
4. Which states have anti-patent troll laws?
   Over half of U.S. states — including North Carolina, Vermont, and Oregon — have enacted anti-troll legislation, though enforcement and scope vary.
5. How can I protect my business from a patent troll?
   Work with a patent attorney to assess risks, consider IP insurance, and respond strategically to demand letters. You can find qualified patent counsel through UpCounsel for expert legal support.

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