The Scourge of Patent Trolls

Patent trolls, known to the legal community as Non-Practicing Entities, or NPE's, are perhaps the most broken part of the whole dysfunctional patent system.  Put simply, NPE's are companies that have essentially no assets other than patents, and no business activity other than patent lawsuits.  This kind of company is particularly pernicious because, since they do nothing productive, there is generally no grounds for a countersuit.

In my recent article about software patents, I hope I made it clear that I despise the current system, even as I explained why it is a mistake for a software company to simply avoid the patent morass on principle.  In that post, I focused on the situation in which one company is wielding patents as a weapon against a competitor.  But as costly and unproductive as that situation can be, there's actually another common kind of patent battle that is even worse:  the attack of the trolls.

When Google found out that Apple was suing them, they quickly went on a multi-billion dollar bender, buing patents in bulk from companies like IBM and Motorola Mobility (actually buying the latter company in its entirety simply for its patents), and using them to countersue Apple.   But if Apple had sold its patents to an NPE, and the NPE had sued Google, it is unlikely that Google could have found any patents that the NPE might be violating.   NPE's have an advantage in the patent wars simply by virtue of being unproductive parasites.

This is not, to say the least, what the patent system was intended to achieve.

There is at least a coherent case to be made that Google has infringed on a patent owned by Apple, and that such infringement was determinental to Apple, and vice versa.  These are companies that make competing products, and helping them protect inventions from each other is more or less the raison d'etre of the patent system.  (It doesn't work well for software because inventions can be very small, and products can incorporate hundreds of them, but at least the basic idea is coherent, and the ability to countersue helps level the playing field a bit.)

However, it's much harder to conceive of any rationale that justifies a third party company (NPE) suing productive companies that can't sue them back.  A company that is sued by an NPE faces a Faustian bargain:  the company can fight back in court, spending a large amount of money with no certainty of winning, or it can settle with the troll, usually for a much smaller amount.  This is almost always possible because the troll's business model is NOT to spend endless time in court, litigating its patents, but rather to extort from its victims the largest possible sum that they will spend to avoid going to court.

A typical scenario would go something like this:  A troll sues your company for violating a patent -- perhaps utterly bogus on its face -- asking for two million dollars in "damages."  Your technical folks are chomping at the bit to strike down the bogus patent.  Your lawyer tells you that he's happy to fight the troll for you, but it will probably cost three million, with no certainty that you'll win.  Then the troll offers to settle out of court for half a million, you bargain them down a bit further, and you settle.  Your company is out hundreds of thousands of dollars, and this ransom money goes down as productive income in both the troll's books and in the government's calculation of the Gross Domestic Product.

This has probably happened to a majority of companies above a certain size.  It is an unfortunate cost of doing business under our current patent regime.

For my part, I think the scourge of patent trolls could be eliminated with one small change in patent law:  a patent owner should only be allowed to sue for violation of a patent if they are themselves using the patent in commerical activity.  This would destroy the trolls' business model, assuring that all patent lawsuits would have to resemble the Apple/Google battle, a wasteful but somewhat balanced legal war between two commercial competitors.

It's a sad comment on our current system to view that as an improvement, but it would be.  Sadder still is how unlikely it is that such a change might come about.  Patent-holders in general tend to support the rights of the trolls, because eliminating trolls could drastically reduce the market value of their own patents. These large patent-holders have an outsized influence on the making of patent laws.  Thus patent reform to eliminate the trolls is unlikely to happen, in spite of -- or perhaps because of -- it being simple common sense.