Comments for What to think of ‘patent trolls’? The return

The pro-troll video might seem biased but makes a few interesting points. One among them talks about the different payoffs a practicing and a non-practicing entity gets in case of patent infringement. The non-practicing entity is supposed to get damages only for a fraction of lost sales which it would have earned as royalty. Now by definition, patent trolls are non practicing entities and thus it is strange that the settlement amounts that they are earning are such astronomical figures.

It looks like its not only the patent trolls but something amiss in patent laws that the patent trolls are exploiting which they have every right to do legally. A review of the patent law, making it more principle based than rules based is probably a way to go for the concerned authorities.

The technology industry has been one of the major causes for the world to come out of this most recent recession and it is disheartening to learn about patent trolls which affect the very core of the technology industry – innovation. A typical start-up normally has a success rate of about 10% i.e. only 1 in 10 ideas make it to the commercial stage and added cost of accounting for patent infringements will certainly raise the already high hurdle. While the pros for patent trolls are a more liquid market for patents and a platform for small inventors to monetize their patents when they may lack the resources to do so, the problem lies with the patent body in many countries, especially regarding software/code, where patents granted are so broad based in nature and include many currently common ideas that it becomes almost impossible for a new idea to become free of any existing patent infringement. Recent move by tech giants like Microsoft, Google and Apple splurging $400,000 – $750,000 per patent are a calculated move by these companies to reduce future liabilities due to patent infringements. Formation of the Allied Security Trust in 2008 was also another move in the same direction.  I feel that the fundamental problem lies in whether software language should even be patentable in the first place. If the same analogy was applied to the English Language, major poetry, works of art like Shakespeare etc. would not have revolutionized or romanticized the language as there isn’t the added cost of accounting for infringements (if there were literature patents). Similarly, patents have economic and social utility only when language (including software code) is kept out of its domain. This would foster rather than provide added hurdles to creativity. 

References: 1) Merrit, Rick. “ Patent pools may flow in wake of latest alliance”. EE times 2) When Patents Attack:http://www.npr.org/blogs/money/2011/07/26/138576167/when-patents-attack     

Who benefits from Patent Trolls and who has to endure the negative side?

Patent troll is the term for people or companies that use patents in an inappropriate manner. These include those who buy patents with no intention to manufacture or market the patented invention.
If the inventor as a “little man” goes to a big company and negotiates the development of a product based on its own invention, there is no need to go without patent protection to the exclusive exploitation of the protected idea. Otherwise, big companies would often violate the personal rights to inventions.

The patent trolls often justify their activities by assuming that for small inventors they are often the only way to protect their developments from the big companies. Alone they can not protect themselves from big companies. So they should override the rights to a patent administrator, who then goes to court and eventually collects money for the inventor.
However, to outline the negative activities of patent trolls: The company buys mainly unclear formulated briefs and thus sued technology company.

Money spent for the processes of the defendant companies are missing again for research and development projects. To determine the impact on the defendant, the scientists looked at their stock price respectively, in the days after the action.

Despite this destruction of value patent lawsuits do not necessarily harm society as a whole: It could be simply redistribution, and the processes may also promote the innovation of the patent owner. The balance sheets of patent trolls did not deliver any evidence, because ultimately they were paid much less than the loss in value of the defendant. Only a small proportion of this paid for damages and copyright infringement amounts reach the actual inventor.

If one would decide to fight against patent trolls, defensive publications might help.
A defensive publication is the deliberate release of technical content or inventions to create “the state of technology” s a strategy in intellectual property law. With a defensive publication, the invention will be known and therefore their patenting and intellectual property rights expire due to not given ability to novelty. At the same time, the expansion of the state of technology, increases obvious inventions.

I believe one point in the video to be crucial:
The value of a patent depends on the willingness and ability to enforce it.
This is essentially the justification for the arbitrage undertaken by NPEs. You buy patents cheap, from those who can’t enforce them anyway, and claim some of the profits the inventors would have been entitled to.

Sometimes, to make an argument, people take a piece of normative information and try to derive rules are laws that should govern our lives. It is even more impressive how “The Ballad of the Patent Troll” can take positive facts on turn them into: “therefore, we should….” statements. For the sake of structure, I would like to analyse the points made in the movie because they provide a reasonable coherence in shaping an opinion.

A Patent gives the right to exclude, and some inventors never practice their patent. Because Inventors are honourable people, they should not be blamed for practicing their patent. Therefore, no one should be blamed for not practicing a patent. Patents are there two enforce them.
It may seem ironic, but the points outlining the “value of a patent” in the video are also the explanation for the reason patent trolls should feel bad about what they do. Their explanation makes clear that the value of a patent differs according to whoever holds it, not necessarily according to whatever is written on it. For example, they claim that its value depends on how vigorously the patent has been enforced. An inventor with little legal expertise may be reluctant to sue for infringement, file for interference proceedings, or even just locate those how potentially use his patent. Furthermore, if the value of a patent depends on how easily it can be challenged, an individual patent is much more subject to infringement than entire patent portfolios. In addition, they argue that the value of a patent is determined through it’s complementarity effects when posing the question: “How easy is it to design around the patent?These points are nicely summed up by the quote: “The value of a patent depends on the willingness and ability to enforce it”. This just makes clear that for patent trolls, it is ok to buy patents for a lower price from inventors and claim their rights on a large scale. This analysis is supported loosely by several sources, but constitutes a problem in the patent system. In fact, as they say themselves a patent yields a right to temporary monopoly, and the profits that can be made by that. If the legal burden are so hard to bare that patents are reevaluated according to how much noise you can make with your resources, then that’s not what the patent system is supposed to do. As for NPEs, inferring that it’s ok to work the system because you can and it is crooked anyway, does not make you an asset to society, in my opinion.

In conclusion, Patent Trolls can work the system by making money of the flaws of the system. They are therefore, in a way, a mirror of what is wrong with it. They make money of the fact that patents are undervalued if viewed individually, due to portfolio and complementarity effects. They make money of the fact that the value of a patent is determined not by the economic magnitude of the breakthrough, but by your opportunity cost of going to court. A justification relying on imbalances is therefore inherently flawed. However, it is not up to patent aggregators to strive for fairness and efficiency in the market for technology. Policy makers should target their sources of income with policies that increase efficiency in the market, and endow inventors with better means to stand their ground from the beginning.

Sources:

[1] http://www.generalpatent.com/media/videos/patent-troll
[2] http://www.businessinsider.com/biggest-patent-holding-companies-2012-11?op=1
[3] http://www.npr.org/blogs/money/2011/07/26/138576167/when-patents-attack
[4] Hagiu, A., Yoffie, D., 2011, Intermediaries for the IP market, Working Paper, Harvard Business School

In this comment, I will propose an brief overview of what a “patent troll” implies for both opponents and proponents of such phenomenon. Firstly, I will point out the key arguments from the opponents based on the video of the FFII (posted last year). Similarly, I will stress the ideas put forward by the proponents the General Patent Corporation. Thereby, I will have the sufficient background as to share my point of view.

According to the video of FFII, the opponents of patent troll, one has to bear in mind the following implications of such behavior:

– Complex and expensive litigation for small but cross shared patents between big companies
– Licensing and cross-licensing
– Belief of concentrating lot of patents to overcome legal actions
– Threatens projects and small competitors
– Initially, patent aims to promote and reward innovation creators(incentive), whereas in reality it usually excludes small players and hamper competition

In contrast, the video on the myth of “Patent Troll” where the General Patent Corporation attempts to debunk some preconceived ideas. Here are their main statements:

– Some inventions do not need any patent in order to be used
– There are no restrictions regarding suing for patent infringement
– It is a fact: the patent system is not fair (so be used to)
– Patent itself does not consist in any sort of tax on innovation

That being said, I am inclined to think that patent troll or non-practicing entity is very opportunistic and short-term thinking behavior that hampers innovators, especially cumulative innovations relying on previous ones. Accordingly, there are high probabilities that it would not only alter the potential of innovation development but also deter HighTech start-ups which are regarded as strongly innovative. Besides, there is no speak of added value to the market since it essentially involves litigation and thus, no cooperation or at least partially amoung the concerned corporations. Furthermore, one can question the distortions of competition as big oligopolies practices cross-licensing as to pool together intangible assets which may be subjected to illicit trade deals.

In a nutshell, I do rejoin the arguments of the FFII to some extent as I believe in the benefits for consumer that yield sane competitive markets.

The patent troll acquires a patent. With it, it threatens the company with the technology protected lawsuit. Each enterprise has an incentive to avoid the lawsuit. The simple fact of threaten the company generally forces to pay. Especially in awaiting the lawsuit, the judge may decide to stop marketing the product in question. This is a strategy that benefits from flaws of patent system.

Consider the example of Twitter. During the last month and a half, he received three new lawsuits patent trolls. According to a 2011 survey by the American Intellectual Property Law Association (AIPLA), a trial level patents costs between $ 900,000 and $ 6,000,000. But the law does not allow firms to recover millions of dollars, or to compensate for the time spent on the case.

To minimize this impact, two members of Congress, Democrat Peter DeFazio and Republican Jason Chaffetz wrote a draft law called SHIELD. This draft law is intended to protect startups. Representative DeFazio said: “They paid out of pocket for patents on products they have not created, and then drag to justice innovators who have done the hard work of creating the product. These absurd lawsuits cause damage American innovation and small technology startups, costing jobs. My legislation would force “patent trolls” to take financial responsibility for these lawsuits initiated lightly. ”

I personally think that the patent system should be reviewed to avoid these patent trolls which are a waste of time, money and energy. By readjusting it, it would better support innovation.

Sources :
http://gigaom.com/2012/10/08/twitter-time-for-trolls-to-pay-full-price-for-patent-mischief/
http://www.zdnet.fr/actualites/le-congres-americain-veut-lutter-contre-les-patent-trolls-39774866.htm
http://www.journaldunet.com/economie/magazine/patent-trolls.shtml

I am of the opinion that patent trolls are not good for the patent system, and the system must undergo changes to render this practise unviable in the future. While I say this, I would also like to point out that I do not think the act of patent trolling is itself wrong, as such companies are only exploiting the current system’s rule set, and the system must be modified so that patent trolling becomes lucrative.

The case for patent trolling is that they make the patent and innovation market liquid, and innovators thus have it easier in monetising their innovations. Thus, proponents argue that patent trolling is actually beneficial activity.

However, I personally think that the cons far outweigh the positives in this regard. The purpose of the patent system is to encourage innovation and protect innovators, and patent trolling stymies both. The cost of defending against a patent infringement suit is generally around a million dollars even before trial, and rises in case the suit goes to trial. This means that companies are willing to settle even frivolous infringement cases filed by patent trolls. What this results is an unnecessary wastage of resources spend simply to appease patent trolls. The patent troll industry cost US companies a whopping 29 billion dollars last year – money that could have been better spent on R&D and more innovation instead of fighting pointless legal battles. In case a startup has a patent infringement suit filed against it, it might not even survive the trial, thus ensuring their innovation never gets to the market. I would also like to cite the example of the software industry (I had touched upon this in a comment on the article on software patents). Here, there is no practical way a company will be able to keep track of all the patents that the software it is developing might be in violation of. While most big companies with large patent portfolios (such as Microsoft or Google) very rarely sue, patent trolls are the very opposite. They may sometimes even wait till the innovation becomes successful before suing. This is clear opportunistic behaviour and while it may not legally be wrong, it is certainly against the spirit of patent protection. The companies are being punished for not keeping track of all the patents their softwares use – an impossible task.

Hence, I think the practice of patent trolling must be discouraged. One simple start would be to get patent troll companies to pay off all legal fees for unsuccessful infringement suits. Another way would be to include a clause where in a patent will necessarily have to be used in a commercial product within a specified time period of filing the patent and cannot be held back just as a weapon for use in a future law suit. This will prevent the problem of Non Performing Entities, or patent trolls, and also the problem of large companies building up huge patent portfolios. A third more radical way, especially for industries such as software is something I had suggested in the earlier comment – abolish them altogether, as in their current iteration, they do more harm than good.

References:

1) The Meteoric Ascent of the Patent Troll and the Devastating Consequences for Innovation: http://blogs.scientificamerican.com/guest-blog/2012/12/05/the-meteoric-ascent-of-the-patent-troll-and-the-devastating-consequences-for-innovation/

Initially created in order to promote innovation by ensuring that new ideas are correctly brought on the market, patents are nowadays used as offensive and defensive weapons in the tech industry. This industry is the best representative one where patents have taken this new role, but Patent Trolls problem is spreading from this industry to media companies. Indeed, the New York Times Co. is engaged in a pitched legal battle with two such Trolls: one is about the process for sending links to mobile phones while the other is about the function that suggests a word when a user types a fewer letters. Moreover, having a big patents portfolio has become a competitive advantage: companies have to protect themselves against lawsuits, which are costly and risky, or they also could suit or negotiate license agreements with other companies. Strong competition makes the incentive of using patents in this way, which are the main goals of Patent Trolls. Competition occurs not only in the market place, but market shares are now gained in the Courtrooms.

Lawsuits could be seen as a tax on innovation and patents are used as the fodder of this ineluctable practice. But the tax has not a beneficial effect for the whole society. This is a waste of time (for companies and lawyers) and a waste of money that could be better invested in R&D. This is an escape in the functioning of the industry and Regulation should find new incentives to avoid this. It becomes inevitable either being sued by another company, or infringing one patent in an inadvertently way. The question of the threat of patent litigation is nowadays a WHEN, not an IF question. This could prevent small companies enter a market, or innovate because the risk and the costs of a litigation are bigger than the R&D required to its invention. Of course rational entrepreneurs will balance these two ways, and the outcome is mainly out of favour with innovation.

Patent Trolls illustrate this state of mind in an extreme way by doing lawsuits its core activity, or they simply follow the wave of specialisation that have lead our economy during the past years. These companies could be seen as a sort of arms dealer in the patent wars. As an example, Intellectual Ventures created a program called “Intellectual Property for Defence” in which companies that are being sued can buy among the firm’s portfolio of 35,000 patents in order to find one more patents that can countersue with. Patent Trolls have thus their role when lawsuits are unbalanced. Company that are implicated in litigation could be asymmetric in term of patent portfolio (and that is why these portfolios have become a competitive advantage when business usually occurs in the Courtrooms) and in term of expensive lawyers who fight for the company. Patent Trolls could help them.

Big patent lawsuits (such as the Apple/Samsung case where these two “equal” companies can spend million into lawyers) catch the whole attention, but what about start-ups? According to law professor Colleen Chien, most unique defendants to troll suits are small. Based on surveys, the smaller the company, the more likely it was to report a significant operational and emotional impact. The damage is not only these kinds of company, but innovation itself.
Patent Trolls are thus playing on two boards. On the first hand, these companies could provide defensive weapons for small companies that have not the capacities (not a big enough patent portfolio) to counter sue an attack. And on the second hand, small companies are the main targets of Patent Trolls. In such an environment and while patent legislation does not perform at all (I think that legislation is always behind the times of society’s evolution), whom to rely on?

Sources:

1) http://judiciary.house.gov/issues/issues_patentreformact2011.html

2) http://paidcontent.org/2012/08/29/new-york-times-tangles-with-patent-trolss/

3) http://gcn.com/Articles/2011/07/11/Cybereye-tech-patents.aspx?Page=1

4) http://motherboard.vice.com/2012/10/17/patent-trolling-is-draining-the-blood-from-the-idea-economy-and-it-s-just-getting-worse–2

5) http://www.generalpatent.com

In the following lines, I would like to share my point of view about patent trolls. I think it’s an unfair behaviour but it is not totally the fault of the company which applies this. To illustrate my thought, I will talk about two different cases of lawsuits regarding patents.

To explain that, let’s take first a look at the companies that have most patents for 2011. As we can see, the top 10 contains mainly firms involved in high-technologies, with 6000 patents for the only IBM. (http://www-03.ibm.com/press/us/en/pressrelease/36463.wss). With that huge number of patents, it is thus difficult for smaller companies to develop without violating those patents which may be furthermore not totally known by those small companies. That brings us back to one of the post about the length of software patents. If they are too short, it won’t protect the first innovator but if they are too long, then it will prevent the others from innovating and lead to some lawsuits because those followers would use those patents illegally in order to survive.

On the opposite side, we can find the intentional and premeditated lawsuits about patents, which looks more like patent trolls than the example above. That’s the case for companies that have no intention for innovation but filed for patents only to prevent the competitors from innovating and then sue them if they innovate or only just to make money on the back of rich companies. An example of this is the tiny company, Intellect Wireless, that claimed to have the patents on wireless messaging technology and sued big companies like Apple, Motorola, HTC, Samsung, etc. (http://techcrunch.com/2010/01/30/intellect-wireless-apple-lawsuit/) That application is harmful not only for the competitors, for themselves (because a lawsuit cost a lot of money and even more if they don’t win the case) but also for the industry and the consumers because it’s a brake to the innovation. The current legislation of patents isn’t also helpful to eradicate those patents trolls. As we saw in the first post about the difference of patents rules between countries and the true definition of a patent, it might be too easy for companies to file for patents and then prevent the other from using it. The rules have thus to be review and synchronized but as I already said in that post, it is very difficult to strike a balance between which innovation has to be protected by a patent and which not.

To summarize, patent trolls are morally reprehensible but it is allowed by the rules that are too permissive on the subject, as said in some other comments. So the first thing to change are the rules and not the firms that acts like patent trolls because it’s a form of business like another. To prevent those patent trolls, one solution is, as suggested in the post, to remove software patents but in that case the incentives to innovate will decrease while free riding will increase. Maybe, they can insert a rule which implies that the innovation the firm filed the patents for has to be developed concretely in a determined period or at least have some signs of concrete results. Or they can stimulate the cooperation between the firm that files for the patent and the firm that is willing to develop it. That will save time and costs for lawsuits that can be used to develop the innovations.

As suggested by our professor there are experts and practitioners who take a firm stance on either camps that is of criticizers and defendants of Patent Troll phenomenon.
Pro troll view: Patent trolls are market void fillers. They buy low and sell high, and hence make legitimate business, which allow independent investors and R&D institutions to sell their output quickly. So we can say that trolls have bridged opportunities for financially vulnerable originators who now get instant compensation for their creative endeavors.
Trolls also fasten the commercialization by targeting companies which have un or under utilized patents in hand, and they persuade them to release these patents back into the market.
Activities of patent trolls results in big high tech companies and multi nationals being fearful for infringement. They create opportunities for small firm to profit from large ones. Therefore we can say that patent troll vitalizes the market with less sense of monopoly prevailing by large firms and inventiveness small firms to innovate.
Anti troll view: Patent troll leads to an increase in cost of manufacturing. This is because royalty payments and development costs result from the need to give too much attention to watching relevant patents for fear of infringement and any resulting actions. Also the cost of litigations is very high. Subsequently all the burden falls on the consumer in the form of higher price.
In my opinion the patent troll label should not exist per se. It is quite prejudicial and imprecise. All patent holders are to some extent trolls in relation to a single or multiple patents because companies usually do not have the capacity to commercialize all patents, and even if they the capacity there are other roadblocks like companies focus at the time being and its vision of its own development.
http://nopr.niscair.res.in/bitstream/123456789/15026/1/JIPR%2017(6)%20573-577.pdf

First I must say this is a very interesting topic. As a clear supporter and user of open source technology and products, I regularly stumble upon this topic in various developer forums and tech news sites. Patent trolls have really gotten the attention of developers in open source communities. Techcrunch.com, a technology news site recently published an article named “10 ways startups can deal with patent troll demands” (1). Developers’ opinions about patent trolls seems obvious, but are there any advantages to an intermediary which connects inventions to clients?

Myhrvold argues that Intellectual Venture (IV) is an effective method for patent holders to get return on their inventions. (4) This may be true, but it is only a sub optimal solution. There should be no need for a company like IV if the court system was efficient. Instead, patent trolls take advantage of the system’s inefficiencies and extract value from the real inventors. Colleen V. Chien recently published a study of the distributional impact of the patent troll demands. Although the large companies tend to dominate the headlines, the startup companies are the ones that are suffering the most. 40 percent of the respondents answered that trolls caused unwanted changes in strategy and delayed operations. Furthermore, 55% percent of the companies sued by patent trolls had a turnover below $10 million a year. The patent trolls harm startups, which are the ones who have the least resources to defend their case in court (4).

Since my colleagues have already addressed several pro’s and con’s of patent trolls, I will focus my comment towards why companies want to file patents. One would think the answer is clear, but I believe it depends on the industry. For pharmaceutical companies, the answer is evident. The cost of production and testing are significant, and without patents no company would bear the risk of investing large amounts in a product someone could easily copy. But for other industries, the level of investment may be far lower and the technological progress is going even faster than before. A new software technology may be old within five years. Why would anyone patent it? Chicago Law School professor Richard A. Posner describes this question in an article “Why there are too many patents in America”. A firm can get along without patenting, but because of the fear of how its rivals may respond to their behavior, they patent the technology anyway. Posner defines this phenomenon as “Defensive patenting” (3).

Imagine a simplified example with a given industry where companies compete in a patent race. The first company that comes up with a product improvement or invention gets the patent, granting it temporary monopoly – A “winner takes it all” situation. As we have seen earlier, patent races may lead to excessive innovation. If one firm files a patent only one day before the others, it captures the entire market. The behavior is much the same as in Bertrand where firms underbid their rivals’ prices. Lowest price bidder gets the entire market. In this case, firms underbid in terms of time. Firms will try to file a patent as soon as possible in order to exclude the competitors. But the sooner a firm files the patent, the less detailed is the patent. This leads to vague patent descriptions, and in some cases only broad draft ideas. One vague patent may cause significant damage to several startups, depending on the interpretation of the patent. According to Posner, vague patents are accepted because of understaffed patent offices with limited resources, and judges and jurors who don’t understand technology (3).

I believe today’s patent system needs an overhaul. Posner propose several measures that can rebalance the problems. One should explore the possibility of reducing patent terms for certain industries, and extending the authority of patent offices to prevent court trials (3). Bill Gates admitted already in 1991 that patents are stifling innovation. He was worried that “large corporations would patent some obvious thing” and use the patent to “take as much of our profits as they want” (2). When court began to allow for software innovations in the 1980s, he started aggressively to patent their software in order to protect the company. I imagine the problem was not as important in the 80’s as it is today. If the conditions in the 80’s were as today, would Microsoft still be able to attain the position they have today?

(1) http://techcrunch.com/2012/10/07/10-ways-startups-can-deal-with-patent-troll-demands/

(2) http://www.nytimes.com/2007/06/09/opinion/09lee.html?_r=1&oref=slogin

(3) http://www.theatlantic.com/business/archive/2012/07/why-there-are-too-many-patents-in-america/259725/

(4) http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2146251

While reading the article “When patents attack”, in my mind popped up that one minute scene from 1937’s Disney cartoon “Snow White”, when Dopey is ordered to go and get the bar of soap so that the dwarfs can get clean for dinner. And there’s no way Dopey can fulfill the assignment, the bar of soap keep slipping out of his hands. Childish comparison, I know, but that’s how I would sum up the article having Dopey interpreted by This American Life and the bar of soap by all those players, from Chris Crawford to Lodsys, which are involved in the system, whose opinion would shed light on the issue, but which are unreachable.

In my opinion, the existence of patent trolls is not justified. The problem at their base is the change occurred in the 1990s concerning the level of requirements necessary to file and obtain a patent: from strict to loose, from carefully controlled applications to almost unrestrained approval, which allows to patent things that have already been patented (and bringing up the % of “doublings” to 30%). To solve this issue, recently President Obama has signed the America Invents Act, an act which had bipartisan and bicameral support and whose aim is to regulate the chaos currently affecting the patent system by amending Title 35 of the US Code. One of the measures undertaken with the approval of the Act is to move from a First-to-Invent to a First-inventor-to-file standard for patent approval. This move should diminish the number of applications for patents and should avoid duplicates, thus making it harder for patents’ seekers to easily conduct their job.

However, I believe it was impossible to prevent the existence of patent trolls – as always, as soon as there are substantial benefits to reap, some economic agents are happy to take advantage of them by entering into the business, even if their activity is right at the border of (il)legality and doesn’t have solid ground.
Also, it can be said that patent trolls are the demonstration that the system has been damaged and that today suing is firms’ main concern at the expense of innovation (which is often certified by budget allocation changes, from R&D to the legal department to sustain increasingly frequent and expensive legal actions). Anyway, the main idea about trolls as Intellectual Ventures is good and fair – if an inventor doesn’t have the opportunity, the ability or the knowledge necessary to file his invention, it is good to rely on someone that could help in exchange of a fee. I think this someone could be a branch of the PTO composed by lawyers, engineers and sector related people. Being governmental and already within the PTO, better control and protection should be granted, and it would make easier to dismiss the idea of owning patents just to be ready to sue and to threat other players. Consequently, it would be possible to grant more room for innovation and legal action only when necessary, preventing patent trolls from illegitimately ruling the patent system.

When patents attack, http://www.npr.org/blogs/money/2011/07/26/138576167/when-patents-attack
judiciary.house.gov/issues/issues_patentreformact2011.html

Everyone knows what a patent is, and what a troll is, but when put together, a “patent troll” might be harder to define that it actually seems. Professor TJ Chiang at George Mason Law school prefers to explain it through the term “troll patent” instead, which I find it easier to comprehend. He defines a troll patent as one that:
1. Is owned by someone that does not practice the invention.
2. Is infringed by, and asserted against, non-copiers exclusively or almost exclusively. By copying I mean any kind of derivation, not just slavish replication.
3. Has no licensees practicing the particular patented invention except for defendants in (2) who took licenses as settlement.
4. Is asserted against a large industry that is, based on (2), composed of non-copiers.

So basically a patent troll owns many of such troll patents. At this point I pose a question, are universities considered patent trolls?

There has been an on-going debate about this recently. The number of patents universities obtained in 2004 has increased 16 times since 1980. University patents are extremely significant in areas such as nanotechnology and biotechnology, and of course information technology. Why are people calling universities patent trolls? A notable example is the case between Eolas Technologies, a startup backed by the University of California and Microsoft in which does look like a patent troll. The university then shared with Eolas Technologies a jury award of $520.6 million against Microsoft. To a layman, he could even draw parallels with the top patent troll in the world-Innovative Ventures, because both are non-practicing entities, and both appear to “purchase” patents from seemingly helpless companies who cannot defend their innovations. Given the difficulty anyone has had in defining a patent troll, it is easy to conclude that universities are trolls too.

However, it is important to note that not every entity that acquires patents is a troll. Any innovator is free to sell his patents, and the purchaser should be able to enforce them(Without enforcing, the cost of the patent is zero, as mentioned in the video). What is more important is to see how they are enforced. This would help one see that universities are not patent trolls. Universities differ from patent trolls in a way that they do not play a waiting game, letting companies develop a technology and then suddenly suing them and demanding royalties for infringing their patents. More insight can be found on the interesting paper by Mark A.Lemley.

To conclude, I would have to agree with Lemley that the direction in which laws should be enacted is not to try to define what are patent trolls and to single out who are patent trolls. Lemley says “Troll is as troll does. Universities will sometimes be bad actors. Nonmanufacturing patent owners will sometimes be bad actors. Manufacturing patent owners will sometimes be bad actors.” Instead, we should focus on the bad acts instead and reform laws so that these bad acts will not happen.

References:

1.What is a troll patent and why are they bad?, By TJ Chiang (Professor at George Mason Law School), March 6, 2009

2.Bernard Wysocki Jr., College Try: Columbia’s Pursuit of Patent Riches Angers Companies, WALL ST. J., Dec. 21, 2004

3. Are Universities Patent Trolls? Mark A. Lemley, Stanford Law School, Keker & Van Nest LLP

4.http://news.cnet.com/8301-10784_3-9769483-7.html

5. http://www.npr.org/blogs/money/2011/07/26/138576167/when-patents-attack

Traditionally, patents were used to protect legitimate innovation and the intellectual property rights. According to Mr. Veschi “It used to be that patents were viewed as trophies given to smart people with clever inventions.”
But since the appearance of the Non Practicing Entity, the feature of patents has changed. A big part of patents are used by “patent troll” as offensive weapon. But the question is, can this behaviour be seen as inappropriate or unethical?

Many proponents of the patent trolls argued that the strategy of the NPEs is totally legal and there is nothing wrong about it, they are just acting as other competitors. “Before this industry emerged, too many inventors and small patent holders were getting their rights steamrolled by big companies,” said Paul Ryan, Acacia’s chief executive. “We’re just levelling the playing field.”
Furthermore, proponents consider that the NPEs are supposed to ameliorate the market situation by creating a “trading market for patents”. Through this mechanism, patents could be sold and bought and NPEs would allow individual inventors to monetize their inventions. According to the General Patent Corporation, NPEs are aimed ”to help inventors, scientists and authors realize the fruits of their creative genius”

While the argument for patent troll is plausible, it’s undoubted that with the appearance of the NPEs a big “social loss” is observed on the market, caused by unemployment of the innovation and by the cost of the lawsuits:

The main activity of the Patent trolls is to identify unexploited patents, often from companies in bankruptcy, in order to buy it cheaply. Afterwards it will threat other companies with infringement lawsuits. According to the data, these lawsuits have entailed alone in 2011, a cost for $29 billion for vital industry. This sum includes just the direct legal costs. But “various indirect costs … such as diversion of resources, delays in new products, and loss of market share” should also be taken in consideration.
In addition, research has shown that this cost of lawsuits has also a negative effect on the innovation. Effectively the cost of NPE litigation paid by the defendants will reduce its R&D budgets, which will hunter the innovation.

To sum up, with the extent of patent trolling in recent years, we should really think about the risks of this phenomenon. There is no proof that the NPEs can improve the market by commercialization of the patent and there is no way that the inventors possibly benefit from it.
However, the cost for the society is really clear. In my opinion, innovations, which are not used for any production, shouldn’t be labelled with patents. A possible solution may be: if the patented innovation is not used during one longue period of time, the government should be able to make it accessible for everybody in order to promote the circulation of basis information in the market and to avoid that patent trolls abuse from it.

1 http://online.wsj.com/article/SB10001424052702303292204577514782932390996.html
2 http://www.irpi.ccip.fr/upload/pdf/etudes_juri/08_IRPI_patent_trolls.pdf
3 http://www.theatlantic.com/technology/archive/2012/06/study-patent-trolls-cost-companies-29-billion-last-year/259070/

In my opinion we can consider some social benefits of patent trolls. These troll companies like Nathan Myhrvold´s firm can collect many innovators, who are unable to realize their ideas due to lack of money or time. Moreover, cooperation of these innovators can leads to better ideas and these troll companies can provide them very good environment for this cooperation.

But the real problem of these trolls is using of their patents. These companies do not use their patents for producing a new product or help other companies to produce this product. It is obvious that these patents are used only for lawsuits in case that some producing firm use some component which is consistent with the troll´s patent. And that is, in my point of view, nothing more than strategic behavior and blackmail.
A group of researchers from Boston University found out, that defendants (especially technological companies) have lost over $83 billion per year during recent years due to these lawsuits. Taking into account that these defendants are mostly companies that already invest a lot in innovation we can say that these losses reduce the amount of money which these companies can use for their own R&D.

Trolls do not extend the R&D market, but only redistribute wealth from producing companies to them (non-producing companies). This solution is not bad but what is really bad are huge court costs and huge transaction costs which trolls can cause. If some non-producing firm develops some patent and is unable to use the patent, the patent should be provided to producing company for increasing a social welfare. Otherwise the patent does not increase a social welfare at all.
The best example showing us that there can be a better solution than current troll´s situation (lawsuits and strategic behavior) is cooperation between universities and companies. Universities are the non-producing companies too but they are not trolls. Using some ex-ante agreements between universities and companies the problem of strategic behavior is overcome. Maybe it can be a good inspiration for Nathan Myhrvold and others…

Sources:

THE PRIVATE AND SOCIAL COSTS OF PATENT TROLLS
(see: https://www.bc.edu/content/dam/files/schools/law/doc/patconpapers/Meurer%20Costs%20of%20Patent%20Trolls.pdf)

ARE UNIVERSITIES PATENT TROLLS?
(see: http://iplj.net/blog/wp-content/uploads/2009/09/Article-ARE-UNIVERSITIES-PATENT-TROLLS.pdf)

First of all, I want to give a quick answer to the last claiming of this infographics: it compares softwares to spoken language. I totally agree with that but, even in the ‘human’ language, intellectual property exists! It is naturally protected by copyrights without patenting it. The protection is then more complete than patents on softwares. Like in a written document, softwares writers use information and creativity to present what they want to do – or to say – in a usable or understandable way. However, don’t understand what I did not say: I do not think softwares should be protected by copyright in the same way as language. I still think softwares are a product and not a way of speaking and it should then stay in the same system as product innovation.

Now, I will talk about patent trolls themselves.

Taking companies point of view, why should they not do business if business is possible. Patent trolls could be a way to make business, it could be very profitable but it is also very risky. It is like buying products that you think others will need in order to sell it at a higher price to whom who need it. Companies don’t usually take consumer surplus into account, they try to make profit and patents market is a way to make profit. We can compare patent portfolio with financial companies and their stocks portfolio.

However, from a social point of view, since it needs to take each parties’ surplus into account, patent trolls are probably not socially optimal. The costs to defend patents and the quantity of patents claims for technological products (sometimes 250,000 for a single smartphone) lead to high costs of licensing/lawsuits being leading to a higher final price for the consumer than the real price of the product.

In summary, I don’t think we have to blame companies active in ‘patent business’, they are not ngo’s or government but I’m sure that the system is not socially optimal. That is why patent laws should be defined in order to make these patent trolls either impossible – this goal is difficult to reach – or unprofitable – which I think is easier to achieve.

I would like to give my views on the patent troll. First, patent troll could be qualified as a new breed of companies that has emerged [1]. Even if this expression has already been used before, it is only in 1999 that Peter Detkin put forward this expression and he stated that it refers to “someone who takes a single patent or a small group of patents and is looking for essentially a nuisance-value settlement” [2]. In other words, we can say that patent troll is somebody who tries to make a lot of money off a patent that they are not practicing, and have no intention of practicing. In most cases never practice [3].

What does a patent troll exactly do with those patents? “It licenses the technology which has been patented to a firm that will incorporate the patent into a product, or it sues an entity it believes has already incorporated the technology in a product without permission”. Now, having briefly defined what they stand for, we can ask ourselves the following question: ‘Is patent troll good or bad for the society?’ Indeed, the government and the media are fighting against these patent trolls and both agree on the fact that these trolls are harmful for society and should be stopped. For instance, a new bill has been introduced by Rep. Peter DeFazio (D-OR) and co-sponsored by Rep which would force failed plaintiffs to pay defendants’ legal bills [4]. Moreover, loads of articles about this topic could be find explaining that patent troll has a negative effect on the economic growth since not only are jobs lost when companies loose a case, but also startups are threatened and real incentive to produce innovation decline [6]. Furthermore, firms have to pay a huge amount of money as legal fee which can be seen as a waste. And, what is even worse it that the number and the proportion of cases is still increasing, and do not seem that it would decrease in the near future [5].

However, I think that all blames cannot be thrown to patent trolls. The later can actually be good for the patent system. James F. McDonough III even wrote in an article that “the emergence of patent trolls is simply a stage in the natural evolution of the patent”. In fact, patent trolls could be seen, in a way, as market intermediaries in the patent market, acting like patent dealers. If we make a comparison between dealers in capital market and in patent market, we can say that the advantages which are provided by the patent dealers are similar to what is offering the dealers in capital market in terms of benefits securities. Concretely, in the patent market, such benefits as efficiency would be evoked in the sense that these patent dealers can “realign market participant incentives, making patents more liquid, and clearing the patent market. In addition it could be added that “Patent trolls stunt innovation and spur unnecessary litigation” [1].

Hence, these are two sides of the coin but it is true that when we talk about patent troll, at first sight, we only think about the negative aspect of it. Nevertheless, we have to bear in mind that nothing is perfect and there would always be pros and cons about any ideas, theories and concepts.

To conclude, I would like to point out what Mark A. Lemley [7] stated in an article where he was asking whether universities were Patent Trolls. It is true that universities are “non-practicing entities” and thus, “they share some characteristics with trolls, at least if the term is broadly defined”, but I share the point of view of the author that, still, they are not trolls.

[1] McDonough J III., “The myth of the patent troll: An alternative view of the function of Patent dealers in an idea economy”, Emory University School of Law Law & Economics Research Paper Series n° 07-7, Emory University School of Law, online (22/11/2012): http://papers.ssrn.com/sol3/papers.cfm?abstract_id=959945 (the full version can be downloaded here itself)
[2] Dufourcq A. (2006), “Patent Troll, un nouveau métier”, Spécialité droit innovation technique, online (23/11/2012) : http://www.legalbiznext.com/droit/IMG/pdf/Patent_Troll_un_nouveau_metier.pdf
[3] General Patent Corporation (2011), Patent Infringement and the Patent Troll, online (23/12/2012): http://www.generalpatent.com/media/videos/patent-troll
[4] Reed B., “Pay up, patent troll”, BGR, online (23/12/2012): http://bgr.com/2012/08/02/patent-troll-laws-proposal/
[5] Phipps S., Number don’t lie: Patent trolls are plague, Infoworld, online (23/12/2012):
http://www.infoworld.com/d/open-source-software/numbers-dont-lie-patent-trolls-are-plague-205192
[6] Bessen J., Ford J., and Meurer M., “The private and social cost of patent”, Boston University School of Law, online (23/12/2012): http://www.cato.org/pubs/regulation/regv34n4/v34n4-1.pdf
[7] Lemley M. (2007), “Are Universities Patent Trolls?”, Standford Law School, Media & Entertainment Law Journal, vol. 18, online (23/11/2012): http://papers.ssrn.com/sol3/papers.cfm?abstract_id=980776 (the full version can be downloaded here itself)