The Impact of Patent Trolls

You may or may not be familiar with the term patent troll. Rather than creating an exciting new product or generating inventive ideas, patent trolls are typically known to use patents as legal weapons. These trolls can be individual people or large companies who attempt to enforce patent rights against proposed infringers that are very far beyond the patent’s actual value. The infographic below, created by George Washington University’s Master’s in Paralegal Studies Online program, takes a closer look.

The Impact of Patent Trolls

How exactly does a patent troll operate? The process is a bit predatory, as trolls often purchase patents cheaply from companies who have run into a bit of bad luck. Since these companies are usually in a position where they are hoping to monetize the fee resources that are left. In these situations, patents, which are typically broad and vaguely worded, are sold to the highest bidder.

After taking ownership of the patent, the trolls then jump into action, sending threatening letters to anyone they may perceive is infringing on their newly acquired patent. These letters threaten legal action unless supposed infringers agree to pay astronomical licensing fees, sometimes in the six-digit range.

According to data, in just 2013 alone there were 3,134 patent troll suits, which accounts for more than half of all United States patent suits. These suits cost U.S. companies more than $30 million.

What’s perhaps even more frustrating, patent trolls also tend to target small and medium sized companies since these institutions lack the resources to fight trolls that larger organizations may have at their disposal. Recent data further proves this predatory tactic. Between 2010 and 2013, patent trolls, who are also occasionally referred to as Non Practicing Entities (NPEs), also cashed out three times the rate of real companies. Factoring in suits that failed to go to trial, lawsuits brought by NPEs cost about $29 billion each year. This is an exceptionally sobering fact when you consider that the median company sued in 2011 only had $11 million in overall revenue.

Patent trolls certainly take their toll on our judicial system as well. Trolls who use patents to collect licensing fees or legal settlements are responsible for a sobering 68 percent of U.S. district court cases. What’s more, in some jurisdictions, like East Texas, are notorious for ruling in favor of patent trolls. The trolls know this, and purposely file in this area in an effort to collect even more money. For example, motions to kill abstract patents have a 71 percent win rate nationwide. In East Texas motions to kill these patents have only a 27 percent win rate. Generally, patent trolls also avoid filing in Northern California and Delaware, as these areas have an even higher win rate than the national average.

Is there any evidence to support the theory that patent trolls are truly concerned with resolving legitimate intellectual property disputes?

The short answer is no. Trolls are only in this game for the cash. Patent trolls view these suits as an easy payday, as mean settlement costs for small companies usually amount to $ 1.33 million, while a single suit against a large company can rake in more than $7 million. When you add it all up, these individual suits lined the pockets of patent trolls with $6.8 billion in 2015 alone.

Large companies certainly are not free from the annoyance of patent trolls. Just last year Northern California tech giant, Apple Inc was ordered to pay a whopping $533 million to Smartflash, a British and Virgin Islands-based Non Practicing Entity. Samsung was also ordered to pay $1.7 million for supposedly infringing on two Bluetooth technology related patents. Symantec was also ordered to pay $17 million for using two anti-malware inventions it owned. Furthermore, there were 24 patent suits filed against online retailer last year, while computer manufacturer HP was named in 32 suits.

So how do we identify and eliminate patent trolls? The good news is policy is evolving to make it increasingly more difficult for patent trolls to file a seemingly endless stream of suits. At the end of 2013 the House of Representatives passed the Innovation Act, which aims to establish a “loser pays” rule for patent litigation, protect end users from lawsuits, and requires patent owners to be more transparent since owners often create “shell” companies to hide the ownerships true identity. This act also expands a patent office program to invalidate low quality patents, which allows defendants in cases involving financial patents to challenge them at their local patent office.

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