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March 15, 2005

Who are the patent trolls?

The oddest thing about the patent game is casting moral aspersion about exercising one's legal rights.

The basic rules are simple: a patent is an alienable right of monopoly, a tradable commodity of the most flexible sort. But, the way the game is played, holding a patent is like owning an oil patch - it takes capital investment to drill for the gusher. Often the capital investment can be quite substantial, to the tune of a few million in litigation fees.

According to the American Intellectual Property Law Association, for lower bracket patent litigation cases, where up to $25 million is at risk, expect $2 million in the patent poker pot to litigate through trial and appeal. For more than $25 million at risk, ramp the figure above $4 million.

A page on the web site The Word Spy defines a patent troll as: "A company that purchases a patent, often from a bankrupt firm, and then sues another company by claiming that one of its products infringes on the purchased patent." The imaginative term "patent troll" was coined at Intel, which had been sued for libel for using the less colorful "patent extortionist". Got a pejorative and don't want to get sued? Use more oblique and colorful language!

In the same vein, the term “patent vulture” has been used, but suffers analogy breakdown: if the plaintiff is the vulture, that makes the defendant a carcass.

Patent troll is often bandied at patent licensing companies that buy patents from individuals or small companies, then turn them into money spinners. Individuals and small companies that sell their patents off often lack the knowledge and/or resources to pursue patent enforcement, so take the bird in the hand for the flock in the bush that they can only hear the rustling of, but never hope to catch.

One could practically define the historical engine of capitalism as exploiting market opportunities through offering increasingly specialized products and services. So why it is insensible, unethical, or immoral that there are specialists in monetizing patents?

"Patent troll" may easily cross the lips of behemoth corporate counsel who feel besieged by patent suits from relative small fry. From the Fortune 50 viewpoint, small companies and individuals take the mantle of patent troll for trying to profit from their nimble inventiveness.

There are no known statistics as to what percentage of patent plaintiffs simply seek reasonable licensing fees versus imagining playing the role of giant slayer, but it strikes me unlikely that the typical small company CEO with a bit of a patent portfolio walks around with a chip on the shoulder spoiling for a huge legal bill.

Similarly, individual inventors get satisfaction from having their patented technology employed; they themselves lacking the resources to put their inventions into the marketplace; and simply seek recompense for being first at the gate with an innovation. Throughout history, wasn’t that the general idea in setting up a patent system? (Renaissance England being a notable exception, where patents became crown-awarded corporate monopolies having little or nothing to do with invention. It seems that every good thing suffers serious corruption at some point.)

It is a regular practice of companies to stick their heads in the sand at the sight of a patent assertion notification letter, or grab an opinion against willfulness, just in case the sand gets hot. Irregular is a company responding to such a notice with a reply initiating negotiation. The fact that so many large companies, thoroughly experienced in handling patents, regularly battle in patent litigation, rather than sorting things out outside the courthouse, bears this out. And so, for a patent holder, litigation is often a forced act, not for lack of first reaching out. Who's the troll?

Intertrust went on the block in 2002, valued only for its patent portfolio, and was snatched by Sony & Phillips for $453 million. Two years later, Microsoft settles for $440 million to get the Intertrust patent monkey off its back. How about those patent trolls Sony/Phillips! Or, was it just that Microsoft lacked the foresight to snag Intertrust for itself; penny wise and pound foolish, perhaps?

For a moral measure, let’s try defining a patent troll as someone who knowingly abuses the patent system.

The patent office is the first gatekeeper of patent system integrity. Examination quality is an issue of resources.

In 1991, legislation changed patent office funding from general tax revenues to so-called user fees. Since, federal budgets have siphoned surplus revenues from the patent office in a period where patent applications doubled. As we all know, the patent office has been swamped with an application backlog approaching five years to first examination, particularly in high-technology areas. Do you smell troll? Fortunately, patent office fund diversion is finally being staunched, thanks to the current administration, who let the issue ride in its first term.

The ethical rules of engagement for patent prosecution are that an applicant must reveal any known relevant prior art. There is no obligation to go looking for it. As an abstract rule, fair enough. Practically speaking, however, having a working knowledge of the prior art before filing a patent seems a basic prudence.

Sometimes the prior art is well known by an inventor, particularly in companies specializing in niche technologies with deep experience in that area. But patent attorneys often file applications without a patentability search, where the prior art is relatively unknown. Sometimes this occurs at the client company’s insistence, for fear of finding patents they may be infringing; but it also occurs as a supposed cost-savings measure. Patentability searches commonly raise questions that cause additional work/cost in getting an application filed; never mind that the additional work probably translates into a better patent application, and could spare spurious filings. Easier all around to clog the patent office, let the examiners do the heavy lifting. Do you smell troll?

In April 2004, David Kaefer, Microsoft's director of technology policy, said, "For those who don't have valid intellectual property or valid claims, we are not in a settlement posture." Mr. Kaefer left unsaid exactly how Microsoft discovers validity. Truth be known, Microsoft regularly uses patent litigation as a vetting process, rather than proactively engaging in a validity search themselves as a prelude to negotiation. With dozens of patent suits against Microsoft regularly on the griddle at any one time, Microsoft’s patent vetting strategy is open for all to view: raise the bar to patent holders by forcing patent enforcement through the courts. Do you smell troll?

Plaintiffs commonly assert patent infringement without vetting their patents for validity. Lord knows all granted patents are valid; ask the owners of the Eolas patent, who just got their asses handed to them by the appeals court from a one-half billion dollar district court bad call against Microsoft regarding validity. You wouldn't want to know if that gun was just a replica before waving it around, now would you? Do you smell troll?

Posted by Patent Hawk at March 15, 2005 1:44 PM | The Patent System

Comments

Thanks for the helpful commentary on patent trolling. I'm a student and tomorrow my school is having an IP attorney speak about this issue. The above analysis provided me with some valuable background and some interesting ideas, which I hope in turn will lead to an informed discussion at tomorrow's lecture. Thanks again.

Posted by: Justin Vaughan at November 2, 2005 6:14 PM