Have you heard of patent trolls? No, it’s not a new animated movie character but rather a real class of businesses and individuals who use today’s patent laws and systems to aggressively acquire significant patents in software, computer and technology areas. The process starts when a shell company – known as Non-Practicing or Non-Performing Entity or NPE – buys rights to patents or licenses. The NPEs are also called “patent trolls” because they exist only for one reason – to buy patent-protected designs and inventions.
To understand why patent trolls exist, we need to know more about patent law and recent awards. According to recent U.S. patent office statistics, about 60% of all patents awarded in the last 20 years have been granted for computer software. When added to other patents granted in computers and communications technology, the total rises to 75%. So, the NPEs and patent trolls know that these areas are the most active when it comes to acquiring or buying patents or patent rights. These market segments are also made up of some very large companies and corporations – Microsoft, Google, Oracle, Apple, Dell and many others. Because the market is large and continues to grow, acquiring or purchasing patent protected products and services in these segments can be profitable.
Most patent trolls – and there are close to 400 in the U.S. alone according to Patent Freedom – an organization that tracks these companies and their activities – expect that the patented products they acquire will be popular and useful enough to generate revenue. Potential conflicts can arise, though, when an NPE purchases a patent or group of patents that the larger companies try to work around. The NPEs typically will challenge the larger corporations and many times, these conflicts result in lawsuits.
Why would NPEs be successful and why are they called patent trolls? To begin with, software patents in particular, but also many computer-related patents have 3 issues which some observers believe open the door for NPEs. Many times software patents can be written and approved in vague language. By contrast, chemical, engineering or drug patents for example must be written with much more concise and defined terms. Trying to buy a drug patent, and then challenging a major drug maker for patent infringement would be very difficult. The NPEs have a much easier time of buying or licensing computer and software patents, then challenging large, publicly traded companies because of the vague language used.
A second factor that contributes is application continuation rules. According to current patent law, a company or inventor can file patent applications and keep them on file as applications rather than awarded patents. As technology or software changes, these applications can be modified and re-filed. As an NPE changes its patent applications to adjust for technology changes, that can at times result in additional conflict with larger companies.
Finally, the cost of renewing patents is relatively small compared to their value or worth on the open market. Today a patent can be renewed for approximately $1,000. To protect their interests, even if a patent troll pays a high amount initially to buy or license a patent, they can renew that patent for a relatively small amount. Compared to many recent settlements of these patent infringement lawsuits – in the millions of dollars – the cost to renew a patent is trivial.
The patent trolls and NPEs have one advantage that keeps them going in today’s market. When large companies like Microsoft, Google and many others acquire patents – and most of these large companies have tens of thousands – they know that infringement lawsuits against the other large companies will only be met with return lawsuits. If Microsoft sues Google for a patent infraction, chances are Google will turn around and sue Microsoft for something similar. To avoid this kind of back and forth in the patent arena, stockpiles of patents are usually seen as a deterrent. And, unfortunately, the software, computer and technology markets have seen increasing usage of patent stockpiles among most large companies. For the smaller NPEs, though, who also provide revenue to small company inventors and individuals by purchasing their patents, when conflicts arise larger companies tend to settle rather than start reverse lawsuits. The NPEs typically have few resources and larger companies realize the futility or suing these companies.
Patent trolls do exist, yes. Most of the negativity surrounding the name comes from outside observers who believe that NPEs exist only to sue big corporations. However, like some of the movie trolls you’ve seen recently, there is a good side to these companies as well. They do provide revenue and payments to smaller companies and inventors who might not otherwise be able to realize financial gains from their patented products and services.