What is a Patent Troll?

[cross-posted at Prawfsblawg]

I plan to write a couple posts about my forthcoming article called Patent Troll Myths.  The article is a culmination of two years of data gathering and analysis from many different sources.

But first, how can we assess myths about patent trolls  if we don’t know what they are? There are two ways people deal with this: some try to define them, and some sidestep the issue. I sidestep the issue in my study, so I thought I would try to define them in this post.

While patent trolls makes for a catchy title, I consider my study to be one about “NPEs” – or “non-practicing entities.” An NPE is any patent owner/licensee/enforcer that does not create a product – and thus cannot be countersued for patent infringment. More on the dynamics of this in a bit.

There are many different types of NPEs – individual inventors, inventor owned companies, universities and their related entities, failed companies, design houses and think tanks, patent acquisition and licensing companies, and even enforcement companies affiliated with productive companies.

The core issue is that patent rights are alienable; any owner can transfer rights to another. Thus, many NPEs may enforce patents created by inventors at productive companies.

If patents are alienable, then why should we care about NPEs?  For one, patent defendants just hate them. As noted above, an NPE cannot be countersued for infringment, so there is no “mutually assured destruction” like you might see between competitors (how often do you see big companies suing IBM?). Further, there are fewer easy settlements, because NPEs have no need for a cross-license to patents owned by the defendant. Thus, defendants feel like they are forced to settle cases for cash just to avoid litigation costs.

And this is where the pejorative term “patent trolls” comes in. They hide under the bridge and wait for industry to create (allegedly) infringing products, only to block the path and exact a toll.

For defendants, it seems that every NPE should be a troll – they are all immune from countersuit for infringement and thus have no reason to be “reasonable” in litigation settlement talks. (This is untrue, of course – patentees always risk having their patent invalidated; if they didn’t you would rarely see settlements instead of the actual widespread settlements).

For some reason, though, not all NPEs are called trolls. Universities, for example, do not seem to be common targets for ridicule. Perhaps this is because they often license to productive companies; universities very rarely enforce their own patents. Individuals are rarely called trolls. One might think this is because of the garage inventor ethos. I’m doubtful, though, because individuals become trolls when they gather enough resources and sue enough defendants to get noticed. At that point, they may be more likely to try to stretch their patents to cover technologies that they did not invent.

This, I think, leads to the real definition for me – I think trolls are trolls when they overreach. So what do we call practicing entities that overreach? We’ll leave that for another day. Alas, we will also leave the question of overreaching for future study as well.  Phase II, patent quality and litigation outcomes, gets underway this summer.

This study, however, will look at the companies that obtained the patents that NPEs are enforcing. Were they NPEs? Were they productive companies? I’ll explain the study and the results in a future post.