All About Patent Trolls

What is a Patent Troll? 

A patent troll can be an individual or a company that buys patents from a company and uses patent infringement claims to threaten litigation against another business. They earn profit through settlements or winning lawsuits and are not involved in manufacturing their own goods or offering services.  

How Do They Operate?  

The main modus operandi of patent trolls is to first buy patents from bankrupt or financially unstable companies, and then use them to threaten businesses with infringement litigation. The pattern followed by trolls is: 

1. Buy: Approach financially distressed companies with relevant patents and offer to purchase their patents. 
2. Target: Identify businesses that are using a similar process or design to the purchased patents. 
3. Sue: Shoot off legal threats to these businesses threatening patent infringement.  

Patent troll companies are referred to by many names such as nonpracticing entities (NPEs), patent assertion entities (PAEs), patent sharks, patent dealers, patent marketers, etc. It is important to note that patent trolls do not manufacture any products or use their owned patents for commercial purposes. The sole intent of patent trolling is to threaten someone using a similar design with infringement and earn through licensing or settlement fees.  

Patent trolls usually buy from: 

• Bankrupt businesses that need to sell off assets 
• Small businesses that do not have the finances to protect themselves from trolls. 
• Companies that have a large patent portfolio that has not been commercially utilized. 

How Patent Trolls Affect Businesses 

Patent trolls have a devastating effect on businesses, especially SMEs, who do not have the resources to defend themselves. A few ways in which trolls affect businesses are: 

• Most patent trolls use low-quality patents to force small companies into settlement and bigger companies into paying a licensing fee for using the technology. Since patent infringement cases are prohibitively expensive and can drag on for years, most companies give in to the demands of the trolls. 
• Many businesses are forced into arrangements that restrict their innovation and severely inhibit their ability to grow. This has a negative impact on the economy and also serves as a deterrent to other entrepreneurs.  
• Credible businesses that can make a positive impact with their research and innovation seldom enter areas where patent trolls are most active. This leads to stagnation, and new products and tech are never developed despite huge potential. 

• The inability of companies to grow due to extortion of huge sums of money, which in turn directly affects the creation of jobs, which impacts the economy.  

Defending Against Patent Trolls 

Despite many states having passed anti-patent troll legislation, trolling continues to take a toll on business across the United States.
Below are some measures that may be adopted to defend against patent trolls: 

1. Upon receiving a demand letter from an NPE, immediately refer to a lawyer. Never engage with patent trolls without consulting a lawyer first. Also, never ignore such letters as frivolous, because this can prove to be a costly mistake in the future.  
2. Never sign any licensing agreements until you have discussed them with your lawyer.  
3. Taking an aggressive posture is an option too. Get professional services to look into the infringement case and weigh its credibility. A lot of times NPEs do not have any strong arguments. 
4. Opt for intellectual property insurance for your novel designs and processes as a precautionary measure.  
5. State your case before a Patent Trial and Appeal Board of the United States (U.S.) Patent and Trademark Office (USPTO). If the board clears your product, then the case filed by the trolls weakens.