Patent trolls otherwise known as Patent Assertion Entities (PAE) can be described as an individual or shell company that purchase patents with a view to extracting large sums of money via progressive litigation on the company that is supposedly infringing the patent.
They generally don’t tend to be inventors themselves but rather business opportunists looking to make an easy deal in the patent market. Companies that are most often targeted are generally within the software development and telecoms industry as the patents in this area are generally broadly written and difficult to decipher. PAE’s will find a target and threaten them with litigation unless they pay royalties or licensing fees for the patent. This in turn can have a negative effect on the economy with company’s focusing more on litigation than on research and innovation. Defending lawsuits can be costly especially in the U.S. where each party has to bear their own legal costs. Companies will often choose to settle out of court, thereby creating a very lucrative market for PAE’s. It has been estimated that a patent lawsuit can range anywhere from a few thousand to a few million dollars and with only a handful being able to bear these costs they often pay out and settle in secret and quickly.
As patent trolling can be very lucrative there is no doubt that many entrepreneurs are catching on to this concept. One such company is Intellectual Ventures. The exact amount of patents they own is difficult to know, however Business Insider estimated this to be around 30,000 and was described as the “mother of all patent trolls”. Intellectual Ventures has many subsidiary branches making it difficult to ascertain the exact amount of patents they really own. This coupled with many deals most likely agreed privately raises concerns as to the extent of this activity.
The Obama administration at the White House has called for urgent action to tackle this before it can further cripple the economy and burden the courts any further. A notable piece of law that passed in 2011 was the America Invents Act (AIA) designed to keep pace with evolving technology, including making the patent system more reliable. The AIA requires companies which are targeted to report PAE’s and in turn this is meant to discourage trolling. However the fees recommended are still too low and the amount of claims have continued to rise and have tripled.
Further measures have been recommended by the administration to tackle these issues, namely:
1. Patent owners having to disclose who owns the patent which in turn may discourages PAE’s hiding behind shell companies and making bogus claims.
2. Make the demands public to ensure they are legitimate.
3. Allow the courts to award the losing party’s costs to be borne by the winner therefore giving an incentive for targeted companys to tackle PAE’s.
Currently PAE’s have not entered the UK or European markets, on a large scale at least. However with technology and internet not necessarily restricted demographically, the concept may soon catch on to aspiring entrepreneurs here and/or companies here may be targeted by US patent trolls.
In 2012 the European Parliament agreed on the patent package, which allows for the unitary protection of patents in the European Union, and this has subsequently been approved by 25 Member States. Although not ratified yet, one of the key points to note in this new reform is they have largely adopted the UK system in terms of awarding costs. In the UK the courts have discretion to award litigation fees of the winning party to the losing party which in some cases would be PAE’s. This in turn should hopefully mitigate future applicants hoping to cash in on patent trolling. As discussed above the US are looking into instigating a similar model and hopefully deter those trolling other companies which have been the prime factor as to why those previously targeted rather paid out than challenged the PAE in court.