The New Plague, Patent Trolls

Office folder with inscription Patents.by Michael Pezzulli 1

Trolls can be first seen in Norse folklore, focused mainly in the early Scandinavian countries that the Vikings had total control over—such as Norway and Sweden. The word “troll” actually evolved over time and wasn’t the first name of this type of creature. In the Scandinavian languages, the word is actually a root for just about everything mystical and magical. “Trolleri” was considered to be a type of magic that was intended to harm others and is probably the primary source for the term “troll” for these mythological creatures were considered to be particularly malignant, especially toward humans, in stories from folklore.2

Sadly, the Troll has crawled out from under the bridge and has firmly attached itself to Patent Litigation; however, it has never lost its malignant nature, especially towards humans and the innovation industry. This malignancy has continued to spread throughout the United States. “The number of patent lawsuits filed spiked by almost 30% in 2012 to over 5,000, with some of that increase attributed to the AIA’s ‘anti-joinder’ provision…. Patent infringement litigation shows no signs of cooling off, either as a means of generating revenue or of protecting competitive advantages.”3

One of the big problems is the proliferation of NPE’s (Non Practicing Entities), which continue to play a significant role in patent litigation. NPE’s now account for the majority of the patent infringement litigation in the United States. That folks, is a mess, which requires a look into what the heck is an NPE. An NPE has been defined in a number of ways, a Patent Troll or any entity that earns or plans to earn the majority of its revenue from the licensing or enforcement of its patents.

In essence, a NPE is someone who holds a patent or produce but has no intentions of developing it. The Trolls tend to amass a large number of patents with the intention of launching patent infringement suits against companies and individuals that they claim have improperly used some piece of the patent they hold. The Federal Trade Commission (“FTC”) now uses the term PAE’s (Patent Assertion Entities) to identify Patent Trolls from the NPE’s that have different motives.

Now you may say, what’s the big deal about Patent Trolls?

“Abusive patent litigation is a drag on our economy. Everyone from independent inventors, to start-ups, to mid and large sized businesses face this constant threat. The tens of billions of dollars spent on settlements and litigation expenses associated with abusive patent suits represent truly wasted capital – wasted capital that could have been used to create new jobs, fund R&D, and create new innovations and technologies that “promote the progress of science and useful arts.”4

The strategy of a Patent Troll is simple: acquire a patent, form a company (“NuCo”) that has no assets, dump the patent into the NuCo so that if things go south the actual perpetrators of the Trolling don’t have any personal exposure and sue as many companies as they can with the belief that the companies don’t want the adverse publicity or the expense of a full-blown patent fight. The hope and belief of the PAE is that the companies will each pay a small fortune to extricate them from the lawsuit and the PAE walks away with a pocketful of money for little or no effort.

Patent Trolling has been problematic in the past since the patents that the PAE’s sue on are so vague and indefinite that it is virtually impossible to defend against the claim of infringement. In addition there has been a reluctance in the past to award attorney’s fees against the PAE.

Fortunately, help may be on the horizon…  read Patent Trolls and The Innovation Act

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1. Michael Pezzulli, a Texas attorney and Shareholder at Holmes Firm PC, has been Board Certified in Civil Trial Law for 30 years and has tried the spectrum of cases, including patent and trademark disputes. He has one patent issued in his name (4,760,773) and two on the drawing board.
2. http://www.mysticfiles.com/trolls-from-ancient-to-modern/
3. 2013 Patent Litigation Study, PWC 2013 at Page 2.
4. “The Harmful Impact of Patent Trolls on American Business”, Statement of House Judiciary Committee Chairman, Bob Goodlatte. March 2015. http://judiciary.house.gov/index.cfm/2015/3/the-harmful-impact-of-patent-trolls-on-american-businesses

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