PATENT TROLLING AND ITS EFFECTS ON INNOVATION

ABSTRACT

In the contemporary landscape of intellectual property, the phenomenon of patent trolling, characterized by the strategic acquisition and enforcement of patents for financial gain rather than technological advancement, has garnered significant attention and debate. This article delves into the intricate facets of patent trolling, elucidating its modus operandi, impacts on innovation, and legal frameworks. Through an exploration of key terms and interpretations, including patents, infringement, and the evolving definition of patent trolls, the discourse navigates the contentious terrain surrounding this practice. Emphasizing both the negative and positive ramifications of patent trolling on innovation, the analysis elucidates how frivolous lawsuits, exploitation of weak patents, and impediments to research and development can stifle technological progress. Conversely, it highlights the role of patent assertion entities (PAEs) in defending inventors, stimulating investment in innovation, and influencing future technological advancements. Drawing from empirical studies and legal precedents, the article underscores the multifaceted nature of patent trolling and proposes measures for mitigation, including legal reforms, transparency initiatives, and international collaboration. Ultimately, it advocates for a nuanced approach that balances the protection of intellectual property rights with the promotion of innovation, thereby fostering a conducive environment for technological advancement and economic prosperity.

KEYWORDS

Patent Abuse, Non-Practicing entities, Patent Assertion Entities, Harvard and the University of Texas.

INTRODUCTION

In this modern era, we are finding numerous articles written on the issues relating to Patent Trolls, which are also known as non-practicing entities (NPEs) or patent assertion entities (PAEs), due to the proliferation of patent trolls have raised significant concerns within the realms of business, technology, and law. These entities exploit the legal framework surrounding patents, leveraging their ownership of intellectual property rights to extract monetary settlements or licensing fees from alleged infringers. Unlike traditional inventors or companies, patent trolls do not engage in the development, production, or commercialization of products or services based on their patented innovations. Instead, they wield their patents as weapons in legal battles, targeting a wide range of industries and technologies.

The rise of patent trolls has been fueled by several factors, including the increasingly complex nature of patent law, the rise of technology-driven industries, and the lucrative potential for financial gain through litigation. As a result, businesses of all sizes, from small startups to multinational corporations, find themselves embroiled in costly and time-consuming legal disputes initiated by patent trolls. These legal battles not only drain financial resources but also divert attention and resources away from research, development, and innovation.

Despite these challenges, efforts are underway to combat patent trolling and protect innovators from frivolous litigation. Legal reforms, such as the introduction of stricter patent validity standards and enhanced transparency requirements, aim to curb the abusive practices of patent trolls while preserving the integrity of the patent system. Additionally, initiatives to improve patent quality, promote alternative dispute resolution mechanisms, and provide support and resources for businesses facing patent litigation are gaining traction. This article includes both the darker and the lighter side of Patent trolling.

INTERPRETATION OF IMPORTANT TERMS

Patent

A patent is a legal grant from the patent office that gives someone exclusive rights to use their invention for a set time. This means only the inventor can profit from their creation during this period, and they can allow others to use it with their permission. The recipient of the patent is known as the patentee.

Patent Infringement

Patent infringement refers to the unauthorized use, manufacture, sale, or distribution of a patented invention. It occurs when someone without the patent owner’s permission makes, uses, sells, or offers to sell a product or process that is covered by one or more claims of a valid patent. Infringement will lead to legal action by the patent holder seeking remedies such as damages or injunctions to stop the infringing activities.

Patent Troll

The term “patent troll” first appeared in 1993, describing countries filing aggressive patent lawsuits. It became more widely known in 1994 through an educational video. The origin is attributed to Anne Gundelfinger or Peter Detkin, both counsel for Intel in the late 1990s. Currently, “patent troll” is a controversial term with various definitions, none universally satisfying. It typically refers to entities that purchase patents to sue others for infringement or enforce patents without manufacturing products. In other words, it is also known as a “patent pirate” or “non-practicing entity”.

The exact meaning of “patent troll” is unclear and often misused, even in research and media reporting. Some studies categorize all non-practicing entities as patent trolls, causing confusion. In 2014, PricewaterhouseCoopers did research on patent lawsuits in which they looked at non-practicing entities, like individual inventors and non-profit groups such as universities. But some news outlets, like the Washington Post, finalized by calling all these non-practicing entities as patent trolls.

For example,

VirnetX has lots of patents and pending applications among which once when they won a case, and their stock price shot up by almost 50%. Due to this most of the non-practicing entities, like universities, sometimes sue over patents they own but don’t use. Further, also other big tech companies like Apple and Samsung patent their inventions to use in their products and they sue each other to protect their inventions and market share. In 2015, there was a record number of patent disputes, especially in high-tech. Most of these cases involved NPEs, with patent trolls making up the majority.

How do Patent trolls work?

Usually, Patent trolls start by buying patents from struggling companies such as financially unstable or bankrupt companies, etc. Later, they find other businesses using similar ideas or designs covered by those patents. After that, they send legal threats to those businesses, warning them of potential patent infringement. So, their strategy involves purchasing patents, targeting companies using similar technology, and then suing them for alleged infringement.

Patent trolls make money by:

Licensing their patents to companies.
Persuading targets to settle.
Suing companies for patent violations and earning from lawsuits.
Damaging a business’s reputation to push it into a settlement or license deal.

EFFECTS OF PATENT TROLL ON INNOVATIONS

The foremost reason behind the grant of the patent is to reward the creativity of the inventor and by protecting the inventor’s creation, it acts as an inspiration or spark for further inventions which ultimately contributes to the technological development of the nation. An invention is said to be patentable only when it is found to be new with inventive steps and capable of industrial application. Since patent trolling also plays a crucial role in protecting such creativity of the inventors by filing a suit against infringers, it may at some point impact positively and sometimes negatively on such inventions. But most of the time, it is described to be resulting negatively and famously called as “an ugly cave-dwelling creature”.

Patent Trolling – Negative Effects on Innovation.

The major issue in the debate among most of the authors is that many patents being used in lawsuits are of low quality, this leads to small companies being pressured into settlements they can’t afford or larger companies paying fees just to avoid costly trials. Defending against these claims can bankrupt small businesses, causing fear among CEOs. Many small businesses lack patent expertise and end up agreeing to unfavorable terms. Mom-and-pop shops are also targeted with vague legal threats over common office equipment, even if they bought it legitimately. Non-practicing entities (NPEs) often sue for small amounts to gather funds for bigger lawsuits later. Sometimes, patent ownership is hidden behind shell companies, making it hard for companies to know who they’re dealing with and what patents they actually hold, leaving them vulnerable to more lawsuits.

A recent study by Harvard and the University of Texas shows that when companies are sued by patent trolls, they cut back significantly on research and development (R&D) spending. Companies that lost lawsuits or settled out of court with patent trolls spent an average of $211 million less on R&D compared to those that won against trolls. This reduction in R&D spending is directly linked to the litigation from patent trolls. The study also suggests that patent trolls deter innovation even before filing lawsuits. They are less likely to sue companies with many in-house lawyers because they fear lengthy legal battles. As a result, companies end up spending more on legal defense, leaving less money for developing new technology.

The study shows that patent trolls are opportunistic, targeting companies with money regardless of where it comes from. They often sue companies even if the patents in question are unrelated to their profitable divisions. This discourages large companies from investing in new technologies early on, as trolls might sue them before any profit is made. This undermines the purpose of patents, which is to reward innovation, as the system becomes less about innovation and more about profit for trolls due to low-quality patents and their opportunistic use.

In the case of Apple Inc v. VirnetX Inc[1], No. 17-1591 (Fed. Cir. 2019) Apple expressed surprise and disappointment at the verdict, stating it highlights the urgent need for patent reform. Meanwhile, patent trolls will continue to pose challenges to companies, causing economic and social costs and undermining the role of patent-holding firms in innovation.

US MADE’s[2], argument on Patent troll effects on the US Economy, “Investor-funded lawsuits, often led by patent trolls, harm our economy and global competitiveness. These trolls, backed by wealthy investors including foreign-owned hedge funds, exploit loopholes in the system to make money, even if it means hurting American businesses. They target vital industries like semiconductor chips and 5G development, forcing companies to either waste resources defending themselves or pay up. The lack of transparency allows them to hide behind shell companies, making it hard for Americans to know who’s really behind these lawsuits. We must prioritize a fair patent system that fosters innovation and protects American jobs over the profit-driven motives of hedge funds and litigation financiers.”

Patent Trolling – Positive Effects on Innovation.

While most of the articles describe trolls to be negative, there is a different approach that was exposed and highlighted by a Sr. Analyst, Anjali Chopra working in the market research field, in her article “Light Side of Patent Troll: Good For Innovation[3]”, points firstly question on how badly trolls are prejudicially labeled of being carrying negative connotations and referring to unfair taints organizations engaging in patent monetization activities. Her article says that such labeling overlooks the diversity of activities within these organizations and hampers objective evaluation, also associating patent trolls with organizations diverts attention from the merits of individual patents, hindering fair and rational decision-making processes.

Further, she also highlights categorizing all companies seeking to monetize their intellectual property as a troll, as unjust. Such a blanket classification disregards the legitimate rights of organizations to derive value from their innovations. For example, established technology giants like IBM, Apple, Microsoft, Google, and Samsung face unwarranted labeling as patent trolls when asserting their patent rights, despite their extensive technological contributions.

Later mentions the light side of the patent monetization agencies when they often act as advocates for small inventors whose patents are infringed upon by larger corporations. These agencies play a crucial role in safeguarding the rights of inventors who lack the resources to pursue legal action against infringers. In cases where small inventors face infringement by industry giants, the cost of litigation often poses a significant barrier to seeking justice. This economic inequality allows larger corporations to infringe upon patents without facing consequences, undermining the rights of inventors.

The article also connotes a study called “Trolls or Market-Makers: An Empirical Analysis of Non-practicing Entities” that analyzed patent litigation data from 2000 to 2008 and found that the patents used by these entities were actually quite valuable.

Contrary to popular belief, the study showed that patent assertion entities (PAEs) conduct thorough Intellectual Property due diligence and acquire high-quality patents with significant monetization potential. These patents receive more citations and have a considerable influence on subsequent patents, encouraging innovation in technology. Thus, patent troll is not really that bad as described by many authors.

PAEs serve a dual purpose: They protect the rights of inventors and incentivize them to continue innovating. They also play a crucial role in patent enforcement, which encourages potential infringers to either license technology or invest more in research and development, ultimately leading to increased innovation within industries.

Research by Alexander Galetovic further supports this, showing that innovation rates are strongest in industries often targeted by patent trolls. This innovation is reflected in declining prices of products like telephone equipment, televisions, and portable computers. So, rather than being harmful, patent assertion entities play a significant role in driving innovation and benefiting the economy. Some industries even rely on their services and prefer them over other options.

WAYS TO DEFEND AGAINST PATENT TROLLS

If you get a letter from a patent troll, talk to a lawyer right away. Don’t ignore the letter or respond without legal advice.
Don’t agree to any licenses without your lawyer’s guidance.
Consider investigating the troll’s claims, sometimes they might be weak.
Think about getting insurance for your inventions to be safe.
Present your side to the Patent Trial and Appeal Board. If they agree with you, it weakens the troll’s case.

In the case of Spice Mobiles & Samsung India v Somasundaram Ram Kumar[4], W. P. Nos. 9934 of 2009 the patent holder was labeled a ‘patent troll’ for exploiting the legal system with weak patents and not utilizing them. They sued Samsung and Spice Mobiles for patent infringement, but the defendants argued lack of novelty and inventive step. The Intellectual Property Appellate Board (IPAB) ruled in favor of the defendants, revoking the patent. This case underscores IPAB’s strictness and how stringent criteria for novelty and innovativeness deter patent trolling.

Legal Frameworks on such Trolls: India’s laws don’t directly address patent trolls, but tools like the Patent Act and Competition Act can be used to challenge their practices. These laws allow for challenging patents, regulating anti-competitive behavior, and providing civil and criminal remedies for infringement. India is part of the World Intellectual Property Organization (WIPO) to collaborate internationally. International cooperation helps countries learn from each other to deal with patent trolls. By sharing information and standards, countries can develop better ways to handle patent trolls. India also signed agreements like TRIPS, which sets basic rules for protecting intellectual property. TRIPS has a way of resolving disputes between countries regarding patent trolling issues.

Patent Abuse Prevention Measures: By making stricter rules for granting patents one can make it harder and costlier for trolls to sue for patent infringement. By reducing patent duration we can ensure trolls have less time to exploit them. Further Teaching people about patent trolling and its risks to help them protect themselves better. And also by offering help like legal advice to those facing patent lawsuits to keep innovation going., etc.

CONCLUSION

In summary, patent trolling has both positive and negative effects on innovation. On the downside, it often involves exploiting weak patents through frivolous lawsuits, harming businesses, especially smaller ones, and impeding research and development. The lack of transparency regarding patent ownership and the selective targeting of profitable industries further undermine trust in the patent system. However, patent assertion entities (PAEs) can also play a positive role by defending inventors, especially smaller ones, against larger corporations. Additionally, they acquire patents with significant potential, influencing future innovations and driving progress in various sectors. By encouraging investment in research, development, and technology licensing, PAEs contribute to a vibrant innovation environment.

To address the challenges posed by patent trolling, policymakers and stakeholders need to find a balance. This involves implementing legal reforms, promoting transparency, and fostering international cooperation. These measures can help mitigate the negative impacts of patent trolling while preserving the incentives for innovation, ensuring that the patent system continues to spur progress and prosperity.

REFERENCES

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[1] Apple Inc v. VirnetX Inc, No. 17-1591 (Fed. Cir. 2019)

[2] https://us-made.org/patent-reform/

[3] https://www.greyb.com/blog/patent-troll-innovation/

[4] Spice Mobiles & Samsung India v Somasundaram Ram Kumar[4], W. P. Nos. 9934 of 2009

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