Patent troll
In international law and business, patent trolling or patent hoarding is a categorical or pejorative term applied to a person or company that attempts to enforce patent rights against accused infringers far beyond the patent's actual value or contribution to the prior art, often through hardball legal tactics. Patent trolls often do not manufacture products or supply services based upon the patents in question. However, some entities that do not practice their asserted patent may yet not be considered "patent trolls" when they license their patented technologies on reasonable terms in advance.
Other related concepts include patent holding company, patent monetization entity, patent assertion entity, and non-practicing entity, which may or may not be considered a "patent troll" depending on the position they are taking and the perception of that position by the public. While in most cases the entities termed "trolls" are operating within the bounds of the legal system, their aggressive tactics achieve outcomes contrary to the origins of the patent system, as a legislated social contract to foster and protect innovation; the rapid rise of the modern information economy has put the global intellectual property system under more strain.
Patent trolling has been less of a problem in Europe than in the United States because Europe has a "loser pays costs" regime. In contrast, the US generally employs the American rule, under which each party is responsible for paying its own attorney's fees. However, after the US Supreme Court's decision in Octane Fitness, LLC v. ICON Health & Fitness, Inc. on April 29, 2014, it is now easier for courts to award costs for frivolous patent lawsuits.
Etymology and definition
The term patent troll was used at least once in 1993, albeit with a slightly different meaning, to describe countries that file aggressive patent lawsuits. The 1994 educational video, The Patents Video also used the term, depicting a green troll guarding a bridge and demanding fees. The origin of the term patent troll has also been variously attributed to Anne Gundelfinger, or Peter Detkin, both counsel for Intel, during the late 1990s.Patent troll is currently a controversial term, susceptible to numerous definitions, none of which are considered satisfactory from the perspective of understanding how patent trolls should be treated in law. Definitions often include a party that does one or more of the following:
- Purchases a patent, often from a bankrupt firm, and then sues another company by claiming that one of its products infringes on the purchased patent;
- Enforces patents against purported infringers without itself intending to manufacture the patented product or supply the patented service;
- Enforces patents but has no manufacturing or research base;
- Focuses its efforts solely on enforcing patent rights; or
- Asserts patent infringement claims against non-copiers or against a large industry that is composed of non-copiers.
Confusion over the usage of the term "patent troll" is clear in research and media reporting. In 2014, PricewaterhouseCoopers published research into patent litigation including a study of non-practicing entities including individual inventors and non-profit organizations such as universities. In quoting that research, media outlets such as The Washington Post labeled all non-practicing entities as patent trolls.
Legal and regulatory history
According to RPX Corporation, a firm that helps reduce company patent-litigation risk by offering licenses to patents it owns in exchange for an agreement not to sue, patent trolls in 2012 filed more than 2,900 infringement lawsuits in the US.In addressing the America Invents Act passed by Congress in September 2011 reforming US patent law, US President Barack Obama said in February 2013 that US "efforts at patent reform only went about halfway to where we need to go." The next indicated step was to pull together stakeholders and find consensus on "smarter patent laws."
As part of the effort to combat patent trolls, the Patent Trial and Appeals Board was empowered to begin conducting the inter partes review process in 2012. IPR allows an executive agency to review the validity of a patent, whereas previously such a review could only be conducted before a court. In 2018, the Supreme Court upheld the constitutionality of the IPR process in Oil States Energy Services, LLC v. Greene's Energy Group, LLC. In 2015, 45% of all patent cases in the United States were filed in the Eastern District of Texas in Marshall, and 28% of all patents were filed before James Rodney Gilstrap, a court known for favoring plaintiffs and for its expertise in patent suits. However, in May 2017, the Supreme Court of the United States ruled unanimously in TC Heartland LLC v. Kraft Foods Group Brands LLC that patent litigation cases must be heard in the state in which the defendant is incorporated, shutting down this option for plaintiffs.
On June 4, 2013, President Obama referenced patent trolls and directed the United States Patent and Trademark Office to take five new actions to help stem the surge in patent-infringement lawsuits tying up the court system. Saying "they don't actually produce anything themselves, they're just trying to essentially leverage and hijack somebody else's idea and see if they can extort some money out of them," the President ordered the USPTO to require companies to be more specific about exactly what their patent covers and how it is being infringed.
The Administration further stated the USPTO will tighten scrutiny of patent claims that appear overly broad, and will aim to curb patent-infringement lawsuits against consumers and small-business owners using off-the-shelf technology. The President asked Congress to enact legislation to more aggressively curb "abusive" lawsuits. David Kravets said "he history ebooks will remember the 44th president for setting off a chain of reforms that made predatory patent lawsuits a virtual memory."
In the US Congress, Senator Orrin Hatch sponsored legislation in 2013 intended to reduce the incidence of patent trolling. The bill, called the Patent Litigation Integrity Act, would help judges make patent trolls pay for the cost of the lawsuits, especially if the trolls lost the lawsuits.
In February 2014, Apple Inc. filed two amicus briefs for cases pending in the US Supreme Court, claiming to be the #1 target for patent trolls, having faced nearly 100 lawsuits in the preceding three years.
In November 2014, the US Federal Trade Commission settled its first consumer-protection lawsuit against a company, for using "deceptive sales claims and phony legal threats". The FTC found that defendant MPHJ Technology Investments LLC had sent letters to more than 16,000 small to mid-size businesses threatening patent infringement lawsuits if the companies did not comply with its demand for licensing fees of $1,000 to $1,200 per employee, but never making preparations for such lawsuits. The 2014 settlement provided for a $16,000 fine per letter that MPHJ or its attorneys would send.
State responses in the United States
In May 2013, Vermont's Consumer Protection Act took effect. The Vermont law prohibits bad faith infringement threats, with bad faith indicated by: lack of specificity of the alleged infringement, settlement demands or damage claims that include excessive licensing fees, and unreasonably short deadlines for payment of demanded money. Vermont's statute gives recipients of threat letters the right to counter-sue in state court, thus making it a less lucrative business model to send out large numbers of threat letters. As of August 2013, the Vermont legislation had not been tested in court as to violation of federal preemption, the legal principle that bars states from interfering in matters regulated or administrated by the federal government, or enforcement of federal law.In August 2013, Nebraska's attorney general sent warnings to a patent troll's law firm, asserting that to send frivolous licensing demands to Nebraska businesses may constitute unfair and deceptive business practices and violate Nebraska's unfair competition law.
In 2013, Minnesota's attorney general obtained a settlement prohibiting MPHJ Technology Investments LLC from continuing its licensing campaign, Minnesota said to be the first state to obtain such a settlement.
In April 2014, the Wisconsin governor signed legislation that would make patent-trolling Wisconsin companies more difficult. The legislation imposes strict notification duties on the entity claiming infringement, and there are potentially strict penalties for non-compliance with the notification process.
In the 2014, legislative session, Idaho Lieutenant Governor Brad Little sponsored Senate Bill 1354, or the "Patent-troll" bill which protected companies from "bad faith assertions of patent infringement", in which a patent holder frequently harasses businesses for purportedly infringing on a patent in order to collect an extortionate licensing fee.
Causes
The cost of defending against a patent infringement suit in Texas, as of 2004, was typically $1 million or more before trial, and $2.5 million for a complete defense, even if successful. Because the costs and risks are high, defendants may settle even non-meritorious suits they consider frivolous for several hundred thousand dollars. The uncertainty and unpredictability of the outcome of jury trials in the United States also encourages settlement.It has been suggested that examination backlog, which does not give patent examiners sufficient time to examine patent applications, but rather favors speedy issuance of invalid or partially invalid patents, facilitates patent trolling.
There is also no obligation to defend an unused patent immediately, thus manufacturing companies may produce the patented product for years until the patent troll sues them. For example, the JPEG format, intended to be free of license fees, was subject to two patent-based attacks, one by Forgent Networks during 2002–2006 and another by Global Patent Holdings during 2007–2009. Both patents were eventually invalidated based on prior art, but before this, Forgent collected more than $100 million in license fees from 30 companies and sued 31 other companies.