Most people paying any attention at all have heard the term “patent troll.” The image really sticks in the mind: some nasty gnome, hiding under a bridge and demanding a tithe from anyone trying to cross.
In Google Books Ngram Viewer, the phrase “patent troll” first comes up in 2001. Within a year, instances multiply like rabbits.
It turns out that the phrase has a specific origin. It traces its genesis to a moment when Chuck Mulloy, who was a spokesperson for Intel in the spring of 2002, was speaking to the tech press. He called Ray Niro, an opposing attorney in a case against Intel, a “patent extortionist.” The term “extortionist” turned out to be a little too specific for Niro, who promptly sued Intel for defamation. Inside Intel, a staff lawyer named Peter Detkin knew the company needed a term that was not defamatory. He came up with “patent troll.” Detkin defined patent troll at the time as “somebody who tries to make a lot of money from a patent that they are not practicing, have no intention of practicing, and in most cases never practiced.” Despite the basic nastiness of the term, the mythical troll can be a cute little gnome, leaving just enough ambiguity while preserving an essential pointedness.
This case allowed Intel to define a divide in the intellectual property world between a company makes things with intellectual property, either created by the company itself or licensed from a patent holder — and one that holds patents and enforces them, but doesn’t have any operating business that makes use of them to build something. But this clever sleight of hand obscured a more important distinction between companies that primarily create and license intellectual property and those that predominantly use it to build and sell things: inventors vs. implementers.
Companies that make nothing and have no aspirations to do so actually have a formal name. They are called Non-Practicing Entities (NPEs). For the most part, what they do is buy patents from inventors (and people who have bought them from inventors) and threaten to sue anyone who uses them without paying stiff royalties. Their business model chiefly involves acquiring patents and shaking down manufacturers who trip over them.
NPEs justify their business model by saying they allow inventors to realize some of their inventions’ value, which they might not otherwise at all. In fact, NPEs pay inventors one time to acquire their patent rights and then use them repeatedly in enforcement actions against infringers, harvesting all of the upside. But nonetheless, NPEs not only have a legal and philosophical point, but they also help balance the value equation in favor of inventors. Otherwise, manufacturers with financial clout would push less-well-heeled inventors to the wall. Examples of underfunded inventors could include creators of vibrant intellectual property like universities and think tanks.
In defending the rights of inventors, however self-serving, NPEs are leaning on as well as supporting a venerable principle enshrined in the Constitution of the United States.
In 1790, the Founders put an intellectual property clause right into the document. Before then, patents were a royal privilege, granted to a wealthy elite with no requirement to protect original makers. Our goal in the United States was to enable individual inventors to attain property rights in “their [own] invented labors.”
The concept of modern patents was an intentional feature of our system of government. Explicitly, there was no requirement to manufacture. A patent holder could be a specialist in invention, enable others to make the patented product under license, or sell the patent outright.
By comparison, the idea that patent holders are trolls who just want to get paid is fairly recent. In the previously referenced case, one version of the tale has Intel, the intellectual property developer, attempting to kill a competitor, and TechSearch, despite being an NPE, trying to resurrect an operating company fallen into bankruptcy. In this case, the so-called troll was playing the white knight, and the valiant operating company was simply squeezing a much-smaller competitor.
Despite Intel’s ownership of vast amounts of intellectual property, it derives almost none of its revenue from licensing. The company uses its patents defensively to limit legal exposure and weaken competitors. It is a past master at protecting its own patents with lawsuits and strategic cross-licensing — while weakening the patent rights of others.
Because of this positioning, the company found, over time, common cause with mature Silicon Valley manufacturers like Hewlett-Packard, Cisco, and Micron. In the mid-2000s, these firms were all seeking to lower their own bill-of-materials costs while protecting their native intellectual property. They made full throated use of the troll narrative, and it took on a life of its own.
They orchestrated a campaign involving corporate lobbyists, industry groups like the Internet Association, and OpEds in the newspapers fanned an increasingly strident chorus raging on about a rise in vicious trollery and culminating in a demand that Congress look at limiting patent rights. All during the noughts, patent filings skyrocketed as the technology era reached a crescendo, and with them came a rise in lawsuits. Manufacturers sought to weaken patent rights claims through legislative action. “Solve the troll crisis!” they roared.
The troll narrative includes a concept of “validity.” Infringing defendants claim that much of the huge volume of patent filings in the 21st century has been composed of “overbroad” patents, this overbroadness being akin to trying to patent sunlight (something everyone has anyway) or a globular shape (something that anyone could think up). In other words, they are saying there has to be some actual invention in the patent.
Despite legitimate patent holders’ attempts to tamp down the rebellion against established patent law, congress heard the anti-trollery outcry and began a debate that led to the Leahy-Smith America Invents Act (AIA) of 2011, the first amendment to the patent statutes in 59 years.
From an operating patent holder’s point of view, the legislation weakened all patent rights by making them more costly to enforce. Because patents are intangible, they can be stolen unless they have legal protection. Once they are weakened, manufacturers have a diminished incentive to take a voluntary license, which negatively affects the ability of the patent owner to receive a fair return and continue investing in the business. Under the new law, it has become more complicated to obtain an injunction against an infringer. Findings of invalidation at the U.S. Patent and Trademark Office are now more frequent.
During the Obama administration, Silicon Valley’s lobbying efforts in Washington gave it a seat at the big table. Intel, which was losing in the mobile market, threw its lot in with Google, Facebook, and Apple, all net users of patent technology. Google became the top financier of lobbying aimed at making it harder to defend patent rights in court. For big manufacturers, this meant reduced legal risk and an increased ability to mount challenges at the patent office. The troll narrative had become an established meme.
The troll narrative includes the idea of “good” and “evil” patents, attempting to sort out, loosely, those that use their own patents properly from those that don’t. But, by blurring the good with the evil, manufacturers have been able — in the service of obtaining lower costs — to promote an agenda against companies asserting legitimate patents.
The patent troll narrative has arisen in the technology industry as part of a shift in power in the marketplace from intellectual property contributors to manufacturers. There are extremely predatory users of patent law. But there are also developers who contribute key intellectual property to standard patent pools. The manufacturers like to use standard patents, but would rather they cost less. It’s convenient to moosh the two types of holders together.
But high-tech companies in biotech, pharmaceutical development, and electronics, which expend a large proportion of their revenues on R&D (e.g., 17%, in Amgen’s case, 20%, in Qualcomm’s, 25% in Merck’s), are pushing back at the troll narrative. They are reasserting the right of real inventors to realize the financial value of their investment through a successful licensing program. What these industries share is a long horizon between intensive R&D expenditure and commercialization. They need to achieve a fair price for their technology if they are to survive and continue to create.
So, where are we in this complex space? Among combatants in the patent wars, entities are divided along multidimensional lines: practicing vs. non-practicing, dominant vs. upstart, technological vs. financial, inventing vs. acquiring, licensing vs. using internally, R&D-oriented vs. manufacturing-oriented, invention-focused vs. product-focused. While some of these creatures are truly odious, using the word “patent troll” to describe any of them would be to allow Intel and its allies ownership of the narrative. There are no hard and fast rules to separate them into good and bad buckets.
Each case must be examined on its merits. It would not be right to apply a label like patent troll label equally to an array of entities like a professional NPE, a research university, a startup, an individual inventor, or a non-inventor (e.g., a trust) that happens to own the intellectual property. Every situation is complex. Some NPEs may lack transparency, but they serve a useful purpose. Sometimes a financial backer is in a better position than inventor to get return on investment from a particular patent.
“Efficient infringement” is now a real strategy manufacturers use to steal patented technology. They start the infringement, claim overbroadness when the owner tries to assert, and fight to a standstill in court, all while making and selling infringing products.
A bad actor in the intellectual property world displays a range of recognizable behaviors, such as making claims that may be fraudulent, misleading, harassing or all three. And proper assertion of patents is also often quite distinct. A good actor is likely to have a high R&D budget, invent technologies for a living, create patents for complex systems that someone could not just pick up off the sidewalk, and openly and transparently license to all applicants.
Somehow there must be a balance between preventing abusive assertion and making it overly difficult for owners to enforce their valid rights. People should be encouraged to invent things. A streamlined process for letting others license and use patents nurtures invention. People who are good at inventing should be able to do that, and those good at making things should do that. But entities that interfere with the effective working of this process — making whimsical use of the patent system, filing frivolous patents, or practicing “efficient infringement” — are sabotaging the wellspring of American inventiveness and wrecking a system that has worked well for centuries.
If we don’t get this right, the United States will become a chilly environment for companies interested in making investments in future markets.