A Study in Business Law of Patent Trolls
March 12, 2014
“‘Oh, the story of a troll kind of fits ‘cause the whole Billy Goats Gruff thing, it’s someone lying under a bridge they didn’t build, demanding payment from anyone who passed. I said, ‘How about a patent troll?’” Peter Detkin
Counsel for Intel
It’s a story every child knows: The poor three Billy Goats Gruff that just want to cross the bridge. The evil troll that blocks their way and demands a stiff toll before letting them pass. The final justice that prevails when the biggest and oldest Billy Goat Gruff pushes the troll off the bridge. But aside from childhood bedtime stories, do these evil “trolls” really exist in today’s world, impacting the financial wellbeing of our society?
The term “patent troll” was coined in the late 1990s by Peter Detkin, counsel for Intel. Intel had been hit by a series of lawsuits from companies that did not build anything, yet held patents for products used in manufacturing by Intel (such as semiconductors). In turn, they demanded Intel pay up for using their patents. In a particularly frustrating lawsuit, Detkin called the lawyer filing it a ‘patent extortionist,’ which caused that lawyer to sue for libel and Detkin to search for a better name. As Detkin explains:
“So I had a contest inside Intel. The contest itself was named “The Terrorist”… we got a lot of suggestions but none really fit. But… [my daughter] liked playing with those troll dolls… [I] said, ‘Oh, the story of a troll kind of fits ‘cause the whole Billy Goats Gruff thing, it’s someone lying under a bridge they didn’t build, demanding payment from anyone who passed. I said, ‘How about a patent troll?’” 1
The name stuck and the problem grew. As illustrated in the graph below from PatentFreedom.com, from 2004 to 2013 the number of patent infringement lawsuits has grown drastically, especially in the later years. 2
According to RPX statistics, patent trolls (also known as NPEs – non-practicing entities) filed over 3,600 suits in 2013 alone, up 19% from 2012. Of the patent suits filed in 2012, over 67% of them were NPE-related.3 For many titans of industry – especially the tech industry – these suits are more than just distraction. Patent trolls sued wireless carrier AT&T over 54 times in 2013 - more than once a week! As the recent Fortune magazine article entitled RPX: Taking on the patent trolls explains, “AT&T is no anomaly. Google was hit with 43 NPE suits last year; Verizon, 42; Apple, 41; Samsung and Amazon, 39 each; Dell and Sony, 34 each; Huawei, 32; BlackBerry, 31. Every brand on this unenviable top 10 list was sued by an NPE at least once every 12 days.”4
But how did this phenomenon come about? And, even more importantly, how has it been able to flourish in today’s society? To answer these questions, we first examine what a patent troll is.
A “patent troll” is new name for an old – albeit, arguably escalating – problem. Historically, as long as patents have existed in the United States they have been fraught with controversy. Virtually every American inventor who pioneered a major innovation has had to deal with litigation or controversy surrounding his (or her) patent. The inventor of the telegraph, Samuel FB Morse, bitterly complained about “patent pirates” and the hours he had to spend in court proving he was the inventor. The Wright brothers refused to license their airplane patents (until forced to by the US government), and were publicly vilified for it. Henry Ford had to defend himself in court from a group of financiers claiming they held a patent (purchased from another inventor) that covered gas-powered automobiles.
Just what is a patent anyway?
According to the United States Patent and Trademark Office (USPTO), a patent is an intellectual property right granted by the US Government to an inventor “to exclude others from making, using, offering for sale, or selling the invention throughout the...
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