Patent Trolls- Are They Really Bad?
Updated: Apr 22
We have all heard about patent trolls, those firms that prey on legitimate companies, extorting millions in patent royalty fees without producing anything. Since their business model is to buy patents and then to find infringers of those patents, their income comes solely from royalty fees and from winning patent infringement lawsuits.
While this is a legitimate use of its patents, a patent troll creates a huge tax on practicing entities, which get nothing in exchange (other than freedom from a lawsuit).
Clearly, patent trolls are bad and are a strain on the economy.
Or are they? In my business as a patent attorney, I have come to see another side of the trolls.
First of all, trolls buy patents, and occasionally patent applications, from patentees. This enables patents to be a much more liquid asset. In this, trolls are market creators, buying patents from the patent creators,licensing the patents, and even, occasionally, selling them to interested parties. And, since they have a strong profit motive, they are more successful than other attempts to create a patent market, like OceanTomo's patent auctions.
Some people argue that the trolls pay very little to patentees compared to the amounts gouged from so-called infringers and thus, patent trolls are still an overall drain on the economy. But this argument just points out that patent trolls have found a good business model - buy low and sell high.
Other people argue that patent trolls require legitimate businesses to pay for a “protection” they don't really need. It certainly is true that many of the patents that patent trolls assert weren't asserted in the past, since many of the patentees didn't know how to find infringers. But that doesn't mean that the legitimate businesses didn't infringe - it just means that the patentees didn't come calling. The patent trolls make it easier to find infringers.
The strongest argument against patent trolls is that their royalties add significantly to the cost of each product of the company.
So what would happen if we required patent trolls to extract only 'reasonable' royalties, such that the company could easily handle the cost? This seems an ideal change - the patent trolls could still provide a patent market but the cost to going concerns would be so much lower.
The result, in my mind, would be a disaster! Companies would pay the royalties and would just add the costs on to their consumers. But they wouldn't try to change their products to get rid of the heavy weight of the patent royalties, since the weight, instead, would be light. As a result, there would be far less change in products.
I argue that, without the unreasonable royalties charged by patent trolls, there is no overwhelming push to innovate to get rid of the heavy license. And I argue, though I cannot prove it at the moment, this push is among the strongest towards innovation.
Consider the concern that most investors have that the product they are investing in might infringe some patent. Consider the indemnifications they require as a result. Consider also their preference for unique products, in an attempt to ensure that there is no infringement problem (though this doesn't always help).
Patent trolls (and the litigation costs they represent) help push innovation forward by providing a good justification for significant research investment. And that is something I don't want to lose.