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The Case for Abandoning the Term "Patent Troll"

Winter 2006

Posted with permission © Intellectual Property Litigation, Vol. 17, No. 2, Winter 2006

The label “patent troll” has no place in the discourse of the patent system and should be dropped from the lexicon of intellectual property altogether. Not only is the term increasingly misapplied and inappropriately bandied about by those who have little or no understanding of the patent system and the current legal environment, “patent troll” is also used unfairly to deride those who legitimately and legally operate in the system by suggesting that they are defying that very system. This characterization is simply wrong, and its effect on both patent holders and patent seekers can be nothing but deleterious. Quite simply, patent trolls, like the supernatural creatures from Scandinavia from which their name is derived, are a fiction, and are far less of a threat than others who abuse the patent system. This article addresses the historical significance of patents and patent protection, explains why the term “patent troll” should be abandoned, and concludes with a brief discussion of the benefits of the patent system as it stands today.

Enforcement of a Patentee’s Property Rights Under the Constitution

Throughout the history of the United States, all three political branches have recognized the importance of intellectual property to the advancement of science, culture, and society as a whole. Accordingly, both the courts and Congress have supported and strengthened the patent system over time, resulting in the United States’ growth as the world’s leading economy, with a knowledge base that continues to expand and prosper. In drafting the Constitution, the framework of the United States, the Founders recognized the importance of intellectual property, giving Congress the authority in Article I, Section 8 “[t]o promote the Progress of Science and Useful Arts, by securing for limited times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.” From this grant of authority, and the actions of Congress in exercising these powers, it is clear that the promotion of innovation through the patent system is a fundamental value of our capitalist society. For more than two centuries, the United States’ commitment to the patent system has created the incentives necessary to encourage and sustain the desire to innovate, thereby increasing the prosperity of the nation and the world.[2]

In the midst of this success, it is important to recognize and respect the vital role that patent law plays in the property rights regime that is essential to a competitive society. The key to this aspect of patent law is the nature of the patentee’s rights as rights of exclusion. Indeed, a patent is not an affirmative grant to make, use, or sell a patented invention, but rather confers to its holder the exclusive right to exclude. Accordingly, a patent derives its value from the right to demand compensation for unlicensed use of the invention under the threat of court enforced exclusion and fines. Like other forms of property, such as land, patents are assets, capable of being bought, sold, and pledged as collateral; however, the foundation of a patent’s value is the right of exclusion.

Anticipated by the Constitution, this valuable right of exclusion results not only in competition, but also in innovation. The success of the United States patent system as a catalyst for innovation is evident both in history and today. For example, during the late 19th and early 20th century, Thomas Edison earned patents for well over a thousand inventions, many of which completely transformed our world. Today, researchers at universities across the country are obtaining patents for technology and medicines at a greater rate than ever before, and many of the corporate giants of the American economy, such as General Electric, International Business Machines, Kodak, and Xerox, were founded and continue to thrive upon the exclusive rights that are guaranteed by patent law. Far from being illicit or greedy “patent trolls,” today’s patent enforcers play an important role in the system, and are fully protected by the Constitution.

Finally, the right of enforcement through exclusion that is inherent to the patent system is tempered by two important factors. First, a patent holder does not have exclusive rights to his invention forever; once a patent expires, it is in the public domain and can be exploited by anyone. This, in turn, encourages a patent holder to use the time period in which the patent is in force to innovate further, for the benefits of the patent are only temporary. Second, as a trade-off for receiving a limited monopoly, a patentee must fully disclose all aspects of the invention, providing enough detail for those of ordinary skill in the art to practice the patent themselves. Thus, the patent system enhances the world-wide knowledge base by informing the world of an invention and, in some instances, spawning other ideas for innovation in new areas. These too are the by- products of the right to exclude that is fundamental to the patent system envisioned by the Constitution.

Why the “Patent Troll” Label Should Be Eliminated

In his own words, Peter Detkin coined the term “patent troll” in the late 1990’s as a “colorful name” to garner attention to entities that were bringing patent claims that asserted patents of dubious value and seeking nuisance value settlements along the way. Whether Mr. Detkin intended it or not, the phrase took hold, and by early 2005 conferences were being held on patent trolls, as leaders in industry, politics and the legal profession struggled to define, understand, defend against and defend, this increasingly broad term. Today, a patent troll is widely defined as someone who enforces a patent but does not practice the invention protected by the patent; however, as Mr. Detkin himself acknowledges, the term increasingly “is used as a placeholder for all the ills perceived in the patent system.”[3] For this reason and others, the term “patent troll” is unworkable and should be abandoned.

Regardless of the correct definition of “patent troll,” at its root the term suggests that in order to be a legitimate patent holder, one has to practice the invention. Generally, this is known as the actual practice standard. One needs only to consider this so-called requirement in the context of copyright in order to understand the flawed logic of the actual practice standard. For example, if so called trolling were prohibited, and only those who actively practiced their creations were allowed protection, would authors who do not own publishing houses and musicians who do not own record companies be prevented from copyrighting their work? Indeed, with protection reliant upon practice, many would find themselves left out in the cold, unprotected from anyone who had the means to put the work and efforts of others to use.

Moreover, considering that a patent’s value depends on the willingness of the patentee to enforce it by excluding others, regardless of whether the patentee is practicing the patent, it is clear that the actual practice standard completely misunderstands and ignores the fundamental attributes of the patent system. Because patents grant a limited monopoly over an invention, not a product, enforcement of a patent is itself practice, and represents fair use of a patent that is no less respectable than if the patentee was actively making and selling a product. A patent has value only to the extent that its holder is willing to enforce it; otherwise, it is worth no more than the paper it is printed upon. Actually practicing a patent does not make it valuable, enforcing it does. Accordingly, it is incumbent on inventors and patentees to enforce their patents when they are infringed, and the question of whether the patent is actually practiced is irrelevant.

History and contemporary society are replete with examples of patentees who do not practice the patents they hold, and from this it is clear that neither the circumstances surrounding the acquisition of a patent nor the size of the patent holder (if a company) has any bearing on whether a non-practicing patentee is a troll. The fact that a patent has changed hands, that the acquiring entity is a small corporation, or that the inventor is unknown or not connected to a larger organization, has absolutely no relationship to the quality of the patent and the patentee’s rights to enforce it.

Many large companies that were founded on patents – along with hundreds of other businesses of all sizes – cross-license their patents or own and enforce patents for products that they do not produce. By using their patent portfolio in this way, these industry leaders gain income from what might otherwise be dormant patents, and use this money to finance research and development (innovation) in new areas. Kodak, for example, inherited a number of Java patents from Wang Laboratories, but, as a company not in the software industry, Kodak most likely would not have used those patents to create products on its own. Instead, Kodak chose to enforce its patent rights by suing Sun Microsystems for infringing, ultimately settling for $92 million. Under current definitions, Kodak might be described as a patent troll based the fact that it exercised its right to exclude by enforcing its patent against Sun. The fact is, however, that Kodak did precisely what the patent system allows and, arguably, encourages. Regardless of the identity or size of the patent holder, the exercise of this constitutional right should be protected rather than scorned.

As shown in the example of Kodak, many large companies purchase patents that they do not intend to practice, but instead rely exclusively on enforcement of these acquired patents as a return on their investment. On the other end of the equation, independent inventors, such as Thomas Edison, sell their patents to larger companies in order to cash in immediately on their innovation, knowing full well that the purchasers may intend to profit from the patent solely by enforcing their rights to sue and license. Under the current definition, both the small inventor and the patent purchaser would be patent trolls, solely because neither intends to practice the patent. The unfairness and inaccuracy of such criticism is evident, for in reality neither is a patent troll. Instead, this is an instance in which actual practice is irrelevant, where two entities are able to maximize the value of a patent and, in turn, use the return on their investment to fund discovery and innovation.

Further, because the remedy available to a patentee who is not practicing the patented invention differs from that of a patentee who manufactures a patented product, patent law has developed an equitable solution to the purported injustice of allowing for enforcement in the absence of actual practice. Upon a finding of infringement, a patentee who does not practice the patented invention is entitled only to a reasonable royalty, while a patentee who manufactures a product may claim lost profits. The difference between these two remedies is often significant, and an argument could therefore be made that an actual practice standard already exists, giving a non-practicing patentee a more limited recovery.

Proponents of the term “patent troll” frequently rely upon colorful anecdotes to support their allegations that the problem of frivolous patent lawsuits is rampant, and that trolls are a serious threat to the patent system and the U.S. economy. These anecdotes fail to address several issues, however, all of which further demonstrate why the term “patent troll” is unworkable and needs to be abandoned.

First, even if frivolous lawsuits have become more common, remedies already exist to address abuse of the system. Both Rule 11 of the Federal Rules of Civil Procedure, which allows for sanctions, and 35 U.S.C. § 285, which allows for the recovery of attorneys fees, serve to deter and punish patent holders and attorneys who make frivolous claims. If large corporations are, in fact, faced daily with truly frivolous lawsuits, the opportunity to challenge these claims as mere nuisance suits that were brought in bad faith already exists, and attaching the derogatory “patent troll” label to all plaintiffs lends nothing to addressing this alleged problem.

Additionally, advocates of patent reform often depict so-called patent trolls as armed not with a club but with the fearsome threat of an injunction. Specific concerns have arisen in instances where the patentee does not manufacture the product threatened with injunction, thus leading to an apparent no-win result where the production of a potentially beneficial product is halted while the patentee decides how to proceed. Again, however, the reality of the purported crisis caused by the threat of injunctions does not support the cries of alarm.

Not only are such injunctions infrequent and difficult to obtain[4], but they are also valuable in their own right as an effective measure to encourage settlement and reduce the number of patent lawsuits that result in a lengthy, costly trial. Because corporations fear injunctions, the threat of the possibility of having to cease the manufacture of a profitable product often is the only reasonable means of bringing companies to the negotiating table. Without the threat of an injunction, many companies would likely choose to litigate, especially those with the resources to make enforcement as difficult as possible. Moreover, because the threat of an injunction often leads to a settlement, the need for a judicially crafted and enforced licensing agreement becomes unnecessary, thus relieving the courts of this burden. Finally, if the threat of an injunction is being abused, this problem can be addressed through reform legislation. The solution is not to eliminate the ability to enjoin infringement altogether in the guise of quashing patent trolls, but rather to craft solutions that prevent misuse of this powerful remedy.

Critics of so-called patent trolls also site instances in which infringement is not found, arguing that any non-practicing patentee who asserts an unsuccessful claim automatically must be a patent troll. Here again, such critics fail to appreciate many important facts, particularly the complex nature of many patents. Simply because infringement is not found does not mean that the accused defendant was the victim of an extorting patent troll; rather, legitimate claims, made in good faith, often turn out to be incorrect, but this is only after a lengthy, detailed investigation and a full vetting of the patent and the accused product. To say that this illustrates a problem with the patent system ignores the fact that there is always an element of uncertainty when attempting to ascertain whether infringement of a complex, often very specialized, patent has occurred. Individuals bring unsuccessful claims in all areas of the law. These failures do not make all unsuccessful litigants trolls, but rather show that the judicial system is functioning properly. Taking a risk by attempting to enforce a property right does not merit being labeled a patent troll.

Finally, it is important to note that many of the leading detractors of so-called patent trolls are in reality themselves only trying to divert attention from the fact that many of the accused are actually guilty of infringement and are themselves abusing the patent system. These “patent squatters” seek a patent system where the right of enforcement belongs only to powerful, profitable patentees, and challenges to infringement are limited. Frequently, companies fail to conduct any patent clearing checks before releasing their products, and then complain vociferously when accused of infringement, decrying the patentee as a patent troll while failing to acknowledge that they have completely ignored the property rights of another. Instead of admitting that they failed to perform a proper patent clearance, these accused infringers often race to the PTO to challenge the validity of the patent through reexamination proceedings. Thus, while accusing patent trolls of abuse, these abusers of the patent system use every means possible to delay enforcement and diminish their own unethical behavior. Accordingly, the term “patent troll” must be seen for what it is: an attempt by infringers to point a finger back at the accuser. For these reasons, the term “patent troll” should be abandoned.

The Benefits of Licensing and Enforcement

The benefits of vigorous patent enforcement, even by those who do not practice their patents, support the underlying goal of the patent system: fostering innovation. Enablers of innovation who seek to enforce their rights are not patent trolls whose sole intention is to extort payment from unsuspecting victims. Instead, these so-called trolls are simply enforcing the right of exclusion granted to them by the Constitution, and their efforts help to ensure that the system is functioning properly and as intended.

Vigorous enforcement of patent rights both rewards inventors and benefits society as a whole. Licensing and enforcement efforts allow for the distribution and use of patented technology, while at the same time providing the necessary resources to those engaged in furthering progress in the science and the arts. By licensing and enforcing their patents, small companies, nonmanufacturing companies, individuals and universities are contributing to society by rewarding inventors for their efforts, by providing opportunities to small inventors, and by preventing larger corporations from profiting unfairly off the innovation and work small companies and individual inventors. One needs only to look at the example of universities for proof of the benefits of licensing and enforcement. In 2000, universities collected $1.1 billion in royalties from the 13,000 U.S. patents that they hold. Income from these licenses is reinvested in students and scientists, allowing them to further their research and promoting discovery.

These benefits alone provide adequate justification for the enforcement efforts of non-practicing patentees, and further illustrate the direct correlation between enforcement and innovation. It is time reveal patent trolls for the fiction that they are. It is time to put the term “patent troll” to rest.

 

[1] Copyright © 2005 Robins, Kaplan, Miller & Ciresi L.L.P. All rights reserved.

[2] Today, intellectual property-based companies form the largest sector of the United States economy, with U.S. intellectual property alone worth between $5 and $5.5 trillion, or the equivalent of 45% of the country’s GDP. See Robert Shapiro and Kevin Hassert, “The Economic Value of Intellectual Property,” October 2005.

[3] At a recent hearing held by the Antitrust Modernization Commission, Mr. Detkin submitted written testimony that recounts a Senate hearing where Senator Hatch asked the witnesses if they had ever seen a patent troll. While the audience was amused, even representatives from Amgen and GE openly admitted that by current definitions their companies were patent trolls. Mr. Detkin’s testimony is available at: http://www.amc.gov/commission_hearings/pdf/Statement_Detkin.pdf

[4] According to Mr. Detkin, who lectures frequently to high-tech executives and attorneys on the topic of patent enforcement and reform, his experience has shown that injunctions resulting from “patent trolls” are far from the norm. See http://www.amc.gov/commission_hearings/pdf/Statement_Detkin.pdf

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The articles on our Web site include some of the publications and papers authored by our attorneys, both before and after they joined our firm. The content of these articles should not be taken as legal advice or as an expression of the views of the firm, its attorneys or any of its clients. We hope the articles spur discussion in the legal community with insight into the experience of the authors. We expressly reserve the right in the future to become wiser or simply change our mind.

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