Patent Trolls

Patent Trolls have been getting more and more attention is recent years. A “Patent Troll” or Non-Practicing Entity (NPE) for those in the industry, is a company (or person) that owns a patent, but doesn’t really make anything using it. Instead they just look for someone else who is using their patented process/device and sue them. Most of the time they don’t really want to go to court, which can be expensive (and sometimes a losing process!) but instead want to work out a settlement fee from whoever is using their protected invention.

A quick note: Not ALL NPEs are bad. Sometimes it is an individual inventor who really does come up with something unique, but lacks the ability to manufacture. A true garage inventor. Sadly, more often it is just a shell company set up that purchases a block of attractive assets (patents someone else invented).

What often happens is that some company gets a letter in the mail, claiming that a product they make uses a patent belonging to the NPE. The NPE says we are going to sue you, or you can agree to settle by paying us $X for every product you make that includes our patent. For many companies, the licensed fee is cheaper than it would be to go to court (insert lawyer joke).

For many small companies, this is a make-or-break moment. They often run on such small capital that they can’t afford to litigate and have to shut down. Large companies have realized the importance of this and have started to acquired large libraries of patents in case a rival comes after them in some weird IP arms race.

While thinking about this, I thought of what I think to be a unique solution. What about some sort of patent litigation insurance. We spread risk out for many things, why not this. You could pay a certain amount every year, and if someone claims you are infringing their patent, the funds could be used to pay for your defense.

The real trick to why I think this would work is that the Patent Trolls don’t really want to go to trial. They are hoping you settle. Trials are expensive, which is against their purpose, and second, if they lose they lose their entire reason for being. They do not actually want their patent to go in front of a jury. If they know you won’t blink and will make them actually prove 1) their patent is valid and 2) you infringe it, they might just move along and not mess with you.

Case in point, Newegg. Newegg is one of those nerdy hidden gems. Its a place where you can find super cheap computer parts, systems and accessories. They have a strict no settlement patent policy. A patent troll sued them (and many other companies!) claiming they invented the online shopping cart, and Newegg was violating their patent. Newegg fought back and won, invalidating the patent. Luckily, Newegg had the money, and gumption to fight. Many other companies did not and were paying this troll for something they didn’t need to.

Instead of hoping for a white knight to stand up to the Patent Trolls, instead we should recognize that getting rid of them is a great public good – leading to more innovation, and we should be teaming up to fight them.