Patent Trolls and Other Fairy Tales

By Michael Griggs

No, despite how it sounds, a patent troll is not a character in the latest kids’ movie.  Patent trolls – or, as they are less derogatively referred to, Non-Practicing Entities (NPEs) or Patent Assertion Entities (PAEs) – are a very real concern.  A patent troll is an entity that owns or controls one or more patents and seeks to extract license payments from an entire market segment using the threat of litigation.

In making its demand, a patent troll typically expands the scope of its patent to sweep in products and practices that a more traditional patent owner would deem non-infringing. Though an accused infringer may have a winning non-infringement or invalidity position, most patent trolls will not back down because they know that the litigation costs for the accused infringer are substantial (patent litigation typically costs well in excess of $100,000 – usually many multiples of that number).  Moreover, there is a substantial imbalance between potential litigation costs for the patent troll and for the accused infringer. Patent troll cases are often taken on contingency, so the patent troll has little if any out-of-pocket costs in pursuing litigation.  Conversely, an accused infringer has to pay its attorneys for the defense.  In addition, since the patent troll is basically a paper company – its only business is enforcing its patents – the cost of discovery during litigation is minimal.  On the other hand, discovery costs for the accused infringer can be quite substantial, and a patent troll will not hesitate to drive them up.  The patent troll uses this uneven playing field as leverage to extract a royalty payment less than the cost of any litigation. This forces the accused infringer to consider if it is better to pay a painful but tolerable amount to the patent troll or risk spending more than the amount the troll is asking to vindicate its position.  Most companies make the difficult business decision to pay the lesser amount, often with the added “bonus” of additional licensed patents to make the decision more palatable.

But help may be on the way.  Due to public backlash over patent trolls, who some characterize as exploiting loopholes in the patent law to hinder legitimate businesses, Congress recently passed legislation that, if enacted, will greatly curtail or even eliminate the patent troll cottage industry, much the way that the America Invents Acts has eliminated false marking suits.

In the meantime, if you receive a threatening letter from a patent troll, call your Boyle Fredrickson attorney.  Like the three Billy Goats Gruff of the fairy tale, we have successfully forced many trolls to back down and substantially reduced the monetary demands of many others.