"Patent Troll:" A Self-Serving Label that Should be Abandoned
Thomas Jefferson, an inventor and early administrator of the United States Patent System who personally examined all filed applications, once stated that "the issue of patents for new discoveries has given a spring to invention beyond my conception." The Patent System as a whole, including the rights of patentees to license, enforce and sell their patents, breeds innovation. Labeling individuals or companies as “patent trolls” unfairly implies that many who legitimately and legally operate in the system are defying that very system. This is not so. The legal system already has mechanisms in place to remedy abuses of the system, including Rule 11 and 35 U.S.C. § 285, and therefore the label “patent troll” should be abandoned altogether. This paper addresses the historical significance of patents, criticizes and limits the definition of a “patent troll,” and explains the benefits of the system as it stands today.
I. The Constitution Grants Patentee's the Right to Enforce their Property Rights.
The right to control one's invention is specifically protected by the United States Constitution. Article I, Section 8 of the Constitution grants Congress the authority to provide “authors and inventors the exclusive right to their respective writings and discoveries" in order "to promote the progress of science and useful arts.” Accordingly, promotion of innovation through the patent system is a fundamental value of our democratic, capitalist society. As the Supreme Court noted in Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 146 (1989), “the Patent Clause itself reflects a balance between the need to encourage innovation and the avoidance of monopolies which stifle competition.”
The Patent Laws further grant the patentee the right to exclude others from using, making, selling, offering for sale or importing a patented invention. An essential component of the value of the patent springs from the right to demand compensation for use of the invention under threat of court-enforced exclusion. It is significant that a patent confers no positive rights on an inventor or patentee, such as the right to practice one's own invention, but rather grants the right to exclude others from practicing a patent without a license.
Another way of analyzing the system is to understand that patent rights are property rights. They are assets, which may be sold, bought, and pledged as collateral – just like a parcel of land. It is irrelevant who owns and enforces a patent, it is only relevant that a patent is a property right with well-established privileges including the right of exclusion. Unlike a parcel of land, however, the value of a patent depends to a much greater extent on the right of exclusion.
The value of patents based in the right of exclusion leads directly to innovation. America is the world leader in innovation. A study of the inventors honored in the National Inventors Hall of Fame reveals that 91% of the world's greatest inventors worked in America, and the United States Patent System has produced 10 times as many significant inventions as the rest of the world combined. This is due to a patent system that provides incentives to inventors to create new ideas knowing that they own a property right in their inventions.
The success of the patent system at fostering innovation is demonstrated throughout American history. One of the geniuses in the history of American technology, Thomas Edison, earned patents for more than a thousand inventions, including the incandescent electric lamp, the phonograph, and the motion-picture projector. After years of inventing, Edison boldly announced he would invent a safe and inexpensive electric light that would replace the gaslight in millions of homes. To support this venture, some of New York's leading financial figures joined with Edison to form the Edison Electric Light Company, the predecessor of today's General Electric Company. The ability of investors to acquire an interest in patent rights and later enforce or sell the rights provides a fundamental component of value that backs financing new ideas and new companies.
Edison Electric was one of many great American companies that were started based upon the exclusive patent rights of its founders, including AT&T, Kodak, IBM, and Xerox. Many of these companies now cross-license their patents or own and enforce patents for products they do not manufacture as part of their overall patent strategy. For example, Kodak sued Sun Microsystems for infringing Java patents which Kodak inherited from Wang Laboratories. Kodak itself, of course, is not in the software business. Despite this fact, Kodak collected $92 million from Sun. Under many definitions of a patent troll, these corporations would appear to be engaging in improper conduct, when in fact they are merely operating within the rules of the system. Individuals and organizations enforcing patent rights, whether invented or acquired, whether a manufacturer of patented technology or not, are exercising a legal right. That constitutional right should not be denied.
II. The “Patent Troll” Label Unfairly Covers Legitimate Activity and Should Therefore be Eliminated.
A “patent troll” is usually defined as someone who enforces a patent yet does not practice the invention protected by that patent. This implies that to be a legitimate patent owner, one must actually practice or manufacture the invention. Whether a patent is actually practiced or manufactured is irrelevant to the right to assert a patent. Enforcing patents that a company has itself not developed into a product thus should not be the criteria for labeling an entity a troll. There is no proven correlation between the quality of a patent and whether the owner practices the patent. An “actual practice” standard ignores the fact that patents grant a monopoly over an invention, not a product. Thus, whenever a patented invention is put to commercial use, enforcing that patent is not only an acceptable practice, but a fair use of patent rights. Indeed, a patent's value is the incremental value of the enhanced cash flows resulting from that monopoly, and thus depends on the willingness and ability of the patentee to enforce it. The owner of an infringed patent who does not enforce it therefore reduces the value of the patent, so it is incumbent on inventors and patentees alike to enforce their infringed patents. Accordingly, whether or not the owner practices the patent is irrelevant to the right to enforce the patent.
Another unfair variation of the “troll” argument assumes that any company that acquires a patent from another and enforces the patent is likely to be a troll. Some even correlate the size of a company to its good faith, assuming that small companies who purchase patents are trolls, while large companies operate in good faith. The fact that a patent has changed hands, however, is not a predictor of the quality of the patent.
None of these definitions of a troll is workable. The patent system leads to a contribution of knowledge to the arts. By requiring an inventor to provide both an enabling disclosure and the best mode for practicing the invention, the patent system enhances the world-wide knowledge base. An issued patent informs the world of the invention. Others can either obtain a license and legitimately practice the invention or invent around the claims at issue. Having provided such a detailed disclosure to the world, it logically follows that the patentee should not be prevented from enforcing its rights. In an attempt to tarnish this legitimate practice, critics label others as “trolls” when, in fact, they actually enable innovation and contribute to the world's overall knowledge.
Large and reputable organizations frequently purchase and assert patents they do not practice. For example, universities license patents they do not practice and enforce those patents. Fortune 500 companies often purchase patents and enforce them. Small inventors, like Thomas Edison, may sell patents in order to monetize their other inventions, and their purchasers are willing to buy the patents because they are invested with the right to sue on the patents. Start-up companies in mature industries invent new technologies that they cannot practically commercialize in the face of established giants, and sell their patents to those established giants in the industry who are willing to pay value based on the right to exclude.
The current broad definition of a patent troll, however, improperly sweeps in patent licensing companies, individual inventors, and small companies that seek to innovate but do not necessarily utilize their own inventions. For example, Eolas and the University of California have been berated as patent trolls since their $521 million victory against Microsoft. Eolas is a small company founded by Michael Doyle, the inventor of a patent that covers web browser technology. Critics assert that Eolas is a patent troll because it does not practice its patented invention. However, it bears emphasis that before the lawsuit, the University of California entered into an exclusive license arrangement with Eolas as a start-up company to practice the patented invention. This conduct is no different from that of AT&T, Kodak, IBM and Xerox, all of whom were originally founded on patented inventions. To prevent Eolas from being compensated for the unauthorized use of its invention is contrary to the very purpose of the patent system, particularly where Microsoft's Windows with Internet Explorer has been found to infringe claims of the patent by a jury, a finding upheld by the Court of Appeals for the Federal Circuit.
The patent troll label also includes large corporations, who sue each other on paper patents without any hesitation. Many companies have such immense patent portfolios that they own patents which they do not use, but which are used in products sold by other companies. Under these circumstances, suing for infringement cannot be viewed as patent trolling, yet it meets the same definition advanced by opponents of alleged patent trolls. Indeed, under this definition, IBM is the biggest and oldest “troll,” since it makes close to $1.5 billion a year just licensing its patents. As discussed earlier, Kodak recovered $92 million from Sun Microsystems on patented technology that Kodak does not practice or manufacture. These are prime examples which demonstrate why the criticism that is targeted at patent licensing companies, individual inventors and small companies is equally applicable to the corporations that seek to prevent alleged patent trolls from obtaining value from their intellectual property.
The law has already addressed the differences between a patentee who practices the patented invention and one who does not. The difference is not in the right to assert the patent but in the remedies available to them. A patentee who manufactures a patented product may be entitled to receive lost profits, while a patentee who does not make any patented product can only get a reasonable royalty, which is usually a fraction of the lost profits.
Legitimate patent holders that assert their patents are not trolls, whether they manufacture a product that practices the patented invention or not. The patent law specifically provides that all patent owners have the right to enforce their patents. The term patent troll should be abandoned. To the extent anyone knowingly abuses the patent system, by bringing frivolous suits to obtain nuisance settlement agreements, there are already remedies in place to address such situations, including sanctions under Rule 11 and the recovery of attorneys fees under 35 U.S.C. § 285.
In addition, some patent subject matter is inherently complex, difficult and uncertain. The merits of patent infringement allegations may not be finally determined until after a lengthy adversary process. This is not a weakness in the patent system, nor is the assertion of a patent that ultimately proves unsuccessful necessarily an attempt at extortion by a troll. Our human limitations will inevitably require us to accept some level of cost to adjudicate legitimate assertions of patent infringement that ultimately do not prevail after litigation. The financial stability of some to reward an inventor and then undertake these risky enforcement efforts should therefore not be degraded with the “troll” label.
The solution to the problem, therefore, is not to limit the ability of those patent holders who purchase patents or who do not manufacture a product to sue for patent infringement. Instead, the system already has mechanisms in place that provide checks and balances on the value of a patent. In Court, an accused infringer can challenge the validity of the asserted patents. Alternatively, the purpose of reexamination proceedings is to afford accused infringers an inexpensive way to challenge the validity of a patent short of litigation. Despite this purpose, it has become routine for accused infringers that are found liable for patent infringement to race to the PTO seeking a second bite at the apple through reexamination proceedings. Accordingly, some who accuse “patent trolls” of abusing the system may themselves use reexamination not to legitimately challenge the validity of a patent, but instead to delay enforcement proceedings and thwart judicial action, sometimes even after the expense of a trial and appeal.
Additionally, a primary concern advanced by opponents of alleged “patent trolls” is the entry of permanent injunctions following successful enforcement of a patent even if a patentee does not manufacture a product practicing the invention. Again, it is unfair to assert that only patent licensing companies, individual inventors and/or small companies are seeking such injunctions. To the contrary, large corporations routinely seek injunctions when enforcing their patent portfolios, whether they utilize the patented technology or not.
The concern over injunctions has led to a provision in the original Patent Reform Act, which was introduced into the House of Representative, to limit the ability of a patentee to get an injunction against an alleged infringer. Under the proposed provision, courts would have to consider whether the patentee is likely to suffer irreparable harm in deciding whether to grant an injunction, and specifically would look at whether the patent holder is commercializing his or her invention.
Software companies support the provision, arguing that injunction reform is needed due to the proliferation of software patents. According to those companies, the software for one specific product could potentially infringe countless patents. Accordingly, an injunction could be entered which would block the use or sale of a product even if the patent only addresses one minor portion of the overall product.
The pharmaceutical and biotech companies, however, seek to preserve the current method of granting injunctions, since these companies rely on the exclusivity of their patent rights to ensure that they are able to commercialize their inventions and enjoy the limited monopoly they receive from patents. Like the pharmaceutical and biotech companies, small inventors benefit from injunctive relief to level the playing field when competing against larger, better-funded companies.
For the moment, it appears that the pharmaceutical and biotech companies have the upper hand. The two most recent proposals of the Patent Reform Act, which have not yet been formally introduced in the House, have eliminated the original draft's provision regarding injunctions. Accordingly, while the injunction issue is repeatedly raised as an argument to quash alleged patent trolls, it has ultimately been dropped out of the proposed patent law reforms.
III. Licensing and Enforcement Efforts are Inherently Beneficial and Promote Innovation.
Supreme Court Justice Felix Frankfurter once said that “the average person reaps the benefits of this form of property because the inventor has created it under a patent system that rewards the inventor only if society does derive benefit from it.” Society as a whole benefits from the licensing and enforcement efforts of many, for they allow the distribution and use of patented technology. Efforts of patent licensing companies, small companies, non-manufacturing companies and others have three key benefits: (1) they reward inventors; (2) they provide opportunities for small inventors; and (3) they prevent large companies from poaching innovation from small companies or individual inventors. These three benefits support the underlying goal of the U.S. Patent System – fostering innovation. As described below, these alleged “patent trolls” should be allowed to operate and thrive in a system that benefits from their very existence.
By paying inventors for their patents, those who are financially able to risk patent enforcement bear that burden while inventors are financially rewarded for their innovations. Individual inventors often do not have the resources to reap the benefits from their inventions. They do not have the know-how or contacts to obtain licenses. If they do make an effort to license and distribute their technology, this often detracts from further innovation due to the time and effort exerted in non-inventing roles. Without some financing, inventors likely lack the resources to further patent their ideas or develop other unrelated ideas. This lack of innovation from the inventors themselves – the very ones coming up with the ideas – could stagnate innovation on the greatest level. Instead, by directly paying the inventors for their patents, intellectual property firms and other alleged “trolls” finance and promote further innovation.
An example of individual inventors benefiting from legitimate enforcement efforts is exemplified in numerous universities across the country. For example, in 2000, universities collected $1.1 billion in royalties from the 13,000 U.S. patents they hold. That same year, the U.S. Patent and Trademark Office granted universities 3,272 patents. In 2003, over 1,300 patents were issued to the top ten universities alone. These universities simultaneously rely on the income from their licensing efforts, while utilizing all resources to nurture the innovation of employees and students. As a result, universities are one of the greatest sources of American innovation. Additionally, start-up companies based on patented technology have no chance to succeed and prosper as manufacturers if they are not allowed to enforce their patent rights. It is this innovation from individual inventors and non-manufacturing universities that can be greatly rewarded through enforcement efforts.
Secondly, with the cost of patent litigation exceeding $2 million, the bargain between the patentee and the state, disclosure of the invention in exchange for a limited monopoly, is of little value to an individual inventor. While the law requires an enabling disclosure, it fails to enable the patentee to enforce its exclusionary rights. Intellectual property firms, corporations, and non-manufacturers often have the resources to promote and enforce patents, giving the individual inventor an opportunity for early risk-free reward. At the same time, the individual inventor can re-invest its rewards from one invention to foster further innovation.
Finally, allowing legitimate “trolling” efforts prevents large companies from pilfering innovation from individual inventors and small companies who lack the resources to enforce their patents. Large companies, including those who enforce their own patent rights, regularly ignore patent assertions from individual inventors and/or small companies or attempt to acquire all rights at an unreasonably low cost, which then provides the larger company with a licensing stream of revenue. Individuals and intellectual property firms with sufficient legal representation have the power and experience to obtain a license for existing patent rights and recover for past use. These are damages and payments rightfully due to the patentee, and it often takes the involvement of an outside “troll” to exact this due toll.
Enablers of innovation have consistently been demonized throughout recent literature and characterized as “trolls,” who systematically extort payment from unknowing victims. Indeed, the cause of many of the lawsuits that “patent troll” critics abhor is not caused by trolls at all. To the contrary, the cause of patent infringement lawsuits and other enforcement activity is that others are using patented technology without authorization. This fact can be and has consistently been addressed in the system as it exists today. Whether coined “patent trolls” or not, intellectual property companies, small companies, non-manufacturing companies, and other “enforcers” ensure that the system operates as the Constitution directed.
Copyright © 2005 Robins, Kaplan, Miller & Ciresi L.L.P. All rights reserved.
Biotechnology Industry Organization, Primer, found at http://www.bio.org/ip/primer/nation.asp.
Truly frivolous lawsuits are rare. If applicable at all, the “patent troll” label should only apply to those who bring frivolous lawsuits in an effort to extort undeserved settlements and licensing fees.
, August 4, 1997, found at http://online.barrons.com/article/SB870504282570637000.html.
Profile of Thomas Alva Edison, National Inventors Hall of Fame, found at http://www.invent.org/hall_of_fame/50.html.
CNET News.com, Sun Settles Kodak's Java Suit for $92 Million
, October 7, 2004, found at www.news.com.com/Sun+settles+Kodaks+Java+suit+for+92+million/2100-1012_3-5401804.html.
Currently, the Eolas case is on appeal on a narrow issue of prior art and the patent is currently in reexamination proceedings in the PTO.
National Law Journal, Bill Has Issues All Will Debate; Scope and Complexity of Patent Reform Act Reach All Industry Sectors,
Vol. 27, No. 50 p. S1 (August 29, 2005).
Biotechnology Industry Organization, Primer, found at http://www.bio.org/ip/primer/nation.asp
www.cnn.com/education, Schools profit from publicly funded research
(April 29, 2003).
United States Patent and Trademark Office.
The articles on our Website 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.