It is hard to love a troll, and some feel the same way about patent trolls, the pejorative term for a nonpracticing entity (NPE) that sues a company for infringing its patent. Some feel that NPEs, which do not practice the invention covered by their patent, are like mythical trolls, who lived under bridges and collected tolls, even though they did not themselves build the bridge. Harry Potter taught us to love witches, Shrek taught us to love ogres, but notwithstanding Russ Berrie, trolls tend to get a bad rap. Companies like Apple, Microsoft and Canon have all been sued by NPEs, which often obtain jury verdicts in the hundreds of millions of dollars.
The goals of the patent system are to reward inventors and to spur innovation. Many argue that patent trolls satisfy neither goal and that we need legislation to stop what they argue is a parasitic tax on innovation. However, like Shrek’s version of ogres, trolls are also like onions, and only by unpeeling their various layers can we learn to understand the different types of patent trolls and appreciate the different ways in which they can help reward inventors and spur innovation.
A second group of NPEs are companies that do invent and make things, but also have licensing divisions. These companies often have huge research and development (R&D) budgets, obtain hundreds of patents and produce many of the items we use every day. However, most companies do not bring every one of their innovations to market. Therefore, rather than let their patents collect dust like Rembrandts in the attic, many companies have opened up licensing divisions. These divisions often market their innovations and license some of their unused know-how and patents to others. These companies sometimes bring patent infringement suits, even in areas where they have no licensees. They often prefer to bring patent infringement suits against companies that are not their typical competitors, so that there is little chance of a retaliatory patent infringement suit. One could argue that the ability to profit from a company’s under-used innovations helps fund R&D budgets, and therefore helps spur innovation—a primary purpose of the patent system.
A final category of NPEs is comprised of investors who fund patent litigation, looking for huge returns on their investments. Many inventors and small businesses have invented new and useful technologies, tried to license them to larger entities, but were not successful. After negotiations with those larger entities break down, the would-be licensors sometimes feel as if the potential licensee stole their inventions. However, a lack the funds to pursue patent infringement litigation can act as a strong deterrent to pursuing a lawsuit. In the past, large companies were sometimes tempted to simply use these companies’ or inventors’ innovations, secure in the knowledge that these entities could not afford to sue them for patent infringement in Federal Court.