Last November, the Obama administration began seriously considering how to rein in the attacks of so-called patent trolls. Vermont fired the first blow this past May, and more recently both the International Trade Commission (ITC) and the Federal Trade Commission (FTC) subsequently entered the battle. Will additional sunlight on this contentious issue turn the trolls to stone, as in Tolkien's classic? Can executive actions and state legislation really stop trolls? And perhaps more importantly, can trolls’ actions be curtailed without adversely affecting the recourse that legitimate companies require to protect their IP? Only time will tell, but based on initial reviews, there is reason for concern.
A patent troll—or less pejoratively, a non-practicing entity (NPE) —has been defined as a legal entity that rather than seeking to manufacture or market a patented product instead tries to enforce its patents against one or more alleged infringers in a manner considered unduly aggressive or opportunistic. Many view trolls as a drain on the economy, forcing companies to spend more on defensive patent litigation than on research and development. Many believe patent trolls unfairly extract licensing fees from companies that are more inclined to settle than to fight. As a result, the licensing costs that litigation-averse companies pay are thought to increase the costs of products to consumers.
How do we draw a meaningful distinction between a “person and a company” —a distinction even the Supreme Court has balked at making, e.g., in Citizens United v. Federal Election Commission? Are big companies patent trolls and small ones not, or vice versa? Should a company’s size or pocket-book disqualify it from earning opprobrium as a patent troll? The not-so-secret tactic of companies with huge IP portfolios is that in addition to their publicized defensive purpose, some use their patents as offensive weapons in negotiations. IBM, for example, receives more than $1 billion in revenue from licensing its patents each year. How many of those licenses are related to products that IBM actually markets or makes? In 2012, IBM secured 6,478 patents, according to IFI Claims Patent Services 2012 rankings. Considering that IBM was granted a patent on extracting value from a patent portfolio, it would seem a safe assumption that IBM is not manufacturing or marketing at least a portion of those 6,478 patents. So is IBM a patent troll? And what about Apple? In 2012, Apple was granted 1,136 patents. If Apple is not practicing each of those patents, is Apple a patent troll?
Universities present another complexity. They may own patents but typically do not manufacture or sell any patented products. Today, most large universities maintain sophisticated licensing offices that earn millions of dollars in royalties from patented technologies developed on campus each year. If Stanford University files suit to defend one or more patents it alleges that it owns, is the university a patent troll?