A patent troll makes nothing. It buys the rights to an invention second-hand, finds companies whose products might brush against that patent’s wording, and threatens them with a lawsuit expensive enough that paying up looks cheaper than fighting. One such firm, IP Nav, told the BBC its licensing fees have topped $700m.
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The formal name is a “non-practising entity”, and the description is literal: it holds patents without making or selling anything covered by them. Alan Schoenbaum, general counsel at the cloud firm Rackspace, which has itself been sued this way, put it more bluntly to the BBC: the people running these firms buy up patents and file suits, and they are rarely inventors themselves. “Generally they are not inventors, they’re entrepreneurs or finance people.”
Where the patents come from
Few trolls invent anything themselves. Most buy patents from innovators and companies who would rather have cash now than wait for an idea to earn money on its own. Google’s $12.5bn purchase of Motorola Mobility in 2012 showed the same libraries can attract buyers who are not trolls at all, but the pattern that follows a troll’s purchase is distinct: acquire broadly written, often software-based patents that are hard to pin down, then look for targets rather than customers.
The threat that does the work
Many of these claims never reach a courtroom, because a courtroom is the expensive option. Schoenbaum told the BBC that defending a US patent case can run from several hundred thousand dollars to $5m or $6m through trial. Faced with that bill, a target often pays a licensing fee instead, whatever the claim’s merit.
Alan Trefler, chief executive of the software company Pegasystems, called the process “incredibly slow and incredibly expensive.” A claim against his firm’s SmartBPM Suite arrived in 2013 from a non-practising entity called YYZ. Pegasystems fought rather than settled, spending two years in a joint defence with Hewlett-Packard, Adobe, Software AG, and BMC. Software AG and BMC eventually settled, while Pegasystems, HP, and Adobe won outright when a US district judge ruled against YYZ in October 2015. Trefler still argues the fight was worth it: a baseless claim, he said, carries a “moral obligation to step up and defend yourself.”
Most companies weigh the numbers differently. Chris Thornham, a patent specialist at the law firm Taylor Wessing, said a business facing an infringement claim should first check whether it would stand up in court, then decide whether defending is worth the cost. Thornham added that a weak claim a modest sum would settle is often worth paying off rather than fighting.
Who gets targeted, and how often
Non-practising entities filed 3,604 patent cases in the United States in 2015, according to figures from the litigation specialist RPX cited by the Financial Times. The University of California’s Prof Robin Feldman, co-author of a study into patent litigation, told the BBC that most US patent lawsuits are now filed by entities that make no products at all. Their business, she said, runs on pulling money out of the companies that do build things.
Smaller companies bear the brunt. The Guardian reported that around 60% of patent litigation is now brought by trolls, mostly against firms with low annual incomes. Entrepreneurs and start-ups have the thinnest budgets for a legal fight. The BBC found trolls had sent licence-fee demands to British app developers, including at least one teenager.
Trolling has followed the technology it targets. As manufacturers built more “smart” products relying on third-party components and licensed software, claims from non-practising entities rose across Europe too, said Thornham. The EU’s planned Unitary Patent Court, due in 2017, would let a single claim cover the whole bloc, which Thornham expected to draw more of the large-scale infringement suits that have so far been more common in the United States.
The secrecy that keeps the numbers hidden
Little of this reaches public view. Settlements typically carry a non-disclosure agreement, so the sums involved stay private and the scale of the practice is hard to measure from outside. Some firms are barely visible at all: a BBC reporter who tried to visit the Texas offices of Uniloc, a firm whose name had come up 85 times in a patent case database, found a receptionist who said nobody was available. A search for the headquarters of Lodsys, which has filed dozens of suits, turned up a locked door and a note asking the postman to leave mail in the foyer.
Not every patent purchase serves a troll’s business model, and the patent system was built to protect genuine inventors, not to punish them. What separates a troll from an ordinary licence holder is the absence of a product on the other end. When the only thing for sale is the threat of a lawsuit, a company’s income comes entirely from other people’s fear of the courtroom.
