Patent Trolls

Patent Trolls as defined by Investopedia is a term used to describe companies or people that

misuse patents as a business strategy. These patents are bought by Non-Practicing Entity’s (NPE)

who buy these patents from bankrupt companies and auctions and have no intentions of

developing it. Their business strategy is to do some research and file lawsuits against infringing

companies. These Patent trollers cost the US Company billions of dollars each year. They disrupt

the productivities of many companies and affect the whole idea of creativity and innovation in

the United States. Patent trolling cost the companies $29 Billion in 2011 in direct costs and up to

$80 Billion in other ancillary costs. Add to that the incalculable costs in terms of productivity

and disruption of innovation and entrepreneurship. Among the ones that are most affected by this

are the small and start-up companies. To give a comparison, the terrorist attack of 9/11 had an

economic impact of $123 Billion whereas, patent troll lawsuits amounted to $500 Billion in lost

wealth to defendants. The next question that needs to be answered is why there is a rise in this

sort of unethical business. This business has a very low start-up cost which usually requires

buying out junk patents or acquiring patents from bankrupt companies. This business also has a

very low overhead cost Furthermore, the cost of running these sort of businesses are very low as

legal fees are minimized through contingency arrangements ad there is a very low risk of

countersuit as they have little or no assets other than the junk patents. Taking the above points

into consideration and the fact that this business has guaranteed returns makes it a very lucrative

business for a few. These patent troll companies mainly target the small companies and had

revenue of $ 10.8 Million, 90% of which were from small-medium sized businesses alone. For

example patent troll MPHJ Technology investments sent small and medium sized companies

hundreds of letters to small- medium sized companies telling them that they violated a patent if

they used a type of scanner typically found on office copiers and demanded $900-$1200 per

employee. This is a simple example of how small businesses are targeted by these patent trolls.

More often than not these small companies end up paying what is demanded from them by the

patent trolls since they do not have the money to fight back or pay legal fees which are incurred

if the case is taken to court. These lawsuits have been on the rise since 2004 where it currently

stays at 3174 law suits in United States by the end of 2013. This is a serious issue, because the

small businesses and innovations which could be the next generations Apple or Google are

brought to a halt by these patent trolls. Many ideas and small businesses have been cut off or

totally shut down due to this. Furthermore, many of the Hedge Funds also have started investing

in this business along with lawers. In an innovative age, these ideas that could have benefitted a

lot of people are being stopped. This issue was so serious that White House had to intervene and

take some steps. In October of 2013 the House Judiciary Committee introduced the Innovation

Act to update the American Invents Act to better protect the legal patent holders. This bill

requires losing party to pay the other party’s legal fees and allows manufacturers or suppliers to

intervene on behalf of customers who find themselves targeted by patent troll. This bill has

somewhat eased the pressure but the danger still remains out there. Patent troll is a very unethical

business strategy and affects employment and creativity and it needs to be eliminated.