Patent trolls: No work and all play

By: Jeffrey Bairstow May 1st, 2011

As I dimly recollect from my childhood readings of assorted European mythical tales, the trolls were mischievous little people who amused themselves by playing practical jokes on fellow trolls and other creatures. They were not necessarily vindictive but they could be a real nuisance. The term “patent troll” is a more recent usage which has taken on a somewhat pejorative cast.

“Patent troll” refers to a company that buys and sells patents with absolutely no intent to make use of those patents. The patent trolls can be broad-based, filing many alleged infringement cases, or may attack a single use of a particular patent. The patent trolls may seek to file a patent infringement suit that may cost millions of dollars to defend, should the case go to court. Most patent troll cases are settled out of court and the defendant and plaintiff rarely discuss the settlements’ cash terms.

The term “patent troll” would appear to date back to 1993 when the term was used to describe companies that filed aggressive patent lawsuits. The term became more widely used in 2001 by Peter Detkin, who was assistant general counsel for Intel at the time. Detkin used the term “patent extortionist” but later modified the term when Intel filed counter-suits. Intel has a large inventory of patents—mostly home-grown—but others have been purchased to head off competition.

Patent trolls often prefer less pejorative titles, such as “non-practicing entity,” “patent dealer,” or the even more genteel “patent marketeer.” I prefer the original usage of patent troll, which has a nice ring to it and is much more likely to grab the reader’s attention than the somewhat wimpish non-practicing entity or NPE.

The buying and selling of patents can be a sizable and often profitable business. For example, the bankrupt Canadian telecommunications company Nortel recently announced its intention to sell most of its wireless patents to Google for $900 million. Google doesn’t really want all those 6,000 patents but needs to use a few key patents to defend its Android wireless software platform.

The Nortel sale is attracting lots of attention worldwide since the Google bid mainly sets a range of minimum prices for other bidders to use in their own proposals. Nortel will file the proposed agreement with a Delaware bankruptcy court and will hold the actual auction in June, giving the patent trolls and other interested parties plenty of time to declare their interest in one or more groups of patents.

One surprising entry was a company formed by Dr. Nathan Myhrvold, the former director of information technology for Microsoft. Myhrvold has been gobbling up patents faster than a computerized vacuum cleaner. His company, Intellectual Ventures, now owns about 20,000 patents, making the organization a significant factor in the field. By comparison, large high-technology companies often have a patent portfolio of upwards of 25,000 items, mostly developed in-house.

Clearly, one of Myhrvold’s goals is attempting to set up a patent exchange where patents may be bought and sold freely (although fees may be needed). In the face of potential litigation and other actions, in 2008 a group of large high-technology companies formed the Allied Security Trust (including Cisco, Ericsson, Google, Hewlett-Packard, and Verizon) with the goal of identifying and obtaining key patents before they might fall into the hands of the patent trolls. Indeed, given the threats of Allied Security, the Trust is acting like a typical patent troll... admittedly a very large patent troll.

In my view, the solution to this patent troll situation lies in establishing flexible cross-licensing agreements to avoid massive settlements. Such agreements could require that the participants come up with a way of offering reasonable licenses to smaller competitive products. This way, all the potential litigants could settle out of court for more reasonable amounts.