Beware of the I.P. TrollsIn 1992, an engineer at AT&T named Tom Campana left to start his own business, which he called NTP. The business was based on collecting a variety of potentially valuable patents, most notably a technology that would allow people to send and receive e-mail on a mobile device.
In 2000, NTP sued Research In Motion, maker of the Blackberry, claiming the company was infringing on NTPs patent. Although NTP never actually put the technology into use, it won the lawsuit and was paid more than $600 million for its trouble, according to Fortune magazine.1 This set the tone for a practice known as patent trolling, in which a company buys or develops patents with no intention of using them. It then finds appropriate targets that are related closely enough to permit a lawsuit ? or the threat of one. The stakes are high, as the RIM case shows, and the cost to defend such a suit is a million dollars at a minimum.6
As described in an article published in The Lawyer,2 the practice of patent trolling was developed in the United States, but it is now migrating around the globe. Europe is becoming attractive to patent trolls because of the low cost involved in suing there compared to the U.S.
The larger the company, the more attractive a target it makes. So, a number of these giants are banding together to fight this trend. According to The Wall Street Journal,3 Verizon, Motorola, Google, Cisco, Hewlett-Packard, Ericsson, and others have formed the Allied Security Trust, a non-profit organization that buys patents.
On the opposing side of this patent war stands a company called Intellectual Ventures, which the Web site TechDirt describes as "a dangerous, innovation-harming monstrosity" that shakes down big companies for license fees with the threat of patent infringement law suits. To facilitate this, Intellectual Ventures has more than 1,000 shell companies that can be used to hide patent ownership and sue companies if need be.
The company was founded by Nathan Myhrvold, who retired as Microsofts chief technology officer in 2000, after founding its advanced research group. According to The Seattle Times,4 Microsoft pioneered the idea that software is intellectual property and therefore patentable. Intellectual Ventures now has acquired about 27,000 patents that have generated a billion dollars in revenue from licenses. And it has made another $80 million from patents it has generated in-house.
Coming to his own defense in the Harvard Business Review Myhrvold said that his company was set up to create a capital market for inventions. And, by doing so, the company argues that it actually helps small inventors and thereby encourages innovation.
Regardless of the broader moral and economic consequences of "patent trolling," it has touched off a fierce battle as lawmakers try to reform patent law. Not unexpectedly, those reform efforts are meeting stiff resistance from both sides. Those companies that are supporting the Allied Security Trust essentially want weaker patent protection, in that they dont want to be sued by companies that they consider to be "patent trolls."
On the other side, such companies as General Electric, Procter & Gamble, 3M, DuPont, and Caterpillar are against change because they depend on strong patents that represent their core assets.
As the struggle goes on, what can we expect? Consider these four forecasts:
First, patent trolling will be a thriving business until the legal context changes. At present, theres no law against it, and its fairly easy to set up shop, though capital is required to obtain or develop patents. The patents, however, are often discounted because theyre obtained from bankrupt companies, of which there are now plenty. Managers and corporate executives are well-advised to keep tabs on who is suing or threatening to sue their competitors, because that may be a harbinger of trouble for them.
Second, although the number of formal patent lawsuits has been declining since 2004, coercive use of patents will continue to grow. Most patent trolling companies dont need to sue. They simply ask the offending company to purchase a license or grant a royalty. Its often cheaper for the larger firm to do that than to fight in court with an uncertain outcome. This, in turn, drives up the cost to the consumer and may stifle innovation.
Third, patent reform will remain a contentious issue. Too many entrenched parties have too many vested interests to enable a clear resolution of patent law issues in the next few years. One extremely difficult issue concerns the way courts decide on damages when someone wins an infringement suit. According to PCWorld when a small element in a given product appears to infringe on a patent, the court considers the value of the whole product when awarding damages. Many technology companies, including Google, Amazon, Intel, Microsoft, and Apple, want to see the law changed so that courts would only consider the cost of the one element that infringes on the patent, rather than the whole product. However, opponents say that this change would make it easier for large companies to take advantage of the small companies that invent such components.
Fourth, despite the inertia, our national competitiveness requires some sort of legislative response to the sad state of the U.S. Patent and Trademark Office in the coming decade. At the moment, the backlog of patents stands at more than 750,000 pending applications, and innovators must wait an average of 31 months after filing for approval to receive a patent. The fee for filing is less than $1,000, but it costs the patent office more than $4,000 to review each application and make a decision. Because it costs so little to file, many companies simply file as many applications as they can, doing sloppy research and preparation work, while hoping some of them are approved. This system is not sustainable, and reforms are urgently needed.
References List :
1. Fortune, June 30, 2008, "Big Tech Gets Legal Aid in the Patent Wars," by Scott Moritz. ⓒ Copyright 2008 by Cable News Network, a Time Warner Company. All rights reserved. http://money.cnn.com 2. The Lawyer, September 26, 2005, "Beware of the Troll," by Morag Macdonald. ⓒ Copyright 2005 by The Lawyer Group, a division of Centaur Media PLC. All rights reserved. http://www.thelawyer.com 3. The Wall Street Journal, June 30, 2008, "Tech Giants Join Together to Head Off Patent Suits," by Amol Sharma. ⓒ Copyright 2008 by Dow Jones & Company, Inc. All rights reserved. http://www.dailyherald.com 4. The Seattle Times, May 27, 2009, "Bellevue Lab Is an Inventors Real Dream," by Brier Dudley. ⓒ Copyright 2009 by The Seattle Times Company. All rights reserved. http://seattletimes.nwsource.com 5. Harvard Business Review, March 2010, "The Big Idea: Funding Eureka!" by Nathan Myhrvold. ⓒ Copyright 2010 by Harvard Business School Publishing. All rights reserved. http://archive.harvardbusiness.org 6. PCWorld, April 5, 2008, "Bush Administration Speaks Against Patent Overhaul," by Grant Gross. ⓒ Copyright 2008 by PCWorld Communications, Inc. All rights reserved. http://www.pcworld.com
