Stumping Patent Trolls On The Bridge To Innovation

By / 10.1.2013

President Obama brought much needed attention this June to “patent trolling,” a growing area of litigation abuse vexing America’s high-tech industries. In these lawsuits, shell businesses called Patent Assertion Entities (PAEs) or Non-Practicing Entities (NPEs)—some of which have been nicknamed “patent trolls”—game the patent and litigation systems. They purchase dormant patents, wait for others to independently develop comparable technology, and assert patent infringement suits. As the President explained, PAEs “don’t actually produce anything themselves.” Their quest is to “see if they can extort some money” by claiming they own the technology upon which the other companies’ products are built.

An attorney who used to defend these claims, Peter Detkin, is generally credited with popularizing the “patent troll” moniker. For software, consumer electronics, retail and the many other companies on the receiving end of these lawsuits, PAEs are reminiscent of the mythical trolls that hide under bridges they did not build, but nevertheless require people to pay them a toll to cross. Patent trolling, it turns out, is a better path to the holy grail than hiding under bridges. An oft-cited economic study pegged the overall impact of PAEs in terms of “lost wealth” at $83 billion per year, with legal costs alone amounting in 2011 to $29 billion, up from $7 billion in 2005. At least fifteen PAEs are now publicly traded companies.

This policy brief seeks to address three questions: what caused this recent and rapid rise in PAE litigation, what can be done to stop it, and what is the role for progressives? First, it identifies the confluence of factors that have come together in the past two decades to create the patent equivalent of a 100-year flood, focusing mostly on the explosion of new, widely used technologies, increasing ambiguity in the boundaries of today’s patents, and a litigation system incentivizing “ransom” settlements for even questionable infringement claims.

The brief then examines the adverse impact PAE litigation is having on the development and use of innovation, as well as on traditional patent cases brought by inventors the patent system was created to protect. It discusses the rich history of progressives in leading efforts to stop litigation prospecting, concluding that progressives should be at the forefront of this reform too. It then explores specific proposals the President, Senators Schumer and Leahy, and others have offered to safeguard the patent system from trolling abuse.

Download the memo.