At a time when gridlock in Washington has been at an all-time high, there is one high-profile issue where Democrats and Republicans are quickly coming together: defeating “patent trolling,” which is a growing area of litigation abuse vexing America’s high-tech economy. In these lawsuits, shell businesses called Patent Assertion Entities (PAEs) game the patent litigation system. They purchase dormant patents, wait for others to independently develop comparable technology, and assert patent infringement suits which is a strict liability tort. As the President explained earlier this year, PAEs “don’t actually produce anything themselves.” They “see if they can extort some money” by claiming they own technology that others developed.
The software, consumer electronics, retail and other companies on the receiving end of these lawsuits have nicknamed many PAEs “patent trolls.” They are reminiscent of the mythical trolls that hid under bridges they did not build, but required people to pay them a toll to cross. Patent trolling is highly lucrative. An oft-cited economic study pegged the 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.
The recent success in patent trolling is due to what I call the “Three P’s of Patent Trolling”: (1) “Plenty of Opportunity” created by the explosion of new, complex and overlapping patented technologies in the past two decades; (2) growing “Patent Uncertainty” over the scope, strength and validity of many new patents, meaning that many inventors cannot know if their technology infringes on someone else’s patent until the dispute is resolved in litigation; and (3) the “Plaintiffs’ Litigation Advantage” that allows PAEs to manipulate the costs of litigation, which are high and disproportionately borne by defendants.
Continue reading at RealClearMarkets.
