Patent Trolls and Billion Dollar Tolls

Patent Trolls and Billion Dollar Tolls

The idea behind patents is sound, and we are all more or less familiar with how they work– encourage innovation by granting the inventors of creative and useful ideas a period of exclusive rights to produce and profit from those ideas.

But the system does not always work as intended, and indeed it can often stifle innovation. Imagine that there is an enterprising stonemason who designs and builds a new type of bridge, enabling a farmer to bring his goods across a river and trade. He decides to sell his idea to another villager but this other villager does not begin to build any bridges; indeed, he neglects to even maintain the existing bridge. Another bridge-builder comes by and erects a bridge using a design of his own, which happens to be similar to the previously patented one. The patent-holding villager sees his opportunity and demands that the builder tear down the bridge immediately unless he pays the patent-holder a large sum of money. Whether he charges a higher toll to make up the fee or shuts down the bridge completely, his community feels the effects.

If you haven’t guessed by now, we’re referencing the infamous patent troll. According to people like Federal Appeals Court Judge Richard Posner, the judge who recently dismissed a patent infringement case between Apple and Motorola, “Patent trolls are companies that acquire patents not to protect their market for a product they want to produce… but to lay traps for producers, for a patentee can sue for infringement even if it doesn’t make the product that it holds a patent on.” Judge Posner makes a convincing argument for changes to patent law, particularly in the software field. There are many problems in current patent law that only compound one another, but one of the core issues allowing patent trolls to proliferate seems to be the lack of any sort of requirement that a patent holder actually utilize its patent to produce something. This allows shell corporations with no real employees or offices to buy up thousands of patents with no intention of using them to produce anything, so that they can wait until someone makes a product similar to the patent and charge them licensing fees or take them to court.

Another primary cause of patent abuse in the United States is that the Patent and Trademark Office is tremendously understaffed. This results in perfunctory patent examinations, an average delay of 3 years between submitting a patent application and its approval or denial, and ultimately a huge number of duplicate patents and patents on common-sense ideas that were never intended to be allowed in the first place. Research reported on NPR puts the number of “common sense” patents for ideas that have already been invented at about 30%, a staggering percentage. By definition, patents should protect creative innovations that would not be obvious to other practitioners in a field, but individuals and companies routinely acquire patents for extremely vague and general technologies. To provide just a few examples: there are patents for websites having pop-out boxes when scrolling over certain items, and for charging consumers within a smartphone game for premium items or bonuses. It would be difficult to argue that charging consumers electronically within a smart phone game is a particularly insightful contribution to society that the vast majority of app developers would not be able to think of on their own. Despite its obvious nature, this common-sense idea has a valid, legal patent.

All of these problems lead to high-profile, multi-billion dollar cases like the one between Oracle and Google, or multi-billion dollar corporate acquisitions with the sole purpose of providing patents to defend against patent lawsuits from other companies. The additional costs these patent lawsuits and acquisitions entail get passed on to the consumers of products from these companies, so that $12.5 billion that Google paid for Motorola is $12.5 billion Google must recoup from selling its products, adding a significant cost to doing business for something that has no real benefit to consumers.

Of course for some industries, such as pharmaceuticals, current patent law usually makes sense (although there are notable exceptions). Tech Crunch did some helpful number crunching that sheds some light on the differences between patent-seeking behavior of companies in different industries, as well as differences in investment strategies between Venture Capitalists and the companies they invest in. According to their analysis, the trend among start-ups since 2005 has been to seek fewer patents, but it’s also noteworthy that for those start-ups that do acquire at least one patent, the trend to acquire patents has accelerated. It is difficult to do more than speculate about what these numbers might mean in a specific sense, but Tech Crunch argues more generally that a company’s investors and industry are a good indicator for whether or not they will seek patents.

Increasingly, some venture capitalists fall on one side or the other when it comes to support for current patent law, and their investment strategies and the behavior of companies they invest in seems to follow suit. The fact that there are some big-name thought leaders coming out against patent law abuse may be an indication that changes will eventually come down the pipeline. Until then, it is likely that prominent software companies will continue building up their increasingly large arsenals of patents to simultaneously bludgeon their competitors and defend themselves, and patent trolls will likewise continue to do their best to monetize their ever-growing stockpile of patents.

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