When I introduce people to patent trolls, the initial outburst of disgust reminds me of why the media names them such. For those new to the concept, a patent troll is a pejorative term for a non producing patent holder that claims rent by suing those who use their patented ideas. They’re so called “trolls” to conjure the idea that they dwell in dark, isolated places and wait to jump out and steal profits from unsuspecting inventors. Today I want to show you that their existence is a very necessary part of our patenting framework and while I don’t think I’ll be able you to convince you that the trolls are beautiful, I do think I can show you that they’re at least not as hideous as they first seem.
You may be accustomed to them via the regular (almost clockwork) targeting of them in the media. This is unsurprising as they’re an easy talking-point for the topic-less journalist. There is a wealth of absurd court cases out there involving their patent claims and legal pursuits; Personal Audio sues podcasters for podcasting, and NTP tried to sue BlackBerry for using a wireless e-mailing system (for more, watch this clip from John Oliver on Last Week Tonight). They’re also an exciting topic to discuss as research into their size and influence can be somewhat unbelievable; Bessen and Meurer (2014) estimate the total cost of litigation in the US initiated by Non-Practicing Entities toped US$29 billion in 2011. Facts like these though are a misnomer; they put forward a cost without any credible counterfactual and lead us to assume that we can simply claim back this money back by dismissing their litigation attempts. To see why this isn’t a responsible approach, consider what patents really are.
A patent, as defined by IP Australia, is a right that is granted for “any device, substance, method or process that is new, inventive, and useful”. In granting patents, there is an obvious trade off: whilst monopoly distortions ensue for the period of the patent (e.g. the holder can choose whichever price they wish to sell at), without such protection investment incentives dwindle with higher prospects that the sunk investment into research and development (R&D) won’t be re-covered.
Consider a pharmaceutical company who pours 100 million dollars into discovering a new, life saving drug. When they finally find their chemical composition, they and any rival, drug producing company aware of the findings, can combine these chemicals to produce the dose for only a couple of cents a piece. The company then stands no chance at recovering their costs at this competitive price and thus, ex ante, won’t invest in the R&D and will never be able to produce this life saving drug. To rectify this situation, we grant them a patent – a monopoly right so to speak – to use their composition and grant this right for a limited time such that the R&D becomes profitable but doesn’t over allocate these profits.
One of the reasons why patents are such a palatable solution to the intellectual property problem is the fact they can be resold. There are a host of reasons you may want to sell the right to your idea rather than keep it. A typical example involves a small inventor who cannot take their idea to market by themselves without some additional skills and resources e.g. the managerial ability to run a producing company, other technologies needed in order to produce a tangible or saleable product, or capital and patience in order to wait to the end of the patent life to recover all of their costs. Resale then allows this inventor to claim back this sum today by charging a price for the patent that reflects its total future value – the stream of monopoly profits, licensing fees and probabilistic damage payments. The inventor can then go on and continue inventing while the company who purchased the idea can go and claim back the costs of its purchase, thus effectively reimbursing the inventor.
When we then propose to block any litigation originating from a non-producing entity, i.e. a troll, what we are saying is that even though we think the creator’s intellectual property is “new, inventive, and useful”, because they couldn’t take the idea to market and sell the application, they cannot claim back the costs of researching and developing the idea. This takes us back to our original problem where inventors do not have the incentives to invest in these valuable projects as they will not receive any future compensation for their efforts.
Don’t get me wrong; patent trolls can be absurd when the ideas they claim are trivial, silly and unoriginal. The real enemy however is not the companies who buy up patents and utilise their prescribed rights, but the patent system who attributes these rights in the first place. Questions should, and are, being raised about the ease of claiming a patent and whether in some industries, such as information technology, ideas aren’t already adequately protected from being copied through private solutions e.g. encryption.
We need to develop a more robust system that attributes the true value of the intellectual property to the patent, and not take down companies that are simply reclaiming the value that their existing rights have been assigned. When seen in this light, patent trolls don’t seem so ugly, and it’s perhaps only a pejorative title that doesn’t really apply to most non-producing patent holders.
TL/DR; Patent trolls may appear ugly, thug like and money driven but they perform a key role in our framework for ensuring the profitability of intellectual property. To say that those who hold patents but don’t produce with them can’t claim damages from those who do use the ideas, is to say that small inventors who don’t have the capacity to run producing companies don’t deserve to recover their R&D costs – this rationale clearly ignores the reason of employing patents in the first place. Problems often attributed to trolls actually originate in the patenting system more broadly; the fault of those who granted the rights in the first place rather than the court who finds in favour of their plea. “Trolls” are a necessary part of our patenting system, and in my opinion, you won’t find more beautiful trolls on this side of the moon.