Since George Washington created the first patent laws in the United States, Americans have been encouraged to innovate and promote technological developments. However, there are people and/or companies that attempt to abuse the patent legal system, called patent trolls. “Patent sharks” or “patent pirates” are other names for patent trolls because of the connotation that they prey on others. Read our article about patent dos and don’ts.

Patent trolls attempt to leverage themselves against competition by patenting inventions they may not even use in the future. They do this in order to gain licensing fees from others who actually want to utilize the invention. This results in the others being forced to either pay the licensing fee or try to fight it in court. The companies that participate in patent trolling activities are sometimes called non-practicing entities (NPEs) or patent assertion entities (PAEs) simply because they get a patent without the intention of developing the patented invention.

Origin of Patent Trolls

There seems to be some discrepancies among sources for the origin of the term “patent troll.” According to Invenstopedia, the term was first coined by Paula Natasha Chavez, a U.S. Intellectual Property Law attorney, in an education video about the misuse of patents in the United States. An article in WIPO Magazine, however, says the term was first used by Peter Detkin, a lawyer at Intel Corporation. The irony behind this origin is that Detkin eventually went on to co-found an organization that is famous for being a patent troll.

How a Patent Troll “Trolls”

Although not illegal, patent trolling finds a way to exploit holes in the U.S. legal system. There are multiple ways in which trolls take advantage of the legal system. Firstly, an NPE may patent an invention they have no use for, whether that be producing the invention or doing additional research. Having control over a patent without intentions of using it for the betterment of society is anti-proactive.

Secondly, the company may buy a patent that is similar to their competitor’s product in an effort to sue them for infringement. Another way an NPE may try to exploit the system is by trying to scare competition away with baseless infringement claims. Although the NPE has nothing to support their claim, the competitor is more likely to settle than take the case to court as it is easier and less expensive.

In many European countries, patent trolls are less of a problem because many countries require the loser to pay both parties’ legal fees. This deters many patent trolls because of the monetary risk associated with losing. For example, the potential cost of losing means they may have to pay the other party’s legal fees. A patent troll in Europe would then be less inclined to take a competitor to court solely to scare them into settling, like in the United States.

Effect of Patent Trolling

Patent trolls take a toll on the United States economy. Because of trolls, investors are less likely to invest due to the threat patent trolls bring on their investment. According to Harvard Business Review, in 2014, the previous five years showed a venture investment decline of $22 billion. Patent trolls have also caused businesses that have experienced patent lawsuits to lower what they spend on research and development. This decrease in R&D spending results in the business not performing to its full potential; this consequently reduces revenues and hurts the economy. Patent trolls only benefit themselves and cause the U.S. economy to deteriorate and innovation to decline.

What to do if You Receive a Demand Letter From a Patent Troll

If you receive a demand letter from a patent troll, whether it be a threat to sue, an infringement letter, a licensing demand, or a damages demand, take action immediately. You should contact a patent attorney as soon as possible because ignoring such letters can be very costly. 

Even if the letter may be nonsense, it only costs a couple hundred dollars to be sure. Licensed patent qualified counsel can assist you in determining if this is something that requires additional action. We highly recommend seeking assistance when faced with patent troll issues.

USPTO Systems to Improve Patent Quality and Reviews

America Invents Act AKA U.S. Patent Reform Act of 2011

Inter Partes Review

The Leahy-Smith America Invents Act’s main purpose was to help the PTO (Patent and Trademark Office) sort out low-quality patents. The act enacted what is called the “first-inventor-to-file” system, replacing what once was the “first-to-invent” system. Easily enough to understand, in the first-to-invent system, the inventor who first created the invention, regardless of the filing date, reserves the right to patent the invention.

In the first-to-file system, the first inventor to file the patent is granted the patent, meaning the application date is the determinant. This new first-to-file system is described in the inter partes review, a trial proceeding created with the America Invents Act. Read more about the 2011 America Invents Act and the inter partes review.

Ex Parte Reexamination

The America Invents Act also created ex parte reexamination. Anyone can request a reexamination of a patent if the patentability of the invention is in question. For a fee, the USPTO will evaluate the prior art again. Read more about the 2011 America Invents Act and the ex parte review.

Recovering from a patent troll can include recovery of legal fees. A unique feature of patent troll court cases is that it is possible to recover the fees associated with taking the suit to court. This feature is something that is not transferrable to any other type of court cases.

Applicable Court Cases

Highmark v. Allcare

Allcare Health Management Systems, Inc, was accused of being a patent troll by pursuing baseless infringement claims. Highmark, Inc. used the argument in court that lowering the decision (of Allcare) will encourage patent trolls by receiving less of a punishment for making baseless claims against another party.

Octane v. ICON

As talked about previously, in some European countries, patent trolls are less likely to exploit the patent system because courts could impose the legal fees of both parties on the loser. The Octane Fitness, LLC v. ICON Health & Fitness, Inc. made it easier to do just that in the United States after this case set the precedent in June of 2013. Octane accused ICON of making baseless, in bad faith claims. Octane did this in an effort to recover legal fees in a suit about an infringed patent.

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