What Are Patent Trolls Costing Us? 

In a recent move, the Obama Administration has cracked down on “patent trolls,” in an effort to stop them from influencing and utilizing the patent system for solely financial gain. But what is a patent troll and what do they cost us?Investopedia states a Patent Troll is “a derogatory term used to describe people or companies that misuse patents as a business strategy,” but what does that mean?  It means that Patent Trolls buy patents from companies, who are often in financial predicaments, and use those cut-price patents to their own sole advantage. The Patent Troll can then threaten or pursue lawsuits against “infringing companies” that they believe are utilizing similar designs or ideas to  those protected in the patents they just bought, or they can hold on to the patents with absolutely no intention of practicing the invention, in an attempt to stop others.The model unquestionably ends up monetizing patents as standalone intellectual property rights, and this has had knock-on effects for inventors, innovation, large and small companies alike, and/so to be less derogatory, Patent Trolls are also known as “non-practicing entities” (NPEs) or “patent assertion entities” (PAEs).In the past, the PAEs have been a problem very typically associated with the software industry; however as this dries up as a source of revenue they are now thought to be a problem for other industries such as city governments, hotels, banks, and retail entities… basically any company who uses that software as part of the business routine.Very recently, a number of small businesses were targeted by PAE companies: for example a PAE asserts they own an in-force patent for the concept of scanning a document and sending it electronically. Small businesses are encouraged to license the patent for a fee of $1,000 per the company employee; and if the business refused they were threatened with a patent infringement lawsuit against them.  Patent lawsuits are notoriously expensive.But what do PAEs cost us and who do they hurt?The businesses that get hurt the most are the small to medium sized companies since they don’t have the resources to fight these PAEs and so must often settle before court.  It may not cost each business much but this extra cost of business for small companies can result in a price hike for the consumer or in extreme cases the company going out of business.  Settlement costs for small to medium sized companies last year have been estimated to be $1.33 million and litigation costs $1.75 million.  Larger companies are also adversely affected, as settlement costs for a large company can be over $7m, and litigation costs over $8 million. On some figures 5% of lawsuits cost the company more than $22 million. (Social Science Research Network Paper)Consequently the Obama Administration has urged the US Patent and Trademark Office (USPTO) to take up new reforms, which should also prevent lawsuits dealing with patents tying up the court system increasingly. These reforms will hopefully help bring a sense of transparency to the patent system and hopefully give inventors a level playing field.For more information about these reforms, you can click here: the White House Office of the Press Secretary.In addition to the reforms, the White House would also like to see the USPTO train its examiners to cut down on overly broad patent claims and educate small inventors about patent trolls and how to deal with them.  The White House also thinks that the USPTO should reach out to inventors, so they can have a say in developing new policies and laws. Hopefully with these new measures, it will be harder for “patent trolls” to roam the sea of patents.Further reading:http://www.washingtonpost.com/blogs/wonkblog/wp/2013/06/05/how-patent-trolling-went-mainstream/http://mobile.legalexaminer.com/miscellaneous/patent-trolls-are-scary-and-real.aspx?googleid=308956http://money.cnn.com/2013/06/04/technology/innovation/obama-patent-trolls/index.htmlJessica Vann works for Innovate Product Design, a company that helps inventors design and development their new inventions. She comes from a family of inventors and loves to give information that will help her fellow inventor.

The material in this website is commercially focused and generalized information and opinion about successfully working within the existing legal framework of Intellectual Property, patents and patent law; and should in no way be viewed or construed as legal advice. Advisors at Innovate are not and will not be lawyers unless this is specifically stated.