Patent trolls

Companies that don't build, only sue.

A patent troll — politely, a non-practicing entity (NPE) — is a business whose only product is patent enforcement. They buy patents from inventors or bankruptcy estates, then send infringementinfringementMaking, using, selling, or importing a patented invention without permission from the patent holder.Read more → demands to operating companies. The good ones target real infringement; the bad ones bank on settlement costing less than litigationlitigationA lawsuit over patent infringement. Litigated patents often signal commercial importance.Read more →.

The business model

Four steps that print money

1. 01

   Buy broad, ambiguous patents — cheap.

   Bankrupt startups, individual inventors, and university tech-transfer offices regularly sell patent portfolios for cents on the dollar. Patents with vague functional claimsclaimsThe numbered statements at the end of a patent that legally define what the inventor owns.Read more → ("a method of processing a request") are gold for trolls.

2. 02

   Identify thousands of potential infringers.

   Search for products that arguably touch the claimclaimA numbered sentence at the end of a patent that legally defines what the inventor owns. The most important section.Read more → language. Any software company with a search box, any e-commerce site with a checkout, any device with a touchscreen could be targeted by some patent somewhere.

3. 03

   Send demand letters with a settlement price below litigation cost.

   Defending a patent suit through trial costs $1M–$5M+. A settlement letter for $50K–$200K is rationally accepted by many small companies — it's cheaper than fighting, even when they don't infringe.

4. 04

   Use the venue and rules in your favor.

   The Eastern District of Texas (long the troll-friendliest court) and now the Western District of Texas became favorite venues. Plaintiff-friendly schedules, juries, and patent-heavy dockets favored NPEs. TC Heartland (2017) helped — but the model adapted.

Defense playbook

If you receive a troll demand letter

• Don't panic-settle.

  Sophisticated trolls expect quick settlements from small companies. A short, professional response asking for a claim chartclaim chartA table mapping each element of a patent claim to a feature of an accused product or prior art reference. Standard tool in infringement and invalidity analyses.Read more → often weeds out the weakest cases — many never follow up.

• Get a patent attorney now.

  Even a $5K opinion letter can break the willfulness chain. Without one, you can be hit with treble damages later.

• Read the patent's claims carefully.

  Look at each independent claimindependent claimA claim that stands alone — doesn't reference other claims. Defines the broadest scope of the invention.Read more → element-by-element against your product. Most demand letters target functional claimsclaimsThe numbered statements at the end of a patent that legally define what the inventor owns.Read more → that competitors arguably DO NOT meet element-by-element. Mapping shows where you may have a defense.

• Search for invalidating prior art.

  If the patent's claimsclaimsThe numbered statements at the end of a patent that legally define what the inventor owns.Read more → existed in earlier publications, the patent may be invalid. Inter Partes Review (IPR) at the PTAB invalidates ~60% of challenged claims and costs ~$300K — far less than full litigationlitigationA lawsuit over patent infringement. Litigated patents often signal commercial importance.Read more →.

• Consider joint defense.

  Trolls often target many companies with the same patent. Defensive aggregators (Unified Patents, RPX) and joint-defense groups split the cost of finding prior artprior artEarlier patents, publications, or products that existed before this patent's filing date. Patent claims must be novel over the prior art.Read more → and pursuing IPR.

• Counterclaim if you have your own patents.

  Operating companies with their own patent portfolios can credibly threaten counter-litigationlitigationA lawsuit over patent infringement. Litigated patents often signal commercial importance.Read more →. Trolls have no products and no patents-out, so this strategy doesn't work against them.

Has the problem improved?

Three changes that hurt the troll business

Patent-troll activity peaked around 2013, when NPE suits made up roughly 60% of all U.S. patent litigationlitigationA lawsuit over patent infringement. Litigated patents often signal commercial importance.Read more →. Three legal changes since then have reshaped the landscape, though the model is far from dead.

• Inter Partes Review (2012, AIA).

  Created a fast, cheap PTAB proceeding to invalidate patents based on prior artprior artEarlier patents, publications, or products that existed before this patent's filing date. Patent claims must be novel over the prior art.Read more →. ~60% of challenged claimsclaimsThe numbered statements at the end of a patent that legally define what the inventor owns.Read more → fall. Trolls' favorite weapon — broad functional patents — turned out to be highly vulnerable.

• Alice v. CLS Bank (2014).

  Supreme Court ruled that abstractabstractA short summary at the front of the patent describing the invention. Not legally binding.Read more → ideas implemented on a computer aren't patentable subject matter. Hundreds of software-patent cases were dismissed under §101 in the years after. Many of these were troll suits.

• TC Heartland (2017).

  Restricted patent suits to where the defendant is incorporated or has a regular place of business — dramatically reducing the Eastern District of Texas's case load. Trolls migrated to the Western District of Texas but with less success.

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