Thursday 8 April 2010

Banish the Trolls Back Home

Certainly the most famous Nordic mythological creature ever to enter the lexicon of IP is the so-called "patent troll." Since Peter Detkin, formerly of Intel, popularly used the term in 2001 to describe parties that sought to extract payment for patents that they have no intention to ever use or practice, the debate about whether the "troll" is a positive or negative factor in the patent world.

My goal in this post is not to revisit generally the argument pro and con, but to consider how the issue was recently addressed by the wide-circulation business weekly, Bloomberg Business Week, in article entitled, "The 'Troll' That Tocks Off Techies", which was published on February 15 under the byline of Rachel King. More specifically, in an effort to bring the pro and con of "patent tolls" within the scope of an apparently self-imposed one-page limit, the article brings snippets and quotes that are apparently intended to give a flavor of the various positions on patent trolls. That said, the article contains several hard-to-understand comments that reflect the mushy boundaries that have been emerged in connection with the patent troll debate.

1. "Critics say trolls try to apply patents that are too broadly defined or that cover ideas that existed before the patent was granted. Many say the entire U.S. patent system needs reform. But for inventors who alone can't take tech companies to court over meaningful innovations, the Acacias [company that acquires patents and then seeks to obtain fees for their use--NJW] of the world play a vital role."

COMMENT: Nothing in this paragraph relates strictly to patent trolls. Regarding the first sentence, the claim is one that a defendant in a patent infringement action will often raise in its defense. One can replace the word "troll" with "plaintiff" without any change of the underlying meaning of the sentence. As for the second sentence, the meaningless of the target reminds me of Joseph Conrad's comment in The Heart of Darkness about the frigate more or less "shooting into a continent."Enough said. As for the third sentence, here as well, there is nothing special about so-called trolls, unless one wants to impose a use requirement for patents. Just because a law suit is filed by a nonpracticing entity does not make the plaintiff a troll.

2. "At the same time, nonpracticing entities help bring transparency to a market in which the price for patents is shrouded in nondisclosure agreements, says James Malackowski, CEO of Ocean Tomo, an intellectual-property consulting firm."

COMMENT: I guess I need some help here. What exactly is the "market" for patents here? Why do "nonpracticing entities" (i..e.,"patent trolls") solve the "transparency" problem resulting from nondisclosure agreements? What indeed is the "transparency" problem? Why should I care that the "transparency" problem is solved?

3. "[A partner at one venture capital firm] says one-third of is firm's portfolio is targeted by patent trolls. 'We're on the very front end of an explosion of frivolous litigation that's going to put a damper on innovation,' he says."

COMMENT: It's a bit hard for me to follow this claim. If this VC went into these investments without being aware of the likelihood of possible third-party patent suits, they have a due diligence problem. If this VC was aware of the risk of possible suit, then one would assume that this risk was priced into the terms of the acquisitions. Further, if the lasuit is "frivolous", the patentee also has to weigh the risk of pursuing a suit against the possibility that it may lose the case.

Nearly a decade after the moniker "patent troll' was coined, the term seems to still elude a commonly agreed meaning. Maybe the time has come to stop using the term and banish the troll back to the frozen Nordic north. In that regard, consider the following suggestion set out recently in Allison, Lemley & Walker,"Extreme Value or Trolls on Top? The Characteristics of the Most-Litigated Patents", University of Pennsylvania Law Review, December 2009.
"... [W]e should not focus so much attention on labeling particular plaintiffs as trolls or not, but instead on making sure that the patent rules provide patentees of all types fair compensation but not opportunities for hold-up."
How the business journalists will react to this sugestion is an open question.


Mats Björkenfeldt said...

In the March issue of Harvard Business Review, 'The Big Idea: Funding Eureka!', you can read about an 'industry dedicated to financing inventors and monetizing their creations' which 'could transform the world', but have been reviled as a patent troll.
The question remains: how far can inventing be a business in its own righ?

Neil Wilkof said...

Thanks Diderot,

I heard an Harvard Business School podcast several weeks ago about this, which featured Nathan Myrhvold. I agree with your question about whether this can be a business model, but if works, it seems to me that is hardly a patent troll operation (Oops!--I had promised to expunge that term from my lexicon.)