patent troll

Technology: Taking the Patent War to the Trolls

"It's really a form of legal extortion," explains Stephen Holmes, litigation partner at Kaye Scholer LLP. "Patent trolls haven't done anything to justify what they're seeking to protect. Essentially they're looking to force companies to pay up rather than fight the accusations of patent infringement."

In 1895, an inventor named George Selden obtained a patent that provided him with sole rights to a new technology called the "gasoline-engine-powered carriage." Until Henry Ford successfully challenged his claim in 1911, Selden was able to use that patent to cobble a healthy income as the world's only authorized producer of automobiles. 

And he did so without making a single car.

Instead, he made his living by selling licenses to the technology and threatening any violators with company-crushing lawsuits. 

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In this sense, Selden may have been the world's first patent troll: a specialized breed of litigious, system-savvy patent holders who use their IP -- whether valid or not -- to sue, fine, license and, some say, intimidate legitimate producers of goods out of legally earned profits. 

Barack Obama on patent trolls"It's really a form of legal extortion," explains Stephen Holmes, litigation partner at Kaye Scholer LLP. "Patent trolls haven't done anything to justify what they're seeking to protect. Essentially they're looking to force companies to pay up rather than fight the accusations of patent infringement."

In the century since Selden's swindle, the trolling industry has blossomed into an elaborate shell company scam game, with trolls holding thousands of patents, each targeting individual industries and even specific companies, all of them vying for a piece of a very big pie they did not bake.

In the past few years, such "non-practicing entities," as they are officially known, have taken their toll on some of the world's biggest companies. Most famously, NTC successfully pocketed $612 million from Blackberry (then Research in Motion) in a long, vicious courtroom battle. And then just about every car company and smartphone maker -- from Ford (IW 500/8) and Toyota (IW 1000/8) to Apple (IW 500/4) and Samsung (IW 1000/14) -- has been hit by a dozen different IP holders like NovelPoint Tracking claiming ownership of broad GPS-related patents. 

When this kind of pressure is applied to manufacturing start-ups with much shallower pockets -- which Holmes notes is increasingly the case -- the troll industry has the potential to totally derail the future of manufacturing technology. As it stands, today's Henry Fords and Steve Jobses are likely to get licensed to death long before they can even get off the ground, all thanks to the laws put in place to help them succeed. 

It is a system, Holmes says, screaming for reform. And it seems that scream has finally been heard by some lofty ears.

Help From High Places

"A couple of years ago, we began a process of patent reform," said President Obama during a Google+ fireside chat this past February. "We actually passed some legislation [the America Invents Act] that made progress on some of these issues, but it hasn't captured all the problems."

One of those missed problems, President Obama said, is trolls.

"These folks are a classic example," he said. "They don't actually produce anything themselves; they're just trying to essentially leverage and hijack somebody else's idea and see if they can extort some money out of them."

Finishing up the reforms to take care of these entities, he said, will require government coming together and building "additional consensus on smarter patent laws," which didn't exactly inspire much hope at the time. 

But just a few months later, the White House has come out strong against trolls -- even calling them by that pejorative term -- issuing five executive actions and seven legislation recommendations "designed to protect innovators from frivolous litigation and ensure the highest-quality patents in our system," according to the official White House release.

Along with that, five different patent bills have been introduced in Congress, all targeting patent trolls on some level, all of it cohering into an all-out federal war on this "drain on the American economy," as President Obama put it. 

"Improving the quality of the patent office and the decisions made there will help everybody," Holmes says. "But you don't change the patent office overnight. You have to make sure you don't inhibit legitimate invention in the process."

It's a fine line the government will have to walk, he says. And one that will define the future.

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