What Is a Patent Troll?

A “patent troll” is a company that abuses the patent system by sending out what are called “demand letters” to hundreds or even thousands of small businesses demanding payment from them for infringement of a patent that is often not even identified or only referenced in very general terms.

Unfortunately, the term “patent troll” is being used by Big Tech (the large, high-tech corporations) to describe virtually any patentee (other than one of their own) that owns a patent and is attempting to assert it against an infringer. And Big Tech has spent millions of dollars to vilify the NPEs (non-practicing entities) that are attempting to exercise the intellectual property rights that come with a U.S. Patent, and were established by the Founding Fathers and incorporated in the U.S. Constitution.

A non-practicing entity is a patentee that does not “practice” its patent. It does not produce a product or service that use the invention covered by the patent. NPEs include universities and other research facilities, independent inventors, small and start-up businesses, and technology licensing companies. When an entity owns a patent, but it does not have a factory in which to produce a product or service that uses that patent – such as a university – it still has the right to enforce its patent rights against infringers.

The real patent trolls are the companies that send out demand letters. Since not just the manufacture and sale of a product that uses a patented invention – but also the use of such a product – constitutes infringement, these less-than-reputable companies send out hundreds or even thousands of letters to mostly small businesses demanding payment for the business’s use of a product that allegedly uses the patent troll’s patent. These demand letters often include no specifics about how the product specifically infringes the patent troll’s patent. Demand letters typically contain little or know factual information about the patent and which of the patents claims are specifically infringed.

Patent trolls target small businesses because small business owners and managers are busy running their businesses, they are not sophisticated in intellectual property law and practices, they do not have in-house counsel to advise them, and they are hesitant to engage an attorney. As a result, many small business owners just send these patent trolls a check. It is exactly these companies that the TROL Act of 2014 addresses.

So what is the proper term for a non-practicing entity that is a responsible patentee but does not have a factory in which to produce a product that uses its patented invention, and it seeks to monetize its intellectual assets via licensing? These are “technology licensing companies.” A technology licensing company is an entity that owns one or more patents – patents it may have filed for on its own and/or patents it may have acquired – and it seeks to amicably license these patents and/or assert them against infringers. Unlike a patent troll, a technology licensing company acts in a responsible manner, performs considerable due diligence before making a claim of infringement, and fully documents its claims. A technology licensing company focuses on manufacturers and sellers of infringing products and services, not small businesses that bought and now unknowingly use the infringing products or services.

Technology licensing companies perform five important functions that are critical to the American patent system, the U.S. innovation community and American global competitiveness:
1. Provide Liquidity: When an independent inventor, small business, research lab, hospital, university or other patentee has a patent, and the patentee does not have the means to produce a product or service that uses that patent, and the patent is being infringed, a Technology Licensing Company provides liquidity for what would otherwise be an ill-liquid asset.
2. Increase the Value of Patents: By providing liquidity for this asset class, technology licensing companies increase the value of all U.S. Patents, and that enables technology-based new businesses to raise capital to turn their innovations into products and services, and that creates jobs and opportunity!
3. Turn Invention into Capital: When a Technology Licensing Company secures an award, settlement and/or license for an infringed patent, it rewards innovation by turning that invention into capital that can go back into the innovation process.
4. Insure Continued Innovation: If the time came that innovators could not secure a return on their innovation efforts, there would be no incentive to innovate. Technology licensing companies, by turning invention into capital, ensure a return on the efforts of all innovators.
5. American Global Competitive: Providing a return to innovators on the fruits of their innovative efforts is critical to enable America to compete in an increasingly more competitive global marketplace.

American Innovators for Patent Reform represents the interests of the innovation community, and that includes technology licensing companies, but not patent trolls.