Non-practicing entities (NPEs), also know as “patent assertion entities” (PAEs) or “patent trolls,” have received much attention recently with two bills in Congress, statements by the President, a Vermont law to curb trolls, and even an NPR program on the evil effects of patent trolls.
I understand why. My first view of patent trolls came from my colleague Renato de Luna. Renato was the IP counsel at a high-tech company and spent a fair amount of his time defending against lawsuits from NPEs. One of the NPEs contacted the company’s board of directors and the customers. One patent in question was for a microprocessor, and almost all high-tech products use microprocessors. This particular patent had survived re-examination at the USPTO (the United States Patent and Trademark Office). Fending off the patent trolls consumed energy and resources that could have been used in a productive manner. At that point, I had no love lost for patent trolls. That is the view from above the bridge.
However, recently I got a glimpse of the view from below the bridge. Several of my clients and co-licensees of my clients, startup companies that had built patent portfolios but did not experience commercial success, decided to monetize their large intangible asset, their patent portfolio. As I had found out in the licensing experience early in my patent law career, “carrot licensing” (where you entice a potential licensee to take a license), is significantly harder and less likely to succeed than “stick licensing” (where you find them infringing and bring them to the table to license). In stick licensing, you have to be willing and ready to sue for infringement. But patent infringement is an expensive game – $2 million to play. Startups, even successful ones, do not have the entry ante. That is where NPEs come in. In the situations I experienced, the NPEs did their due diligence – they looked at the patents critically to determine that there was likelihood of success in a suit. I am sure that those sued, even if the tactics are not onerous, are not happy about it – the suit takes resources away from other efforts. Nevertheless, the NPEs provided an avenue for inventors to assert their patent rights to exclude others from making or using the invention.
Why is it important to provide avenues for entrepreneurs to assert their patents? The 2008 Berkeley Patent Study found that one reason that entrepreneurs gave for not patenting was the expense of asserting patents. However, patents provide a barrier-to-entry for competitors, and barriers-to-entry are one of the factors that investors consider. An increased likelihood of investments translates into an increased likelihood of forming a startup company. When we consider that more than half of all jobs are created by small businesses, an increased likelihood of forming a startup company translates into job creation.
Startup companies cannot afford lobbying, and most entrepreneurs (unless they are repeat entrepreneurs) are not large donors to presidential campaigns. However, it should be ensured that when trolls are reigned in, we do not throw the baby out with the bath water.