The Economist: Stalking Trolls

InsightaaS: The Economist is one of the world’s most respected sources of insight into business and social issues. This piece is focused on an issue that straddles both worlds: the confusion around patent law and the predatory use of patents to restrict innovation.

Patent trolls (also referred to as “non-practicing entities”) are an attractive target, and The Economist takes up the attack with gusto; we hear about demand letters, legal fees that are ruinous to startups and painful for larger entities and the overall economy, and the use of patents to impede new market entrants. It could be argued that the role of and market for patents is somewhat more nuanced than the article suggests – NPEs provide a secondary market for IP, and there’s nothing inherently evil about using patents to create competitive barriers – but nuance has been hard to find on all sides of this issue, and most readers will probably agree with the underlying sentiment of this piece: that reigning in the trolls will have a beneficial impact on new technology development and on the economy as a whole.

AT LAST, it seems, something is to be done about the dysfunctional way America’s patent system operates. Two recent developments suggest calls for patent reform are finally being heard at the highest levels. First, in 2013, defying expectations, the House of Representatives passed (by an overwhelming majority) the Innovation Act, a bill aimed squarely at neutralising so-called patent trolls. These are individuals or companies who buy up lots of patents and then use them to extract payments from unsuspecting victims. Second, the US Supreme Court agreed to rule on what is the most contentious issue of all: which inventions are actually eligible for patent protection.

Frivolous lawsuits filed by trolls cost American companies $29 billion in 2011 alone. Trolls (known in the legal world as “patent assertion entities” or “non-practising entities”) do not make anything, but send out thousands of “demand letters” to companies that allegedly infringe what are often vague and overly broad business-process and software patents. In recent years their targets have spread from high-tech firms to universities, retailers, hospitals, charities and even consumers. The trolls demand a settlement fee, which many of the victims pay rather than face the punitive cost of litigation–$2m or more these days.

Concern that the flood of frivolous patent suits in America is hobbling innovation and competition has caught Congress’s attention…

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