“Patent troll” has come to be known as a term for the purchaser of a patent (often from a bankrupt firm), who sues another company claiming that one of its products infringes on the purchased patent. However, this new owner of the patent never intends to manufacture that product or supply the patented service. It has become popular to refer to patent trolls today as “non-practicing entities” (NPEs) – that is, they do not manufacture or use the patented invention, but rather seek to enforce their rights through litigation and the negotiation of licenses. The pre-litigation cost to defend a suit brought by patent trolls in 2004 was typically $1M-$2.5M for a complete defense. Of course, such costs have escalated and serve to all but bankrupt young startups lacking sufficient resources to defend against them.
The practice of patent trolls actually dates back into the early 1800s. Although Eli Whitney wasn’t a patent troll given he was actually the inventor of the cotton gin, he did attempt to extract heavy royalties and to litigate to enforce his patent rights. His cotton gin provided the means for production of cotton to go from one pound per day per worker to 50 pounds per day per worker. Whitney however did not enjoy the commercial success of his patented invention because his company went out of business in within three years of the issuance of his patent, for several reasons:
- His invention was easy to copy,
- His demand of one third of the sales revenue of cotton processed using his patented cotton gin was far more than cotton planters were willing/able to pay and,
- His company was unable to meet the demand and experienced a fire.
Whitney was subsequently reduced to suing plantation owners in the South over the course of many years. When Congress refused to renew his expired patent in 1807, Whitney concluded that “an invention can be so valuable as to be worthless to the inventor”.
The first formally recognized (some say “infamous”) patent troll was George Selden. In 1879, he filed a patent application for a “road engine” and then purposely delayed issuance for the next 16 years while he waited for others to develop practical automobile engine technology. When his patent issued in 1895, he set about threatening suit against the auto manufacturers and had licensing success through his holding company, with one notable exception. Henry Ford did not buckle under the pressure of litigation, and after a lengthy court engagement, held off Selden’s infringement claims.
Many will remember the seminal claims against RIM (Blackberry maker) made by NTP. The case settled in 2006 with RIM paying NTP $612.5M, preventing RIM from having to shut down product manufacturing. A lot has been written on this subject, with considerable emphasis on techniques to fight off claims from NPEs, and an evolving regulatory landscape evaluating the impact on businesses of all sizes.
“We think we have solved the mystery of creation. Maybe we should patent the universe and charge everyone royalties for their existence.” – Stephen Hawking