Patent trolls' hefty tolls: lawmakers target shell companies that threaten small businesses with bogus claims of patent violations.

• Author: Griffin, Jonathan
• Position: INTELLECTUAL PROPERTY

Vampires, zombies, werewolves (especially the teen variety) and aliens have captured people's interest once again. On TV, at the movies and in books, these fantastical beasts entertain and thrill those brave enough to watch or read about them.

But there is one creature that entertains no one and evokes only groans and sighs when its name is uttered, and that's the "patent troll." These real-life ogres are largely to blame for more than doubling the number of patent lawsuits in the last 10 years, and in 2011 alone cost U.S. businesses $29 billion in legal fees.

Beyond the Tolkien-inspired name, what is a patent troll? And more important, what, if anything, should state lawmakers do to curb the harm many claim they do to small businesses?

Patent trolls, formally known as patent assertion entities (PAEs), generally are holding or "shell" companies that don't manufacture anything but hold a number of patents, typically purchased legally from bankrupt firms. They make their money by sending threatening letters to companies claiming they have been violating one or more of their (often vaguely defined) patents. The letters say that if the companies pay the license fees to use their patents, they won't be sued.

PAEs usually request unreasonable fees in light of the alleged infractions and often fail to give companies any details about what the patent in question actually covers or how they allegedly infringed upon it.

It is important to note that not all PAEs are trolls. Some benefit the economy by buying patents from small businesses and inventors who may not have the interest or resources to develop the patents and selling them to those who do. These firms also take legal action when the patents are being used unlawfully. Without these firms, many instances of patent infringement would remain unenforced.

But trolls are another matter. While it's certainly legal to sue for patent infringement, PAEs that act in bad faith have come under fire. Over the past two years, lawmakers in 18 states have passed legislation limiting their activities.

Vermont was the first to do so, last year, because Congress was not addressing the problem and because Vermont lawmakers saw the economic damage trolls were doing.

"Increasingly, growth in economic activity is coming from knowledge-based companies" with huge investments in intellectual property such as patents and trademarks, says Vermont Representative Paul Ralston (D). "If those firms are attacked with...