A tale of two patent trolls: why targeting trolls may cause more harm than good.

• Author: Christensen, Kory
• Position: Legal Brief

In 2014, patent infringement lawsuits brought by entities that did not make or use the patented technology accounted for nearly 61 percent of all patent cases filed, prompting renewed calls for legislation to address the growing "patent troll" threat.

Citing an annual economic cost of $29 billion, proponents of reform seem to have an airtight case--at least until one looks below the surface at what precisely is meant by a patent troll. Unfortunately, there is no agreed upon definition, and defendants, watchdog groups and internet fear mongers have a vested interest in defining the term as broadly as possible.

Wikipedia, for example, conflates patent trolls, non-practicing entities (NPEs) and patent assertion entities (PAEs), defining them collectively as "person or company who enforces patent rights against accused infringers in an attempt to collect licensing fees, but does not manufacture products or supply services based upon the patents in question, thus engaging in economic rent-seeking."

Extortionist or Guardian?

If companies are acting like the bridge troll in the Three Billy Goats Gruff, why cant some of the most brilliant minds agree on ways to curtail these modern-day trolls? The answer is that most NPEs and PAEs do not engage in troll-like behavior that should be curtailed. To illustrate this, here are the stories of two patent "trolls."

Troll No. 1 is a shell company with no more than a post office box in the Eastern District of Texas (a plaintiff-friendly jurisdiction); it has no assets other than one or two patents it bought in a bankruptcy sale; and it does nothing except sue companies for patent infringement. Troll No. 1 identifies a number of small startups that generally work in the same technical field as its patents. Colluding with contingency lawyers, and without spending any resources to determine whether the startups actually infringe, Troll No. 1 sends demand letters requiring the payment of $40,000 each in exchange for a covenant not to sue. Recognizing that $40,000 is hardly enough money to pay a law firm to investigate the allegations, most of the startups reluctantly pay, adding legitimacy to Troll No. 1's claims in subsequent cases.

Troll No. 2 is a university that spent years developing a revolutionary technology, but does not, itself, "manufacture products or supply services based on the patent in question." Rather, it licenses its technology to companies, and the royalties it receives are used to fund...