Trolling around the Patent-Antitrust Interface: The Roots of the NPE Challenge and the Role of Antitrust in Patent Reform

• Date: 01 June 2014
• Published date: 01 June 2014
• DOI: 10.1177/0003603X1405900203
• Subject Matter: Article

THE ANTITRUST BUL L E T I N :Vol. 59, N o. 2/Summ er 2014 :221

Trolling around the patent-

antitrust interface: The roots of

the NPE challenge and the role

of antitrust in patent reform

BY BRUCE D. ABRAMS ON*

Ov er t he p as t fe w ye ar s, a g ro wi ng n um be r of c ri ti cs h av e

complained that nonpracticing “patent trolls” threaten the American

economy. These entities and their patent monetization practices have

begun to generate inquiries from sources both scholarly and political.

This article sets the stage for the nascent antitrust inquiry into patent

troll s by rev iewi ng th e hist ory of t he pat ent- ant itru st int erfa ce,

showing the relationship between these two bodies of law and

broader economic thought, and demonstrating the ways in which

the—generally positive—recalibration of their interface in recent

decades has created many of our current challenges. In particular, it

focuses on the creation of our contemporary sy stem of very strong

patent rights beginning in the early 1980s and on the ways in which

these ri ghts hav e proven to b e so stron g that the y may be inv ite

anticompetitive abuse.

KEY WORDS:pate nt, antitrus t, patent-ant itrust inter face, non-pr acticing

entity (NPE), patent assertion entity (PAE),patent troll, patent reform

© 2014by Federal Legal Publications, Inc.

* Senior Expert, Keystone Strategy,and President, Informationism, Inc.

I. INTRODUCTION

Over the past decade or so, patentees known as nonpracticing entities

(NPEs), patent assertion entities (PAEs), or—pejoratively and collo-

quially—“patent trolls”1have attracted a great deal of attention The

strategic and tactical techniques that these entities deploy in monetiz-

ing patents have begun to draw scrutiny and criticism from corners

rarely concerned with intellectual property (IP) issues.2

Specific complaints against NPEs have focused on a dispa rate

array of behavior Perhaps the most common complaint, and the one

most resonant with a broad public, concerns the broadcast of vague

“demand letters.”3NPEs deploying this strategy compile a lengthy

list of companies whose products or services bear some tenuous con-

nection to the NPE’s patents—perhaps nothing more than a shared

keyword —and then write letters con tainin g nonspe cific cl aims of

infringement and offering licenses for far less than the cost of litiga-

tion Given that the cost of litigating a patent suit fully often runs into

the millions of dollars, nuisance settlements can sustain a sizable NPE

busines s At perhaps th e opposite extreme o f sophisticatio n, some

nonpracticing companies that employ only engineers and lawyers

develop large portfolios of cutting-edge patents, and then participate

in industry-wide discussions concerning the adoption of standards.4

222 :THE ANT I T R U S T BULLETIN:Vol. 59, No. 2/Summer 2014

1See, e.g., Joff Wild, The Real Inventors of the Term “Patent Troll” Revealed,

IAM MAGAZINE, Aug. 22, 2008, http://www.iam-magazine.com/blog/Detail

.aspx?g=cff2afd3-c24e-42e5-aa68-a4b4e7524177.

2The public concern has even reached the White House—a venue not

known (in any administration) for its attention to intellectual property issues

See, e.g., Ali Sternburg, Obama Acknowledges the Patent Troll Problem, PATENT

PROGRES S, http: //www.pat entprog ress.o rg/2013 /02/14 /obama -ackn owl-

edges-patent-troll-problem-w-transcript/ (last visited Jan. 18, 2014).

3The Electronic Frontier Foundation (EFF) and a coalition of its sup-

porters, for example , have launched an archive o f troll demand letters See

Recent Demand Letters, TROLLING EFFECTS, https://www.trollingeffects.org

/letters (last visited Apr. 22, 2014); and Julie Samuels,A Closer Look at Patent

Troll Demand Letters:A Dangerous Problem That Must Be Fixed, ELECTRONIC

FRONTIER FOUND. (Nov. 5, 2013), https://www.eff.org/deeplinks/2013/11

/closer-look-patent-troll-demand-letters-dangerous-problem-must-be-fixed.

4See, e.g., Symposium: The Use and Abuse of Voluntary Standard-Set-

ting Processes in a Post-Rambus World: Law, Economics, and Competition

Policy,57 ANTITRUST BULL. 1 (2012).

After securing a place in the standard for their technologies—thereby

locking many companies into their patents—these unscrupulous

NPEs reveal previously undisclosed information about the IP rights

they control, placing the locked-in companies at a severe negotiating

disadvantage in their attempts to secure the patent rights needed to

field commercially viable products that adhere to the standard.

Numerous other NPE strategies exist, only some of which are

even arguably objectionable, and any discussion of NPEs must recall

that not every inventor can launch a company implementing patented

technology. The participation of nonpracticing inventors, their legal

representatives, and their successors in interest are critical to the

proper functioning of the patent system; without them, patents would

be little more than tools that the government grants to large, powerful

incumbents seeking to extend and expand their monopolistic or oli-

gopolistic positions. Some of the more Draconian reform proposals

seem oriented toward curbing NPE activity in general rather than

merely selected abusive practices.5

The realization that both selected NPE practices and selected pro-

posed reforms can harm competition shifts the discussion of nonprac-

ticing patentees from the comfortable confines of patent law and

innovation economics to the interface between patent law and

antitrust law.A policy concern that started with a desire of portions of

the patent community to rein in selected abusive practices is widen-

ing to incorporate concerns from across the policy spectrum, explicitly

including those of antitrust lawyers and economists. And while the

antitrust community has long been interested in the sophisticated use

of deception in standard setting, it has only recently broadened its

focus to the full array of NPE strategies.

Antitrust inquiries into allegedly abusive NPE strategies have

been relatively few and far between. To date, NPEs have raised more

antitrust questions than answers. It is thus far too early to provide a

full discussion of the antitrust implications of NPE behavior .This arti-

cle intends instead to set the stage for a discussion that is currently

just beginning. It does so by reviewing the history of the patent-

PAT E N T- A N T I T R U S T IN T E R FA C E :223

5See, e.g., Lisa Shuchman, Caution Urged on Patent Reform, AM.LAW.,

Nov. 11, 2013 (describing the ways in which certain proposals could have a

broad negative effect on small business).