What are “patent trolls” and are they harming business?

While trolls may seem like the product of fairy tales, in the business world they have become a real and problematic issue. Patent trolls – or put more diplomatically, non-practicing entities (NPEs) – are a peculiar type of company that has popped up in several booming industries. Unlike traditional businesses, these entities do not produce goods or services. Instead, their focus is on buying up patents from companies going out of business, or developers who lack the capital to produce their own product.

Armed with the rights to numerous patents, some of which are widely used in an industry, patent trolls generally look for companies that have enjoyed success. They then target these businesses, threatening and sometimes lodging litigation, or demanding a licensing fee for use of the invention. Most companies end up settling with the patent trolls before the matter reaches court, due to the prohibitive expense of court costs.

Taxing innovation

Those who are currently unaffected by the actions of patent trolls may ask what it all has to do with them. However, many argue that the actions of these NPEs are having a substantial effect on how we innovate.

John Kelly from How Stuff Works has labelled the behaviour of patent trolls, and the subsequent payout they receive, as “a kind of tax on innovation”. Others have echoed this point, arguing that this behaviour diverts money that could otherwise be used on research and development. It’s not hard to see why. According to a working paper out of Boston University, companies in the US lost on average “$83 billion per year” on payouts to patent trolls. The paper goes on to note that this represents “over a quarter of US industrial [Research & Development] spending per annum.” When couched in these terms, it appears that patent trolls are having a significant impact on a number of industries.

Combatting NPEs

Those against the practices of NPEs have also suggested that a fear of being sued is forcing inventors and companies alike to abandon innovative strategies. When you consider that, between 2004 and 2009, litigation suits concerning patent infringements rose 70 per cent, we can begin to understand the major impact patent trolls may already be having on innovation.

In an effort to combat this behaviour, the SHIELD Act was introduced to the US Congress. Although patent trolls have yet to have a big impact on Australia, if left unchecked, their influence may extend outside of America.

Gain the skills necessary to combat the real threat of patent trolls in business with an online postgraduate degree from RMIT University. For more information about which course is right for you, speak to one of our expert Student Enrolment Advisors today on 1300 701 171.