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Business Law: The Impact of Patent Trolls on the World of Innovation

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In the technology world, the focus should be on innovation, but in the last decade, most of the technology related headlines had to do with patent infringement lawsuits. It seems that when you work in an industry that uses complex processes and technologies, you basically have to navigate through a minefield of potential lawsuits. The main problem is represented by non practicing entities, also known as patent trolls. These entities started out by wreaking havoc on the world of innovation, but as the years passed, IP and corporate lawyers have worked together to fight patent trolls in all possible ways. While we may be still be far from seeing peace in the world of innovation, things are starting to look up.

What are non practicing entities?

Intellectual property is one of the most complex areas of law. It applies to any type of creative work, but it encounters the most challenges in the technological world. Historically, most patent litigation came from large companies, looking to protect their markets. However, things started to change about a decade ago, with the appearance of special entities that don’t manufacture any products. Some of these entities are universities or individual inventors, who buy patents for research purposes. However, a great number of these entities consists of speculators who buy patents with the sole purpose of making a profit from patent litigation.

The cost impacts of patent trolls


It can be very hard to measure the costs and the impact that patent trolls have on innovation. One of the most relevant studies on this matter was performed in 2012 by two Boston University researchers. According to their study, NPE patent assertions amounted to a total of $29 billion from 2005 through 2011. About 25% of these costs consisted of legal fees for the supposed infringers. The point of this study was to show that NPE litigation is an obstacle for innovation and a deadweight to any society. While big corporations can afford to handle the costs of these lawsuits, small investors can be severely affected by them. Despite the results of this study, patent litigations cases continued to increase in numbers, with a 60% increase in 2013, and consistent increases in the following years.

Signs of progress

Despite having a good streak for a few years, patent litigation showed a noticeable decrease in 2016. It is still too early to tell if this is the beginning of the end for patent trolls, but it is quite obvious that corporations are putting a lot of effort into bringing down non practicing entities. The most effective ways in which corporate and IP lawyers are fighting patent trolls are as follows:

  • The Efforts of RPX – The Rational Patent Exchange Corporations has spent several billions of dollars in the last years, acquiring tens of thousands of patents, to help companies avoid patent infringement litigation.
  • Acquisition of patents–Any respectable corporation nowadays has a patent specialist whose sole purpose is to acquire as many relevant patents as possible. When it is impossible to acquire a specific patent, corporations go as far as buying the company that owns the patent. The most relevant case of this situation was when Google bought Motorola to protect Android from patent litigation.
  • Acquisition of non practicing entities– This is a very complex mission, due to the fact that NPEs are very expensive and they own countless patents which makes the acquisition process very challenging. It is very unlikely for such an acquisition to be handled solely by corporate lawyers, so IP lawyers have to step in. This situation was once debated by Jason Rabbitt-Tomita during a 2016 Berkeley BCLT/BTLJ event. His presentation was entitled “ When IP lawyers become corporate lawyers: Acquisitions of publicly traded non-practicing entities” and it described all the many challenges involved in this type of acquisition.
  • Working with patent trolls–Buying a patent from an NPE can be quite expensive, but at least you get to side step the legal fees. And while nobody likes to work with the enemy, corporations will do anything to avoid litigation. An obvious example of this unlikely collaboration consists of the Google Ventures-backed startup, Yieldify who last year bought a patent from III Holdings, which is considered to be the biggest and most dangerous non-practicing entity.

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Sumeet Manhas
Sumeet Manhas is a T-Shaped digital marketer and freelancer on Up work where he talks about digital marketing case studies, tips, techniques, and more. Helping startups with digital marketing is what he loves.

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