Trolls are Not the Only Bad Actors in Patent System, nor Most Damaging

Businesses that routinely steal others inventions are hoping that new legislation will make patent infringement more acceptable.

When it comes to bad behavior so-called patent trolls, businesses that acquire and enforce questionable IP rights to extract nuisance settlements, have competition. Many well-known businesses routinely use others’ inventions without paying licensing fees because they know that getting caught and prosecuted is unlikely.

In the July IAM, out this week, The Intangible Investor looks at the patent systems’ less visible bad actors, operating companies that hide behind the high cost and long time-line of patent enforcement, and the inexperience of most patent holders and lawmakers.

“Patent Systems’ bad actors are not confined to trolls” explores the much-discussed increase in NPE activity since 2010. While studies by Lex Machina and PwC indicate a dramatic rise in the number of NPE suits they do not provide the context to explain why. Interestingly, median damages awards have dropped to only four million dollars and many of the largest awards have been either reduced, retried or thrown out.

The 56% increase in NPE suits over the past two years reveals much about the patent systems’ weaknesses and strengths.

Reasons include: a dramatic uptick in patent filings and issuance; the need to sue first to get an infringers’ attention and avoid a declaratory judgement action that will determine venue; the increased availability of enforcement capital; and greater overall reliance on innovation by operating companies, especially software inventions, to power product sales.

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For many companies “not volunteering to take a licence” makes a lot more business sense under the current system than paying for one. In the unlikely event they are caught, they can pay up when they have to, and it still may only be a fraction of the cost to design around.

If patent “trolls” are a small percentage of NPEs that use litigation unfairly to extract nuisance settlements, what about those who systematically steal others’ inventions to avoid paying for them? Until now they have managed to deflect the anger directed at NPEs. Let’s call them patent “mice.”

A mouse thrives on swiping others’ cheese from under their nose when no one is looking, and they are almost impossible to catch without specialized tools. (I guess someone will have to invent a better mouse trap.)

The questionable ethics of refusing to recognize the legitimate invention rights of others is serious business. It has a dramatic collective impact on innovation and American jobs which has yet to be fully measured.

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Acting in bad faith over patents may eventually come back to haunt those who believe they can merely bury their head in the sand regarding recognition of others’ inventions. Read this month’s IAM for a more complete perspective.

IP CloseUp readers who are attending the IP Business Congress in Boston, June 9-11, be sure to stop by and say hello.

Image source: allparenting.com; Mouse Running with Cheese ©Dominique Bruneton/AltoPress/Maxppp