an assessment of the evidence that “patent trolls”...

Bsc(IM) Student: Niels Hald Kristoffersen

Supervisor: John Howells

An Assessment of the Evidence that “Patent Trolls” Have a Significant Impact on Innovation and an Exploration of the

Proposed Policy Responses

Aarhus University

School of Business and Social Sciences

Department of Business Administration

May 2014

Characters Excluding Blanks: 109,123

Niels Hald Kristoffersen

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Abstract

This thesis analyses synonyms of ‘patent trolls’, such as ‘Non-Practicing Entity’ and ‘Patent Assertion

Entity’, and finds that using them interchangeably with ‘patent troll’ is unwarranted. It then explores

some entities referred to as ‘trolls’, and concludes that the term can only be applied on a singular

entity basis, as it is solely the conduct of behaviour and not ownership status that can justify the

label. The thesis finds that, surprisingly, there is no existing evidence of harmful influence by actual

‘trolls’. Instead, evidence found on the erroneous synonyms is wrongfully credited to ‘trolls’ as well,

and the results of the studies analysing their impact are unreliable, and meaningless to the point of

being misleading.

Furthermore, it briefly looks at the Leahy-Smith America Invents Act, and examines some of the

proposed solutions to counter the issue, uncovering that the majority of them do not address the

problem it is claimed they address, but instead skew the balance of the patent system in favour of

wealthy or large corporations. Especially worth noticing, is the finding that the courts already have

tools to fight ‘trolls’ in court, and that future solutions, therefore, should focus on targeting the

behaviour of ‘trolls’ outside of court.

The thesis then goes on to discuss the findings and argues that the evidence does not support the

current notion of the problem, that policy change is unwarranted, and that pursuit of these is a

troublesome trend that needs to be brought to a hold.


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Contents

Abstract ................................................................................................................................................... 1

1. Introduction .................................................................................................................................... 3

1.1 Patent Definition ..................................................................................................................... 3

1.2 Recent Patent Development and Alleged Impact of ‘Patent Trolls’ ....................................... 4

1.3 Delimitations ........................................................................................................................... 6

1.4 The Author’s Notes. ................................................................................................................ 6

2. Exploration of the Term ‘Patent Troll’ ............................................................................................ 8

2.1 Definition(s) of a Patent Troll .................................................................................................. 9

2.2 Entities Labelled Patent Trolls ............................................................................................... 14

2.3 Tactics Employed by Trolls .................................................................................................... 17

2.4 Conclusion of Patent Troll Exploration ................................................................................. 17

3. Measures Taken to Counter Trolls ................................................................................................ 18

4. To Which Extent is there an Impact from Patent Trolls? .............................................................. 19

4.1 Existing Evidence ................................................................................................................... 19

4.2 Final Notes on Evidence ........................................................................................................ 29

5. Exploration of Proposed Solutions ................................................................................................ 30

5.1 Acts in Congress .................................................................................................................... 30

5.2 What can be done? ............................................................................................................... 31

5.3 Is there a Need for a Solution? ............................................................................................. 35

6. Some Perspectives on the Current Debate ................................................................................... 38

7. The Conclusion .............................................................................................................................. 40

8. Reference list ................................................................................................................................ 41


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1. Introduction

1.1 Patent Definition

According to the description from the USPTO’s (the United States Patent and Trademark Office)

website:

“A patent for an invention is the grant of a property right to the inventor, issued by the [USPTO].

Generally, the term of a new patent is 20 years from the date on which the application for the patent

was filed in the United States[.] […]The right conferred by the patent grant is, in the language of the

statute and of the grant itself, ‘the right to exclude others from making, using, offering for sale, or

selling’ the invention in the United States or ‘importing’ the invention into the United States. […]

Infringement of a patent consists of the unauthorized making, using, offering for sale, or selling any

patented invention[…][.]” (USPTO, General Information Concerning Patents)

The patent system of the US has been described as “[…] the world’s first modern patent institution,

[…] consciously designed to stimulate participation in invention across a wide spectrum of the

population[.]” (Khan, 2005, p. 29) And it derives its authority and legal basis from the Constitution of

the United States, which in Article One, section 8 states that “The Congress shall have Power […] To

promote the Progress of Science and useful Arts, by securing for limited Times to Authors and

Inventors the exclusive Right to their respective Writings and Discoveries[.]” (The Constitution Of The

United States)

The substantive law on patents is specified in Title 35 of the United States Code, which contains 390

Sections on patents. (United States Code) To summarize, patents are awarded for a product or a

process, and is the right of a product or a process which can be used to exclude others by law.


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1.2 Recent Patent Development and Alleged Impact of ‘Patent Trolls’

As can be seen from Chart 1 and Chart 2 below, the annual number of Patents granted by the USPTO

has been on the rise since the early 1990’s. As one might expect, the greater the amount of patents,

the more lawsuits will arise. Surprisingly, as can be seen from Chart 3, 4, and 5 on the following

page, the amount of lawsuits has remained relatively constant in the years from 2000 to 2010, but

has increased dramatically after 2010. The litigation brought by patent trolls incurred costs of $29

billion to businesses in 2011 (Bessen & Meurer, 2014), trolls are now behind 62 percent of all

lawsuits, (C. Chien, 2013) the patents owned by these entities are “[…] astonishingly weak […] [they]

almost never win their cases.” (Allison et al., 2011, p. 712) Some even describe the system as “[…]

rampant with litigation abuse by ‘patent trolls’” (Allison et al., 2009, p. 2) It thus seems like these

trolls are wreaking havoc through the patent system, but who are these trolls?

Chart 1: Utility Patents Filed vs. Issued from 1975-2012. (Chart copied from Quinn, 2013(i), “The Rise of Patent Litigation in America 1980-2012”)

Chart 2: Number of Software-Related Patents Granted per Year by PTO, 1991 to 2011 (Chart copied from GAO 2013, p. 12 Figure 1)


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Chart 3: Patent Infringement Lawsuits, 2000 to 2011. (Chart copied from GAO, 2013, p. 14 Figure 2)

Chart 4: Patent Case Filings and Grants. CAGR = Compound Annual Growth Rate. (Chart copied from PwC, 2013, p. 6 Chart 1)

Chart 5: Patent Cases Commenced, 1980-2012. (Chart copied from Quinn, 2013(i), “The Rise of Patent Litigation in America 1980-2012”)


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1.3 Delimitations In the setting of this thesis, delimitations are needed to be able to provide a meaningful result within

its scope:

First of all, this thesis will only focus on the ‘Patent Troll’ phenomenon within the patent system of

the United States of America and will, therefore, focus on its corresponding debate, research and

evidence. The thesis is thus limited to studying the U.S. patent system.

Second, this thesis will mainly look at the negative perceptions of ‘Patent Trolls’, as most of the

literature relates to these trolls with derogatory synonyms and searches for negative impacts. The

reasoning behind this delimitation is that the uncovering of negative effects is more important than

positive effects, because if any negative can be found, then trolls are undesired entities which

actions should be taken against, whereas finds of positive evidence might not exclude the existence

of any negative impacts caused by trolls. Therefore, should negative impact be found, they

potentially pose a problem.

Third, patent law is heavily rooted in court practices and outcomes. But due to the scope of this

thesis they have, in general, been left out.

1.4 The Author’s Notes: Methods, Decisions and Assumptions Applied

when Approaching the Literature. The reason for choosing to solely study the patent system of the U.S. is simply that it is a very heated

topic currently involved in proposed legislative debates. Due to the implications arising from the

geographical delimitation of focusing on the U.S. patent system, this thesis will solely make use of,

investigate, and analyze secondary data, i.e. existing empirical data.

The gathering of these has been the primary activity, and it has been done through extensive

electronic research. Although actual objective empirical data turned out to not be available, the

existing literature ended up serving a similar function. While there are collective databases, for

instance most federal legislative information is available at www.congress.gov, most of the material

is scattered throughout different law libraries such as Hein Online or LexisNexis, open-access

repositories like the Social Science Research Network, legal journals of universities, law review

publications, newspaper articles, or online law blogs where technically anyone can participate.

Though the thesis simply reviews existing literature from those sources as a basis for its discussions

and conclusions, the literature search proved to be a challenging task, as it meant finding and

reviewing all types of material from such diverse sources. The debate is, quite frankly, a mess, and

http://www.congress.gov/


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the same can be said of most literature as the use of secretly kept data used for the production of

knowledge plagues the validity of conclusions.

While using a blog as a source in an academic thesis should be done cautiously, this thesis makes

general use of the intellectual property law blog www.IPWatchdog.com as a source. Many

arguments can be made for and against its use. IPWatchdog is a leading Intellectual Property Law

blog where many industry professionals versed in patent law provide articles and discuss the topic,

and generally cite the relevant law and sources used for their statements, arguments and reasoning,

and due to the use of expert knowledge possessed by many contributors, it has helped bridge the

gap of my own lack thereof. While it is not an academic source and should not be relied upon as

such, it is in many instances on par if not superior to many academic sources as others who

contribute to the debate lack expert knowledge on the issue. Making use of expert knowledge is

especially critical as a problem plaguing the topic is that some academic sources can hardly be

considered reliable and should be treated with caution, as should be evident to the reader before

having finished the reading of this thesis.

The scope of the thesis severely limits the possibility of accounting for all material providing

evidence, or conflicting views and arguments, so when controversy in the literature has arisen, the

evidence and arguments provided here will be the ones found to be most reliable and factually

correct according to the sources and reliability of claims.

Assumptions have been needed to remain as neutral as possible. And in order to keep an

approach as consistent as possible, due to lack of empirical evidence to rely upon, I have made the

following three assumptions (stated in italic below) about the U.S. patent system, to be able to

evaluate and analyze the debate and its merits:

“There is nothing inherently wrong in enforcing a patent’s granted right to exclude.”

Reasoning: If it were to be considered as wrong, the right would not have survived

amendments to this day.

“Infringing a patent, whether wilfully or through independent creation is still infringement.”

Reasoning: When infringement occurs, it is an unlawful violation of the patent owners

granted right to exclude.

“A patent holder does not have to practice its patent.”

Reasoning: As quoted from the Constitution under section 1.1, the patent system exists to

“promote the Progress of Science and useful Arts,” it does thus not exist to promote the

increase of products available on the shelves.

http://www.ipwatchdog.com/


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These assumptions will be assumed to hold.

This thesis is of relevance as much of the debate regarding patent trolls is based on misleading

information, and this thesis, unlike the current literature, provides a broad objective overview of the

issue. Due to the nature of the sources, and despite largely excluding court cases, this thesis as a

whole has come to resemble that of a literature review, and it can be used as such.

2. Exploration of the Term ‘Patent Troll’

Having established a patent as the right of a product, or a process, which can be used to exclude

others by law, what or who, then, is a patent troll?

The term ‘patent troll’ is legally not established, (Opitz & Pohlmann, 2013, p. 104) but was originally

coined by Peter Detkin when he was assistant general counsel at Intel. As he explained in a 2001

article:

“We were sued for libel for the use of the term ‘patent extortionists’ so I came up with ‘patent trolls,’

[…] A patent troll is somebody who tries to make a lot of money off a patent that they are not

practicing and have no intention of practicing and in most cases never practiced.” (Sandburg, 2001)

In short, the term ‘patent troll’ was a replacement for ‘patent extortionist.’ Therefore, the outset for

further exploration of the term is that a patent troll is a patent owner conducting some kind of

extortive behavior.

The phenomenon of ‘patent trolls’ is not new. Similar activities took place during the nineteenth

century: “Called ‘patent sharks,’ they bought dormant agricultural patents and then sued farmers

who were unknowingly using protected technology.” (Magliocca, 2007, p. 4) The debate about

patent trolls has garnered attention in recent years, and even the President, Barack Obama, has

taken a stand on the subject. When questioned about trolls he described them as “[…] trying to

essentially leverage and hijack somebody else's idea and see if they can extort some money out of

them.” (Masnick, 2013) A lot of literature has been done on this topic, though, unfortunately, as

Magliocca has noted “the debate on patent trolls is long on passion and short on proof.” (Magliocca,

2007, p. 3)This is well illustrated by Michael Rischs summary of the debate, in which he refers to

patent trolls as NPEs (Non-Practicing Entities):

“According to the detractors’ narrative, trolls are recent fly-by-night shops that assert business-

method and internet patents. Trolls assert low-quality patents in low-quality litigation. They obtain

patents from failed companies in fire sales. Worse, because trolls do not make anything, their


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patents do not provide anything of value to society. […] According to their proponents, NPEs create

patent markets, and those markets enhance investment in start-up companies by providing

additional liquidity options. NPEs help businesses crushed by larger competitors— competitors who

infringe valid patents with impunity. NPEs allow individual inventors to monetize their inventions.

These functions, the proponents argue, justify the existence of NPEs. To be sure, whether an NPE

qualifies as a ‘troll’ depends on who is doing the name-calling.“ (Risch, 2012, p. 459)

2.1 Definition(s) of a Patent Troll As the above suggests, there appears to be no consensus as to what exactly a ‘Patent Troll’ is or how

to describe its activities, except that they are in some way ‘good’ or ‘bad’ actors. Many terms and

descriptions have been used in an attempt to describe these patent owners. In the following

sections, synonyms of ‘patent trolls’ in existing literature will be introduced and evaluated in order

to better define what can and cannot be justified as a ‘troll’.

2.1.1 Non-Practicing Entity (NPE)

The term ‘Non-Practicing Entity’, or in short NPE, and ‘patent troll’ are often used

interchangeably.(Hannon & Welsh, 2013) As the name suggests, it is an entity in possession of a

patent it does not practice, note that the word practice does not refer to the act of acquiring skill,

but to actions as designing and manufacturing products and processes. (Hannon & Welsh, 2013)

Among examples of definitions, Shrestha defines NPEs as “[…] firms that rarely or never practice their

patents, and instead focus on earning licensing fees.” (Shrestha, 2010, p. 114) And Bessen & Meurer

talk of them as “[…] individuals and firms

who own patents but do not directly use

their patented technology to produce

goods or services, instead asserting them

against companies that do produce

goods and services.” (Bessen & Meurer,

2014, p. 390) In the article “Extreme

Value or Trolls On Top?” Allison et al.

display a table of twelve different entity

descriptions, each describing a different

category of patent owners (see Table 1).

According to their account eleven of those twelve fit the label of a NPE, with number eight being the

only entity that practices its patents. (Allison et al., 2009, p. 11) A NPE can thus be classified as an

entity that does not practice its patents.

Table 1: Copy of Table by Allison et al., 2009, p. 10, Table 1


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2.1.2 Patent Assertion Entity (PAE)

Within the category of NPE definitions, a popular definition used to refer to patent trolls is ‘Patent

Assertion Entities’, in short PAEs. The term was coined by Colleen V. Chien (2010) in her article

“From Arms Race to Marketplace,” where she defines PAEs as “entities that use patents primarily to

get licensing fees rather than to support the development or transfer of technology. These entities

generally use their patents to sue, or threaten to sue, practicing companies. They are invulnerable to

patent counterattack and therefore have little to lose from patent litigation besides legal fees.” (p.

300) It has gained popularity since its conception, and it has been adopted for use by agencies such

as the White House, which used it in its “Patent Assertion and U.S. Innovation” report (June 2013),

and also by the Federal Trade Commission (2011, p. 8).

2.1.3 Patent Monetization Entity

The term ‘Patent Monetization Entity’, or ‘monetizer’ as a shortening, has been suggested as a fitting

label by Feldman et al., as it solely focuses on behavior where “patent rights are […] sold, traded,

grouped, regrouped, licensed, or repurposed, all for generating an income stream from the rights

themselves.“ (2012, p. 368) Along with NPE and PAE, Patent Monetization Entity was also used by

the United States Government Accountability Office (GAO) in its Intellectual Property report to

Congressional Committees (GAO, 2013)

2.1.4 Patent Shark

‘Patent Shark’ was, as described earlier, the term used in the nineteenth century. It was used to

describe the fight between small individual farmers being sued on their farming tools by ‘royalty

agents,’ the agents then being labelled as sharks. (Magliocca, 2007) The ‘Patent Shark’ term has also

been used more recently, this time in an opposite scenario, where the small patent holders are

described as the sharks, against the big manufacturers. Specifically by Reitzig et al. who denote them

as “[…] patent ‘sharks’ or ‘trolls’,” and describe them as “[…] patent holding individuals or (often

small) firms who trap R&D intensive manufacturers in patent infringement situations in order to

receive damage awards for the illegitimate use of their technology.” (Reitzig et al., 2007, pp. 134-

135)

2.1.5 Discussion of Synonyms

As a patent is the right of a product or a process, which can be used to exclude others by law,

enforcement of it cannot constitute a bad action in itself. If these patent trolls are conducting

extortive behavior, then it cannot be on the grounds of them enforcing their granted rights to

exclude. Therefore, what constitutes a troll cannot be the act of patent enforcement. The label


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‘patent extortionist’ must pertain to entities conducting something more than just patent

enforcement.

What about the NPE definition, could those be the extortionists? Besides the above mentioned,

a problem with using NPE as a synonym for a patent troll is that it easily includes many entities that

might not be these bad actors, but simply own one or more patents on technologies that they do not

produce themselves. A major company like Apple Inc. could be classified as a NPE under some

definitions, as it greatly outsources its production (The Chosun Ilbo, 2012) and focuses on research

and development, i.e. Apple does not produce the goods to which they own the patented rights, and

could be characterized as a troll under these definitions (Quinn, 2013j). As is evident, categorizing all

NPEs as trolls, thus labelling any entity that does not manufacture a product as an extortionist is

outright wrong. Universities are an example of entities falling victim to the implication of defining

the trolls as NPEs, and it has been argued that as they by nature are devoted to research and

scientific progress, they should not in general be classified as these bad actors. (Lemley, 2008b;

Quinn, 2013h) To further illustrate the complexity of this issue, when Allison et al. list twelve entity

classifications they do not describe which, or if any, of the eleven NPE classes deserve the patent

troll label. (Allison et al., 2009, p. 11) Providing twelve patent ownership classes, and yet not being

able to identify a single of them as these patent trolls solely on account of ownership status, the

conclusion must be that being a patent owner cannot by definition make you a troll. As briefly

shown, even though NPE is often used to refer to these trolls it is a misleading association, as it does

not describe extortive entities. But what if an entity bases its business model on asserting patents,

could it then be fair to label it as a troll, i.e. extortive?

Just like NPE, using PAE to describe these trolls can hardly be correct either. As Feldman et al.

note, NPEs can have a business model of solely selling patents to third party entities, who then

assert them. Thus only focusing on the entities asserting the patents would not get to the root of the

problem, as the NPEs selling the patents can still create market distortions.(2012, p. 367-368) As

these trolls supposedly try to make a lot of money off a patent, which could be done through

asserting the patents, they could fall within the boundaries of PAEs. However, labelling PAEs

extortive by nature seems dubious, and it is not clear that using this term would necessarily include

the patent trolls that it is meant to describe. But as this term by definition could include anyone who

enforces a patent, labelling them all as extortive is incorrect.

One of the advantages of the Patent Monetization Entity term is, as Robin Feldman has

described, that “[i]t has the virtue of capturing the notion that the entity is specifically designed and

intended for monetizing patents, and it leaves out universities, whose core activities differ


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significantly from this group.” (Feldman, 2013, p. 266) And while that remains true, there is the

definitional problem of when exactly an entity would classify as being specifically designed for

monetizing patents. IBM is well known for its licensing of patents, which is in excess of $1 billion

annually, (The Economist, 2005a; Quinn, 2012) but would this classify it as a patent troll, a good or

bad, or even extortive actor under the monetizer term? And if not, then when would the amount of

its licensing revenues constitute a big enough percentage of its net revenue to label it a monetizer?

Earning in excess of $1 billion annually, it can hardly be claimed that IBM does not make money off

its patents. While possibly an indication, as to the activities of the entity, it still lacks clarity to

accurately define its boundaries, and that all entities monetizing patents are exercising extortive

behavior is doubtful. It is too broad a term to be used for this purpose.

Examples can be made of famous inventors who fit these degrading definitions under the NPE,

PAE, or monetizer terms, for example Thomas Edison. Edison was granted 1,093 patents throughout

his life, (Bellis, 2014) “primarily described himself as an inventor […] [and] made a fortune from many

patents he never practiced.”(McDonough, 2006, p. 198) “In 1915 he was awarded the Franklin Medal

in Engineering for ‘Discoveries contributing to the foundation of industries and the human race.’“(The

Franklin Institute) In 2010 Time Magazine published an article where he is referred to as the “[…]

greatest [inventor] of them all[.]”(Walsh, 2010) And yet, such an inventing and licensing scheme

would make him fit the definition of a patent monetizer, as well as a non-practicing entity. Can the

derogatory, extortionist synonym, ‘patent troll’ be meant to include a man such as Edison? In the

words of Gene Quinn: “if Thomas Edison is a patent troll then we really should want to encourage

patent trolls, right?” (Quinn, 2014b)

Upon closer inspection the ‘Patent Sharks’ definition by Reitzig et al. also suffers from the flaw of

vilifying patent enforcement, and Reitzig et al. themselves even note that the “R&D intensive

manufacturers” illegitimately use the technology. When this terminology is to be used for identifying

actors causing problems in the patent system, labelling the infringed the sole problem does not

seem accurate. They further describe their view of the problem as:

“[…] concerns of today’s leading R&D multinationals [are] potentially overlooking these (often

small) inventors’ patents and being caught in the trap of inadvertent infringement. Today’s patent

‘sharks’ or ‘trolls’ seem to place their bets on […] corporate ‘negligence’ or monitoring deficiency.

Sharks or trolls have no intention of engaging in the production of the technology underlying their

patents, but instead make money from royalty payments they obtain directly from their licensees or

indirectly in terms of damage awards. […] trolls intend to take their victims by ‘surprise’ to facilitate

their attempts to force manufacturers into unexpected licensing fees.” (Reitzig et al., 2007, p. 135)


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The implication of this definition would be that any patent holder enforcing a patent against

infringers while claiming compensation is conducting some kind of negative or “bad” behavior. In

other words, on the basic level, enforcement of a patent results in the holder being labelled patent

shark. But since a patent specifically grants the right to exclude by enforcement, then this shark

label seems undeserved, simply labelling anyone who enforces a patent as a patent troll cannot be

correct if it is supposed to describe entities conducting extortive behavior.

A question that should be raised for all these degrading definitions is: “when infringement takes

place, how come the ‘bad actor’ is the infringed and not the infringer?” In the aforementioned

‘patent shark’ scenario the R&D intensive manufacturer has violated the rights of the patent holder.

Yet claiming that the infringed is the bad actor would imply that the infringer is doing nothing wrong,

even when stealing or copying patented technology that it did not develop itself. Basically the R&D

intensive manufacturer can then benefit from ignoring patents, licensing, and royalties when

violating the rights of the patent holder. It seems that President Obamas notion of someone “trying

to essentially leverage and hijack somebody else's idea” is more fitting for the R&D intensive

manufacturer than the patent holder in this scenario. While the ethical fairness in the notion of

“hiding” to later reap damage awards for infringement by unknowing entities is questionable, is it

fair to hold them responsible for taking manufacturers by ‘surprise’ if it is due to their negligence or

poor monitoring of existing technology? If negligence and poor monitoring is the cause, then vilifying

any patent holder, some of whom might not be hiding at all, hardly seems correct, and labelling

them as patent sharks seem outright wrong. This would imply that the R&D intensive manufacturers

could just deliberately ignore or negligence monitoring - it has been argued that they already do

(Feldman & Ewing, 2012, p. 19; Lemley, 2008a) - and then call “shark!” or “troll!” upon infringement

claims by any patent owner. This way it would benefit greatly at no expense for stealing technology,

while the patent holder would be vilified. Essentially this would mean that a complete abolishment

of patents would be required to avoid the existence of patent trolls. The logic of these patent troll

definitions are suspicious, and puzzling to say the least. It is clear that they cannot adequately be

used to define bad actors exploiting the patent system, especially not when used to describe

infringed entities.

2.1.6 So Far

A reasonable assessment of the terms at this point is that there exists no sufficient explanation as to

what defines these extortionists, or who they are. These attempts simply cannot suffice. It seems

strange that these trolls gain so much attention, yet no better definition exists? The label ‘patent

extortionist’ must pertain to something else than these vague overly inclusive definitions. An

investigation of some of the “entities” labelled trolls seems appropriate.


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2.2 Entities Labelled Patent Trolls Even though the term was coined in 2001, it did not receive the public’s attention until 2006 where

NTP, Inc. fought Research In Motion Limited (RIM), the maker of BlackBerry, in a fight which ended

up costing RIM $612.5 million in settlement (Kelley, 2006; Quinn & Brachmann, 2013b). As described

in a Leader in The Economist (2005b), in public RIM was seen as a victim and NTP as a patent troll,

though NTP requested RIM to license its patents which RIM was infringing with their BlackBerry

products, but RIM refused to license. This brought a legal battle and threat of injunction upon RIM,

in other words, it was “[…] the chief author [o]f its own fate.” (The Economist, 2005b)

An entity often pointed to as a patent troll, is Acacia Research (Quinn, 2014c). It is the biggest

publicly traded patent-licensing company and has been a plaintiff in 280 lawsuits. (Feldman & Ewing,

2012, p. 15) Then CEO of Acacia, Paul Ryan, in a 2012 interview described the business model as

follows: “Acacia Research partners with patent owners to get them fair compensation for their

inventions and splits the net revenue with them typically on a fifty-fifty basis. 95% of [our 250

portfolios][…] are partnering deals fifty-fifty with the patent owner.” (Quinn, 2013b)

Just like Acacia, Intellectual Ventures is commonly seen as a patent troll. Listed as the biggest

patent holding company by Business Insider in a 2012 article, they call Intellectual Ventures “[…] the

mother of all alleged patent trolls.”(Fuchs, 2012) Intellectual Ventures describe itself as an

“invention capital company,” (Intellectual Ventures, 2014a) and its activities as “IP-for-defense,” “IP

Monetization,” “Litigation Clearance,” “Sponsored Invention,” and “Strategic Buying.” (Intellectual

Ventures, 2014b) The CEO and cofounder Nathan Myhrvold said, in 2006, that he hoped to never file

a patent lawsuit, (Varchaver, 2006) yet in 2010 Intellectual Ventures started doing just that. (Quinn,

2010) Although as some had speculated, it had been using third parties to carry out its litigation

activities up until that point. (Feldman & Ewing, 2012, pp.13-14) Intellectual Ventures is closely

studied by Feldman & Ewing in their article “The Giants Among Us” (2012), they uncover that

Intellectual Ventures is in possession of a total patent portfolio between 30.000-60.000 patents and

applications as of May, 2011 (p. 5) and that it has at least 1276 shell companies and entities related

to its activities. (p. 5) A very interesting observation is who the investors behind Intellectual Ventures

are, as they count corporations such as Amazon.com, Apple, Cisco Systems, Google, Intel, Microsoft,

Nokia, Sony, and Yahoo!.(Feldman & Ewing, 2012, p. 44)

Some other entities that have been portrayed as trolls worthy of mentioning are Eon-Net,

(Quinn, 2011b) Lodsys, LLC, (Mullin, 2013; Worstall, 2013) as well as Rockstar Consortium which is

backed by Apple, Microsoft, BlackBerry and others (Finley, 2013; McMillian, 2012).


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Contrary to the formerly mentioned trolls, an entity that is not often labelled as a troll is Google.

Like Apple and IBM, Google is an entity that fits the descriptions of a NPE, and acquires patents that

it asserts, just like NTP. Actually, Google has been found guilty of unlawful conduct by a jury verdict.

It has been argued that this in fact makes Google a convicted troll. (Mueller, 2013)

An important entity labelled a troll is MPHJ Technology Investments, LLC, as it has been “caught”

by New York Attorney General Eric T. Schneiderman. Described by Schneiderman as a patent

assertion entity, it has been labelled a troll because it has conducted the following behavior:

“MPHJ, have […] a strategy of targeting small and medium-sized businesses[,][…] send[ing] deceptive

and abusive letters […] in an effort to extract small, often nuisance-value license payments from

them. […] [I]t told […] businesses that they ‘likely’ infringed its scanner-related patents, creating the

impression that MPHJ had conducted a meaningful, individualized analysis of the targeted company’s

business. In fact, MPHJ merely sent form letters to companies of a certain size and industry

classification. In addition, MPHJ falsely told businesses that most other businesses it had previously

contacted had acquired licenses when in fact only a handful of businesses had done so. MPHJ also

provided misleading information about the fees that the (few) prior licensees had paid.” (New York

City Press Office, 2014)

The “small, often nuisance-value payments” demanded was a license payment of $1,200 per

employee. (Assurance No. 14-015, 2014, p. 3)

2.2.1 Closer Examination of the Entities

Starting with the entities widely considered patent trolls, it appears to be a matter of personal

belief rather than evidence as to what constitutes a troll. In the NTP case, the troll label appears to

be justified by acquisition and enforcement of a patent, (Quinn, 2014c) but this cannot be

considered as extortive behavior when RIM was infringing and refused to license, RIM did not leave

NTP with much else to do but litigate to enforce its granted rights. Thus despite fitting the NPE label,

NTP can hardly be considered an extortive actor, nor patent troll.

Regarding Acacia, it “reported gross revenues of just $34 million in calendar year 2006, about

what IBM makes in a week [of] licensing […].” (Hosie, 2008, p. 3) More recently, the About Us section

of Acacias webpage states as of April 5th, 2014, that it has “generated over $1,000,000,000 revenue

to date, and has returned more than $455,000,000 to our patent partners.”(Acacia, About Us) When

looking at the testimonials done by the partners of Acacia on its website (Acacia, Patent Partner

Testimonials), if making the assumption that they are genuine, the vast amount of testimonials

made and gratitude expressed does seem to back up the aforementioned business strategy


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described by Paul Ryan. It is therefore hard to conclude that Acacia can be seen as one of these

extortionist actors, despite clearly pursuing an aggressive litigating approach. When the reason for

doing so is defending the rights of infringed patent owners against infringers, the conclusion must be

that it should not be labelled a patent troll, as it is merely enforcing the granted patent rights. As

Spencer Hosie notes: “[…] Acacia is an extortionist and IBM an icon. What gives?” (Hosie, 2008, p. 3)

Taking any stand on Intellectual Ventures is difficult, as noted by Feldman & Ewing, much about

it is shrouded in secrecy (2012, p. 3). One can only speculate about to which extent the company

monetizes its massive portfolio, and whether it creates market distortions or not. Nevertheless,

labelling Intellectual Ventures a troll on the grounds of their patent portfolios size and assertion of

them is not sufficient, with no concrete evidence of Intellectual Ventures conducting extortive

behavior it cannot be labelled a troll.

In short, MPHJ engaged in abusive pre-litigation tactics with the intent to deceive, and provided

misleading information, to scare targets into settling.(Quinn, 2014a) It is hard to describe this as

anything but extortionist behavior. MPHJ appear to be the only entity so far that fits the patent

extortionist label. Though MPHJ fits the descriptions of PAE, and monetizer, none of these

descriptions define it as an extortionist, the only thing that identifies this is the deceptive and

abusive tactics it used in its assertion.

It can thus be concluded that we cannot identify a patent troll simply on whether it owns,

asserts, or monetizes patents. And that labelling any entity a troll on those unfounded criteria’s is

misleading. The troll label should only be reserved for those who conduct unlawful, abusive, and

extortive behavior, as the MPHJ case showed. As any entity, in any industry, in possession of any

kind of patent can conduct unlawful, extortive behavior, no matter the entity size, there is no way to

classify these trolls broadly. This implies that the troll label can only be applied on a singular basis.

All usage of terms as NPE, PAE, or monetizer can only be used for an over inclusive generalization of

a group of patent holders, or used as a scapegoat for other purposes, possibly to divert attention

from being an infringing entity. Unfortunately, most literature and debate on this issue assume the

trolls to be one of those patent owner classifications. As is evident, what constitutes a troll is an

entity conducting unlawful and deceptive behavior and tactics, interestingly, this goes well in line

with the tactics that have been attributed to trolls under the misleading and degrading synonyms

previously explained.


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2.3 Tactics Employed by Trolls Assumptions exist about the tactics of these trolls, but not many ring true when investigated. For

example, a common assumption is that these trolls “use weak and vague patents to threaten

product manufacturers and extract excessive licensing fees or engage in frivolous infringement

litigation.” (Shrestha, 2010, p. 115) And this was backed up by Allison et al. (2011), however, Allison

et al. only studied 106 NPE patents, (p. 680) and studies employing larger samples have found that

the patents brought by trolls are “[…] of equal or higher quality,” (Risch, 2012, p. 481) that trolls

generally “[…] hold high value patents[,]” (Shrestha, 2010, p. 150) and the findings of Fisher &

Henkel (2011) “contradicts […] that patent trolls concentrate on enforcing low-quality patents.” (p.

19) Therefore, a shift of focus to how they assert them seems more appropriate if we are to label

these entities “extortive”. Interestingly, this has been defined much more accurately, but does not

generally apply to the very entities that they are attempting to vilify. For example, the White House

had adopted PAE as the synonym for a patent troll in its report, yet it defines their behavior as

“[…] threatening to sue thousands of companies at once, without specific evidence of infringement

against any of them; creating shell companies that make it difficult for defendants to know who is

suing them; and asserting that their patents cover inventions not imagined at the time they were

granted.” (June 2013, p. 1)

These tactics do come off as extortive, and the tactic of suing a vast number of companies without

specific evidence of infringement fits well with the behavior of MPHJ mentioned earlier, but claiming

that every entity fitting the PAE classification is conducting this behavior by nature seems dubious to

say the least.

Another asserted tactic that is worth mentioning, is attempting “[…] to shake down small businesses

by bringing specious patent infringement lawsuits knowing that it will be far cheaper for the

defendants to settle with a licensing fee than it will be to litigate, even if there is clearly no

infringement.” (Quinn, 2011d) This tactic has also been described by Rader et al. (2013), and fits the

case of MPHJ, the case of Eon-Net, (Quinn, 2011b) and it can be argued to pertain to the behavior of

Lodsys. (Lee, 2013; Mullin, 2013; Quinn, 2013c)

2.4 Conclusion of Patent Troll Exploration A ‘Patent Troll’ is an extortive entity conducting, deceptive, abusive, and possibly unlawful behavior

in connection with patent litigation. Many definitions have been proposed in an attempt to identify

these ‘patent extortionists,’ but being a patent owner and enforcing, asserting, or monetizing a

patent cannot in itself be extortive behavior. Therefore, none of them can be used to accurately

capture a patent extortionist scenario. The closest to a definition of a real troll that can be made, is


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entities that, in connection to patent litigation, by use of unlawful, extortive, abusive, or deceiving

behavior and tactics, use patents as a means to extort money from other entities. This can only be

determined on a case-by-case basis of entity behavior. Finding out who is a real troll is thus very

difficult, and it cannot be generalized. Therefore, any existing work or analysis done on this topic, on

the foundation of the erroneous definitions of NPE, PAE, monetizer, or the like, has to be treated

carefully. The results of those may vary highly depending on use of terminology, and will most likely

be subject to wrong and misleading results that will not be based on, or targeting, the real patent

trolls. So when the debate targets the wrong entities, which measures have then been taken to

counter them?

3. Measures Taken to Counter Trolls

Even though some states, such as California and Vermont, have their own local statutes aiming to

fight patent trolls, (Martinez, 2013) the only action that has been taken nationwide is the Leahy-

Smith America Invents Act.

The Leahy-Smith America Invents Act, or AIA, was the first significant change to the U.S. patent

system since 1952 (Goldman, 2011). Its purpose was to amend title 35 of the United States Code in

order to provide patent reform, (Leahy-Smith America Invents Act, 2011) and was signed into law by

President Barack Obama on the 16th of September 2011 (The White House, 2011). The changes

brought by the AIA are many as it contains no less than 37 Sections, (Leahy-smith america invents

act.2011) and it is far beyond the scope of this thesis to account for them all, yet while it did bring

many changes to the patent system, it did not do much to counter the real troll issue. During the

debate prior to the signing, various members of Congress had expressed their displeasure over NPEs,

(Feldman et al., 2012, p. 359) yet despite containing 37 sections, the majority of the changes in the

Act did not target NPEs, or real trolls for that matter. There is, however, one specific provision in the

AIA which was aimed directly against a “NPE tactic” of joining large numbers of defendants in one

lawsuit. (Feldman et al., 2012, p. 360) Before the AIA, a patent owner could sue any number of

defendants, sometimes well over one hundred, who offered different products and were

geographically scattered across the country, in a single infringement suit, by alleging that their

commonality was infringing the same patent. (Quinn, 2011a) The AIA changed this by requiring that

accused infringers can only be joined in one suit, if:

“(1) A claim is made against parties jointly or severally, or a claim arises out of the same transaction,

occurrence, or series of transactions or occurrences; and (2) questions of fact common to all

defendants or counterclaim defendants will arise in the action.” (Quinn, 2011a)


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The AIA was thus the first step taken by Congress in modern times to address this patent troll issue.

4. To Which Extent is there an Impact from Patent Trolls?

When this is the only measure implemented so far, what evidence exists of patent troll activities and

its impact? Is the need for further solutions urgent? Are these trolls truly wreaking havoc through

the patent system? While a lot of literature exists, the amount of actual evidence is surprising. No

studies have investigated the true trolls conducting abusive, extortive behavior, so a look at the

existing evidence for the derogative synonyms will be investigated in the following section.

4.1 Existing Evidence

4.1.1 Recent Surge in Patent Litigation

Just a quick glance at Chart 3, 4 and 5 listed in section 1.2 leaves no doubt that there has been a

patent litigation increase in recent years. In 2012 it reached “the highest number ever recorded”

(PwC, 2013) and claims such as “An ‘explosion of patent litigation’ greater than any in history is

imposing an unwarranted burden on industry and diverting resources better spent on innovation” are

“[…] almost universally accepted as true[.]” (Kline & Cassidy, 2014) While the increase in numbers

cannot be disputed, Kline & Cassidy (2014) show that from 2002 to 2012 the patent litigation rate

was 1.57 percent, whereas the corresponding patent litigation rate from 1790-1860 was 1.65

percent. Furthermore, Khan show that, from 1840-1849, the patent litigation rate was 3.6 percent.

(Khan, 1995, p. 63) The rate of litigation is thus not historically high. Astonishingly, the number of

suits during today’s smartphone patent wars are: “less than one-quarter the number of patent suits

filed during the first ‘Telephone Wars’ […] [where] the American Bell Telephone Company and its

successor, AT&T, litigated […] 587 patent cases alone.” (Kline & Cassidy, 2014) Judging from this, it is

hard to agree that this is an explosion greater than any in history. As it turns out, approximately 96

percent of the rise in litigation since 1991 can be explained by the rise in the amount of patents

granted. (PwC, 2013, p. 6) In fact, there has been an average of 99.9 patent trials every year since

1980, (Quinn, 2011c) which is remarkable given the increase in the number of patents issued over

the same time period. A study conducted by the GAO (Governmental Accountability Office)

supported these findings, though it reported that from 2010 to 2011, stakeholders had said the

increase was most likely influenced by the anticipation of changes in the AIA. (GAO, 2013)


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The AIA is a very important element to include when looking at the latest rise in patent litigation,

because of the recent changes caused by its enactment. As described in Section 3, it prohibits

litigants from suing multiple defendants in one suit, unless specific requirements are met. As

Martinez (2013) points out, on September 15, 2011, 54 cases were filed against 800 defendants, if

that were to happen now, after the change of law, the 800 defendants would be sued separately,

and it would thus be 800 cases, not 54. (Martinez, 2013) Basically, due to the way the AIA was

worded and constructed, it has most likely helped cause an increase in the sheer number of

litigation suits filed. As can be seen from Chart 6 there was a massive spike in litigation up to the

implementation of the AIA, as litigants “[…] rushed to the courthouse to get their lawsuits filed

before the Act became effective.” (Feldman et al., 2013, p. 69)

Furthermore, as noted by Katznelson (2013a) in his article, “The America Invents Act at Work – The

Major Cause for the Recent Rise in Patent Litigation,” Title 35 Section 325(b) of the United States

Code, after the works of the AIA, states that the court may not stay a motion for preliminary

injunction on the basis that Post-Grant Review was filed or instituted, if the patentee’s suit is filed

within three months of patent issuance. It has therefore caused patentees to identify infringers and

file suits within the three months of issuance, in order to preserve the patentee’s preliminary

injunction power. He, therefore, argues that the reason behind the surge in patent litigation for

2012 is caused by litigation of newly issued patents. (Katznelson, 2013a) This change can clearly be

seen on Chart 7 on the following page.

Chart 6: Patent Litigation Spike Prior to the Passing of the AIA. (Chart copied from Feldman et al., 2013, p. 68)


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Chart 7: Patent Age at Filing of Infringement Lawsuit (Chart copied from Katznelson, 2013, “The America Invents Act at Work - The Major Cause for the Recent Rise in Patent Litigation”.)

Clearly there is a surge in patent litigation, but it is caused by an increase in the number of

patents issued and the changes brought about by the AIA, as the AIA actually encouraged and

fostered this increase in litigation. Therefore, it cannot be considered problematic when the

litigation amounts to the regular hundred trials per year. Thus the evidence does not point to these

patent extortionists, i.e. trolls, as the explanation for this recent surge. When the current rates of

litigation are not deviating from the historical norms, are these trolls then really on the rise? Do they

bring the majority of suits? Or is some other entities responsible for the litigation increase?

4.1.2 Who Litigates?

To investigate this, a look at the evidence on the amount of litigation brought by trolls is needed. In

the following, the nature of patent plaintiffs found by four different prominent studies will be

examined.

“Patent Trolls by the Numbers”, by Chien (2013)

These findings presented by Chien is based on data provided by RPX Corporation, a company

described by Chien as “a publicly-traded company that provides solutions to troll threats[.]” In her

findings, she observes that the percentage of litigation brought by trolls from 2010 to 2012

increased from 29 to 62 percent of all suits filed. (C. Chien, 2013) Recall that Chien defines a troll as a

PAE (See section 2.1.2).


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“The AIA 500 Expanded: Effects of Patent Monetization Entities on US Litigation”, by Feldman et

al. (2013)

Recall from Section 2.1.3 that Feldman et al. use the definition Patent Monetization Entities to

define what constitutes a patent troll. What they find is that lawsuits filed by these patent

monetizing entities have increased from 24.6 percent in 2007 to 40.4 in 2011 and 58.7 percent of

cases filed in 2012. (Feldman et al., 2013, p. 54) See Chart 8 below for their graphical illustration of

their findings.

Chart 8: Patent Litigation Brought by Entities, 2007-2011 (Chart copied from Feldman et al., 2013, p. 55)

“Assessing Factors That Affect Patent Infringement Litigation Could Help Improve Patent Quality”,

by the Government Accountability Office (2013)

Based on the same data as the original study by Feldman et al. (2012), the report from GAO

surprisingly report different findings. While GAO also reports that there was a decrease in share of

suits brought by operating companies, it reports that the share brought by PMEs only increased to

24 percent in 2011, and that this was a statistically insignificant increase. Another finding made is

that for the period measured (2007-2011), operating companies litigated against 1.9 defendants per

suit on average, while PMEs litigated against 4.1 defendants per suit on average. (GAO, 2013, p. 21)


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“Unpacking Patent Assertion Entities (PAEs)”, by Cotropia et al. (2013)

An important study on this topic is the one by Cotropia et al. 2013. It is especially noteworthy in the

aspect that, contrary to the 3 previous studies, the data has been made publicly available, at

www.npedata.com, which naturally makes the study a lot more trustworthy, as its conclusions can

be replicated and verified, and we are not forced to trust the authors words that the findings are, in

fact, true.

In their study, Cotropia et al. (2013) deliberately exclude calendar year 2011 from their litigation

analysis due to the AIA and the litigation spike it brought. (p. 12) They do not provide a classification

of who is or is not a troll; instead they divide PAEs into eight different categories. (p. 15) The ones

emphasized here, are category (3), (5) and (6). They describe Category (3) as “large patent

aggregator: a company with a large patent portfolio whose primary business is enforcing patents

and numerous others. This includes Acacia companies and Intellectual Ventures.” (p. 17) Category (5)

as: “patent holding company: companies […] that appear to have been formed solely to hold and

enforce a patent or small portfolio of patents. […] Frequently, these companies were formed shortly

before litigation was commenced.” (p. 17) And category (6) as: “operating company: companies that

manufacture products or deliver services (other than licensing patents). (p. 17) What they find is that,

for 2010, there were 1610 unique patent litigants, whereas the corresponding number for 2012 was

1695. (p. 21) Also, the total number of defendants was 11,671 in 2010 and 11,603 in 2012. (p. 24)

The total number of litigants and defendants thus almost stayed constant between 2010 and 2012.

As is evident from Chart 9, 10 and 11 in the following, category (6) Operating Companies made up

the largest percentage of cases filed even though it decreased from 2010 to 2012, with a respective

share of 69.5 percent in 2010, and 43.5 percent in 2012, but at the same time the percentage of

Operating Companies as defenders also decreased, from 71.8 percent to 68.6 percent. Contrarily,

category (5) Patent Holding Company went from a 15.9 percent litigation share in 2010 to 37.7

percent in 2012, and an increase as defendant from 13.3 percent to 15.7 percent. The authors

conclude that in the aggregate “Large Aggregators and Patent Holding Companies comprise,

together, 31.59% (3,684) of the total number of parties in suits excluding the patentee in 2010 and

37.74% (4,380) in 2012. Adding Individual/Family Trust cases increases the total number of parties in

suit excluding the patentee to 5,004 (42,91%) in 2010 and 5,307 (45.74%) in 2012. This is in contrast

to Operating Company cases which involved 49.48% (5,708) of the parties in 2010 and 48,35%

(5,610) in 2012.” (pp. 35 & 36) It is thus clear that non-practicing entities have an increasing

presence from 2010 to 2012, though operating companies still make up the majority of cases filed.

http://www.npedata.com/


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Chart 9: Cases Filed by Patent Holder Category, 2010 and 2012. (Chart copied from Cotropia et al., 2013, p. 20 Figure 1)

Chart 10: Number of Unique Patentees, 2010 and 2012. (Chart copied from Cotropia et al., 2013, p. 22 Figure 2)


Page 25 of 54

Chart 11: Total Number of Defendants by Type of Patentee, 2010 and 2012 (Chart copied from Cotropia et al., 2013, p. 23 Figure 3)

As they end up finding no major difference, in neither number of unique patentees nor alleged

infringers, from 2010 to 2012 though the number of cases increased, (p. 28) they end up confirming

that the AIA can have added substantial cost to the system, by increasing the number of lawsuits

without decreasing the number of patentees or defendants. (p. 28) Their final conclusion is

therefore that “[…] things have not changed much from 2010 to 2012” (p. 33)

So Who Litigates?

The shortcomings of the patent troll typologies clearly show. Four different studies and yet none of

them report the activity of the extortionists, but merely reports on companies asserting and

monetizing patents. The results of reported by Chien is questionable, while most likely true for the

dataset used and boundaries set up for the analysis, it is provided by a company whose activities she

describes as “[…] provides solutions to troll threats[.]” As long as these data are not made publicly

available there is no guarantee, other than Chiens word, that the dataset, in fact, is constructed

objectively and without a bias. As Cotropia et al. explain, when the data is not released, other

researchers cannot determine which entities were classified as PAEs or NPEs, what revenue numbers

were associated with these entities or any other information necessary to fully evaluate the claims.

(Cotropia et al., 2013, p. 5) As a company providing solutions to troll threats can hardly be

considered a neutral source, it is hard to argue that the findings deducted from it will accurately

reflect reality.

The studies by Feldman et al. (2013) and GAO reach different conclusions using the same data. While

the study by Feldman et al. (2013) use an expanded dataset compared to the one by GAO, Feldman

et al. note that the expanded dataset yields results “remarkably consistent with the limited dataset”

(2013, p. 55). So which is correct? 24 and 40.4 percent are quite different results. It is impossible to


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make an objective conclusion without having the dataset. Therefore, these results will not be relied

upon.

Though only reporting on 2010 and 2012, the Cotropia et al. study does not appear to suffer from

problematic datasets, nor conflicting results, and even made their data public. Relying on their

findings therefore seems more plausible than the other three. While the study clearly shows that

non-producing entities increasingly constitute a larger share of the litigation, they note that this is

likely due to the AIA joinder provision (p. 7), as the number of defendants and litigants has remained

almost constant, while more cases have been filed. As the vast percentage point increases in

litigation has occurred for these non-producing entities, it seems fair to conclude that they simply

sue the same amount of defendants, but now in multiple suits instead of single suits.

The conclusion therefore must be, that these studies show an increase in suits brought by

entities asserting patents, but do not show any increase in trolling activity as they do not actually

measure trolls. As GAO reported that PMEs were including more defendants in their suits than

operating companies, and as the AIA has forced these to split the defendants up in more suits, it is

only natural that their share would go up with the amount of suits filed.

There is thus no evidence that the real patent trolls are responsible for the majority of infringement

lawsuits, as their share of litigation is not documented at all. So is the impact these trolls supposedly

have documented in any way?

4.1.3 Impact on the Economy

Unfortunately, studies proclaim to investigate troll activity, but they do not study entities conducting

troll behavior, and even when studying the same entities, variations in methods causes different

results. The differing results reported by Feldman et al. and the GAO provide a fine example of this.

No study has yet investigated any impact of true trolls, and as will be shown in the following, the few

reporting on NPEs or the likes all suffer from lack of transparency with their data, and either find no

negative impact or present misleading results. Due to lack of studies providing evidence, four reports

will briefly be investigated and analyzed in the following.

GAO Report

The report conducted by the GAO does not mention anywhere that there is a problem with patent

trolls, nor with entities asserting patents. Quite contrary, it ends up concluding that “[…] the focus on

the identity of the litigant - rather than the type of patent – may be misplaced.” (GAO, 2013, p. 45) It

thus concludes that even if NPEs are to be considered trolls, they do not pose a problem.


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“A Fractured Fairytale” at IPWatchdog

A study conducted by a group of attorneys, reported by Moore on IPWatchdog.com in a series of

five articles, does not find any evidence that the myths pertaining to trolls ring true. Their study was

conducted with 267 randomly selected patent litigation cases filed between 2006 and 2008, and 428

after the AIA. (Moore, 2013c) The conclusion of the study is that there is no negative impact brought

about by NPEs, as their litigation behavior does not deviate much from non-NPEs. The study also

finds that NPEs do not bring the majority of suits, do not litigate patents of dubious value, do bring

more defendants, but litigate fewer patents. (Moore, 2013a; 2013b; 2013c; 2013d; 2013e)

Costs of Trolls Amount to Billions

Two notorious studies deserve attention when it comes to evidence on the impact of “Patent Trolls”,

they are “The Private and Social Costs of Patent Trolls” by Bessen, Ford, and Meurer (Bessen et al.,

2011) and “The Direct Costs of NPE Disputes” by Bessen & Meurer (2014). While Bessen et al. (2011)

report that defendants in suits brought by NPEs have lost “[…] over $83 billion per year during recent

years[,]”(p. 35) Bessen & Meurer (2014) reach the conclusion that, due to NPEs, “firms accrued $29

billion of direct costs in 2011.” (p. 387) These are extremely staggering and very unfortunate figures.

Both because of the costs they report, but also because they have both been accepted as credible

results by the White House (The White House Report, June 2013, p. 9). They are, as can be seen in

the following, reached using fundamentally flawed methods of estimation, and not reporting costs

incurred by activities from neither abusive nor extortive entities, but merely by entities asserting

patents.

While the study by Bessen et al. bases its figures on an event study methodology, (2011, p. 28) the

Bessen & Meurer gathers its data from a RPX survey and dataset. (2014, p. 389) The findings of both

studies are many, and, therefore, only a few significant will be brought to light and evaluated in the

following.

Starting out by focusing on the event study by Bessen et al., the use of stock market event

studies to measure the cost incurred to companies has been heavily criticized by Lunney (2008). First

of all, he notes that using stock market prices does not reflect costs incurred to the firm; it

represents a loss to the firm’s shareholders, which is not a loss to the firm itself, and that even then

this method does not survive empirical testing as a reliable estimate of losses.(pp. 36 & 37) Second,

he notes that the estimates reached by the event studies produces vastly exaggerated figures, and

to highlight these flaws of event study methodology, he proves that using traditional methods for

computing additional costs and loss of revenue, even if using very generous estimates, the costs of


Page 28 of 54

litigation incurred to a specific entity upon litigation would equal just above $4 billion, whereas using

event study methodology, as the one used by Bessen et al., the figure would reach almost $36

billion.(p. 50) This is an overestimation of 900 percent! If the same scale of estimation error applies

for Bessen et al., it would mean a reduction from $83 to just about $9.22 billion.

The flaws of the event study methodology in itself is sufficient to undermine Bessen et al.’s results,

but as shown by Katznelson (2013b), even if the loss to shareholders is to be treated as a valid figure,

Bessen et al. give a limited account of the story. In his article “Questionable science will misguide

patent policy”, Katznelson show that by only studying the effect of patent litigation upon filing,

Bessen et al. completely ignore any subsequent stock value corrections or gains regarding the

litigation. By examining three of the lawsuits identified by Bessen et al., Katznelson show that the

net impact for all three, from litigation to disposition of the case, was in fact positive. (Katznelson,

2013b, p. 4) So even if the methodology used by Bessen et al. was to be accepted, they report a

manipulative result by only focusing on the litigation filing. Furthermore, “[t]he filing of a lawsuit is

only a single step in the bargaining process between the patentee and the firm[.][…]Selectively

looking only at one event in the patent rights bargaining process is meaningless as an indicator of the

actual effects of patent litigation and the resultant change in shareholder wealth.“ (Katznelson,

2013b, p. 4) It is also noteworthy that their adopted definition of a NPE, i.e. troll, is “[…] firms that do

not produce goods. Rather, they acquire patents in order to license them to others.” (p. 26) This is, as

previously shown, an inaccurate and extremely broad categorization of trolls, and this would imply

that Bessen et al. includes many litigation suits being brought by entities that are not trolls in their

estimates, and will, therefore, add additional “costs” from suits to their aggregate, costs that do not

belong there.

As a result of these flaws in their studies, the $83 billion they report is first of all, not costs incurred

to the entities, is likely vastly exaggerating, is misleading for the effects caused to wealth by

litigation, and thus completely useless. The findings of the study cannot be considered valid.

The study by Bessen & Meurer (2014) does not fare better. The sample used to reach the figure

of $29 billion is provided by RPX, which is a biased source as previously mentioned. The sample from

RPX consists of survey responses from 82 companies, along with a NPE litigation database developed

by RPX. (p. 395) With a database and such a small survey sample from a biased source, it is hard to

argue that the findings from the data can be considered objective. One of the most startling

conclusions of Bessen & Meurers study is that about three quarters of the $29 billion is a

deadweight loss to society. (p. 400)


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In their paper “Analyzing the Role of Non-Practicing Entities in the Patent System”, Schwartz & Kesan

(2014) point out that first of all, the sample is biased, (p. 443) and that the three-quarters of the

figure is not a deadweight loss to society as Bessen & Meurers proclaim. (p. 438) But most

importantly they find that only 23 percent of the $29 billion can be considered costs, which reduces

the amount from $29 to $6.7 billion. (pp. 439 & 440) Once again, the study also suffers from a

flawed definition of NPE, a correction of which Schwartz & Kesan propose would reduce the amount

of suits involved in the $29 billion by over 50 percent (p. 441), Schwartz and Kesan note that upon

learning of this Bessen & Meurer even responded to these concerns, claiming that it was likely to

have “only a small impact” on their results. (p. 441) It is hard to argue that all reductions proposed to

the figure of $29 billion would have “only a small impact”. Like the previously mentioned study, the

results of Bessen & Meurer cannot be considered valid.

While only a few findings were discussed here, almost no findings appear in either study that can

be considered valid or usable, in fact, they cannot be considered as much else but illusionary. Their

underlying data is not publicly available for validation of their claims. It is, therefore, very troubling

that these studies are cited as evidence of problems caused by “Patents Trolls” when there is no

sound evidence, and a patent troll is perceived as any entity in possession of a patent it does not

practice. That these studies are perceived as truth is not just troubling, it is extremely critical.

4.2 Final Notes on Evidence

As noted in the introduction, it should now be evident that academic sources on this issue do not

necessarily provide the evidence they proclaim, and are not trustworthy. While there is a surge in

litigation, it does not appear worrying. And although there are large corporations who complain of

being increasingly targeted by trolls, it is hard to take their complaints serious, even if leaving aside

that they might deliberately neglect monitoring existing technology (see Section 2.1.5). Some

corporations like Apple Inc. own stakes in large NPEs such as Intellectual Ventures (see Section 2.2),

but at the same time complain that they have to spend resources fighting trolls because Apple gets

increasingly targeted by PAEs. (O'Brien, 2014) And yet, Apple refuses to negotiate any licensing

demands unless a litigation suit is brought against them, (Quinn, 2013f) clearly, such a strategy

makes it impossible for any patent owner, whose patents are being infringed by Apple, to enforce its

granted right through any other means that litigation. And for those patent owners with limited

means that might only be an option through PAEs, such as Acacia for instance. It is pretty clear that

Apples own policies are encouraging patent owners to file suit against them, and is thus a major

force behind the litigation problem that it complains about.


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The conclusions of all this must be, that NPEs, PAEs, PMEs or Monetizers have not been found to

have any negative impact by any reasonably objective studies. This might lead some to conclude that

patent trolls do not have any negative impact. However, the fact is that there exists no study that

has empirically proven any impact caused by the true patent trolls, that is, entities that conduct

extortive, unlawful, and abusive behavior. No study has been conducted focusing on entities

displaying the behavior and utilizing the tactics that almost all definitions of patent trolls agree that

trolls conduct. No study has investigated to which extent entities that use tactics like “threatening to

sue thousands of companies at once without evidence of infringement against any of them” exist.

No study has investigated to which degree small businesses are targeted by specious lawsuits by

entities seeking small nuisance settlements. We know nothing about the magnitude of impact that

these extortive and abusive actors impose on the economy, corporate entities, small businesses, or

individuals, or about the extent to which they hurt the patent system. Instead, the focus of the

debate is entirely on entities asserting or monetizing patents, entities that may not conduct abusive

or extortive behavior, and yet these entities are linked to the phenomenon of patent extortionists,

i.e. referred to as patent trolls.

So when evidence is produced and used to draw misleading conclusions about the wrong

entities, and the debate also focuses on the wrong entities, what is then proposed to be done about

it?

5. Exploration of Proposed Solutions

5.1 Acts in Congress

H.R.3309 - Innovation Act

At the time of writing, the Senate has received a bill on 12/09/13 that has been passed in House, its

Official Title is: “To amend title 35, United States Code, and the Leahy-Smith America Invents Act to

make improvements and technical corrections, and for other purposes.” The bill is also better known

as the “Innovation Act” and was introduced by Robert Goodlatte. (H.R.3309 113th Congress) The aim

of it is among other things, to amend the AIA. (H.R.3309 113th Congress, Sec. 9) Should the bill be

enacted as it is currently written, one of the things it will change, as stated in Section 3 of the bill, is

that targeting the end-users of alleged patent infringement is an abusive action and should be

considered a fraudulent or deceptive practice in the eyes of Congress. Furthermore, Section 3 would

also create a system of fee-shifting from the losing to the prevailing party in alleged infringement

cases relating to patents. (H.R.3309 113th Congress, Sec. 3) Under current law, Title 35 of the United


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States Code, section 285 states that “The court in exceptional cases may award reasonable attorney

fees to the prevailing party.” (United States Code) This would thus be a very significant change to the

U.S. patent law, going from a court provisioned judgment of awarding the prevailing party fees in

exceptional cases, to the prevailing party being awarded fees on a regular basis. The reasoning

behind this may be to cause a plaintiff to think twice before filing a suit and thus reduce unnecessary

litigation. (Quinn & Brachmann, 2013a) As argued by Quinn, it has, therefore, been touted as a step

towards stopping patent trolls, but, it will most likely only reduce litigation by independent

inventors, universities, small businesses, and start-ups, and not nefarious actors. (Quinn, 2013e)

Despite the introduction of fee-shifting, “[…] there’s nothing to prevent the most nefarious actors,

the true trolls who only intend to reap money from patents regardless of infringement, from deciding

to go bankrupt and not pay fees if they lose.”(Quinn & Brachmann, 2013a) Whether the bill will be

amended, and eventually passed into law, remains to be seen.

The Innovation Act is not the first proposed bill since the AIA, other bills have been proposed,

such as the SHIELD acts of 2012 and 2013, (H.R.6245 112th Congress; H.R.845 113th Congress) the

Patent Abuse Reduction Act of 2013, (S.1013 113th Congress) and the Patent Quality Improvement

Act of 2013, (S.866 113th Congress) but none of them have made it much further than being

introduced to House or Senate as of 5th of April 2014. Scarcely anything else worthy of mentioning

has been done on a nationwide basis to counter this widely perceived problem. That is, except for an

announcement done by the White House providing a list of legislative recommendations and

executive actions, (The White House, 2013) which did not do much about the perceived patent troll

problem, but did create a Frequently Asked Questions (FAQ) section on the USPTO’s website to

provide information for targets of patent trolls. (Quinn, 2013g)

5.2 What can be done? While few actions have been taken to counter these patent trolls, there is no lack of suggestions

providing solutions. Though due to the earlier mentioned problems of the debate generally targeting

the wrong entities as the ones conducting unlawful, extortive, behavior within the patent system,

some of the proposed solutions tries to rid the system of the wrong actors, and would furthermore

bring dramatic changes upon the system, which could possibly cause more damage than the

problem they aim to address. An example of this is the suggestion that large entities infringing

patented technology should use resources on lobbying efforts, in order to change legislation so that

they cannot be held responsible of infringing. (Reitzig et al., 2007, pp. 148-149 & footnote 43) This

could directly have the unfortunate consequences of removing the possibility for any other entities,

except large corporations, to seek redress for infringement, and would thus make patents worthless

to any other entities. Many different solutions have been proposed, the following section


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investigates and evaluates the validity of five different solutions, and then accounts for a proposal

that would require no changes and possibly solve the issue.

Solution 1: Fee-Shifting

As proposed in the H.R.3309 Innovation Act, some believe fee-shifting will help fighting the patent

trolls. While it could create an incentive for the trolls to avoid court, thus possibly reducing their

activity level, it might not. It might make the targets of the trolls more likely to fight, knowing that

there is a chance of being compensated for the expenses incurred from fighting the troll, but, in fact,

unless it deters other trolls from suing the same entity, it might make the defenders worse off,

because as noted earlier: “[…] there’s nothing to prevent the […] trolls […] from deciding to go

bankrupt and not pay fees if they lose.”(Quinn & Brachmann, 2013a) In the aggregate, it might make

the trolls reduce their level of activity, but it will still not provide small businesses with the resources

to fight the trolls, therefore the trolls might still be able to make a living. While entities with

resources to litigate will in general benefit from this proposal if they are exposed to infringement, it

will on the contrary only hurt those entities being infringed who has too limited means to mount a

fight in court.

Solution 2: Reduce the Lifetime of Patents

In his study of patent litigation timing, Brian J. Love finds that during the final three years of a

patents term, “NPEs account for more than two-thirds of suits and over 80% of infringement

claims[.]” (Love, 2013, p. 1312) And speculates that having patent rights diminished earlier might be

better for society (p. 1359) Though as he notes, the United States is required to offer a minimum of

twenty years’ patent protection, under the Agreement on Trade Related Aspects of Intellectual

Property Rights (TRIPS) by the WTO, and could face trade sanctions by reducing the patent term. (p.

1357) Furthermore, as noted in section 4.1, there has been a surge in assertion of newly issued

patents in the wake of the AIA, and how this might affect the age of patents asserted by NPEs is

impossible to tell at this point in time, trying to regulate it may therefore be a premature action. Due

to the obligations of the United States under TRIPS, Love goes on to suggest something that would

not violate them: reforming the maintenance fee payments of patents. (p. 1357)

Solution 3: Taxing Patents at a Higher Rate

A different approach to fighting the trolls is “to increase the frequency and magnitude of

maintenance fee payments in the latter half of the patent term.”(Love, 2013, p. 1357), this would

increase the costs of engaging in opportunistic behavior. The current maintenance fees as of April

5th, 2014, consist of 3 maintenance payments, one of $1,600 after 3.5 years of issuing, $3,600 after

7.5 years, and $7,400 after 11.5 years. (USPTO, 2014) Increasing the amounts payable is one way to


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reform it; another would be to increase number of fees while still increasing the aggregate amount

payable. This would provide more funding for the USPTO, while incurring more costs to entities

holding patents. This could mean that the patent holders would either have to accept earning a

lower aggregate profit due to increased costs associated with owning the patents, which would

make holding on to a patent without practicing it a less viable tactic; or they could start litigating the

patents earlier. This might cause NPEs to acquire and assert younger patents. But if the litigation

occurs earlier in the process, the litigation still occurs, which would not solve the problem, but

simply increase the cost of owning a patent in the long term, i.e. make it more expensive to

innovate. When there is no evidence on the age of the patents the real trolls assert, it would be

unfortunate to impose such a tax on innovation.

Solution 4: Copy the Solution from the 19th Century

Could we turn to history for the solution? When Congress abolished the category of patents that

sharks asserted in the 19th century, it subsequently formally raised the standard of patents, thus

removing the patents causing the problems. (Magliocca, 2007, pp. 8, 54-55) But since we don’t know

which patents the actual trolls bring, this is not an option, as eliminating more than one category of

patents, potentially many different categories has potential to harm a vast amount of other patent

holders besides the unlawful extortionists. It can thus be concluded that this solution is not viable.

Solution 5: Having Company Patent Pools Solve Litigation Problems

- Intellectual Ventures Membership “Solution”

The “solution” provided by Intellectual Ventures is very complex as it partakes in many different

aspects of intellectual property (see Section 2.2), but it is also very unclear what exactly it is, due to

the levels of secrecy regarding the company as earlier noted. In his article “Funding Eureka!” (2010)

Myhrvold argue that a market should be created where patents can be efficiently bought, sold, and

licensed through investment funds, i.e. NPEs. Specifically, Myhrvold notes that “[…] Intellectual

Ventures, is […] trying to […] create a capital market for inventions akin to the venture capital market

that supports start-ups and the private equity market that revitalizes inefficient companies.”

(Myhrvold, 2010, p. 2) Myhrvold is thus arguing that his company is striving to become the main

player in this developing market. But how realistic is this “solution” to the troll problem? If

Intellectual Ventures is the sole actor providing these services, covering all domains of patents, it

could possibly work given that it would not exploit its dominance, and that it allows for transparency

in the market instead of the secrecy currently surrounding its business. But if several big players

emerge in this market, what is to prevent these from starting a major war between each other,

creating mass litigation, and forcing all entities to have a membership subscription to every player.

Clearly this could be very costly no matter the scenario, and unless the players in this market would


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have the vast majority of issued patents in their portfolios, it does not stop trolls from asserting

lawsuits against small businesses without the capital to subscribe to Intellectual Ventures.

- RPX Corporation Membership “Solution”

Founded in 2008 by the earlier general manager of Intellectual Ventures, John Amster, it buys

potentially problematic trolling patents and then licenses those to its members, (Feldman & Ewing,

2012, p. 17) the business model as described by Amster is thus “defensive patent aggregation.”

(Hansell, 2009) The solution to the patent troll problem provided by the RPX is thus a membership

subscription in exchange for protection from troll suits. Though unless RPX owns the vast majority of

patents in a technological domain it cannot entirely defend entities against the possibility of troll

suits, and even then the fees charged by RPX may be above what small entities can afford. Therefore

this must be considered a limited “solution”.

- Is Membership of RPX or Intellectual Ventures a Viable Solution?

Generally, a problem with having these unregulated private businesses conduct these roles in the

marketplace is that they exist to serve their own end, i.e. investors, and there is no guarantee that

they will not try to conduct the unlawful or extortive behavior, which they aim to prevent,

themselves. At the same time, if there are several or more entities trying to fulfil these roles, they

might incur an opposite effect than that of an open market, and promote obscurity rather than

transparency due to competition in between them.

An Already Existing Solution: Courts Have Tools at Their Disposal to Solve the Patent Troll

Problem:

A solution already exists to control and stop the so-called troll problem in courts. On the 4th of June,

2013, Randall R. Rader, Colleen V. Chien, and David Hricik in a New York Times editorial wrote that

by use of Title 35 Section 285 of the United States Code, and use of Rule 11 of the Federal Rules of

Civil Procedure, judges can stop and punish this troll behavior in court. Section 285 states that “The

court in exceptional cases may award reasonable attorney fees to the prevailing party.” (United

States Code) Rule 11 consist of sections (a) Signature, (b) Representations to the Court, and (c)

Sanctions. Rule (c) states that “In general. If […] the court determines that Rule 11(b) has been

violated, the court may impose an appropriate sanction on any […] party that violated the rule or is

responsible for the violation.” (Federal Rules of Civil Procedure) A good summary of Rule 11(b) would

be that it “[…] states: ‘By presenting to the court a pleading, written motion, or other paper… an

attorney or unrepresented party certifies that… it is not being presented for any improper purpose,

such as to harass, cause unnecessary delay, or needlessly increase the cost of litigation…’ “ (Quinn,

2013a) In short, Rule 11 allows the courts to sanction the behavior of any party in court, should they


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conduct any kind of unlawful, extortive, frivolous trolling behavior. What Rader et al. (2013)

therefore point out is, that with these tools, the judges can make trolls pay for abusive litigation.

Examples already exist of cases where these tools have been utilized to fight “trolls”. For

example, in the case of Eon-Net v. Flagstar Bancorp, the district court “[…] awarded Flagstar

$489,150.48 in attorney fees and costs pursuant to §285 and $141,984.70 in sanctions for Eon-Net’s

[…] violation of Rule 11.” (Federal Circuit Decision July 29, 2011)

The behavior Eon-Net had conducted was filing “[…] over 100 nearly identical lawsuits against a

number of diverse defendants alleging infringement of one or more patents. In each case, after the

complaint was filed there was a quick follow-up with a demand for a quick settlement at a price far

lower than the cost of litigation. […] Eon-Net […] is a non-practicing entity that wanted to extract

nuisance value from defendants[,] […] didn’t care whether the defendants infringed, and engaged in

no meaningful pre-filing due diligence. Their own claim construction was clearly contradicted by the

express terms of the written description of the patents in suit.” (Quinn, 2011b)

The court thus made use of these tools to stop Eon-Nets extortive and abusive behavior.

But this solution is not perfect. It suffers from the limitation that it requires the trolls to actually

go to court. If a troll behave like MPHJ did in Section 2.2, and only threaten with suit but never take

their targets to court; or do file suit but then back out before court like Lodsys did against Kaspersky

Labs as previously mentioned, then behavior like this can still take place outside of court. But if these

trolls are truly conducting extortive and unlawful behavior in court, then the courts can easily put an

end to this abusive behavior with these tools, the solution is thus readily available. But these tools

are, actually, only rarely used, as shown by a count of Section 285 being applied merely “[…] 20 out

of nearly 3,000 patent cases filed in 2011.” (Rader et al., 2013) This would either imply that these

troll problems are either almost non-existent and the issue is grossly exaggerated; or that the judges

do not utilize the tools often enough.

5.3 Is there a Need for a Solution? Is there need for any of the above mentioned solutions? Can the targets of trolls not fend them off

on their own?

According to 2011 data from the AIPLA (American Intellectual Property Law Association), the median

cost of fighting a patent lawsuit lies between $650,000 and $5 million. (Kerstetter, 2012) Recall the

earlier patent troll example of the MPHJ case from Section 2.2. MPHJ sent out licensing demand

letters of $1,200 per employee, as is evident, if a company with less than 540 (

)


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employees receive this demand letter, paying the licensing fee instead of fighting the troll (MPHJ)

would be the cheapest option. Nevertheless, fighting it might be the smartest choice. Linking to

problems plaguing the insurance industry of the 1980’s and 90’s, Quinn argues that settling will

make you an easy target for other trolls.(Quinn, 2013c) The logic is, if one troll sees that an entity

simply settles without putting up a fight, it can assume that it might be able to achieve the same

outcome. Having to settle with an increasing number of trolls could end up costing more than

fighting the first troll to come along. If the troll is simply interested in a small settlement fee, it might

back out of the suit once it realizes that the entity will not settle, and other trolls will thus not target

the entity in the future as they have now seen that it will not settle. Whether or not one believes

Lodsys LLC to be a “true” troll, it can be argued that this was exactly what happened when Lodsys

backed out of infringement claims against Kaspersky Lab when Kaspersky refused to settle. (Lee,

2013; Mullin, 2013; Quinn, 2013c) While this might be a viable solution to stopping the true trolls it

is, contrary to what it might seem, a very complex approach which might not be technically possible.

Many small businesses might not be able to raise enough capital to fight an approaching troll. Even if

fee shifting was introduced, there is still no guarantee for small businesses that fighting is viable,

because if the troll backs out before court there will be no compensation to be had. It is, therefore,

obvious that entities with limited means cannot protect themselves from trolls seeking to profit off

small settlement fees, and trolls can prey on them. Depending on the extent to which these trolls

exist, the need for a solution could be real for entities with limited means.

As can be inferred from section 5.2, many solutions fail to target the true trolls. What exactly

would these solutions accomplish? In general, they would make small companies with limited means

worse off.

Going back to the AIA in Section 3, the solution provided was to end the joined defense abuse, but

as noted by Chien, now “[t]he small companies that actually are sued […] are arguably worse off

because they have fewer joint defense options.” (C. Chien, 2013) Likewise with the Innovation Act,

introducing fee-shifting would make small companies worse off as well. There is no evidence that it

will improve conditions against real trolls, entities that prevail in court will benefit while the other

party will greatly suffer, being faced with the disincentive of having to pay the opposing party’s costs

will most likely deter smaller companies from initiating litigation in the first place, as the risks of

litigation become more severe. Protecting end-users as the Innovation Act aims to do, could,

however, give small businesses some protection if this is a common tactic asserted against them. But

increasing the number and size of the maintenance fees will hurt all entities, except for the wealthy

ones to whom these costs will be almost insignificant.


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Relying on corporate patent pools to solve the issue will mostly benefit the investors of the patent

pools. And for these to come even close to being a viable solution, membership would have to be

free or cheap enough for all potential targets of trolls to buy in. It is easy to imagine that this would

eventually amount to a weaker patent system, where the patent pools exclusively own the patents

and the rights to exclude and class-like layers could arise, where only the entities with the deepest

pockets can afford to license the most valuable patents, placing the patent system in a completely

rigid gridlock.

With the amount of evidence available, it seems suspicious that so many proposals are made to

address the “issue”. It is obvious that the implementation of some solutions would skew the balance

of the system, as they favor large and wealthy corporations while hurting the small businesses with

limited means. Therefore, the solutions are not viable, especially not when the need for them is

based primarily on flawed and misleading evidence.

Defending against the trolls is the only solution that provides viable means to effectively eliminate

the real trolls, though, unfortunately, not all entities have the means to fight them.

For now, while lacking data about the trolls as well as NPEs, PAEs and monetizers, the only sensible

solution to employ is fighting the trolls to as great an extend as possible, and having courts solve any

troll cases that make it to court, because if trolls get to court judges have the means to stop them.

But since judges do use the tools at their disposal, and as a matter of fact did 20 times in 2011, could

it be that the actual number of trolls in 2011 did not exceed twenty by much, and that trolling

behavior in court is just a myth? If trolls are using tactics like the ones described in Section 2.3, such

as “[…] engage in frivolous infringement litigation” (Shrestha, 2010, p. 115), or attempting “[…] to

shake down small businesses by bringing specious patent infringement lawsuits knowing that it will

be far cheaper for the defendants to settle with a licensing fee than it will be to litigate, even if

there is clearly no infringement.” (Quinn, 2011d) Then in that case they should not have much

interest in going to court. And given that the courts have the tools they need to fight the trolls that

make it there, it does not make sense to legislate any further on the court processes, that is, it does

not make sense introduce further legislation for courts, and focus on fee-shifting law proposals like

the Innovation Act. Mark Lemley suggests that we should focus on the bad acts and the laws that

make them possible, instead of trying to single out the bad actors (Lemley, 2008b, p. 630). This

intuitively makes sense as hunting down and stopping a single actor will not stop a new one from

spawning in its stead.


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To summarize, some measures have been taken and proposed though nationwide only the

America Invents Act has been passed as legislation to try and address the issue. The proposed

solutions investigated here do not seem to adequately target the trolls, with the possible exception

of the end-user protection of the Innovation Act. Most of the solutions target the troll behavior in

court, which is completely obsolete as the courts already have the tools necessary to stop the trolls.

In general, most of these “solutions” would skew the balance of the patent system in favor of large

and wealthy entities, and hurt those who might suffer the most from real trolls, the small

businesses. The suggestion’s focus on delimiting entities, like NPEs, of which no plausible negative

evidence even exist. Therefore, attention should be focused on coming up with solutions for the

trolls activities outside of court, where the best solution currently available is fighting the trolls,

which might not be possible for all small businesses which might be in need of help.

6. Some Perspectives on the Current Debate

Are these patent trolls a problem? The real patent trolls might very well be, and could be very

damaging to start-ups, small businesses and the economy at large, but they are, in general, ignored

in the debate. The evidence simply fails to back up the myths surrounding these patent trolls. First of

all, no research claiming to uncover evidence about them investigates the extortive actors. Even if

allowing the faulty troll concepts of NPEs and the like to act as a scapegoat for these patent

extortionists, the aggregate evidence does not support that the myths apply to those either. “To the

extent that there is a problem it is with bad actors who make up a small portion of all those who

initiate a patent infringement action.”(Quinn, 2013d)

These NPEs do not bring bad patents, and why would they? “Bad patents make for bad cases,

and even the best lawyers lose bad cases.” (Hosie, 2008, p. 1) If these entities specialize in

monetizing patents and patent litigation, which seems a valid assumption given that they are in the

business of making returns on patents, it would make sense for them to evaluate, acquire, and

assert the patents that give them the highest likelihood to prevail in court, and thus earn their living.

In the words of Steve Moore:

“[…] why are we so sure that patent assertion entities do not have the intelligence to find the gems

that others are leaving by the wayside? [...] How many of us would enter a monster-truck rally with a

1985 Yugo GV, considered by some to be one of the worst engineered cars of all time?” (Moore,

2013d)

While it makes for a good narrative in order to evoke emotional reactions, it does not hold when

compared to reality.


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So whose interests do the myths of the patent troll scapegoat serve then? The defendants in

lawsuits brought by NPEs, PAEs or monetizers asserting patents being infringed could be a good

guess. It is not hard to imagine that the emergence of a “troll” as Acacia, which partners up with

patent owners, suddenly provides the infringed patents with funds to litigate against infringers,

balancing the scale and disrupting the status quo for infringers who previously had nothing to fear,

and could previously infringe technology as they pleased, but now face consequences of their

actions.

It is very worrying that no reliable evidence exists on such controversial entities as patent trolls,

or NPEs, especially when measures and solutions designed to deal with the perceived issue are

proposed and enacted. When the only “true” trolls that have been identified practiced a strategy of

victimizing small businesses, and the majority of the proposed solutions and measures do not

attempt to help those victims, but rather focuses on changing the system in favor of different

entities, it is obvious that the situation is being exploited by stakeholders with an interest in a

different outcome than to solve the real problem. And a general problem is the hypocrisy and

double standards practiced, for instance by companies like Apple who encourage political action to

“solve” problems they deliberately create themselves (see Section 4.2). The patent troll moniker

thus seems to be misused as a vehicle to justify patent reform beneficial to the ones behind its

misuse.

It is extremely worrying that doubtful studies are adopted as truth by an authority such as the White

House, especially when it attributes the extortive tactics and behavior of trolls to any entities that

assert patents. The only reasonable explanation for why this wrongly painted picture of trolls

garners so much attention by policy makers is that some powerful lobbying efforts are at play. The

legislation proposed does little to focus or solve what might pose a problem. Rather, it would largely

bring changes to the system that seems to make life harder for entities with limited means. It is,

therefore, very doubtful if these policies are wise to pursue, as they are most likely not in the

interest of the public, nor in the interest of promoting the useful arts.

In general, the facts do not support the foundation of the currently perceived problems, and the

mentality observed by Arthur R. Miller might explain why the current debate is so focused on

opinion:

“[…] a frivolous lawsuit is any case brought against your client and litigation abuse is anything the

opposing lawyer is doing.[…] We never have defined either abusive litigation behaviour or frivolous

lawsuits; we never have measured the frequency of either; we do not know who is guilty of such


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conduct or which side of the litigation is more prone to commit such conduct; and the line between

proper and improper advocacy is, as it always has been, obscure and context dependent. Yes, there

are cases that most people would agree should not have been initiated and there are motions and

discovery requests and objections that should not have been made. How many? We don’t know. In

the main, most assertions of abusive behavior or frivolous lawsuits are anecdotal and subjective.

Abuse and frivolity simply lie in the eye of the beholder. (Miller, 2013, p. 361)

So as long as these double standards shape the attitude of the debate, the outcome of suggested

improvements to the system should be approached with caution.

Many questions should be raised about the current debate: Why is it acceptable for some

companies to monetize patents, yet not for others? Why is it only okay for a company to own and

assert patents it does not practice as long as it produces a product? Is it wise to make those

distinctions, and would it not hurt the incentives to innovate?

The debate needs to refocus to the real trolls, and a dramatic change of attitude to both the

current uncritical treatment of current evidence, and to the production of reliable, objective

evidence is needed. If the current trends continue, the trolls can unhindered continue to operate

while their victims can suffer severely from having their rights weakened. To quote David J. Kappos:

“It is bad policy to frame the issue in bad actors, rather than bad behaviors.” (Grossman et al., 2013)

7. The Conclusion

The term ‘Patent Troll’ has been hijacked and associated with the wrong actors. Real ‘Patent Trolls’

are extortive entities that, in connection with patent litigation, conduct unlawful, abusive and

deceptive behavior, for instance by threatening to sue hundreds or thousands of companies at once

without specific evidence of infringement, in order to extract nuisance payments. Patent Trolls are

real, but how many of them exist, and to which extent they hurt any entities, the economy, or the

patent system, is unknown. Non-Practicing Entities, Patent Assertion Entities, and Patent

Monetization Entities are contrary to popular belief not ‘Trolls’ by definition and they do not pose a

problem according to current evidence. The existing literature estimating the impact of them is

misleading, and cannot be considered sufficient to justify any conclusion thereof. Measures taken to

counter this perceived problem and the majority of the proposed solutions do not adequately

address the issue. Further investigation of ‘Patent Trolls’ is needed. Meanwhile, actions taken should

focus on singling out the extortive actors and the behavior they conduct, rather than focusing on

patent ownership classification as the debate currently does.


Page 41 of 54

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an assessment of the evidence that “patent trolls”...

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