What Is Patent Troll?
A patent troll (formally known as a non-practicing entity or patent assertion entity) is a company or individual that acquires patents not to create products but to generate revenue through aggressive licensing demands and infringement lawsuits against operating companies.
Patent trolls typically purchase patents from bankrupt companies, failed startups, or individual inventors at a fraction of their original development cost. They then identify companies that may be infringing these patents — often broadly written ones that cover common technologies — and send licensing demand letters. The demands are usually calculated to be less expensive than litigation, creating pressure to settle even when the claims are weak. The economic impact of patent trolls is substantial. Studies estimate that patent troll litigation costs US companies over $29 billion annually in direct spending and significantly more in indirect costs such as diverted R&D resources, delayed product launches, and reduced investment in innovation. Small and medium-sized businesses are disproportionately affected because they lack the resources for extended patent litigation. Various legislative and judicial reforms have attempted to curb patent troll activity. The America Invents Act introduced inter partes review for challenging weak patents. The Supreme Court's Alice decision in 2014 made it harder to enforce abstract software patents. Many states have also enacted laws targeting bad-faith patent demand letters.
Why It Matters
Patent trolls represent one of the biggest risks for innovative companies, particularly in the technology sector. Any company that manufactures, sells, or uses technology is a potential target. Understanding how patent trolls operate and having strategies to defend against them is essential for managing IP risk.
How This Connects to IP Protection
immut can help defend against patent troll claims by providing timestamped prior art evidence. If your company has been developing technology that predates the troll's patent claims, blockchain-verified timestamps of your development documentation can support invalidity or prior art challenges. This evidence is particularly valuable in inter partes review proceedings, where prior art is the primary basis for challenging patent validity.
Common Mistakes to Avoid
Patent trolls only target large companies: Patent trolls increasingly target small and medium-sized businesses, which are often more likely to settle quickly due to limited litigation budgets. Some trolls specifically seek out smaller companies that cannot afford to fight, sending demand letters in bulk with settlement amounts designed to be just below the cost of hiring a patent attorney.
All non-practicing entities are patent trolls: Not all NPEs are trolls. Universities, research institutions, and individual inventors who license patents without manufacturing products are also NPEs but play a legitimate role in the innovation ecosystem. The term 'patent troll' is reserved for entities that use patents primarily as litigation weapons rather than to protect genuine innovation.
If you receive a demand letter, you must pay: Many patent troll demand letters are speculative. Before paying, consult a patent attorney to evaluate the strength of the claims. Options include challenging the patent's validity, demonstrating non-infringement, seeking inter partes review, or joining a defensive patent pool. Many demand letters are abandoned when met with informed resistance.
Frequently Asked Questions
How can I protect my company from patent trolls?
Key strategies include conducting regular patent landscape analyses to identify potential risks, building a strong patent portfolio as a deterrent, documenting your innovation process with timestamps for prior art defence, joining defensive patent organisations like LOT Network or the Open Invention Network, and having a response plan for demand letters that includes not settling without proper legal analysis.
What is inter partes review and how does it help?
Inter partes review (IPR) is a proceeding at the USPTO Patent Trial and Appeal Board that allows anyone to challenge the validity of a patent based on prior art. IPR is faster and cheaper than litigation, typically concluding within 18 months at a cost of $300,000-$500,000 compared to millions for full litigation. It has become a primary tool for challenging troll patents.
Are patent trolls legal?
Yes, patent trolling is legal. Patent holders have the right to enforce their patents regardless of whether they manufacture products. However, courts and legislators have introduced various measures to discourage abusive practices, including fee-shifting for frivolous lawsuits, heightened pleading standards, and laws against bad-faith demand letters.
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