Our nation’s founders incorporated the concept of individual property rights — including intellectual property rights — into the Constitution because they knew that these rights spur innovation and help promote economic growth. However, patent assertion entities (PAEs), otherwise known as “patent trolls,” inhibit the innovation and economic growth that patents typically foster. Even more alarming, with the creation of government-sponsored patent trolls (GSPTs) — which are financially backed by a national government — patent trolls have gone global.
Patent trolls, which can either be companies or government-sponsored organizations, are entities that buy large patent portfolios — not to use the patents to create new products, but to generate revenue by filing meritless lawsuits against people who have allegedly infringed on their patents. These tactics are aggressive and often unethical, and the suits rarely have the evidence needed to win at trial. Defendants prevail in 92 percent of adjudicated patent troll-initiated lawsuits. Unfortunately, 86 percent of these suits settle out of court because patent trolls tend to target smaller companies and end users, which can rarely afford the lengthy litigation associated with these types of suits.
For example, Innovatio IP, a notorious patent troll in Illinois, claimed its portfolio included patents covering Wi-Fi implementation — the establishment of Wi-Fi access in public places such as coffee shops and hotels. It started filing lawsuits against large franchises such as Cosi, Caribou and Panera, and then sued small mom-and-pop coffee shops throughout Illinois.
In another case, the patent troll MPHJ Technology Investments sent letters to hundreds of small and medium-sized businesses across the country, including two non-profits, telling them that they violated a patent if they used a type of scanner typically found on office copiers. Providing no specific evidence of patent infringement, MPHJ demanded $900 to $1,200 per employee for a license to use the patent. For some of the small businesses that were targeted, it made more financial sense to pay the erroneous license fee than to fight the troll in court.
Patent trolls have such troubling implications for America’s economy that they have caught the attention of the White House, which in June published a report detailing the impact. According to the report, in 2011 alleged infringers paid patent trolls $29 billion — money these enterprises could have invested in innovation and job creation — for an estimated loss of wealth of $300 billion over the previous four years.