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Patent Trolls are Good- Looking at the other side of the coin

Patent trolls are bad for business.

Patent trolls hurt Innovation and US economy.

Patent trolls are a threat to competitive markets.

Its time to kill patent trolls for good.

You have heard one of these at least more than once in your life. Havent you?

<Insert Poll>

BTW, What wagon are you on?

PAEs are Pure evil!


I think theres another side to story we should understand. Trolls are not really
bad!

A lot has been said and written about the negative impact of patent assertion entities on the
economy and innovation. Patent Assertion Entities (PAE), often famously referred to as Patent
Trolls are looked down upon with contempt by media and large corporations alike. Branded as
pure evil, PAEs have received a lot of bad press and have rightly earned the moniker of being a
troll.

A Troll, commonly described as an ugly cave-dwelling creature in its very sound imparts a very
negative effect to the term. Furthermore, all the art ever created of a troll makes them look like a
horrible monster that youd never like to cross path with even once in life.
Source: Wikimedia Commons

PS: If you were thinking Shrek or Princess Fiona are trolls, its time to get your facts right.
Theyre Ogres.

All the negativity of the term aside, the question ponders upon the mind-

Are patent trolls as bad as they are projected? Do they really hurt innovation and are bad for
economy? Do they really throttle the competitive market?

Or is there another side to the story?

There are always two sides of a coin and it is very important to explore the other side before
reaching a conclusion.

With that thought in mind, we decided to explore the other side of the story. What followed was
a brief search of scholarly papers on SSRN and ample proof that led us to believe that patent
trolls are not really as bad as they are portrayed. In fact, Patent Trolls are good for the economy
and according to research, play a valuable role in innovation.
Whats in a Name?

Before we begin to factor all the research and empirical evidence that proves how important a
part PAEs play in innovation, it would be interesting if we ask this famous Shakespearean line in
the context of usage of term Patent troll.

According to the paper authored by Edward Lee titled Patent Trolls: Moral Panics, Motion in
Limine, and Patent Reform, theres lots in a name. According to the author, media have played
on theory of Moral panics, which has created a sense of contempt for PAEs and the very use of
the term when referring to an organization imparts a very negative impact to it.

The use of the prejudicial term Patent Troll clouds the legitimacy of practice organizations
engage in and instead of judging a patent by its claims, the very association of the term with an
organization sidelines rational decision making and gives way to hysteria. Organizations,
irrespective of practice they engage in, whether theyre patent monetizers or aggregators, all
have been equally labeled as Patent Trolls, which results in a sense of contempt for
organizations indulging in the practice.

Consider the instance of IBM, who despite being a multinational technology company working in
hundreds of technologies (with thousands of patents in its portfolio) is labeled as a patent troll,
every time it tries to enforce its patents.

And since we are talking about large multinational corporations, even big names including the
likes of Apple, Microsoft, Google and Samsung are not spared by the media, each being labeled
as a Patent Troll at one point or other.
We all are well-aware of a definition of a patent troll, aka a non-practicing entity which
accumulates patents for monetization purposes. The question is- Is it right to classify any
company trying to monetize its Intellectual property as trolls?

Not fair. Right?

The same perspective applies for patent monetization agencies that buys patents from small
inventors and enforces them such that the rights of an inventor are protected. We all are well
aware that major corporations seldom care about small inventors or micro entities patents and
infringe them despite being knowledgeable of their existence.

When we talk about protecting rights of an inventor, it is important to consider that inventors
whose patents are infringed by giants seldom have the money to rage a lawsuit. In such
situations, organizations get a chance to get away with infringement without paying a penny.

Are inventors rights protected?

Credits: Giffinder.com

Are patent assertion agencies really bad? Give it a thought.

Are NPEs bad for economy?

A very redundant statement that has been often quoted is Patent trolls hurt innovation and they
are bad for economy.

Do/Are they really?

Not exactly, according to the author of the paper Trolls or Market-Makers- An Empirical Analysis
of Non-practicing Entities.
With help of patent litigation data available on Stanford law schools IPLC between the period of
2000 to 2008, the author summarized that the patents used by NPEs in litigation were by all
measures pretty high in value.

The very claim that PAEs use vague patents to blackmail companies in an attempt to earn
loyalties is proved false in the very study. The data set picked by the author portrayed that
Patent assertion entities perform their IP due diligence pretty well and acquire high quality
patents with excellent monetization potential, which is one reason why they demand pretty high
costs for monetization.

According to the study, the patents owned by NPEs receive more citations than other litigated
patents and also tend to be more original or general, having considerable influence on
subsequent patents, which are further improvements in a technology domain. Acquiring such
high quality patents from inventors serves as a dual purpose

The rights of an inventor are protected, thereby reducing the chance of an infringer
getting away with infringement without paying for it.
Liquidating the innovation of inventors behind highly valuable patents encourage them to
continue innovating, which in turn benefits the society.

Patent trolls do not really hurt innovation. Instead by playing as a middleman, Patent trolls do
play a valuable role in innovation, agrees James F McDonough III in his paper Myth of the
Patent Troll, where he argues that the very presence of patent dealers in a market gives way to
innovation.

According to the author, the very knowledge that patents would be enforced by patent dealers
incentivizes potential infringers to (either license technology or) increase research and
development to design around those patents. In such situations, what results is increment in
innovation since increased patent liquidity and reduced risk gives inventors more incentive to
invent which results in advancement within a particular industry.

You might be thinking- So youre saying the presence of patent dealers results in increased
innovation. Easy to say. Is there any proof?

Yes.

In a research conducted by Alexander Galetovic of the Universidad de Los Andes, it was found
that innovation rates are strongest in exactly the industries that patent-reform advocates claim
are suffering from "trolls" and a broken patent system.

The innovation in these industries could be proved by a rapid decline in prices. For example,
since 1992, the quality-and-inflation-adjusted price of telephone equipment has fallen by 6.7%,
televisions by 14.4% and portable computers by 26.7% a year. The equation- More the
innovation, better the components, more the competition, lesser the prices fits.

Patent Assertion entities or wrongly named Patent trolls play a huge rule in innovation.

Thats sorted.
Now some might argue- Say what you want, but nobody likes patent trolls. They are bad for
economy and everyone wants to get rid of them.

True?

Not really. Not everybody wants to get rid of them. Some actually need them and prefer their
service over others.

Patent Trolls as Financial Intermediaries:

In a study by Stephen Haber of Stanford University titled as above, an experiment was


conducted in which, subjects comprising of: either active individual inventors or those in process
of commercializing their inventions, were assigned patent worth a million dollars that that were
infringed by a large manufacturer in a hypothetical scenario.

Evaluating a total of 103 responses, the participants in the experiment were divided into two
groups- Control and Treatment.

The first group was asked to choose between two options, as follows:

Sell their patent to a PAE for a guaranteed $100,000


Hire a lawyer to assert their patent in court for $1,000 per hour with no limit on number of
hours required.

The second group was given the same two options, except that the lawyer worked on a
contingent fee basis of one-third of the total award if they won the case and zero dollars
otherwise. Therefore, the only feature that varied across groups was that treated subjects were
no longer constrained by upfront costs or the prospect of net losses.

Subjects were then asked questions to understand their preference to financial risks and further
demographic information were collected for purpose of classification.

The results were as follows:

The findings showed that Inventors those hiring contingency fee lawyers were 40 percent less
likely to sell to a patent troll, while the effect for entrepreneurs was statistically insignificant.

Further, it was mentioned that PAEs acts as financial intermediaries for majorly two types of
patent holders who are constrained by cost of litigation- Inventors (rather than entrepreneurs)
and individuals who are more sensitive to financial losses.

Litigation costs can be a major factor that has the possibility of leaving an inventor bankrupt,
while the effect on large corporations is similar to a tiny dent. PAEs, on the other hand, assure
guaranteed profit to individual inventors without getting involved in costly litigation.

This study leaves us with one thought in mind-

Patent trolls if curbed could severely limit the role of a lot of inventors in the innovation
ecosystem.
Getting rid of Patent trolls in one way or other would hurt innovation, prove detrimental to
economy and result in lesser proliferation of innovation in any particular industry.

Let me leave you with one thought in end-

The presence of patent trolls might not feel right, but their very absence from innovation market
would not be any right, either.