Patent trolls: Time they got back under the bridge?

The patent system is a hot news topic.
There are various reasons for this: government innovation policy is driving significant interest in intellectual property (IP), major companies such as Apple and Samsung are competing in headline IP cases, and controversial ethical issues such as monopolies on medicines mean that good column inches are being filled. One particularly recurrent theme is the current prevalence of the ‘patent troll’ and the problems this causes, not only to legitimate innovators but to the patent system itself.

The term ‘patent troll’ was coined by Intel
in the 1990s to refer to businesses that hold large portfolios of patents in the hope of finding a potential licensee/litigation target. The name itself is so evocative that it must carry some of the blame for the current levels of publicity, although, surprisingly, ‘trolling’ originally referred to a form
of fishing in which multiple lines are laid out, rather than nasty creatures under bridges. Following this initial confusion, the term patent troll has evolved into a rather powerful image.

Even if the name is new, the concept is not. James Herriot Watt, the father of steam technology, famously had a large suite of patents, at least one of which he even got extended by an act of parliament to prevent competing technologies. Watt has been held up by many as the original patent troll, although recent research suggests that his patents, which related to a low-pressure steam engine design, did not particularly prevent the development of high-pressure designs, as has been suggested by some.

Since those early days there have been many variations on the usage of the patent system, many of which are entirely legitimate. However, some companies have developed practices that are less morally justifiable and over time have gained the dubious patent troll label.

Not surprisingly, a lot of companies object very strongly to being called trolls, and we have seen various other terms arise, the most popular of which is probably ‘non-practising entity’ (NPE).
Part of problem with the term ‘troll’ is that it has been used indiscriminately and across a broad spectrum of practice, from heavily unethical to perfectly reasonable.

Broad spectrum of practice

The ends of the spectrum are worth exploring a
little – at the bad end we have companies who have created, or more typically bought in, patents relating to technology in areas where they are able to target not only equipment providers but end-users as well. A very famous instance of this is the US NPE Innovatio IP Ventures, which threatened small end-users of its Wi-Fi technology, such as ‘Ma and Pa’ shops, hotels, and small businesses, for licence fee settlements, rather than targeting the equipment providers themselves. This is not outside the law as such, but is usually prevented
by the simple rule that one does not typically sue one’s own potential customers. However, as Innovatio IP Ventures itself had no product, this was not an issue, and it set levels of settlement fees that were realistically less than any likely legal fees. This garnered terrible publicity, and these days most businesses are wise to such blatant threats.

At the other extreme we have a more justifiable use of a licensing business model. In the biotechnology sector, it is routine practice for a university undertaking research to collaborate
with and license their technology to a larger pharmaceutical company which has the resources to commercialise their discoveries. This use of the patent system clearly aligns itself with the system’s original intentions. Yet in early attempts to deal with the troll problem, some definitions arrived at by the legislators covered both ends of the spectrum.

In the middle of the spectrum we have a huge range of businesses – for example, companies such as Qualcomm – which innovate and/or buy in technology patent portfolios and license them out in a variety of ways. Where a contribution to technology is provided this appears a legitimate
and reasonable approach. The line becomes a little blurred, however, when we consider a business that does not innovate but purely buys in patents and does contribute to technological development for potential licensees.

Uncertain definition

This uncertainty around the meaning of the term troll has caused significant difficulties in some spheres. Taking telecoms standards as an example, this system could be said to epitomise effective technology transfer. Were it not for telecoms standards, a global system allowing for the use of
a single phone in almost any country would not exist. Such a system is facilitated by two principle mechanisms: a technology-sharing mechanism and a fair recompense mechanism.

The first half of this is provided by entering into a standard and contributing to it; if you are compliant then your devices will work with everyone else’s.
The repayment angle is more difficult – some businesses clearly contribute more than others
and deserve more back, and the patent system is effectively used as a set of tokens to reflect who contributed what into the system. Anyone else joining the standard can then join on a fair, reasonable, and non-discriminatory (FRAND) basis. The standards bodies, while a little laissez-faire,
are quite realistic about making sure this works.

There have, however, been a few hiccups.
The ‘smartphone wars’, which now seem to be coming to an end, had at one stage some innovative, patent-heavy, and heavyweight competitors, such as Apple and Samsung, at each other’s throats. Given that a lot of these companies sell kit to each other as well, it’s not surprising that eventually a CEO somewhere saw the light and pulled back on the worst of the litigation.

Patent litigation

It is not only the courts that are reviewing and taking action against excessive patentee behaviour, but also legislators and competition authorities. In the US a large amount of legislation was proposed to prevent troll activity, but the problem was, again, that the definition is very difficult to make. The competition authorities have been looking at how to improve the process, and high-profile action has been taken against various companies which were felt to be abusing patents
in the standards field.

Research has shown that, if anything, the troll phenomenon has dropped recently in the US, largely as a result of adverse publicity driving defendants to be cannier and more aggressive,
and the strong line taken both by the judiciary and the legislators if they see full out troll behaviour.
Lex Machina estimated that there was a 40 per cent reduction in patent litigation in September 2014 compared to September 2013, attributable largely to the decline of troll behaviour.

Commentators have wondered whether this means that those businesses will move to other jurisdictions. It’s not obviously the case that this has happened in Europe, and indeed, at least in the
UK, the judges are well-versed in the ins and outs
of patentee behaviour, having been IP specialist barristers themselves for 20 years plus, and as such are unlikely to have their wigs pulled over their eyes.

Muddying the waters

Unfortunately, the patent-granting system
itself hasn’t caught up with the judiciary and legislators, and little effective rewriting of patent-granting law or practice has taken
place. In fact, at least in Europe, loosening of the provisions for ‘divisional patent applications’ has, if anything, made it easier to get a suite of very similar patents. This could muddy the waters and make a weak case look stronger by the power
of multiplication of associated patents. Such
a set-up is unlikely to change – the drive for providing quality patents is principally aimed at ensuring that the legal requirements of ‘inventive step’ are met, and most patent offices are facing numerous other pressures even without being asked to address the troll problem.

So, is it time the trolls jumped back under their bridge (or retracted their fishing rods)? At the extreme end, of course, it’s good to see that the courts are taking a strong and educated view quickly where clear abuse is in place. At the other end, there are many utterly legitimate companies which must be left to carry on their excellent research and development efforts, and however
the authorities deal with the troll issue, they must leave this area unscathed and fairly remunerated.

Perhaps the real issue is in the definition.
From the very beginning, the word ‘troll’ has had
too many meanings, both for the layman and for
the legislator, but if we can perhaps define these companies more by their behaviour than by the moniker, we will be on the way to chucking them back where they belong. SJ

Gwilym Roberts is a partner and Rosemary Lees is a technical assistant at Kilburn and Strode

@KilburnStrode