To the average person the term troll conjures an image of a plastic toy with spiky blue hair. To a lawyer or business professional, the term is not something to play around with. In the world of intellectual property, patent trolls are leeches, trying to extract money out of both big and small corporations.
The term patent troll, also known as a patent assertion entity (“PAE”), describes a business whose sole purpose is to acquire patents and claim that they are owed money by other companies. These unsuspecting companies are accused of infringing the acquired patents and threatened with lawsuits. The PAE will never manufacture a product or use the patents in any manner except for threatening other companies. Depending on the company being sued, they may settle for a “small” licensing fee rather than deal with the cost of challenging a lawsuit. This is the best outcome for a patent troll. Their income stream is essentially settlements from companies who want them out their hair. Not only does this cost the companies who pay off the patent trolls, it costs the business and legal world. These fees increase the production costs of products, which in turn trickle down to the consumer. Over half of patent lawsuits are from patent assertion entities and they are clogging up the judicial system with frivolous cases. These lawsuits also slow technological advancements because companies are more hesitant to release new products for fear of being sued. In 2011, patent trolls cost business approximately 29 billion dollars, according to a report by the Executive Office of the White House.
The business world has struggled against these trolls for decades but the White House is finally taking notice. President Obama has recently issued several executive orders that direct the U.S. Patent and Trademark Office to limit the range of patents as well as deny patent lawsuits brought against the users of patents rather than the manufacturers. The White House also wants full disclosure from the PAEs including their identity and past litigation.
One example of such litigation is a PAE threatening to sue Mason Companies, which encompasses many brands such as Shoemall.com. They claim that using the “shopping cart” function on its website is a violation of the PAE’s patent. This “shopping cart” concept is widely used on online shopping websites all over the world. The patent troll is essentially challenging the Mason Companies to prove the “shopping cart” concept is not a violation of their patent.
This is a prime example of why federal patent laws need to be updated. President Obama’s executive orders are a step in the right direction. We hope law makers will follow suit.