IP trolls: Fiction or reality? Friendly or devious?

01/01/2007

By Richard Acello

In Scandinavian mythology, a troll is a mischievous dwarf that lives under a bridge. In modern technology, a patent troll is a company that acquires intellectual property in order to sit on the bridge between invention and commercialization and collect a toll. Or threaten a lawsuit.

While trolls like these are considered a nuisance on the path to development, others have actually enabled development by gathering the IP in a given technology, making a one stop licensing shop for developers.

Whether a company can survive on the licensing fees of the patents it holds is debatable, but there’s little doubt that holders of patents of intellectual property are crucial to the development of new technologies such as nanotechnology.

“What’s a troll?” asked John Paul, a partner at the Washington, D.C. firm of Finnegan, Henderson, Farabow, Garrett and Dunner. “I don’t think there’s a clear definition, but a popular one is an organization that is licensing patents, but is not selling products, just collecting money and not contributing to the development of technology. But the real objection is in having to pay someone.”

That’s because two companies with interesting intellectual property who are also developing or commercializing a product may be able to work out a cross-licensing deal, in which fees are reduced or dropped altogether.

Some firms that appear to be trolls may be unfairly branded, says Tim Hsieh, an intellectual property partner at Min, Hsieh, and Hack in Tyson’s Corner, Va. Hsieh points to Rambus, a company that licenses technology it has developed but is not selling in the market.

“Patent trolls are just a byproduct of the patent system,” said Hsieh. And anyway, Paul adds, a company has to have some talent in recognizing which patents are likely to pay off.

That’s why it’s difficult for a company to make a living sitting on bridges and waiting for product developers to show up.

“Long term, I don’t think licensing alone is a successful business model,” says Steve Jensen, a partner at Knobbe Martens Olson & Bear in Orange County, Calif. “Companies such as Texas Instruments and IBM have made patent licensing a successful piece of their overall businesses, but these have large portfolios. For a one-time hit, as an investor, it’s like investing in something with a kind of return I don’t expect to continue.”

That’s because patents run out, but the product itself will continue to evolve, perhaps without the technology for which the troll holds the patents.

“So you would have to continually acquire assets of value,” said Jensen.

And whether the patents have value may be a matter of timing. “Some patents don’t have a great deal of value because the market never developed around them,” Jensen added. “You have to be able to choose the development path the market is going to select and sometimes there are several paths.”

While some licensors are strictly a nuisance, others enable technology by having all the rights product developers need in one place.

“It has worked in some of the video standards, like MPEG,” said Scott Harris, a partner with Fish & Richardson in San Diego. “It developed into a standard partly for the reason that people could acquire the licenses in one place.”

Nanotechnology is such a wide open field with possible paths to so many products that experts predict there will be patents for every application an inventor can conceive. “Then there will be particular paths of each use of the technology,” Jensen said.

Another possible bonanza will be technologies that weren’t able to get off the ground, but with a nano push suddenly become doable. Take the case of a drug that couldn’t be delivered to the brain, but can with the addition of nanotechnology.

In such a case, Jensen advises filing a new patent that covers both the previously discovered drug and the nanotech delivery scheme.

Paul says a real troll is a company that files frivolous lawsuits or engages in other inappropriate behavior. On Nov. 3, a federal jury in Arizona returned a guilty verdict against patent holders Verve LLC and law firm Simon, Galasso and Frantz, which was also a defendant in the case.

“On the undisputed evidence, Mr. Galasso created a shell entity whose sole function was to suggest to patent owners that it be allowed to bring actions alleging infringement of those patents even where those owners were not aggrieved by anyone’s conduct,” said Judge Frederick Martone. That’s about as good a definition of a troll as the nanotech industry is going to get.