Patent Trolls: Giving Our Licensing Scheme a Bad Name – Part 2

Patent Trolls: Giving Our Licensing Scheme a Bad Name - Part 2 by Pat Werrschulz

{4 minutes to read} Three Billy Goats Gruff are crossing a bridge. A patent troll materializes on the bridge and blocks their way. “Pay me a licensing fee or I’ll throw you off the bridge,” he demands.

In order to understand the phenomenon of so-called “patent trolls,” one must first understand what a Non-Practicing Entity (NPE) is. NPEs are often the innovators who perform all of the research and development that goes into an invention—but instead of marketing and selling it themselves, they license it to a third party.  Many of my clients are individual inventors who do not wish to start a company around their invention but are hoping to license to manufacturers to produce and distribute.

Besides individual inventors, two of the most recognizable types of NPEs are research universities and patent trolls.

Patent trolls purchase portfolios of other people’s granted patents. They then strategically seek out businesses and products that use an element that infringes on one of the patents that the patent troll purchased.

For example, one patent troll targeted businesses with a certain kind of fax machine. He inundated, and intimidated, small businesses with notices that claimed something like, “If you have this fax machine, I own the patent to it, and you are infringing.” The letter would demand a royalty payment.  

In keeping with that example, what the patent troll actually has amounts to nothing more than a patent for one component of the fax machine, not the entire thing. And often that patent is very broad  and perhaps should never have been issued. Most small businesses pay up rather than face litigation. Even if the troll’s claim of infringement was baseless, defense costs would far exceed any royalty payment. Contingency fees do not apply to defense work; in all cases the defendant ends up poorer, not richer.

Many other business owners choose to ignore the demand letters of patent trolls. That is when the patent troll files a lawsuit, which business owners also ignore in many cases—until there is a default judgment against them.

Patent trolls notwithstanding, NPEs have played pivotal roles in the emergence of the United States as a global technology giant. For example, Eli Whitney went bankrupt shortly after his patent on the cotton gin issued. He simply licensed his patents to another company. Edison held many patents, some of which he licensed to others.

Please contact me with any questions about how to protect yourself about licensing and NPE’s.

Patricia Werschulz

Patricia P. Werschulz

Werschulz Patent Law, LLC
23 North Avenue East
Cranford, NJ 07016
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