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Patent Trolls and Empirical Thinking


Patent trolls are under increasing attack of late—patent owners who don't actually develop or manufacture the product covered by their patents, but just sue other companies who do make it.

Normally, if company A sues its competitor B for infringement of one of A's patents, B will look through its own stack of patents and hit A with a counterclaim for infringing one of B's patents. The end result is often that both sides execute cross-licensing agreements and back down. In fact this is a main purpose many companies acquire patent portfolios: to establish a MAD-like system in which patentees are afraid to assert their patents against others with large portfolios for fear of a countersuit. Thus, acquiring patents is largely defensive; patents are the bombs sitting unused in your arsenal.

So the real beef against patent trolls is that the defendant can't sue the patentee back in a parent infringement countersuit, since the patentee is not usually manufacturing anything. This really annoys some people, for some reason, as if it's somehow obvious that the purpose of the patent system was to establish MAD, which the annoying patent trolls are getting in the way of.Even Justice Kennedy's concurrence in a recent patent case is based in part on hostility to patent trolls. He writes (bold added):

In cases now arising trial courts should bear in mind that in many instances the nature of the patent being enforced and the economic function of the patent holder present considerations quite unlike earlier cases. An industry has developed in which firms use patents not as a basis for producing and selling goods but, instead, primarily for obtaining licensing fees. See FTC, To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy, ch. 3, pp. 38–39 (Oct. 2003) .... For these firms, an injunction, and the potentially serious sanctions arising from its violation, can be employed as a bargaining tool to charge exorbitant fees to companies that seek to buy licenses to practice the patent. See ibid. When the patented invention is but a small component of the product the companies seek to produce and the threat of an injunction is employed simply for undue leverage in negotiations, legal damages may well be sufficient to compensate for the infringement and an injunction may not serve the public interest. In addition injunctive relief may have different consequences for the burgeoning number of patents over business methods, which were not of much economic and legal significance in earlier times. The potential vagueness and suspect validity of some of these patents may affect the calculus under the four-factor test.

I suppose it's okay to threaten other companies and charge exorbitant fees and apply potentially serious sanctions to companies, if it's done by someone who actually makes products too. After all, they have some skin in the game. They might be sued back by their victim. So it's more of a "fair fight." Of course, we all know about the "fair fight" clause of the Constitution. It's right next to the one providing for the right to sodomy and abortion.

In any event, a recent issue of IP Today, a trade publication, had an article by a patent litigator defending patent trolls against their opponents. Of course, the author resorted to the standard ole' line that patents are necessary to promote innovation. Now, I think the main defense of patent trolls is that they are just doing what the system permits them to do; and that they are no worse than other types of patentees. Anyway, here is my recently-submitted letter to the editor:


Joseph Hosteny (April 2006) does a nice job in exposing the fallacies and ignorance of the standard critics of "patent trolls." It is, of course, true that patent law simply does not require inventors to make or produce their inventions. And to attack "patent trolls" as somehow worse than those who do is confused.

However, attacking the flawed arguments of troll opponents does not entail the view, as Hosteny asserts, that the patent system is necessary for there to be invention and innovation. The patent troll critics can be wrong even if the patent system is not "necessary to promote innovation". To be sure, this is the standard utilitarian justification of patent law repeated over and again by patent proponents and practitioners. After all, this is what is taught in law school. This wealth-maximization rationale is even built into the Constitution's authorization of patent and copyright laws "To promote the Progress of Science and useful Arts (Art. I, Sec. 8). But neither endless parroting of this line by a self-interested bar nor endorsement of it by a document crafted by politicians make it true.

There is, in fact, no conclusive evidence showing that the purported benefits of the patent system—extra innovation induced by the potential to profit from a patent; earlier-than-otherwise public disclosure of innovation—exceeds the significant and undeniable costs of the patent system (see my article, "There's No Such Thing as a Free Patent," Mises.org, Mar. 7, 2005). Is the patent system "worth it"? Who knows? Apparently no one does. It seems to follow that we patent attorneys ought not pretend that we do.

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