A patent troll is a term used to describe an IP buyer that procures third party patents and then enforces these patent rights against accused infringers. This derogatory term is often applied to companies that buy patents with the primary intent of generating licensing fees rather than producing and selling goods or services based upon the patents in question. As I am a patent lawyer for startups and tech companies on the receiving end of such lawsuits, I have argued that such actions stifles innovation and competition.
However, when I help startups who can’t afford the litigation cost of patent cases in pursuit of companies that use their technology without licensing, I see another perspective – that patent buyers offer inventors and small companies with a solution against the big companies’ efficient infringement theory to avoid paying fair reward to inventors.
Efficient infringement is a business calculation made by patent infringers that enables them to use patent technology without having to pay than to license it and pay fair royalty to the owner given the cost of litigations. Large entities are aware that there are certain patent owners who are not going to enforce their patents, often because they don’t have the $2-4 million to enforce their patents.
However, the cold reasoning behind the efficient infringement theory crumbles when a big company encounters a well-funded patent buyer who can afford the cost of litigation. Thus, these patent buyers offer patent owners an exit and ensure that efficient infringers are kept in check.
The Patent Ecosystem.
An inventor who has invented something new and wants to protect his/her findings from being copied by others will apply for a patent with the US Patent Office. The American patent system is designed to protect inventors from having their ideas stolen. If you have invented something new, you can apply for a patent and then if your idea is approved, only you will be able to make that product or process in the United States.
With patent protection, inventors can sell products, license the patents, or enforce the patents. However, many inventors or even companies lack the resources to litigate their patents as patent lawsuits can extend for years and cost between $2.3 million and $4 million on average.
In light of such expenses, an inventor can sell a patent to a buyer and receive a lump sum in return for the rights. This can give the inventor the capital they need for new inventions and investment. If the buyer is a company producing or selling products or services that are based on the patent technology, this can help increase the market for the invention. This can result in increased sales and exposure for the inventor. Also, the patent asset purchase agreement (APA) can provide additional success payment(s) to the patent owner contingent on litigation outcomes.
The buyer can make money from patents in two ways: through licensing fees or through lawsuits against infringers. However, it’s important to note that not all buyers of patents are created equal. For example, Intellectual Ventures have the financial resources and assets to pursue litigation against big infringers. These companies request royalties for the inventions and will enforce the patents when licenses aren’t taken.
Patent Litigation Statistics
Patents are expensive to file and maintain, so many inventors don’t bother. Instead, they sell their patents to investors who want to use them as currency in licensing deals or enforce them against infringers. These investors might trade in patents like any other financial instrument: buying low and selling high, leveraging patent portfolios against each other as leverage in negotiations with companies that might violate one of their patents with a competing product or service.
According to Copperpod Intelllectual Property, the American judicial system is known for its high fees, patent litigation is one of the more expensive methods. Patent litigation processes are not only expensive, but they also award hefty damages. According to US patent litigation costs, the claim construction part of cases with less than $1 million at stake costs at least $250,000. For cases involving $25 million or more, the fee rises to $2.375 million. For instances with smaller potential damages, the full trial will cost each party roughly $700,000, and for high-value cases, it will cost around $1 million.
The claim construction portion of US patent litigation cases with less than $1million in value will cost at least $250,000. The fee for cases with more than $25 million rises to $2.4 million. The fee for cases with lesser potential damages will be approximately $700,000. For high-value cases, it may cost $1 million.
• Each year, between 5,000 and 6,000 patent cases are filed in the United States.
• During the year 2020, US courts awarded $4.67 billion in patent damages.
• Patent litigation costs between $2.3 million and $4 million on average.
• It takes one to three years for a patent case to reach trial.
• Patent infringement lawsuits are settled in 95 percent to 97 percent of cases.
Efficient infringement is a business calculation that shows large companies that it is cheaper to use patent technology without paying than to license it and pay fair royalties to the patent owner. To overcome these infringers, the inventor or patent owner needs to find a partnership with patent buyers.
When an inventor sells a patent to a buyer, they can receive a lump sum of money in exchange for the patent rights. This can provide the inventor with the capital they need to continue developing new inventions or to invest in their business. Additionally, if the buyer is a company that produces and sells products or services based on the patented technology, it can increase the market for the invention, which can lead to increased sales and greater exposure for the inventor.
Types of companies that Buy patents
There are several types of patent buyers, including:
- Operating companies: These are companies that use the patented technology in their own products or services. They may purchase patents to strengthen their own intellectual property portfolio, to prevent others from using the technology, or to acquire exclusive rights to use the technology.
- Non-Practicing Entities (NPEs): Also known as “patent trolls,” NPEs are companies or individuals that do not produce or sell products or services based on the patented technology, but instead generate revenue by licensing the patents or by suing or threatening legal action against other companies for infringement.
- Patent assertion entities (PAEs): These are companies that acquire patents with the primary intent of asserting them against alleged infringers, they are a subtype of NPEs.
- Patent licensing companies: These are companies that specialize in licensing patents to other companies or individuals. They may purchase patents from inventors or from other companies and then license the rights to use the technology to others.
- Patent holding companies: These are companies that purchase patents for the purpose of holding them for investment or for potential future licensing or sale.
Unsurprisingly, there are two types of companies that buy patents and then sue other companies for infringement. The type I just mentioned is the patent troll—the one you’ve probably heard about in the news. But before you think that only big-time corporate suits can be patent trolls, let me assure you that this isn’t true! Anybody can be a patent troll, from a government agency to an individual inventor who has an idea for technology that could have multiple applications.
It’s important for inventors to be aware of the different types of patent buyers, and to carefully consider the potential benefits and drawbacks of selling their patents to each type of buyer. Inventors should also be aware of the difference between NPEs and operating companies, as the latter have a track record of using patents to develop and commercialize new products or services, while the first one tend to use patents as a form of litigation against companies who subscribe to the efficient infringement theory by making inventors jump through the litigation hoops before paying any royalties.
The NPE, also known as “patent assertion entity” or PLE (patent licensing entity) companies license patents to manufacturers, who then use them to sue other manufacturers for infringement on those licenses. While these entities don’t actually produce any products themselves, they do fund research in order to develop new technologies so that they can later claim ownership over them through lawsuits against their competitors—hence the “non-practicing” part of their name.
So what exactly is a patent troll? Well, they’re not the same as patent holders. Patent trolls don’t hold patents themselves, but rather they are patent buyers who acquire patents from other companies or individuals. They also aren’t the same as infringers—that would be someone who actually uses a patented invention without permission, like if your company was making and selling products without paying for the rights to do so.
There are three different types of patents that can be awarded from the US Patent Office.
There are three different types of patents that can be awarded from the US Patent Office: utility patents, design patents and plant patents.
Utility Patents
These are the most common type of patent. A utility patent protects the way an invention works, what it does and how it’s made (the physical aspects). Utility patents can last for 20 years after they’re filed.
Design Patents
Design patents protect a specific ornamental design of an item, such as jewelry or furniture. Unlike other types of intellectual property rights like copyrights or trademarks, you don’t have to register for this type of protection—it comes automatically with your application if your design is novel enough to qualify for one (and only one). Design patents expire after 14 years from their filing date.
The last and least common Patents are Plant patents, and as the name implies, protect plants.
Utility patents – protects the functional aspects of products and processes described on the patent application documents.
In the United States, utility patents – protects the functional aspects of products and processes described on the patent application documents. This includes inventions that are new, not obvious and useful in a real-world setting.
Patent trolls buy patents at cheap prices and then force other companies to pay them royalties claiming infringement on their patents. They don’t actually produce anything themselves; they just file lawsuits against those who do. For this reason, patent troll is a pejorative term used to describe companies that buy patents and then use them offensively against those who have independently developed similar technologies
Design patents – protect the ornamental features appearing on a product described on the application documents.
Design patents are awarded for the ornamental features of a product described on the application documents. Design patents are issued to protect the appearance of an article, not its function. The design must be new, original and ornamental to be eligible for a patent.
The following is an example of what might qualify as design patentable subject matter: A container shape that allows easy opening and closing with one hand; A handle or knob design that permits ambidextrous use; A stylized shape that appeals to a particular segment of consumers (such as young adults).
Plant patents – protect plants reproduced through sexually reproductive methods or genetically modified plants.
Plant patents protect new varieties of plants reproduced through sexually reproductive methods or genetically modified plants. The patent is good for 20 years from the time it was filed and can be renewed for an additional 20 years if you pay a maintenance fee to keep it active. Plants are not eligible for utility patents like inventions are; however, they can be protected by design patents if they have ornamental value, such as decorative flowers on a plant (think roses).
Patent Buyers Typically Focus on Patents that are Infringed
A patent buyer, sometimes called a patent troll, is a company that buys patents and then tries to enforce them against companies that have nothing to do with the original invention. These companies arbitrage the value of patents that can’t be enforced due to litigation costs and the royalties that would have to be paid to the patent owners.
Selling a patent at the highest price possible requires a combination of proper patent protection, market research, and effective negotiation. Here are some steps an inventor can take to increase the value of their patent and sell it at a higher price:
- Protect your patent: Obtain a strong, enforceable patent from the USPTO, and take steps to protect your patent from infringement.
- Conduct market research: Identify potential buyers and research their financial situation and interest in your patent. Look for companies in the same or related industry that may be interested in using your technology.
- Position your patent as a strategic asset: Highlight how your patent can help a potential buyer gain an advantage in the marketplace, such as by increasing revenue, reducing costs, or creating new products or services.
- Find the right time to sell: Timing is important when selling a patent. Look for opportunities when a potential buyer may be more willing to pay a higher price, such as when they are preparing to launch a new product or service or when they are facing increased competition.
- Hire a patent broker or attorney: Consider hiring a professional who specializes in patent sales to help you negotiate and close the deal.
- Be prepared to negotiate: Be prepared to negotiate the price and terms of the sale, such as the length of the licensing agreement and any exclusivity provisions.
- Look for multiple buyers: If possible, try to sell your patent to multiple buyers, as this can increase competition and drive up the price.
It’s important to note that there is no guaranteed way to sell your patent at the highest price possible, but by following these steps you can increase the chances of getting a better price for your patent.