Regarded by some as patent pirates, so-called patent trolls may soon come under attack in the US as part of government-backed efforts against abusive intellectual property (IP) litigation.
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As a general rule, we can say that patent trolls make their living from pursuing legal action against organisations that use patented technology. They do this by asserting, or threatening to assert, patent rights, which may or may not exist, in court against industry players.
The latter often feel pressurised to settle rather than spend valuable resources defending themselves. But this is not the whole picture.
As the threat posed by patent trolls begins to grow in Europe, a clear distinction must be made between the abusive patent trolls and other, legitimate patent rights holders, known as non-practising entities (NPEs).
Unlike patent trolls, NPEs have a far more positive role to play in fostering innovation. While they don’t actually commercialise any product or service, their business model is based on monetising IP rights through licensing and technology transfer.
To date, the threat posed by patent trolls has been largely limited to the US, where a number of legal and commercial factors have contributed to their proliferation. However, concern is now growing that such practices could become more popular in Europe, particularly with the upcoming implementation of the Unified Patent Court.
The new court will have the power to impose pan-European injunctions on businesses that are found to be infringing the intellectual property rights of another. This would effectively stop organisations from making and selling their products across the entire European Union and could be enough to put them out of business.
With such a powerful threat at their disposal, patent trolls could be planning to step up their activities in Europe because they believe businesses will be more inclined to settle than pursue litigation in such circumstances.
The business model used by many patent trolls involves pursuing a large number of end-users of a specific patented technology in order to bring an infringement claim against them. The threat letters sent to the end-user usually request the immediate payment of a one-off fee in order to reach an out-of-court settlement and avoid potentially costly legal action.
However, not all NPEs operate in this abusive way. Instead of asserting their patent rights simply for the purpose of generating revenue from end-users, some legitimate technology companies monetise parts of their portfolio in order to raise money for R&D.
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Other companies, such as fabless semiconductor developers, don’t manufacture anything using their own technologies, but do a lot of their own R&D activity and support innovation. While trolling in its most abusive form is clearly detrimental and contributes little to innovation, some NPEs are playing a crucial role in the development of technology and innovation.
In the US, patent trolls have been coming under attack and proposed changes to legislation could help to limit their activities. In particular, the US government has been seeking to make it more difficult to bring infringement proceedings, by increasing the pleading requirements that apply under the Federal Court system when bringing a case to court.
It is also possible for customers of a software manufacturer, for example, which are facing an infringement claim from a patent troll, to have their case suspended pending the outcome of the infringement claim against the manufacturer. This would be on the basis that the manufacturer is likely to have deeper pockets and greater access to legal support.
Another factor that may be limiting trolling activity in the US is a recent move to tighten the criteria used when granting patent protection in the first place. In the past, some relatively poor patent applications have been granted and it is some of these ‘bad’ patents that have been used by trolls.
More recently, however, the US courts have been moving closer to a more European position by requiring that those bringing patent applications show that their inventions are not mere methods of doing business.
Minimise the risk of trolling
From a European perspective, recent draft amendments to the Rules of Procedure of the Unified Patent Court also aim to minimise the risk of abusive patent trolling activity in Europe.
For example, under the previously proposed rules, if a patent’s validity is in question, a local division of the court can decide to bifurcate. If it chooses to do this, the infringement aspect of the claim could be heard locally, but the issue of validity might be referred to the Central Division, which could then take many months, if not years, to reach a decision.
The time lapse between the two decisions could create what is known as an ‘injunction gap’ – a window of opportunity during which an injunction could be enforced pending any decision about the validity of the patent.
The uncertainty and risk associated with the possibility of a pan-European ‘injunction gap’ is too great for many companies to assume, and so many would be very keen to settle. The latest round of amendments to the Rules of Procedure of the Unified Patent Court have proposed that all efforts be made for the question of validity to be dealt with first, before hearing the infringement claim.
There can be little doubt that patent trolls are out there, already eyeing up the European marketplace for potential targets. Although legislative changes can certainly help to minimise the risk they pose, it has never been more important for businesses across all industry sectors to ensure that they have a robust IP strategy.
Denis Keseris is a patent attorney at UK intellectual property firm Withers & Rogers. He is a specialist in the field of computing, software and consumer electronics