Companies stay defensive against ‘trolls’

By Kang Ye-won

Never mind the ongoing patent battles among global tech juggernauts, the growing demands by non-practicing entities (NPEs) or the so-called “patent trolls” have added more pain for tech companies, causing them to spend billions of dollars in lawsuits, settlements and insurance to prevent future hazards.

As patents have become the “new currency” or “weapon” in the world of technology, companies are stock piling patents as a way to get the upper hand in the ever-fierce competition.

Google bought Motorola Mobility for a whopping $12.5 billion last year, mainly for the handset carrier’s trove of patents. Apple and Microsoft among others paid $4.5 billion in cash for Canadian telecom Nortel Network’s 6,000 patents.

Critics claim that the tech giants’ patents race not only stifles innovation but wrongly benefits the trolls, and so the global call for an overhaul of the patent system has been rising.

Market disruption or legitimate business?

Trolls are monsters that live under bridges demanding money from the passersby.

The term, patent trolls, was coined back in 1999 by a former lawyer at Intel named Peter Detkin, referring to companies who make almost no products but monetize by acquiring and licensing patents, or litigating patent holders.

Critics often cite Intellectual Ventures as a leader in this business. Launched in 2000, the firm operates a multi-billion dollar fund owned by Nathan Myhrvold who has collected about 15,000 patents, according to PatentFreedom, a private research firm.

Samsung Electronics and LG Electronics both made a licensing deal with Intellectual Ventures last November buying patent portfolios over 50 technologies, the firm said in a statement.

The reason why the patent trolls bloom in the technology landscape has to do with the nature of the field where software patents can be vague in wording as opposed to that of chemical or pharmaceutical patents.

For example, a smartphone may involve up to 250,000 patents, according to David Drummond, Google’s chief legal officer, in a blogpost.

In the 1990s and early 2000s, manufacturers were often caught off-guard by lawsuits from these patent-owning companies, ending up paying millions of dollars in royalties and court settlements.

From 2006 to 2010, firms paid an average $83 billion for troll litigation, according to research by Boston University cited by Popular Mechanics.

But some experts say that patent troll is a biased term and not all patent-owning companies are trolls.

“Non-practicing entities, or as we call NPEs, are not illegal and there’s nothing wrong with a company making money from its own patent such as licensing at a market price as many universities or research institutes do, but it becomes a problem when it abuses the right,” said Cho Kyu-hwan, a deputy director of the Korean Intellectual Property Office (KIPO).

Nonetheless, the demands by NPEs are only thriving.

Intellectual Ventures has expanded its branches across Asia including Korea.

When asked about the accusation of being a patent troll, the company responded that it was protecting intellectual property rights.

“Intellectual Ventures is committed to the belief that ideas are valuable,” said Choi Hae-won, a spokeswoman for Intellectual Ventures Korea, in an email. “We will continue our work to provide the world’s leading companies with the inventions and invention rights they need,” Choi said.

Local response and alternatives

Korean tech giants including Samsung Electronics and LG Electronics have been increasingly exposed to trolls, and they have focused on securing preventive measures such as subscribing to insurance services such as RPX.

This basically shields tech leaders from patent-related risks and expenses and has nearly 100 clients including IBM, Google and Microsoft.

In response to global patent feuds, Twitter recently suggested an Innovators Patent Agreement (IPA), which will give control over patents to individual inventors and make sure they’re only used for defensive purposes. Although it’s an innovative move for a marketing reason, it won’t make a difference in today’s patent landscape, experts say.

“Twitter’s IPA is not going to solve any problems in the current form, which has too many loopholes,” said Florian Mueller, a patent expert, in an email.

For instance, Twitter claimed it would countersue any threat to the company’s “intellectual property” not just patents, which leaves room for broader interpretation, he said.

Even before Twitter, scholars have raised an idea of defensive patent license and although it’s a work in progress, it has no deterrence effect on patent trolls, according to Mueller.

“That concept described the role of nuclear weapons in the Cold War. It can apply to a situation involving two companies with products on the market: both would have to fear that the other could prevent them from continuing to sell their products. But a “troll” doesn’t have products and therefore you can’t hurt him with your own patents,” he said, in a blogpost.

Cho with the Intellectual Property Office agreed that a defense strategy was not the solution at the moment.

“There’s really no right or wrong answer on how to respond to the NPEs ... That’s why it’s important for the companies to stay vigilant at all times about where their patent portfolios stand in comparison to others,” he said.

What’s the success formula for now?

Mueller called it a “fair troll,” which is to make money from fighting patents with patents.

“Be evil! At least a little bit, and within a perfectly ethical framework,” he said.