THE DEBATE AROUND PATENT TROLLS: HARM OR INNOVATION?

Anushka Dutta, Student, KIIT School of Law

INTRODUCTION

At first, we would dwell into the meaning of the word Patent Troll. A business that utilizes patent infringement allegations to obtain court rulings for financial gain or to suppress competition is referred to as a “patent troll.” The phrase can refer to a variety of commercial endeavors that make use of patents and the legal system in order to generate revenue. A corporation that engages in patent trolling files patent claims without ever planning to manufacture a product or service, even though the technique is legal. Threats of bad faith infringement and license requirements follow, forcing businesses to shell out large sums of money to resolve these claims without improving the general welfare. A “patent shark,” “dealer,” “marketer,” or “pirate” are other terms for a patent troll. A patent troll operation may be called a “patent assertion company,” “entity,” or a “non-manufacturing patentee.”

This blog aims to shed light on the lesser-known concept of Patent Trolls and its advantages and disadvantages. 

POSITIVE SIDES OF PATENT TROLL

Patent trolls provide small inventors with the opportunity to monetize their intellectual property. “Many inventors lack the financial resources or expertise to enforce their patents against large corporations. By selling their patents to Non-Practicing Entities (NPEs), these inventors can secure a return on their innovations without engaging in costly and time-consuming legal battles. The presence of patent trolls serves as a deterrent to willful infringement. Companies are more likely to conduct thorough due diligence before using patented technologies, ensuring that intellectual property rights are respected. Patent trolls often focus on enforcing legitimate patents that might otherwise be ignored. Their actions ensure that patent holders are compensated for the use of their inventions, upholding the integrity of the patent system. By targeting infringers, patent trolls encourage the negotiation of licensing agreements. This can lead to the wider dissemination of patented technologies under legal agreements, benefiting industries and fostering innovation. Small inventors often struggle to compete against large corporations with extensive resources. Patent trolls act as intermediaries that challenge these corporations, ensuring that even smaller players can assert their rights in a competitive marketplace. While controversial, patent trolls bring attention to weaknesses in the patent system, such as vague or overly broad patents. Their activities often spark discussions and reforms aimed at strengthening patent quality and fairness. The ability to sell patents to NPEs offers inventors a financial incentive to create. Knowing that their intellectual property can be monetized, even if they lack the resources for enforcement, encourages further innovation and investment in research. While patent trolls are often criticized, their role in the ecosystem is not entirely negative”. By enforcing patent rights and fostering respect for intellectual property, they can contribute to a more balanced system that rewards innovation and protects inventors.

In two recent judgements, the Intellectual Property Appellate Board (IPAB) revoked three patents, one belonging to Ram Kumar in the case of Spice and Samsung v Somasundar Ramkumar and two belonging to Bharat Bhogilal Patel in the case of M/s Aditi Manufacturing Co. Vs. M/s Bharat Bhogilal Patel. Both patentees can be considered classic patent trolls, both in the sense of non-practicing entities and in the sense of patentees who want to enforce equally weak patents by taking advantage of legal system flaws. The patent holders in both instances did not bring any civil lawsuits alleging patent infringement. Rather, both patent holders had complained to Customs Commissioners at different ports of entry, asking the Customs Department to confiscate “import consignments” because they were violating their rights.

NEGATIVE SIDES OF PATENT TROLLS

Small businesses and startups are frequently the targets of patent trolls, who can deter them from pursuing innovation by threatening them with costly legal action. To handle legal issues, these businesses might divert funds from R&D, which would impede the advancement of technology. Patent trolls inflict a significant financial burden. Even when the claims are unfounded, businesses frequently reach settlements to avoid expensive legal disputes. According to a research, patent troll litigation costs companies billions of dollars every year, which impedes economic growth and indirectly raises consumer expenses. By bringing cases based on patents that are too general or ambiguous, patent trolls take advantage of the judicial system. This tactic takes attention away from valid patent issues, clogs courts, and wastes judicial resources. Patent trolls frequently target businesses that might not be infringing by taking advantage of the ambiguity surrounding the patent’s scope. This fosters a climate of fear in which companies, regardless of the veracity of the accusations, settle lawsuits to prevent financial and reputational harm. Certain businesses may experience a chilling impact as a result of frequent litigation and licensing requests from patent trolls. Technological growth is hampered when businesses are reluctant to introduce new goods or embrace cutting-edge technologies for fear of being sued. Activities by patent trolls might deter businesses from working together, especially in sectors that depend on open innovation and shared technologies. Businesses may steer clear of joint ventures and partnerships out of fear of legal action. In contrast to active organizations, patent trolls don’t create or produce goods that promote innovation. Their business strategy adds minimal value to the larger innovation ecosystem and is centered on obtaining revenues through litigation or licensing. The expenses of patent troll litigation are frequently borne by major organizations, but smaller companies may be in danger of going out of business. The legal fees, settlements, and resource diversion can be devastating, forcing some companies to shut down entirely.

The recent case of Labrador Diagnostics LLC v. BioFire Diagnostics, LLC et al, filed in the United States District Court for the District of Delaware against the coronavirus tests over the allegation of patent infringement reveals the dark side of Intellectual Property Laws. In this case a patent troll, ‘Labrador Diagnostics LLC’, alleged patent infringement against the companies making and distributing the virus tests throughout the country. Appallingly, such actions are rampant; where companies like Labrador Diagnostics take advantage of the law and keep the masses from getting access to COVID-19 tests and treatments.

DOES PATENT TROLL HARM INNOVATION?

Over the last two years, much has been written about patent trolls, firms that make their money asserting patents against other companies, but do not make a useful product    of their own. Both the White House and Congressional leaders have called for patent reform to fix the underlying problems that give rise to patent troll lawsuits. Not so fast, say Stephen Haber and Ross Levine in a Wall Street Journal Op-Ed (“The Myth of the Wicked Patent Troll”). Patent litigation is on the rise, as acknowledged by Haber and Levine. Last year, the number of patent cases was six times more than it was in the 1980s. Over the past ten years, the number of companies that patent trolls have sued has increased ninefold, and trolls now file the bulk of patent litigation. Lawsuits are typically filed in creative, dynamic industries by plaintiffs, especially patent trolls. However, they only do that because they “follow the money.” Innovative new technology bring in money, and patent trolls frequently target wealthy corporations.

For instance, an MIT researcher discovered that medical imaging companies that were sued by a patent troll saw lower sales and innovations than similar companies that were not sued. However, small startup businesses are most affected because, in contrast to Haber and Levine, the majority of patent trolls target companies that make less than $100 million annually. According to a poll of software companies, 41% of them said that patent troll litigation had “significant operational impacts,” leading them to rethink their strategy or discontinue business lines. 74% of venture investors surveyed said their companies had “significant impacts” from patent requests.

PATENT VALIDITY

In Bishwanath Prasad Radhey Shyam vs Hindustan Metal Industries, the Supreme Court observed as under: 

it is noteworthy that the grant and sealing of the patent, or the decision rendered by the Controller in the case of opposition, does not guarantee the validity of the patent, which can be challenged before the High Court on various grounds in revocation or infringement proceedings. The Patent Act, 1970 under section 13(4) now expressly provides that the validity of a patent is not guaranteed by the grant of a patent. 

Section 13(4) reads: 

“The examination and investigations required under section 12 and this section shall not be deemed in any way to warrant the validity of any patent, and no liability shall be incurred by the Central Government or any officer thereof by reason of or in connection with any such examination or investigation or any report or other proceedings consequent thereon. As there is no presumption as to the validity of a patent the burden of proving the validity in a patent infringement suit vests on the patentee. This is likely to discourage trolls from instituting infringement action against alleged infringers.”

POTENTIAL SOLUTIONS

By strengthening patentability requirements, defining infringement standards, and enacting sanctions for abusive litigation methods, legislative improvements can aid in lowering the frequency of baseless cases. A “loser pays” system, in which the losing party in a patent dispute is required to pay the winning party’s legal bills, would discourage frivolous lawsuits. The likelihood of patent troll abuse can be reduced by making sure that patents are only awarded for truly original and non-obvious inventions. Increased openness and confidence in the patent system may result from requiring NPEs to reveal ownership and licensing terms.

CONCLUSION

There is still much disagreement regarding patent trolls. Although they give small innovators a way to make money off of their creations and protect intellectual property rights, their methods frequently result in stymied innovation and economic inefficiencies. Patent trolls, whether seen as allies or enemies, highlight the necessity of a strong and equitable patent system that encourages innovation while preventing abuses. Policymakers can guarantee that the system fulfills its main function of encouraging advancement and rewarding creativity by resolving the flaws in the current patent rules and procedures.