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Commercial Question

The troll that lies in wait

updated on 21 April 2009

Question

What is the story behind patents in the real world?

Answer

Little Billy Goat Gertrude had an invention. It was reforming the world - it was making her a millionaire. It was the Purple-Strawberry. However, trouble was afoot and little Billy Goat Gertrude was suddenly confronted by the meanest and most evil troll there is: the Patent Troll.

The Patent Troll reared his ugly head and roared in a booming and terrifying voice:

"Fee fi fo fum … if you continue to sell that Purple-strawberry,
You'll have to pay me royalties, my rich little billy goat chum.
For I acquired that patent in the years of yore,
So I could take advantage of modern intellectual property law!"

Well, this may be a fairytale, but it is likely to be the Patent Troll who lives happily ever after…

Precious patents

Patents open the doors to innovation. They grant their owners the right to prevent others from exploiting inventions for a specific period in a given territory. Patents protect inventions that:

  • are new;
  • involve an inventive step;
  • are capable of industrial application; and
  • are not specifically excluded from protection as a patent,

Commercially translated, patents grant transferable monopolies and can therefore be extremely valuable. By way of illustration, the drug company Pfizer, makers of Viagra, posted $2.83 billion profits in 2005. The vast majority of its drugs are protected by patents and Pfizer is consequently the only company that can market and sell those drugs where they are patented. Effectively, Pfizer owes that $2.83 billion to its patents.

On the flip side, consumers also benefit from the protection granted by patents. While Pfizer invests in Viagra, secure that they will reap the profits, the gain felt by the consumer cannot be disputed.

The double-edged sword

But there is a darker side to the patent system. The term 'patent troll' was coined in 2001 and is used today as a derogatory label. In the whimsical tale above, the patent troll managed to charge Gertrude royalties because he owned a patent for the invention. And in the real world, this is effectively the business of a patent troll.

While the vast majority of corporations whose business is ‘invention’ will develop and then market products, the patent troll will blanket the innovative arena by acquiring or developing patents and will then pursue a strategy of trawling for companies who seem to infringe those patents. Once a target has been acquired, the troll will issue infringement proceedings.

With large-scale legal action threatened, the patent troll hopes that the infringing company will settle by purchasing a licence to use the patent instead of defending a lengthy and expensive claim. Unfortunately, the patent troll often gets what it wants and a recent case serves as a colourful illustration…

The new patent troll pin-up

In 1982 an inventor in Silicon Valley, Geoff Goodfellow, came up with the idea of sending electronic messages to a wireless device. Believing that ideas should be free for all, Goodfellow never patented his concept.

In 1991 NTP Inc was founded by the late inventor Thomas J Campana and his patent attorney, Donald Stout. When Campana hit upon a theory similar to Goodfellow's, he suffered from none of his fellow-inventor's compunctions, and swiftly patented and stowed the idea as future litigation-fodder. In 2002 NTP acquired new prey when Research in Motion (RIM) developed and marketed the BlackBerry.

Seizing upon the similarities between the technology behind the BlackBerry and its own patents, NTP, having failed to extract royalties from RIM, issued infringement proceedings. An injunction was granted and RIM was temporarily prevented from selling BlackBerries in the United States. Negotiations continued outside court that provided a brief glimpse of hope to RIM's dependents, but when a $450 million settlement fell through, BlackBerry users feared the worst: a BlackBerry blackout.

The conclusion to the proceedings came on 3 March 2006 when RIM announced that it had agreed to pay $612.5 million to NTP in order to resolve the four-year dispute. Millions of US subscribers were delighted - NTP was ecstatic.

So do you feel thankful that this practice is relegated to the other side of the Atlantic? You shouldn't - because it isn't. The US case was swiftly mirrored in the United Kingdom when Luxembourg-based company Inpro brought a claim against RIM on similar grounds. Inpro claimed that RIM’s BlackBerry service violated its patent for a computer system that reduces the processing power used by portable computers and other devices when accessing servers over the Internet. Fortunately for RIM and the 400,000 UK BlackBerry users, that patent was found to be invalid and RIM was able to continue to sell its product.

The way it works

RIM has not been the only company to fall prey to NTP. RIM's competitor, Good Technology, struck a deal with NTP; Nokia had to reach an agreement with NTP before it released a BlackBerry-enabled handset.

Yet can this be right? Neither NTP nor Inpro had developed a product; they had merely patented the fairly basic expression of relatively simple ideas and had then brought claims against the real innovators.

Well, soul-searching discussion as to what is 'right' aside, what NTP and Inpro did is certainly legal. As an example, UK patent law conforms to the standards imposed by the Paris Convention, TRIPS and the European Patent Convention, and a patent may therefore be granted in respect of an invention if it satisfies the criteria set out above. The key point is that in the United Kingdom (and the United States) patents do not need to be commercialised to be valid.

The debate that grows from this is an interesting one: to protect the genuine commercial interest, patent trolls should be stopped. Some critics argue that commercial investment, or at least genuine intention to commercialise, should be a requisite of the modern patent system. Yet to do this, the patent system would soon be beset with questions such as "what constitutes genuine intention?" and "how do you protect un-financed genius?".

Whether patent trolls are the shady trap-setters of the industrial world, or whether they provide encouragement for businesses to err on the edge of caution when dabbling with innovation and patents, is open to debate.

But one thing is for sure. Until there is a drastic reformation of modern IP law, patent trolls are here to stay.

Jonathan Greenwood is a solicitor in the corporate team of Mills & Reeve's Cambridge office.