Sunnyvale, Calif. -- Patent holders have always had the ability to assert their patents and go after companies that infringe them. But now comes a new breed of company that buys up patents and uses them as a means of collecting license fees. In many cases, these "patent trolls" are holding companies that don't do any product development; they merely amass patents they think can be used to make claims against various vendors.
Predatory trolls threaten companies with injunctions by deploying questionable patents, Bruce Berman, president of Brody Berman Associated Inc., said at a conference sponsored by The Wall Street Transcript last week in Burlingame, Calif. They may harass companies by asking for a lot at the outset, but they often settle for a lesser amount so the matter never goes to court, said Berman.
Cost of discovery
Often, the cost for a vendor to research a patent infringement claim can reach half a million dollars or more, so the cost of discovery can be higher than the license fee requested by the patent holder, said Terry Ludlow, president of Chipworks, which specializes in analyzing semiconductor designs for intellectual-property infringement. Therefore, some changes to the patent system are needed.
But Ludlow likened the government's patent system to a supertanker: Because of its size, any changes in direction will have to be slow and steady.
Trolls often look for patents that cover an invention used in a large market with many participants. The trolls then use a shotgun-like approach to distribute often unsubstantiated claims in assertion letters to the companies. The requested fees may be set low enough to convince companies it's not worth the cost to do their due diligence and actually discover whether their products infringe on the claims, Ludlow said. If the troll company demands a larger fee, the threshold of pain goes up, and the legal wheels start turning to determine whether taking an early license will be cheaper than de-fending against the assertion.
Recent high-profile cases--such as the settlement by RIM regarding the communications approach in its BlackBerry devices, Z4's suit against Microsoft and the legal challenge to eBay regarding the "click to buy" aspect of its Web software--show how disruptive the trolls can be, said Alan Grimaldi, co-chair of the intellectual-property practice at Howrey LLP.
Trolls can use the patents to threaten companies with injunctions to shut down their operations, said Grimaldi, but the eBay case may limit their ability to get those injunctions.