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October 14 2016

Trolling to Kill Innovation

Patrice L. Onwuka

Americans have a love-love relationship with Apple – often clamoring to get the latest new gadget the company dreams up to make our lives better. That has made Apple a perfect target for litigious companies.

Tech and electronic device companies are the number one enemy of trolls – or patent trolls – who according to a new federal study spend time trying to get money for these ideas. If you’re thinking of the troll in the Billy Goat’s Gruff, you’re not too far off.

There’s an entire industry dedicated to companies that buy patents with the intention of using the patent protection against the companies that use technology associated with the patent. Patent assertion entities (PAEs), do what’s akin to buying a bunch of website domain names of celebrities and famous people then selling those domain names back to the celebs for a profit. It’s a legitimate business, but one that is a nuisance and more importantly, an inhibitor to business growth. Like in the children’s fable, patent trolls try to extract a benefit (royalties or licensing fees) just for crossing the bridge they control (the patent).

Apple is a high-profile example. The company lost its retrial and will pay $302.4 million to Nevada-based VirnetX, after courts agree that Apple infringed on patents used in its iMessage and FaceTime services. This is at least the second time VirnetX sued Apple over patent infringements with iPhone’s communication services. This company sued Microsoft and made $24 million in 2014 and $200 in 2010.

The Federal Trade Commission released a comprehensive study of the patent troll industry finding that there are two types: litigation trolls and portfolio trolls. Litigation trolls are the small mom-and-pop shops with a small number of patents and who would threaten and sue companies over those few patents. They often settle for a handsome amount, which is no doubt their intention from the start.

Portfolio trolls are the bigger boats and have massive portfolios of patents. They send out demand letters to negotiate licenses outside of court. Their intention is not to see the inside of a courtroom, but generate a revenue stream totaling $3.2 billion in reported revenue.

As Fortune reports, the FTC has proposed changes to the system to stop patent trolls including forcing these shell companies to reveal who owns them, stopping them from suing manufacturers’ customers, and making these trolls specify exactly how defendants infringes on their patents.

For companies like Apple with deep pockets, they can swat these trolls like flies, but for small companies and start-ups or even medium sized companies, the prospect of litigation over patents can have a chilling effect on research and development of their products. We as consumers lose out on the progress that innovation and competition deliver.

Independent Women’s Forum’s mission is to improve the lives of Americans by increasing the number of women who value free markets and personal liberty. Sister organization of Independent Women’s Voice.
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