Missing the Forest for the Trolls

Trolls are a significant feature of the patent system. They account for alarge number of suits, now a majority of all patent assertions in thecountry and an even higher percentage in the information technology (IT)industries. They win both larger judgments and larger settlements than do“practicing entities” (“PEs”) -- those that practice patents and are notprincipally in the business of collecting money from others that practicethem. And they do so despite complaints that trolls assert weak patents andsome evidence that troll patents are more likely to lose in court.Nonetheless, we think the focus on patent trolls obscures a more complexset of challenges confronting the patent system. In this paper, we makethree points. First, patent trolls are not a unitary phenomenon. We see atleast three different troll business models developing, and those modelshave different effects on the patent system. Second, patent assertions bypracticing entities can create just as many problems as assertions bypatent trolls. The nature of many industries obscures some of the costs ofthose assertions, but that does not mean they are cost-free. In addition,practicing entities are increasingly engaging in “patent privateering,” inwhich product-producing companies take on many of the attributes of trolls.Put differently, while trolls exploit problems with the patent system, theyare not the only ones that do so. Third, many of the problems associatedwith trolls are in fact problems that stem from the disaggregation ofcomplementary patents into too many different hands. That in turn suggeststhat groups like Intellectual Ventures might be reducing, not worsening,these problems (though, as we will see, the overall effects are ambiguous),while “patent privateers” that spin off patents in order for others toassert them might make things worse. For this reason, patent reformers andantitrust authorities should worry less about aggregation of patent rightsand more about disaggregation of those rights, sometimes accomplished byspinning them out to others.Understanding the economics of patent assertions by both trolls andpracticing entities allows us to move beyond labels and the search for “badactors,” focusing instead on aspects of the patent system itself that giverise to the problems and on specific, objectionable conduct in which bothtrolls and practicing entities sometimes engage. Patent trolls alone arenot the problem; they are a symptom of larger problems with the patentsystem. Treating the symptom will not solve the problems. In a very realsense, critics have been missing the forest for the trolls. Exposing thelarger problems allows us to contemplate changes in patent law that willactually tackle the underlying pathologies of the patent system and theabusive conduct they enable.