How Sun Tzu Would Outflank Patent Trolls

The debate about patent trolls or NPEs is not slowing down and more voices are heard every time about how patent trolls can or should be addressed. David Wanetick of IncreMental Advantage has very specific advice to companies dealing with trolls. He suggest diverse tactics – inspired by Sun Tzu, the ancient Chinese military strategist – to counter patent trolls. As can be expected if you take “The Art of War” as guidance, the suggestions are all based on the presumption that patent trolls deserve to be defanged. How interesting and thoroughly worked out this view is – click here to read his advice – we do not necessarily agree with this one-sided view.  Much of what is being presented as a “problem” could either have been prevented by the “victims” themselves (e.g. by allocating the patented technologies in an earlier stage and acquire them) or should be seen as a stimulus to identify underutilized patents and taking a license in an early stage to compensate the inventor. Patent trolls allocate these inventions in an early stage -when operating companies fail to find them or address them – and go through great expense in time and technical analysis to realize the value of those unused patents.

The article has several tactics to offer and even if you do not agree with any of them, it’s fun reading. It’s also reflecting  the main stream opinion on patent trolls. Again, we advocate a different view which we have blogged about earlier. The lack of academic research and data on patent litigation and the role NPE’s play in this is problematic. A study published in May 2009 signals this absence of hard data and the potentially wrong conclusions drawn by populist publications about the “problem” of patent trolls (click here for this study by Colleen V. Chien, “Of Trolls, Davids, Goliaths, and Kings: Narratives and Evidence in the Litigation of High-tech Patents” (for a summary see below).

A further reading to “balance” the rather David Wanetick’s approach to NPEs is an article by James F. McDonough III, “The Myth of the Patent Troll: An Alternative View of the Function of Patent Dealers in an Idea Economy”, (Emory University School of Law), published in Emory Law Journal (56 EMORY L.J. 189). Click here for the full article.

Summary Colleen V. Chien article:

While each patent dispute is unique, most fit the profile of one of a limited number of patent litigation stories. A dispute between an independent inventor and a large company, for instance, is often cast in “David v. Goliath” terms. When two large companies fight over patents, in contrast, they are said to be playing the “sport of kings.” Some corporations engage in “defensive patenting” in order to deter others from suing them. Patent licensing and enforcement entities who sue have been labeled “trolls.” Finally, observers of the patent system call the use of patent litigation to impose or exploit financial distress “patent predation.”

These stories, routinely invoked by the press, advocates, and academics, shape public understanding of the patent system. In this article, I describe, then match, these stories to data on patent litigations to determine which types of suits are most prevalent. I focus exclusively on the litigation of high-tech patents, covering hardware, software, and financial inventions, using data from the Stanford Intellectual Property Clearinghouse for cases initiated in U.S. District Courts from January 2000 through March 2008.

The data shows that the reality is more complicated than the rhetoric regarding patent litigation. For instance, many blame no practicing entities (“NPEs”) for a majority of the problems with the patent system. But they bring only a minority of patent suits: 17% of high-tech patent suits in the last eight years. However, NPEs often name multiple defendants and sometimes, rather than sue, are sued, for declaratory judgment (DJ). Counting suits based on the number of defendants and including DJ cases, the NPE share rises to 28% of all high-tech patent suits. This average reflects an increase in NPE suits as a proportion of all suits over an eight-year period, from 22% in 2000-2001 to 36% from 2006 to March 2008, counting defendants, or from 10% to 20%, counting cases. I also report the variation by industry based on the absolute number of suits—the share of financial patent NPE suits (26%) was nearly triple that of hardware patent NPE suits (9%).

These numbers provide a richer context for understanding the NPE phenomenon. Another widespread perception of the patent system is that large companies are reluctant litigants, carefully constructing portfolios of patents to avoid going to court. The practice of “defensive patenting” has been well-documented and theorized. Yet, I found that public and large private companies initiated 42% of all lawsuits studied, 28% of the time against other large companies—the largest single category.

They also defend against many other suits, brought by NPEs, small inventors, and individuals. These data suggest that defensive patenting, which is supposed to keep large firms out of court, is at least an incomplete—and perhaps a failing—strategy.

Extract from article by of James F. McDonough III:

(…)  contrary to popular belief, patent trolls actually benefit society. These trolls act as a market intermediary in the patent market. Patent trolls provide liquidity, market clearing, and increased efficiency to the patent markets—the same benefits securities dealers supply capital markets. Ultimately, this Comment suggests that the emergence of patent trolls is simply a stage in the natural evolution of the patent market.

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