Patent trolls come in two sizes, FTC says

by Steve Blum • , , ,


Watch out for the little one.

It’s the small patent trolls, the kind cultivated by the predatory bar, that cause the most problems for entrepreneurs and other small businesses. Not problems with million dollar price tags or even vaguely legitimate claims. Just the most problems.

That’s the conclusion of a study by the Federal Trade Commission that looked at what it politely calls “patent assertion entities” (PAEs) and what anyone else – at least anyone who’s actually tried to create something – calls patent trolls. The FTC thinks it’s unhelpful to characterise them as trolls but, hey, they’re paid to be bureaucratically correct.

According to the FTC, there are two flavors of trolls, I’m sorry, patent assertion entities: portfolio PAEs and litigation PAEs. Both prey disproportionately on the tech sector. The portfolio trolls are the big boys. They have massive files full of marginal but arguably enforceable patents, and might well include among their investors honest businesses, like manufacturers, that are trying to manage risks. Okay, maybe trying to take a bite out of competitors too. They’re picking on kids their own size: mutually assured destruction might not be the most morally palatable strategy but it got us through the Cold War without the U.S. and the Soviet Union nuking humanity back to the stone age. It sucks, but it works.

Litigation PAEs, on the other hand, don’t generate as much money – only 20% or so of the $3.2 billion identified by the study (although that’s still a lot of money) – but they wreak the most havoc, going after bushels of small fry who can’t afford to fight…

The licenses typically yielded total royalties of less than $300,000. According to one estimate, $300,000 approximates the lower bound of early-stage litigation costs of defending a patent infringement suit. Given the relatively low dollar amounts of the licenses, the behavior of Litigation PAEs is consistent with nuisance litigation.

These mosquitoes of the digital age fly quickly, shuffling handfuls of patents between shell corporations and dodging attorney fee judgements as they buzz away in search of their next victim. The FTC has measured recommendations for congress and the federal courts to consider – all a good start, but control is a half measure. Eradication is the answer.

Patent Assertion Entity Activity: an FTC Study