Defensive Portfolio No Help Against Patent Trolls

The Wall Street Journal is reporting today that RPX Corp will take on patent trolls. The trouble is that what RPX wants to do is raise money to acquire patents for defensive purposes. This is hardly something new, and it not something that those in the industry will tell you is calculated to succeed. You see, there just isn’t enough money to buy up all the relevant patents that patent trolls could get their hands on to use to sue. On top of that, with so many defensive portfolios popping up all over the place, and so many patent trolls bidding to acquire good patents, what is happening is the purchase price of acquiring those patents that are most likely to be used is going up, which means that more and more money needs to be dedicated to this losing effort. Not a wise strategy at all.

If you take a look at the RPX website you will see that as of today they have over 150 patents and more than 60 applications in their defensive portfolio and they have spent $40 million.  This does not seem by any stretch of the imagination to be a worthwhile investment.  It would seem that RPX has spent $40 million on 210 assets, or over $190,000 per asset.  At that rate RPX will run out of money well before they can ever capture a meaningful number of patents that could hope to put a dent into the patent troll problem.  All they are doing is driving up the cost for other defensive patent portfolios, and for patent trolls, and for themselves.  But as long as patent trolls have very little to risk and can acquire settlement after settlement and an occasional huge verdict like NTP did against Research In Motion when they sued over the Blackberry and won over $600 million, there is little or nothing that acquiring patents is going to do to stop lawsuits.  There are simply to many patents that would need to be acquired and acquiring them is just to expensive to make a difference.

The trouble is that the defensive strategy of yesterday does not work moving forward.  In the past what companies would do is acquire all the patents they could so that if anyone sued them they would have a huge portfolio that would almost certainly allow for them to come up with a valid counterclaim.  It would then be a stalemate.  I have my patents, you have your patents, and if you want to sue me then we are going to just sue you and it becomes a standoff.  With patent trolls, or Non Practicing Entities as they are starting to be called more frequently, there is no viable counterclaim that can scare them away because they are not making or using anything, so they don’t have to worry about being sued for patent infringement.  All they have to do is buy up a patent that tech companies are infringing, hire a patent attorney and sit back and wait for the windfall.  Buying up patents is just not going to work against patent trolls unless you are going to buy up every patent that is being infringed or potentially infringed, and that would take many, many billions of dollars.  This is not a strategy that is calculated to succeed.

The strategy that is calculated to succeed is the one where you go after the patent trolls like the auto industry went after personal injury attorneys back in the early 1990s.  The 80s were characterized by insurance companies settling everything right away so they didn’t have to pay defense and litigation fees.  So personal injury attorneys got wise, very wise in fact.  They would not turn away any case no matter how bad because they knew they could get the insurance companies to settle, and that is exactly what happened.  Finally, the insurance companies had to virtually stop paying on any settlement and force the industry back into some reasonable status quo.  That is what happened, and attorneys finally started getting more responsible about what cases they took.  This is exactly what needs to be done to stop the patent troll problem, assuming there is a patent troll problem in the first place.

According to USPTO statistics, 9.2% of requests for ex parte reexamination result in all claims being canceled and 59% of the time certificates issue with at least some claims being changed. Even more dramatic, 74% of requests for inter partes reexamination result in all claims being canceled and 14% of the time certificates issue with at least some claims being changed. So it seems completely clear to me that if the companies that decry patent trolls so much really wanted to solve the problem they would invest in reexaminations. But the truth is that they don’t want to engage in reexaminations, even though doing so would be far more cost effective and would lead to a more responsible industry.  So it would seem that tech companies do not want to solve the patent troll problem.  All you have to do is go after any patent bought by a patent troll and then they will have to defend that patent in a reexamination proceeding before they ever have the right to bring a patent infringement lawsuit.  If there really is a problem with patent trolls the fight needs to be taken to them, making it more of a risky investment because at the end of the day you may wind up paying for a patent that will have no valid claims.

I personally do not think patent trolls are a real problem, because there are strategies that could significantly curtail troll activity but they are not being employed.  It is not like the companies don’t know them either.  I have personally set out the plan for companies and they simply don’t want to move forward to solve the problem.  It seems to me that they like having an enemy that they can decry and blame for everything.  It is also curious that the term patent troll is not being used as widely any more.  The reason for this is simply that big technology companies don’t want any legislative remedies to be limited to patent trolls.  They want them to apply across the board to any non-practicing entity.  But that would mean that any new rules to stop the patent troll problem would apply to universities, federal laboratories and start-up Research & Development companies.  Not exactly what most people picture as a patent troll.

Beware those complaining about patent trolls.  Until such time that they are willing to engage in strategies that would help solve the situation we need to be suspicious of their motives.


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One comment so far.

  • [Avatar for Eric]
    May 7, 2009 05:03 pm

    Great article. I like your comment, “Beware those complaining about patent trolls. Until such time that they are willing to engage in strategies that would help solve the situation we need to be suspicious of their motives.”

    I would love to see an article on here about recommended “patent reform”. I’m looking forward to reviewing more articles on the site.

    Keep up the great work.