Patent Trolls Just a Cost of Doing Business for Big Tech

Just the other day I wrote about how the Acacia Research Corporation (Nasdaq: ACTG), regarded in many high-tech sectors as the mother of all patent trolls, formed a new IP Fund and obtained new financing to acquire more patents.  See Mother of all Patent Trolls, Acacia Research, Gets More Funding. Yesterday, Acacia announced that they acquired another patent, this one regarding labeling technology.  Acacia also announced two high profile license deals, one with IBM and the other with Investors Business Daily.

As so many run to condemn patent trolls and would like to compromise the integrity and strength of all patent rights to combat what they perceive as bad actors, I wonder whether patent trolls are really a drag on the high-tech industry.  Are patent trolls really costing the industry, or is the industry making much ado about nothing? One theory holds that the tech industry is treating the patent troll phenomenon as nothing more than a nuisance, and a nuisance that is not worth doing anything about. I have for a long time stated that there are obvious strategies that could be employed, but they are ignored in favor of doing nothing. But earlier today I heard an interesting twist. What if they simply don’t want to do anything and they view the patent troll matter as simply a cost of doing business?

Item one – Acacia announced today that a subsidiary has acquired a patent relating to automatic image labeling technology. This patented technology generally relates to the automatic labeling of digital images. It can be used to automatically generate and increment labels on images such as CAD drawings and maps.

In speaking of this latest acquired patent, Paul Ryan, Acacia Chairman and CEO, said:

As Acacia’s licensing success grows, an increasing number of technology companies are selecting us as their partner for the licensing of their patented technologies. Acacia is rapidly becoming the leader in technology licensing and we continue to grow our base of future revenues by adding new patent portfolios.

Acacia is indeed becoming a leader in technology licensing, and largely hated for the fact that they are engaged in the business of monetizing assets they acquire.  That isn’t a problem when one is an innovator, but apparently wrinkles the feathers of many when it is pure business separate and devoid of any ongoing innovation.  Of course, this vilification of patent trolls ignores that somewhere in the circle of life there was an innovator who did acquire a patent and was presumably paid for the rights they sold, but which were more valuable to savvy business folks like Acacia.

In any event, the Acacia press release did not make mention of the patent number or any identifying information about the patent number, but I suspect in retrospect we will all soon be able to tell which patent was acquired today. Acacia does not acquire patents in order to just hang them on the wall; they acquire patents to enforce them. Based on the admittedly nebulous description of the patent perhaps Google and others who generate increment labels on maps will be targets.

In two separate press releases Acacia Research announced the new licensing deals. First, Acacia announced that its Online News Link LLC subsidiary entered into a license agreement with Investor’s Business Daily, Inc. covering technology relating to the delivery of news content via electronic mail with links to additional content. Acacia also announced that its Automated Facilities Management Corporation subsidiary entered into a settlement and license agreement with IBM, and that this agreement resolves patent litigation that was pending in the United States District Court for the District of Nebraska.

The issuance of press releases are all a part of the strategy pursued by savvy patent trolls. They are quite good at promoting themselves and create an air of inevitability surrounding the ultimate outcome once they have you in their sights. The message is clear: we are accumulating patents and even large, well respected corporations like IBM and Investors Business Daily ultimately give in. Resistance is futile!

But are patent trolls really costing the industry, or is the industry making much ado about nothing? One theory holds that the tech industry is treating the patent troll phenomenon as nothing more than a nuisance, and a nuisance that is not worth doing anything about. I have for a long time stated that there are obvious strategies that could be employed, but they are ignored in favor of doing nothing. But earlier today I heard an interesting twist. What if they simply don’t want to do anything and they view the patent troll matter as simply a cost of doing business?

Patent trolls presenting themselves for licensing fees and litigation victory rewards is no doubt a cost of doing business for deep pocket technology companies. It would also explain several things, but namely these two: First, the cost of doing business theory would explain why big-tech doesn’t more aggressively pursue a strategy aimed at stopping patent trolls; Second, it would explain why in the face of exceptionally large patent infringement verdicts the costs of goods and/or services never rise.

One would assume that when a payment on the order of hundreds of millions of dollars is made that would negatively impact the bottom line, and it would be reasonable to assume that prices would be raised and passed on to consumers. This is logic that is lost on the political class in DC who believe that they can raise taxes on corporations and corporations won’t simply pass the taxes on to consumers. The dirty little secret is that corporations don’t pay taxes, consumers pay taxes; and any tax estimator will show the discrepancy. We see that all the time, and we are seeing it in the staggering increase in health insurance premiums. As costs rise so do prices, which get passed through.

But why don’t huge patent infringement verdicts get passed through? The truth is that losing several hundreds of millions of dollars is really a drop in the bucket for most of the tech elite. This would be particularly true if they had already priced into their products and service offerings the likelihood of having to pay what seem by lay standards to be windfall amounts.

It seems extremely likely that big-tech sees patent trolls as a nuisance not worth doing anything about, which is borne out by their actions. It seems more cost effective to get sued by patent trolls and others than to search and work around patent rights, or attempt to implement a strategy that aims to make the patent troll business model less appealing.  Perhaps many big-tech companies also derive benefit in having them as a boogeyman as they attempt to lobby for patent reform. See Patent Trolls: A Conspiratorial Story of Symbiosis. But at the end of the day if they lose it’s no big deal because they have already accounted for such losses. Odd, but a  strikingly plausible and descriptive explanation of what can be observed in the industry.

Don’t get me wrong, I know there are bad actors out there, and there are ridiculous claims of infringement made.  In those situations what is going on is akin to extortion, and that is completely unacceptable.  Rule 11, when actually applied by District Court Judges, can help, but that doesn’t help the situation where no lawsuit is filed. Perhaps the solution is to make patent misuse a direct cause of action rather than merely a counterclaim, or statutorily impose minimum statutory damages for frivolous patent infringement demand letters.  Either would be preferable to watering down patent rights and would give relief to those companies who really do care and are not pursuing a cost of doing business approach to infringement.


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5 comments so far.

  • [Avatar for Lawrence S. Cohen]
    Lawrence S. Cohen
    September 21, 2010 07:02 pm

    I object to use the term “trolls” for patent licensing companies.
    The term derives from the Goebbels-Rove theory of propaganda. First you demonize the victim.-yes you are definitely in the business of creating a victim. A troll of course is an ugly shrunk creature that controls a bridge and requires the pure maidens to make sacrifice of their precious chastity to cross the bridge-much hated by everybody.
    Then you tell the biggest lie you can, a lie so big and all encompassing that no real response can be mounted-a response sounds so weak that it just emphasizes the lie. So, the trolls want to steal money from honest companies and they cost everyone by filing lawsuits. There’s more to the lie, but that’s the headline.
    Now to the issues (I know you want to take on the emotional part-its more fun).
    First note that the big companies often license each other, sometimes one-way and sometimes by cross-licensing. The key to this issue is that they approach and receive each other with respect. Of course the outcome may be a license Sometimes its litigation either because a license cant be worked out or the patent holder just wants them to quit infringing. In fact the latter is very frequent as can be seen by the titles of litigation opinions. Now why don’t we condemn big companies who sue competitors instead of licensing them.
    So, why is it different with individuals and particularly licensing firms like Acacia. Here’s the real story. An individual inventor who approaches a big company with a valuable patent that is being infringed is treated with disdain, even contempt, not the respect that a big capital-letters-initials company would get. And by the way this guy isn’t looking to close down their business, his goal is to increase the total business. Also, he doesn’t want to give a license to one and deny others. If an exclusive is discussed, its only because the first party approached wants it. The licensor want to grant as many licenses as he can get.
    Given the disregard the individual gets, the field is open for him to seek help from someone that can get the attention of the infringers. That’s companies like Acacia. Now a licensing company doesn’t take on junk cases. They are going to spend a lot even of the licensing goes down easily. And, often they will have to support litigation. Keep in mind, the litigations is the worst outcome for the licensor, they would much prefer a licensing outcome. The litigation is the option of the approached-licensee by refusing a reasonable deal.
    By the way I’ve been on both sides of this issue, so I don’t have an ax to grind except for the propaganda style of addressing it. There may well be cases where the licensor side looks bad and deserves to be criticized. But the bottom line is that licensing companies fill a void because the big guys made them a valuable business.

  • [Avatar for patent litigation]
    patent litigation
    August 18, 2010 06:38 pm

    I suspect that you are right about this. Corporations care almost exclusively about their bottom line; I seriously doubt that any of them really give a care about whether or not the entity that sues them actually practices its inventions! Therefore, if their bottom line were being seriously affected, something (other than complaining) would have happened by now to address the issue. If large companies are, for instance writing off patent troll litigation as a cost of doing business, then the so-called trolls may even be doing corporations a favor.

  • [Avatar for TINLA IANYL]
    August 13, 2010 01:28 pm

    I encountereed a practice not long ago where some patent licensing entities offer a non-exclusive license to their portfolio to a company with an assurnace that other companies that purchase later must pay more for the same license. This same offer is made to later companies, so the price keeps going up and up until the cost of purchasing the license becomes prohibitive. These are far from RAND terms, but these companies are effectively establishing patent pools and granting market monopolies to the first comers. Is this a common practice?

  • [Avatar for Blind Dogma]
    Blind Dogma
    August 13, 2010 10:22 am

    I may agree in part with Paul F. Morgan. Part of the problem is actually defining “patent troll”, because the “objectionable” behavior is only so objected to by certain people who may be engaged in the very same “objectionable” behavior (do you really think the big software companies actually practice all their patented inventions?). Another part of the problem is that certain entities get swept up into the “troll” category that no reasonable person would associate with the negative aspects that are desired to be called into mind with the pernicious labeling (think – Univeristy).

    I for one have an immediate response when I read the word “troll” – but it is a response against the writer, rather than a response that the writer is hoping to obtain by using the label.

    Time to put that label to bed.

  • [Avatar for Paul F. Morgan]
    Paul F. Morgan
    August 13, 2010 09:17 am

    Re: “One theory holds that the tech industry is treating the patent troll phenomenon as nothing more than a nuisance, and a nuisance that is not worth doing anything about.”

    Who’s theory is that? They sure don’t act like that, or express it that way, and where is the data?

    [As for “not doing anything about it,” the main reason is that no one has yet come about with a solution that would affect only the “shake-down-champertry artists” but not legitimate patent suits, other than the easy and low cost [but only partial solution] of lighting a fire under the PTO to get reexaminations decided before trial dates set by the courts, as was intended, rather than the PTO taking months between responsive office actions. Plus, more awarding of attorney fees to defendants willing to actually fight, rather than pay off millions of dollars on, meritless patent suits.