Patent trolls, or more politely, Non-Practicing Entities (NPEs), are firms that collect “license” fees on patent rights by threatening lawsuits. Rarely do NPEs make any products, provide any services or operate any systems utilized by the companies that they threaten. The modus operandi of most NPEs is to send cease-and-desist letters containing vague accusations of infringement of one or more patents and then offer to settle for a one-time, paid-up license for a fraction of the cost of defending a lawsuit. The asserted patents are often broadly worded and of questionable validity. This scenario makes it difficult and expensive for the company receiving the cease-and-desist letter to effectively evaluate the merits of claims leveled by NPEs. Not surprisingly, most accused companies, however begrudgingly, agree to pay the license fee.
There is no dispute that NPEs are a drain on the economy. A recent White House study estimates that patent defendants pay approximately $29 billion per year in damages and settlements. NPEs have long been the scourge of high-tech firms, financial and banking institutions, and Fortune 500 companies. However, in recent years, NPEs have taken their game to Main Street, hitting start-ups and small companies that may offer free Wi-Fi or utilize other Internet-related services. This move has prompted a number of states to consider legislation aimed at curbing what many consider to be an abuse of the patent laws. The statebased legislation centers on “bad faith” patent infringement assertions as violating existing consumer-protection laws, and they target vaguely worded cease-and-desist letters.
Originally published in Oregon Bankers Association’s Banking Matters magazine on August 14, 2014.
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