One of the most vexing issues of the patent system at the moment is that of “patent trolls”, or “non-practising entities”. This term refers to companies that acquire patents and use them as leverage to extract licence fees from operating companies. The “trolls” themselves to not produce any goods or offer any services.
In some cases trolls have aggressively targeted developers who do not have the financial clout to defend themselves against a patent infringement suit. And for larger companies, trolls are difficult to negotiate with because they do not have an operating company to defend.
As with all issues there are of course complexities and nuances. The well-known book Freakonomics has a whole chapter dedicated to Intellectual Ventures, and makes them sound like they are heroes on a mission to save humanity. And the founders of IP Nav have vigorously defended the legitimacy of their business practices. Then there are groups like RPX who style themselves as defensive aggregators aiming to solve the problem rather than being part of it.
There are also some innovative approaches to patent licensing that aim to address the problem. For example, Twitter adopted a Innovators’ Patent Agreement policy that promises the company will not use any patents derived from employee inventions in offensive lawsuits without the inventor’s permission; and the Electronic Frontier Foundation have published a guide on alternative patent licensing.
There are various systemic issues that amplify the effect of trolls. One is the nature of the patents that are granted. In particular the US over the past fifteen years or so has been granting a lot of patents that are directed to inventions which cover little more than novel ways of doing business. And Examiners worldwide struggle to find good prior art when they do their searches. Another systemic issue is the structure of the court systems. In the US the loser of a case generally does not have to pay costs of the winner, and in Europe there are concerns that the upcoming Unified Patent Court may be an attractive venue for trolls.
The patent system represents a burden for operating companies. There are risks and costs associated with assessing and dealing with the patents of third parties. National legislation is designed to impose the burden of the patent system when its benefits outweigh these costs. The basic principle is that innovation is encouraged by offering patent protection, the theory being that no investment in research and development would be made if an invention could be freely copied by third parties.
Most of the solutions I have seen to address the issues of patent trolls involve changing these existing systems, i.e. the nature of the patents that are granted, or the operation of the court systems. However, both of these changes present difficulties. It is very hard to make changes that affect only the “bad” non-practising entities without harming the “good” ones. There are plenty of legitimate reasons for requiring a licence fee without actually making the product that is the subject of the patent, and if the “property” nature of patent rights was destroyed then there are certainly areas where innovation would be impaired.
So I am wondering if we are looking at the issue the wrong way round. We need a way to implement a policy that will protect innovators from the worst excesses of patent trolls. One method governments use to influence behaviour is the tax system. Companies have to submit accounts to tax authorities and/or company registrars. My idea is that this information could be used to determine whether a company is an operating company or a non-practising entity. Under a new system, in order to enforce patents, a company would need to have two things; first of all, a granted patent; and secondly a licence issued by the tax authorities confirming that they have a right to enforce patents. This licence could be granted by the tax authorities based on an inspection of the company accounts and be subject to renewal every five years or so.
This system would provide Governments with a much more flexible mechanism for distinguishing between “trolls” and other companies. A licence to enforce patents could be withheld from companies who do not meet predetermined criteria.
Obviously the main obstacle to such a system comes from the international dimension. An agreement by members of the WTO would be needed.
But I’d be interested to know if any other similar solutions have been proposed before.