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We’re all trolls now: why the patent ‘rat’s nest’ is worse than you think

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Veteran tech reporter Walt Mossberg confronted Nathan Myhrvold this week about the former Microsoft CTO’s role heading up the world’s largest patent troll.

A Troll’s Tale

In an interview at an All Things D conference, Myhrvold appeared untroubled by his complicity in what Mossberg called a “rat’s nest” of patent lawsuits ensnaring the technology sector. The rat’s nest is most associated with the smartphone industry, but is growing rapidly thanks in large part to the arrival of troll companies like Myhrvold’s Intellectual Ventures (IV).

For the uninitiated, trolls (more politely called non-practicing entities) are shell companies whose business is to amass patents and sue companies that offer actual goods and services. The trolls are especially insidious because the patents they assert are often of dubious quality (see this one where a troll says it owns emoticons) and because, unlike a normal company, they are not vulnerable to counter-suits. An academic study last year estimated that trolls have sucked $500 billion out of the economy in the last two decades.

IV took this to a whole new level by assembling tens of thousands of patents and, despite earlier assurances that it wouldn’t, launching a spate of lawsuits. The company is also suspected of backing the infamous Lodsys, a troll that demands small app developers purchase patent protection in exchange for a percentage of their revenues.

Myhrvold and IV are using some of the money they’re extracting to fund experiments of their own, including the use of liquid nitrogen to cook a hamburger.

Everyone is a troll

While IV has been widely criticized for a business model that taxes innovation, the company has also done something that could make it impossible to stop. Namely, before it began its suing spree, IV made sure that many of its potential critics became its investors. IV’s list of investors includes Apple (s aapl), Google (s goog), and Amazon (s amzn) who all invested in Intellectual Ventures, most likely to avoid being sued.

Meanwhile, trolling is quietly becoming part of everyday business practice.

“The whole notion of patent troll is evolving to the point where many technology companies have gotten in bed with the trolls. It’s like the pot calling the kettle black,” says Eric Lobenfeld, a co-head of law firm Hogan Lovell’s intellectual property practice.

Lobenfeld says that big technology firms like 3M, Micron and HP are earning money from the fruits of patent troll suits. He adds that leading tech executies and patent lawyers also have a stake in the troll game.

“[Former Intel exec] Peter Detkin contributed to coining the phrase patent troll … but has morphed into one himself,” said Lobenfeld. What’s more, some of the country’s top patent lawyers are leaving firms at which they made $4 -$5 million a year to be part of private equity trolling operations where they “make a lot more money than that.”

As more people see their livelihood tied to the trolling game, it will become more difficult to shut the game down. And as licensing revenue from troll-related ventures contribute to company revenues, more executives who profess to hate trolls will “hold their nose and do it anyway.” Likewise, investors and even consumers are becoming indirect participants in this growing troll eco-system.

Trolls forever

Myhrvold this week portrayed his patent practices as simply another form of capital allocation. In his view, the company’s trolling is a good thing because it raises money for Intellectual Venture’s experiments which will, in turn, produce more patents.

The problem, of course, is that patents are not synonymous with value and innovation. They are instead an artificial monopoly awarded by the government as a form of industrial policy. While  such monopolies can spur creativity, the rat’s nest of patents suggests something has gone wrong — and that it’s time to evaluate why and how we award patents in the first place. Otherwise, money will continue to flow to lawyers, IV and other middle-men rather than to the people who invent things in the first place.

Unfortunately, Myhrvold’s clever strategy of making everyone else complicit means that it will be harder to revert to common sense.

(Image by DM7 via Shutterstock)

25 Responses to “We’re all trolls now: why the patent ‘rat’s nest’ is worse than you think”

  1. The first ‘patent troll’ (NPE) was Thomas Edison who did not produce light bulbs or anything else but vigorously defended his patents and those of his staff.
    People who get patents are entitled to compensation when other people use them. But many patent holders don’t have the funds (or their time and energy are devoted to other enterprises) to defend them against corporations.
    The first ‘rat’s nest’ was over the sewing machine, the first invention with multiple inventors all of whom defended their patents.
    Get real. Stealing intellectual property is not cool either!

  2. “The issue isn’t IP companies, or IP lawsuits, it’s the USPTO that delivers patents on anything from sticking your tootbrush up your ass to cloning another patent with different words.”

    I can get 100% behind that statement. Solve the problem at the source and stop issuing patents that can be so broadly interpreted as to be used in these trolling lawsuits.

    The “use it or lose it” is the best antidote. I get completely that Bob the Builder from Boise cannot just walk up to Tim Cook and say “license my technology, pretty please”. But here’s the rub: Bob’s not actually building anything. What he’s done is invent the brick and expect anyone who builds a house to pay him a royalty. Hey Bob? Why not build a house yourself and sell that?

    And Rog? I don’t know where you teach or where you practice law, but you’re WAY off on this…

    • Peter A

      I’ve been advocating a “use it or lose it” clause for years. I think the message is finally getting through, although, like others said, I don’t expect anything to change in the near future. Reform will almost certainly not come from the Roger Stanleys of the world …

      • Peter…still haven’t heard a single thing you have done. You are the type of person who just takes up space and complains about everyone and everything. The reason you are a failure is not the system.

    • to point out one or more foolish patents does not suggest the the entire system is suspect. Most claims and patents are rejected at first analysis. There will always be bad patents that get through the system. Most patents are worthy. Try reading patents related to any technical subject like robotics, search engines, motors, engines, in-circuit emulators, EDA and you will find that the majority have merit.

    • Have you ever invented a brick (a useable invention that others want to use)? Do you have any idea how much time and money it takes to make an invention and get a patent? Do you know that less than .01% of inventors ever make a dime and spend in the tens of thousands of dollars to get a patent? It does not matter if Bob ever builds a house. He invented one of the greatest marvels of building…the brick. He should be rich, not chided.

    • Yep. The very definition of a patent is “Useful”… so ‘use it or lose it’ is the way to go. Either you use it or go and beg someone who can use it … finally it should be ‘Useful” that is it.

      I also believe 20-years in this fast changing era (everything changes every 5-years … except for my colleagues:-) ) is much of a road-block than innovation. (some one calls it unnovation). All the trolls and law breaking happens because of this long,long life time given to a patent.

      First reduce the lifetime of the patent then everything will fall in place.

  3. The issue isn’t IP companies, or IP lawsuits, it’s the USPTO that delivers patents on anything from sticking your tootbrush up your ass to cloning another patent with different words.

  4. As long as there will be patents, there will be trolls.

    As long as the patent offices allow frivolous patenting (ex., patenting of a wheel), and the world values patents in general (frivolous or not), trolling will be a viable business.

    The solution to excessive trolling is not about reducing trolling, but about reducing patenting and defining real value for patents (thus separating the wheat from the chaff).

    In fact, for most things digital and software, one can even question the philosophical legitimacy of patenting. One could even argue that patenting was meant to help the self-employed or small firms, but instead it is becoming exclusively the business of big corporations….and now is getting more complex with derivative funding..

    Having said all this, I do not expect any change in patenting laws anytime soon. After all, who would want to kill the goose that lays golden eggs? Patenting will continue and so will trolling – and the latter will innovate business models. Crowd-funding anyone ?

    Some one wise said that the law is an ass. Actually, it is two of them – one for and one against :-)

  5. I’ve always thought this had a pretty simple solution – adjust durations of validity. Make patents and copyrights (and pretty much every other form of IP apart from trademarks) valid for about 5 years as an absolute protection, maybe another 10-15 years for protection from ‘not significantly enhanced’ use (i.e. people can incorporate old ideas wholesale provided they do so as part of a system that has plenty of value-generating details not originally identified by the patent, but they cannot just resell the original creation mostly unaltered), and require attribution for any significant use of the IP after that.

    Inventors and creatives deserve SOME benefits for their work. They do not deserve indefinite benefits.

    • indefinite benefits? Do you have any any knowledge at all about the patent system? Go read something instead of writing nonsense. There is a clear limit on patents that can be further limited through court challenges. Am I speaking Greek to you? If so, try reading about the law and stop writing fiction based on zero knowledge of patent law.

      • No, you are not speaking Greek – you are speaking ad hominem. Which is the last refuge of someone with nothing substantive to say and a personal axe to grind.

  6. It is always interesting to me that the press is so one sided on this issue, and so many people fall right in line behind the nonsense.

    Most patents today make nothing for the inventors. The only way an inventor can miniaturize their patent is to sell it to an entity that understands how to license the patents. The reason why there are law suits instead of licenses is because of companies like Google that have altered the basic fabric of patent law for their gain. An inventor or patent owner cannot simply approach a company to request a license. The laws force them to sue. To suggest on any level that the patents that trolls use are bad patents is ridicules. If that was the case, the lawyers involved would/could lose their ability to practice law. Most patents have merit or they would not be useful in a suit.

    The trolls are actually providing a wonderful service to inventors and companies. For inventors, they often provide the only way to get money for an invention that may have taken many years to create. For companies that end up licensing the patents via the suits, they usually get advanced technology for much less dollars than they could create via R&D spending. In most cases, everyone wins.

    • Peter A

      “they usually get advanced technology for much less dollars than they could create via R&D spending”

      Are you from Earth? When it comes to software patents (which you probably don’t understand), companies don’t just “get technology for less than R&D”. They actually *build* the technology and release it as a product, only to find out that some troll who never actually *built* anything, holds a *ridiculously broad* patent which they “violate”, one that should never have been awarded in the first place.

      • Ha ha… Yes I am from Earth and actually own a number of software and hardware patents in the US. I am an expert witness on multiple patent cases and teach patent litigation. Tell us about your credentials… which I am sure are little to none.

        Actually you are missing the point of my comment completely in your effort to attack …it doesn’t matter if the “patent troll” ever produces anything. They are providing a service to inventors who cannot get a dime from their hard fought for inventions. The patent system was not created only for entities that produce goods. It was created to get compensation to inventors. And guess what….that is exactly what is happening.

        Do you understand the concept of claims in a patent? When a patent is licensed through litigation, the licensee not only gets the claim that is used in the action, but all the claims in the patent and usually all the patents owned by the holder. So, a lot of technology is gotten at a very low price compared to R&D cost.

    • Andrew Smith

      Roger, have you considered not being a douchebag? Like, maybe for one day of your life actually doing something that helps society instead of abusing the legal system that allows the patenting of a method for a child swinging on a swing? (Patent #6,368,227)

    • Clint Berry

      Yeah, gotta protect the “inventor” of emoticons. Your credentials (if true) are impressive, but they also mean you depend (or at least benefit) from this flawed system. Patent law has gotten out of control and is doing more harm in software than good. There are patents for drop-down menus? DROP DOWN MENUS!!!

  7. “All.” “Every.” “Everyone.” You keep using those words. I do not think they mean what you think they mean.

    I’m confident the vast majority of GigaOM readers aren’t trolls or investors in trolls. Pretending trolls are anything except a parasitic minority benefits only the trolls.

    • Keninca, thanks for your comment.. I agree that it is companies using patents as weapons that are really at fault here.. The point of my title was to call attention to the way IV and others have expanded the patent troll eco-system to indirectly involve regular companies (and by extension their customers and investors)