Frequently Asked Questions
All About Patents
All About Trolls
- What is a patent troll?
- What?! How is that legal?
- What is the difference between a patent troll, a non-practicing entity (NPE), and a patent-assertion entity (PAE)?
- What led to the rise of patent trolls?
- What effects do patent trolls have on the economy? On innovation?
- But... but... companies like Intellectual Ventures claim they're protecting inventors from companies trying to exploit their innovations. Isn't that noble? Can't these entities play a role in protecting small inventors?
- What does it take to beat a patent troll?
- Why do companies settle rather than fight back?
All About My Impending Lawsuit
- I received a letter from demanding I respond in X days. Do I have to?
- How can I tell if the letter is from a patent troll?
- How do I know if their patent is valid?
- How do I know if I'm actually infringing?
- What if I received the allegedly infringing technology from another company? (e.g. I'm being sued for providing Wi-Fi at a café with a router I bought at Best Buy)
- I'm located outside of the United States. Can I still be sued?
- If I agree to settle or sign a license, can I still be targeted by the same troll?
- Where can I find a lawyer?
- What if I am a patent lawyer who represents those targeted by trolls?
- How do I make sure I'm not targeted by a patent troll in the future?
- The patent in question expires soon. Should I just wait until that happens?
Under U.S. law, a patent is a right granted by the United States Patent and Trademark Office (PTO) "to exclude others from making, using, offering for sale, or selling the invention throughout the United States or importing the invention into the United States" (35 USC § 154) for a limited time—usually 20 years. These rights are granted in exchange for public disclosure of the invention, in theory allowing others to practice and build upon it.
Every patent is divided into different sections. Some of the important sections are:
The cover page You should be able to find the following information on the front page of a patent: the patent number; the title of the patent, the name(s) of the inventor(s); the assignee (this is the company who owned the patent at the time it issued); the patent application’s filing date; information about related patent applications; a list of references cited (these are patents and other publications that the examiner considered during the examination of the application); the name of the PTO examiner that reviewed the patent application; the abstract (a one-paragraph summary of what the patent covers); and a representative drawing.
The specification. Most of a patent is devoted to the specification, which is the written description of the invention. This should include a summary, drawings, and a detailed description of the invention. The specification is supposed to teach a "person of ordinary skill in the art" how to practice the invention.
The claims. These are the numbered sentences at the end of the patent document that appear after language such as "I claim" or "What is claimed is." The claims are the most important part of the patent. They are supposed to alert the public to the boundaries of the invention. Patent claims are sometimes compared to the fence posts that mark the boundaries of real estate (however, this analogy can be misleading, since patent rights and real property rights have many differences). To infringe a patent, the accused product, system, or method must satisfy every limitation of a patent claim—in other words, accomplish each element of the claim.
A number of organizations and individuals, including EFF, have concluded that software and patents are a bad match—at least given the way the patent system presently works. There are several reasons why.
From an historical angle, the patent system was created to give inventors a limited monopoly that allowed them to recoup the investment that went into developing their inventions. Software presents a different given scenario: oftentimes, a coder, a computer, and a little time are all that’s needed to create new software. Which is not to say that coding is easy. It is to say, however, that in this context, 20 years of monopoly power seems like overkill. In fact, the flood of software patents did not start until after the mid-1990s, when the courts started allowing parties to patent software. The software industry grew from nothing into a mature business without much need for patent protection.
From a more practical angle, software patents often effectively cover abstract ideas, which are supposed to be exempt from patent protection (only an actual invention is patentable, not the idea behind it). Another problem with software patents is a phenomenon known as “functional claiming,” where a patent attempts to claim all possible approaches to a problem, instead of the specific algorithm proposed by the inventor. The result: patents that are far too broad and threaten everyone else trying to innovate in the same space.
On a more philosophical level, software is a building block technology: it's developed on previously written code, and it often leads to further modified code down the line. As we've seen with free software communities, a culture that embraces and thrives on sharing, remixing, and collaboration can develop amazing new technologies. If code is covered by an overly broad 20-year patent, innovation is chilled.
There is still a thriving landscape of software development that doesn’t rely on patents. But a rising number of lawsuits are increasingly forcing technology companies to develop their own defensive patent portfolios. Combined with a legislative and court system that doesn't seem to get it, we now live in a world where more than 50,000 software patents are issued every year. That needs to change.
There is no single, universally accepted definition of a patent troll. The term is generally applied to companies that don’t create (or intend to create) any products or services but instead assert patents as their sole business model. Other terms for patent trolls include non-practicing entities (NPE) and patent assertion entities (PAE).
Patent trolls include companies that buy patents (often from firms that go bankrupt) and then launch lawsuits or just lawsuit threats. Some patent trolls are companies established by purported inventors that, rather than commercialize their patent, prefer to wait in the shadows for others to independently develop the technology and then demand a share of revenues (like the troll who hides under the bridge). Even companies that do make products can behave like patent trolls by asserting patents they have no intention of ever practicing.
Patent trolls often make broad claims of infringement based on patents of questionable validity. Many defendants nonetheless choose to settle because patent litigation is risky and expensive—patent cases are one of the most expensive types of litigation. In order to get their way, trolls can offer settlement amounts that, although incredibly burdensome, are cheaper than a lawsuit (which can often cost well into the millions of dollars.) In cases that are actually litigated to judgment, patent trolls lose more than 75% of the time.
Patent trolls can be contrasted with those who wish to foster genuine technology transfer. These are companies looking for partners to bring new inventions to market. This kind of technology adoption involves providing knowhow that might enable a licensee to avoid the costs and time of independent development (for example, some pharmaceutical and biotech companies rely on licenses from universities to help develop new products). In contrast, the patent troll provides no benefit. They simply wait for others to develop and commercialize products and then demand a share of the spoils.
Anyone who owns a patent generally has a right to assert it. Even though patent trolls don't use their patents to actually create useful products, they still have the legal authority to create litigation. Many of their claims are specious, disguising actual harm in broad interpretations of vague patents. Because of this, a majority of patent trolls lose in court; unfortunately, few cases—because of high costs and grudgingly appealing settlement terms—ever make it before a judge.
This is not to say that there are no limits at all on what a troll can do with a patent. Where trolls make false and misleading claims in demand letters this might be subject to action under state or federal consumer protection laws. (In May 2013, the Attorney General of Vermont brought the first ever consumer protection action against a patent troll. Recently, the Nebraska Attorney General announced a similar investigation.) Similarly, trolls that file objectively baseless lawsuits or misuse patents to harm competition might be subject to federal antitrust and unfair competition laws. At this time, however, the majority of patent troll activity is likely legal under existing law. Many people, however, are working very hard to change the law.
You may hear a number of these terms when it comes to actors in the patent space. A patent troll is often more formally referred to as a patent assertion entity (PAE)—an entity that exists solely to assert patents against other actors, i.e., use patents to threaten litigation and extract settlements. A non-practicing entity (NPE), broadly defined, is an entity that owns patents but does not create any products based on them. While the three terms are often used interchangeably, the slight difference in definition matters a lot: universities and technology transfer offices (TTO), for example, are often NPEs but not necessarily PAEs. This is for good reasons: We may want our universities on the cutting edge of research, for instance, but we don’t want those same universities to then become drug companies.
The history of patent trolls happened to parallel the growth of software patents.
Software patents are relatively new phenomena; the software industry grew from nothing into a mature business without much need for patent protection. For decades, the Patent & Trademark Office (PTO) was generally reluctant to issue patents that covered software. But in the mid-1990s, the Federal Circuit (the court that hears patent appeals) ruled that an algorithm implemented in a general-purpose computer could be patentable.
This opened the floodgates for software patents. The PTO now issues more than 50,000 software patents a year. That’s more than 100 per day. Unfortunately, the quality of these patents often tends to be quite low. On average, examiners spend only 18 hours reviewing each patent application. This is not nearly enough time to properly check if the invention is new. To make things worse, the claims in software patents (this is the language that is supposed to mark the boundaries of the invention) are often vague and overbroad—giving unscrupulous patent owners the ability to claim that their patent covers a wide range of technology.
The rise in such broad software patents helped spur an environment ripe for patent trolling to surge in popularity. By 2012, for the first time ever, more than half of all patent suits were brought by trolls. (While many patent troll lawsuits don’t cover software patents, most do.)
Patent trolls often sue with weak software patents, so when they are actually challenged in court, they usually lose. Unfortunately, patent litigation is so expensive that it is nearly always cheaper to pay the troll to go away. Even for smaller companies, the average cost of defending a patent case all the way through trial approaches $2 million or more. Despite these costs, some companies have fought back and won (for example, Newegg). But the astronomical expense of patent litigation means that most defendants will settle.
The patent troll motto seems to be: if you build anything, we will come. The result is that patents—especially the vague and overbroad software patents beloved by trolls—act as a disincentive to innovate and create.
For more, check out EFF's deep dive on software patents and the rise of patent trolls.
Patent trolls have a number of effects on both the economy and innovation. Huge litigation costs affect small businesses, and it’s more than just the bare costs. For instance, the time and energy required to respond to the threats of trolls would be better spent innovating and making new products and services available. A recent study showed that more than half of the firms sued by patent trolls have less than $10 million in annual revenue—with startups being a common target.
In the hands of patent trolls, software patents are a particularly dangerous tax on innovation. And this tax is getting bigger every year. In 2011, companies made $29 billion in direct payouts to patent trolls. And the overall cost to the economy has been estimated at about $80 billion per year. Every dollar spent fighting or paying off a troll is a dollar not spent on launching new products and creating jobs.
In another disturbing trend, we’re seeing patent trolls targeting even end users of common technologies. For example, a patent troll has sued restaurants, hotels, and companies for using Wi-Fi. And another troll has blanketed the nation with letters demanding that companies pay $1,000 per employee for using standard office technology like scanners and email.
The overwhelming evidence shows that patent trolls (big or small) impose huge costs on innovation but transfer only a tiny amount (about 2%) to inventors. These entities cause far more harm than good.
On the other hand, patent trolling is great for patent lawyers. So... there's that.
Till now, the answer has been patience, a good attorney, and a sizable war chest. (And when it comes to litigation, these factors are still the keys to success.) However, Congress has started to pay more attention to the problem of patent trolls lately, and various fixes to the law are in the works.
The Electronic Frontier Foundation has proposed its own fixes through its Defend Innovation campaign.
Patent troll lawsuits are often very expensive—the average cost of defending a patent case all the way to judgment is nearly $2 million (at the low end!), and the opportunity costs are huge. For many companies, especially smaller companies, the difference between a settlement and a lawsuit becomes a question of existence.
A demand letter is not a lawsuit. In other words, if you've only received a letter, you have not been sued, so you have no legal obligation to respond. The letter does serve to "put you on notice" of the sender’s patents – which means that if you are found to infringe, a court may also find you "willfully" infringed. A willful infringement (unlike an unknowing infringement) can lead to increased damages and an award of attorney's fees.
There is a difference between a company that asserts their patents in order to protect a product and a company that does so solely in order to extort money through threats of litigation. There is a chance that the claim you've received is legitimate, and ideally this is where Trolling Effects will come in handy. You can search our database by sender or patent number to see if there have been any claims similar to yours. Oftentimes, trolls distribute their patents among a network of shell companies in order to deliberately make it difficult to track who owns what.
To be valid, a patent has to satisfy a number of statutory criteria—for example, it must have been novel, non-obvious, and properly described when it was filed. In any particular case, validity can be a very complicated question that is ultimately decided by either the courts (if the patent is at issue in litigation) or the PTO (e.g., if the patent is challenged in a reexam). If you are considering challenging the validity of a particular patent, you should consult an attorney.
To infringe a patent means to have made, sold or offered for sale an invention described in one of the claims of a valid patent without the patent owner's authorization.
To determine if infringement has occurred, a court will look at the patent's claims, interpret them, and compare them to your device, process, method, etc. Infringement occurs if your accused item performs each of the elements of any of the claims. Note that you may be liable for inducing infringement or contributing to infringement, even if you did not directly infringe a patent, if you encourage or assist someone else to infringe a patent. (You can read more about that here.)
Whether you actually infringe or not will depend on the nature of your product and how a court interprets the patent's claims. As always, for advice regarding your particular situation, consult a lawyer.
Current law allows patent owners to sue anyone who "uses" the technology covered by the patent. So under that law, end users of technology (like providers of Wi-Fi or even individual consumers) can, at least in theory, be sued.
When consulting a lawyer, you may wish to raise the possibility of indemnification. The law of indemnification is complex, but the basic idea is that sometimes the supplier is required to pay the costs of defense and any judgment of patent infringement for a product it sold.
If your product is sold in the United States, then you can still be sued.
Maybe. It depends on the terms of your settlement and if the troll has other patents. You definitely want to talk to a lawyer before signing a settlement agreement.
Patent ligation is expensive, and it is a challenge to find cost-effective legal assistance. Patent litigators can be found at most big law firms and at smaller firms that specialize in intellectual property. (These smaller firms are sometimes called 'IP boutiques.') If you know someone at another company that has been involved in patent litigation, they might be able to recommend an attorney. Most county bar association have a lawyer referral service. For example, the American Bar Association’s list of California lawyer referral services is available here.
The Electronic Frontier Foundation also maintains a list of attorneys, called the Cooperating Attorneys list, who have said that they are passionate about the same things EFF is passionate about, and who have indicated that they have some of the same areas of expertise. EFF may be able to refer your case to its cooperating attorneys. If so, EFF sends basic information about your circumstances to our cooperating attorneys email list. We will send the contact information of any attorneys who respond to you. Email firstname.lastname@example.org if you would like EFF to refer your case to its Cooperating Attorneys List.
Please note that EFF does not screen or evaluate the attorneys on its Cooperating Attorneys list. Each person referred to a lawyer from the list should make their own independent evaluation of whether the referred attorney is the right one for the particular issue and has the necessary expertise. Also note that EFF cannot promise that the attorneys who respond will be able to take your case, or to take it for free or a reduced fee.
If you're a licensed attorney who can practice in the United States, and you are willing to advise targets of patent trolls, consider joining EFF’s Cooperating Attorneys’ list! Just email email@example.com with "Patent Attorney Wants to Join Coop Attys" in the subject line. Any help you can offer is appreciated!
Most ways to avoid patent trolls tend to be resource intensive. One way to deter trolls is to establish a track record of fighting back and not being a soft target. If there are well known patent trolls in your field you might be able to design around their patents. Unfortunately, it is nearly impossible to perfectly troll-proof your business. Patent troll demand letters are often absurdly broad or are based on deliberately vague patents. In other words, no matter how strong your protections, you may still find yourself on the other end of a patent troll threat.
This is why reform is needed.
No. A patent owner can only sue for damages that accrued before the patent expired. But, it can file a lawsuit any time up to six years after those damages allegedly occurred. If the patent was valid any time within the last six years, the patent owner can sue for damages that allegedly occurred between the date of infringement and the date of expiration. You may choose to ignore a demand letter for other reasons, but it should not be because the patents will expire soon.