The Trouble with Trolls

By Marshall Phelps

The motivation behind the patent troll problem is obvious. As with anything involving a great deal of money, people will always find a way to get around anything that lies in the way. It does not matter the industry, the parties involved or even the problem at hand – if money is the incentive, the problem automatically becomes more challenging and the stakes higher.

When it comes to patent trolls, the problem is unchecked. And at some level, almost anyone can be a troll, it depends on their behavior in every transaction – and this lack of distinction adds to the complexity of the problem.

Classifying the Trolls

Even the purest of the pure operating companies license their IP portfolios very broadly, even if they don’t use all of the intellectual property in that portfolio. That behavior, in other circumstances, might be considered troll-like.

If you define the problem too broadly you can end up throwing the baby out with the bathwater. If you include entities that you really do want to continue doing what they’re doing (for example, research universities who don’t make anything but whose valuable research and advancements you would like to continue), you are restraining innovation.

In other worlds, like pharmaceuticals, you run into the same thing. You don’t want to define certain groups out of the legitimate licensing process. Beyond that, what about companies that do R&D but don’t manufacture anything? We must be careful not to create restrictions or draft legislation that would limit their ability to be innovative moving forward. This lack of definition is making the troll problem much more challenging and is preventing an easy solution from being pursued to quickly remedy the problem.  In my view, trolls are defined on a transaction-by-transaction basis depending on their behavior; numerous suits, often times against smaller players, of patents of either dubious quality or overbroad and suspicious claims, seeking settlements amounts just low enough to create an economic incentive to avoid litigation…now that’s a troll!

Troll Media Takeover

The attention being paid to the immense value of IP is still relatively new. Originally, very few companies paid much attention to their intellectual property. Because it wasn’t viewed as an economic issue by most business people, IP was not a high priority. Business publications didn’t publish stories about it, experts weren’t discussing it – no one recognized the importance of IP.

Now, however, that has all changed. Today you can’t go a day without reading a new article about IP – whether it’s IP management, monetization, protection – you name it, they cover it. A variety of new companies have popped up specifically to deal with IP matters, from small boutique entities to massive firms.

IP Ignorance

With all of this recent attention on the value of IP, you would think it would be obvious to C-suites, top-level executives and their boards of directors that more priority should be given to the importance of IP. Surprisingly, the opposite has happened. Companies are still ignoring its immense value, adamantly focusing their attention on other more traditional areas of profit.

Why? Because IP doesn’t appear on a balance sheet.  No score card, no focus.

Unless there has been a transaction involving IP and direct profits (or suits with big losses), executives don’t notice. Economists argue that IP is almost the majority of value of a company – sometimes as much as 70-80%! – including trade secrets, patents, copyrights, and trademarks. However, if it doesn’t show up on the balance sheet, it is frequently not fully recognized.

If it is managed at all, companies assign IP management to the legal department since it is looked at as a legal problem, a risk to be managed. Big mistake. That’s the LAST place it should be going! It should be seen as a significant business opportunity to be driven proactively with a thoughtful strategy. If people recognized this, it would never be relegated to the hands of the legal department.

This oversight and lack of proper IP recognition and management is perpetuating the troll problem. There are a number of factors at play here, and I have named only a few. Regardless of some of these underlying issues, maybe because of then, it is obvious that the trolls are restricting innovation, profits, and success across the industry – and the economy as a whole.

[This post originally appeared at Patent Quality Matters.]

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