Distinguishing NPEs and Trolls

By Marshall Phelps

The growing attention being paid to the immense value of IP is still relatively new. Not very long ago, few companies paid much attention to their intellectual property, instead prioritizing other areas of value that were easier to get your arms around. Because the IP advantage was not familiar or well understood, it was not viewed as an important aspect of business strategy, IP was not a high enough priority for the vast majority of businesses.

But now, the value of intellectual property is clear to just about everyone; many companies and industry leaders are catching on to the importance of maximizing and protecting their IP. As a result, it is now even more important for companies to have an effective innovation strategy and to defend themselves against outsiders trying to threaten their portfolios.

Blogger and editor Joff Wild recently took issue with an updated definition of such an outsider – known to many as a “patent troll”- created by James Bessen and Michael Meurer of Boston University School of Law. The pair’s recent Boston Globe article serves as a followup to their earlier commentary on trolls, but Wild pointed out a disconnect between the publications in a recent blog post for IAM Magazine.

In the post, Wild writes:

“Compare and contrast two statements. Let’s start here:

NPEs are individuals and firms who own patents but do not directly use their patented technology to produce goods or services, instead they assert them against companies that do produce goods and services.

Now let’s move to this one:

Trolls are firms with no interest in innovation or technology transfer; they hold patents to assert them against innocent businesses to extract some of the profit from genuine innovators.

Very different, aren’t they? Yet, both were made by James Bessen and Michael Meurer… They have completely changed their definition of what a patent troll is. And why have they chosen to do so, do you think? Is it because under the first definition they use the organisation they work for – Boston University – would fit the description perfectly, while under the second it would not?”

Wild is right to be frustrated by the sharp contrast between definitions. The lack of definition across the industry has made the troll problem much more challenging to address. Such ambiguity prevents us from pursuing a solution to remedy the problem, you can’t remedy what you can’t define. It is now estimated that some 60% of patent litigation is driven by entities which do not compete in any particular industry, entities which do not manufacture or produce products. One would consider these patent litigators to be NPEs or ‘non-practicing entities’ a subset of them might be defined as trolls.

As I’ve said before, there is an important distinction to be made here. The term NPE comprises a disconnected group and encompasses the entire spectrum of business behavior. It includes research universities, individual inventors, design shops, and of course, the speculators who buy patents, not caring at all about the quality of their purchases, and launch legal broadsides against large groups of defendants such as “Mom and Pop” stores and coffee shops who cannot afford the expense of litigation. It is this last group which especially earns the sobriquet “Trolls”.

It is growing increasingly important that we draw a firm distinction between an NPE and a patent troll (centered on patent quality and business behavior) that applies across the industry. As Wild points out, “Patent reform is too serious an issue to be decided by spin, misinformation, unchallenged changes of definition and who spends the most lobbying dollars. Bad law could do profound damage to the US and its unrivalled capacity to turn invention into new, life-changing products and industries. And given the extraordinary global innovation leadership the US has shown since its founding fathers decided to entrench the patent system into the constitution when they ratified it in 1788, every single one of us has a stake in ensuring that does not happen.”

[This post originally appeared at Article One Partners.]