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Trolls will typically either pay a relatively modest amount upfront to acquire A non-practising entity (‘NPE’) or “patent troll” acquires patents for the sole purpose of ‘monetizing’ those patents through litigation and licensing. A patent, or more commonly will share any revenue generated through licensing or litigation with the owner of the patent.

However, as an alternative, patent owners can use litigation funding and insurance to pursue their own patent enforcement campaigns, where they can crucially retain ownership and control of the IP rights, whilst maximising their net return. To find out more about how this can be acheived, contact us.

PATENT TROLLS – BACKGROUND

A patent troll is an entity which does not sell or manufacture the technologies in question, but instead seeks to acquire patents and generate revenue by actively and aggressively pursuing potential infringers through licensing and litigation.

Many patent owners who sell their IP rights to trolls may sacrifice control and future commercial value from the patent. A troll may offer the attraction of a short term financial gain however this may be at the expense of a significant share of future revenues. Even where the payment to the patentee is entirely revenue-based, the share may still be limited and significantly the NPE will dictate the strategy, potentially focussing on quick, low value settlements, rather than seeking to maximise value.

Trolls have increasingly become the focus of negative press in the US. Many companies operating in the high tech, telecoms or pharmaceutical sectors face the constant threat of troll litigation, which can be a significant draw on resource and capital. It is often felt that the patents being enforced are of dubious quality however the troll may seek a settlement below the likely defence cost, meaning that a nuisance settlement may nevertheless be extracted.

In England and Wales, the “loser pays costs” rule will typically deter unmeritorious claims, however in the US no such threat exists and therefore even highly speculative litigation may have a settlement value.

SHIELDING PATENT OWNERS FROM TROLLS

The US is seeking to protect patent owners from trolls through the Saving High-tech Innovators from Egregious Legal Disputes (‘SHIELD’) Act, which – it was announced earlier this month – may come into force later this year.

This would create a ‘loser pays’ system, whereby a patent troll would be potentially exposed to the legal costs of the defendant if it loses, however if the patent troll wins, the defendant would not be liable for the troll’s costs. In this regard, the system would bear some similarities to the “One Way Costs-Shifting” regime which is currently being used in Personal Injury litigation in the UK (albeit with the costs-shifting flowing the other way).

However, it seems to us that defining what is or is not a “troll” may be difficult to achieve in reality. We are aware of several cases where a client has acquired a patent for genuine purposes, however having failed to successfully raise funds to commercialise the technology (possibly due to the infringement), they resort to litigation. On the other hand, there may presumably be loopholes potentially enabling trolls to circumvent the rules by say retaining close ties to the original inventor.

For more information on how IP litigation funding and insurance can help to protect patents and other IPR, please get in touch with one of our specialist brokers.