Congress should regulate behavior, not business-models, when crafting patent legislation

Innovation is serious business, yet much of the debate about the need for patent legislation has failed to reflect that. The notion of “patent trolls” has captured the imagination of the public, policymakers, and academics. This pejorative term has led to the condemnation of individual companies and the denunciation of entire business models, making discussions about patent legislation sound more like a witch hunt than an informed debate. As our nation considers again tinkering with the patent system – a system that drives innovation and places us atop the global economy – we should be making decisions based on facts, not fairy tales.

The term “patent troll” first emerged in 2001 to describe entities that made money licensing patents instead of manufacturing products. Since then, the term has been expanded and used to describe any entity that generates revenue from patent licensing. This broad, catch-all definition of what constitutes a “troll” unfairly tarnishes the name of universities, inventors like Dean Kamen, companies with large R&D budgets such as IBM, and formerly manufacturing entities that now license their technology like Blackberry or Nokia. Unfortunately, this overly broad, and rather unhelpful, use of the term obscures important differences between a firm’s behavior and its business model. Equating licensing activity with bad behavior is likely to irrevocably damage our patent system and the innovation it encourages. 

{mosads}The notion that a licensing business model makes a company a “troll” reflects a questionable and untested assumption that patent licensing is inherently harmful. According to “troll” lore, licensing is always costly and slows the pace of innovation. The other side of the story, however, is rarely told. Patent licensing firms speed up innovation by acting as matchmakers in the market, providing patents to up-and-comers, and facilitating transparency in the patent system. This results in more innovation, providing incentives to inventors and increasing the visibility of technological advances.  

Take, for example, firms that previously manufactured products, but have now exited the manufacturing market (what I call “formerly manufacturing entities”). By examining these entities, I believe we can begin to address a serious gap in the traditional “troll” narrative, revealing the need for more precise language and scholarship to guide policy decisions.  

The company Conversant is such an example. Conversant has been derided as a troll, but in reality it is a patent licensing company that still develops technology. Conversant began life as a semiconductor technology company in the 1970s, inventing and manufacturing memory chip circuits. In the 1990s, Conversant realized its inventions were being copied and stolen by others, and so it began a licensing program to turn those infringers into authorized licensees. In 2006, it restructured to focus on IP licensing, and it has also added patents developed by others to its portfolio. Despite the invention and manufacturing roots of the company, it is accused of being a “troll” that must be stopped because it now focuses on licensing. The “troll” title, however, hides a long history of manufacturing, as well as an R&D arm that goes back to the company’s origins. 

Conversant is not an outlier. One study suggests that nearly 80 percent of patents asserted by patent licensing companies had been used (or attempted to be used) in the production of innovative technology. These companies make up a substantial amount, if not the overwhelming majority, of patent licensing firms. The outliers, instead, are the fly-by-night operators that engage in the bad behavior that we associate with “trolls.”  

Clearly, some firms do engage in abusive behavior, ranging from sending thousands of baseless demand letters to abusive litigation tactics that put even the worst ambulance chasers to shame. These are problems that deserve attention, but they do not justify broad legislation that indicts or regulates patent licensing or the patent system as a whole. Any patent legislation should be narrowly tailored to address actual abusive behavior. Broad-brush legislation will unfairly penalize all sorts of great inventors and companies that promote the discovery and commercialization of patented innovation. 

Osenga is a professor of Law at the University of Richmond School of Law and a senior scholar at the Center for the Protection of Intellectual Property.


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