Latha Jishnu: Cautionary tale of trolls

Patent trolls, and not patent holders, are raking in money from lawsuits and firms are desperately seeking a way out

Intellectual property (IP) and intellectual property rights (IPR) are words that trip easily off tongues these days. Thanks to a concerted campaign launched four years ago by the US Administration, the issue of IPR has grabbed centre stage and industry leaders as also officialdom have learned to view patents — and lesser instruments such as copyrights and trademarks — in hallowed light. Thanks to proselytisation by the likes of Dominic Keating of the US Patent & Trademark Office (USPTO) who was posted as first secretary at the US embassy in Delhi in 2006, the message of IPR protection has been taken to far corners of the country. Trade associations such as the US-India Business Council have helped in no small measure, with Indian corporate heavyweights who are members of this body throwing their weight behind its agenda of pushing the American patenting system which is portrayed as the international gold standard.

Which is all to the good if not for one factor. The US has been issuing patents for anything and almost everything, resulting in a shambles that has defied reform for close to a decade. A hotly contested Patent Reform Act of 2007 whose passage was marked by intense lobbying by different industry groups is currently stuck in the US House of Representatives Judiciary Committee, and hearings in the House indicate that members are unlikely to accept the version passed by the US Senate. In the simplest terms, the new law would have made it harder to obtain patents, easier to challenge and more difficult to collect damages in infringement lawsuits but since it is stuck in a legislative rut, there is no saying when the system that has run amok in recent decades will be fixed.

So shouldn’t the Indian authorities and industry cheerleaders be taking a close look at what’s happening in the Mecca of IPR protection? Indiscriminate grant of patents has resulted in a welter of lawsuits and a large swathe of industry is running scared now. Many have signed up for patent insurance — not the conventional insurance which you take out on your property but by paying a fee to a company that will protect them from patent litigation. It’s a clear sign of desperation since the companies which are queuing up to become members of the 14-month-old start RPX Corporation’s protection club cannot really be guaranteed that they will not be sued.

What does RPX do? It buys up patents that could be used against its clients — it has so far bought over 1,000 patent rights, primarily in the telecommunications sector, mobile, Internet search, networking and e-commerce areas — and offers member-companies licences to all these patents in return for yearly fees. Industry believes that this way it reduce the cost of needless and frustrating patent litigation, specially lawsuits filed by the dreaded patent trolls. Patent trolls, who are more politely called non-practicing entities or NPEs are outfits that buy patents and extract licensing fees from companies that sell products that infringe, inadvertently in most cases, on those patents. They are not involved in innovation or R&D of their own and make their money solely through patent licensing deals or litigation.

Interestingly, RPX insists it is not a patent troll. Although critics point out there’s a very fine distinction between a patent troll and this fee model, RPX, which has got backing from some of the top venture capital firms in the US, says that it will not sue or even threaten to sue companies (a common troll practice) with the patents it has acquired, even if they’re not members. Companies like Microsoft and Sony have readily accepted the insurance offered by RPX against the dreaded trolls who have burrowed deep into the crazy landscape of the American patent system.

The oddest part is that the system rewards them well. A just released report by PriceWaterhouseCoopers says NPEs fared far better than the patent holders in legal claims. The consultancy’s Patent Litigation Study of 1,400 infringement cases filed between 1995 and 2008 found that NPEs managed to get more than double the awards that the patent owners or practising entities as they are termed secured. While damages awarded to NPEs ran from $2.2 million to $10.6 million with a median of $4.4 million over this 14-year period, they raked in much more over the last seven years. PriceWaterhouseCoopers found the difference in awards was more than three times in their favour compared to practising entities: Their median was as much as $12 million compared to $3.4 million for patent owners!

This is a phenomenon that is spreading globally. An RPX study of the top 60 technology companies in the US and Asia came up with even more dismaying facts: As much as 80.6 per cent of all patent infringement cases against them were filed by the trolls. Innovation was not intended to result in such costly, time-consuming, inefficient and fractious processes. Surely, India’s patent path can avoid these pitfalls?