A Better Way to Combat Patent Trolls

Ken Seddon

Many businesses face ongoing threats from patent assertion entities (PAEs), or so-called “patent trolls,” that acquire patents solely for the purpose of suing pharma, tech, and other firms for infringement. They never plan to manufacture the patented products but hope only to profit from the associated legal action.

These lawsuits, despite their seeming frivolity, cause multiple problems for targeted businesses. First, they can be very costly to defend, forcing companies to use financial and other resources that could be used to invest in strategic initiatives. Those resources, drained by litigation, are no longer available for innovation, resulting in lost opportunities for society at large in new pharmaceuticals, technologies, and other offerings. The US Constitution laid the foundation for patents and copyrights precisely to stimulate innovation without concern for theft.

It's critical then to find the best way to protect all industries against patent trolls. Several factors related to practices within and across industries have contributed, with detrimental effects, to the PAE problem. Fortunately, there is a new, collaborative way to protect intellectual property (IP). It involves firms formally banding together as a unified community with mutual interests.

Sources of the problem

Several factors contribute to the challenges associated with patent trolls. PAEs may target patents with poor clarity as they may be more at risk since they fail to define the exact nature and bounds of the patented innovation. That leaves room for assertions of infringement, the bread and butter of PAEs. Maximizing the quality and precision of patents is important for companies across all industries.

But that’s not enough. Even if patent quality is not an issue, there will always be patents for sale, and among the most common buyers are PAEs. They acquire patents from companies that no longer need them or from businesses that are selling their IP as part of a bankruptcy. In fact, 87% of patents that PAEs buy are from operating businesses rather than individual inventors or universities. Since many operating companies are motivated to sell IP, this factor isn’t going to change anytime soon.

That brings us to the most challenging contributor to the problem of PAEs: varying patent-related dynamics and practices across industries. Consider that many technology products—smartphones, for example—are associated with thousands or even hundreds of thousands of patents. In contrast, a pharmaceutical or biotechnology innovation may have just one patent that protects it. The pharma industry may thus have to rely on the single importance of one or just a handful of patents to protect their products.

Although these industries may differ on the importance they place on one patent, the convergence of technology is exposing all of them to the risks of PAEs. As pharma and med-tech companies incorporate more technology into their manufacturing operations or products, their exposure to PAEs will grow. Although the pharma industry may be accustomed to focusing on just one patent to defend a product, pharma companies may find that they are increasingly at risk of being sued for using patents acquired by PAEs.

The ideal solution, then, is one that promotes both patent quality and protection across all sectors. Fortunately, that’s exactly what one collaborative community is offering.

A Better solution

The good news is that businesses across sectors—pharma, high tech, and others—can work together to protect their IP from PAEs. They are achieving this through structured, cross-industry communities formed specifically to combat the impact of PAEs.

Here’s how it works. Once part of the group, members agree that if a PAE acquires any of their patent assets (and only in this specific circumstance), the other members of the community are entitled to a free license. That gives them immunity from a PAE lawsuit for that patent and still enables them to engage in traditional activities for the patent such as selling it or suing others (even fellow community members) for infringement.

An example of such a patent-protecting community is LOT Network. This nonprofit organization facilitates a community of more than 2,000 companies from a wide range of businesses—in size and sector—all of them enjoying the “vaccination” protection LOT provides. Pharma company Bayer and automaker Volkswagen, for example, are members of this network.

Further growth of these types of communities would resolve the conflict by creating a variety of strategic approaches to PAEs. Pharma, high-tech, and other industries could continue to sell patents to either operating companies or PAEs without facing the threats, financial drain, and other negative impacts of PAEs. A stronger patent system, in turn, would ensure that businesses innovate with less constraint, bringing innovative pharmaceuticals, new technologies, and other breakthroughs to improve lives worldwide.

Ken Seddon, CEO, LOT Network