Center for Advanced Study & Research on Innovation Policy


CASRIP Newsletter - Spring/Summer 2006, Volume 13, Issue 2

Patent Trolls in the U.S., Japan, Taiwan and Europe

By Joe Brennan, Hui-Wen (Fiona) Hsueh, Miyuki Sahashi and Yasuo Ohkuma [*]

I.          Introduction

The term "patent troll" has recently come to public attention. This can be partly attributed to three high-profile cases in the United States.  In each case, the defendant is a well-known company that offers widely-used products or services while the plaintiff is a small organization that does not offer a product or service.  In each case also, the plaintiff sued the defendant for patent infringement and essentially won at trial.

This article will first provide a brief overview of these key cases.  The article will then explore the definitions and business models of the patent troll.  Following this analysis, the article will examine the impact of the patent troll on respective industries in the U.S.  Finally, this article will analyze aspects of the U.S. patent system that might enable trolls to survive and compare these aspects to Japan, Taiwan and Europe.

A.        MercExchange v. eBay

In late 1998, inventor Thomas Woolston founded MercExchange, shortly after receiving his first patent relating to an online auction system.[1]  MercExchange secured $10 million in venture capital funding and commenced operation of an online travel site, but soon ran out of money and laid off its 40 employees in late 1999.[2]  eBay operates an online auction and shopping site.[3]  eBay founder, Pierre Omidyar, launched an online auction service called Auction Web in 1995 and the company was incorporated in 1996.[4]  Based in San Jose, California, eBay recorded sales of $4.55 billion in 2005.[5]

MercExchange filed suit against eBay and two related defendants on September 26, 2001, alleging willful infringement of three patents.[6]   The patents covered methods and systems for facilitating online auctions.[7]  On May 28, 2003, the jury delivered a verdict for MercExchange and awarded damages in the amount of $35 million.[8]  The damages award was later reduced by the trial court to $29 million.[9]  The trial court also denied MercExchange's motion for a permanent injunction.[10] 

On appeal, the Federal Circuit reversed the trial court's denial of the plaintiff's motion for a permanent injunction.[11]  eBay appealed to the U.S. Supreme Court, which granted certiorari and directed the parties to brief the Court on whether it should "reconsider its precedents, including Continental Paper Bag Co. v. Eastern Paper Bag Co., 210 U.S. 405 (1908), on when it is appropriate to grant an injunction against a patent infringer."[12]  On May 15, the Supreme Court ruled that the Federal Circuit erred when it applied a general rule for the issuance of a permanent injunction.  The Court did not grant certiorari on the damages aspect of the case, however.

B.        Eolas v. Microsoft

Eolas was founded in 1994 by Dr. Michael Doyle as a spin-off from the University of California.[13]  Eolas is the assignee of a patent titled "[d]istributed hypermedia method for automatically invoking external application providing interaction and display of embedded objects within a hypermedia document", i.e., a method for displaying browser plug-ins.[14]  Microsoft, founded in 1975 by Bill Gates and Paul Allen, provides a variety of computer software and hardware products and services.[15]  Based in Redmond, Washington, Microsoft had $39.79 billion in sales in fiscal year 2005.[16]

Eolas sued Microsoft for infringement of the '906 patent on February 2, 1999, alleging that Microsoft's Internet Explorer browser incorporated its invention.[17]  In 2003, the jury found for Eolas and awarded damages of $520 million.  The trial court enjoined Microsoft from distributing Internet Explorer, but the injunction was stayed upon appeal to the Federal Circuit.  In a partial victory for Microsoft, the Federal Circuit remanded the case for further proceedings on the issues of anticipation, obviousness and inequitable conduct by Doyle.[18]  However, the court upheld the district court's holding that 35 U.S.C. § 271(f) covered software code on golden master disks that Microsoft exported to foreign original equipment manufacturers (OEMs).[19]  This was a crucial ruling for the plaintiff, because the jury had awarded damages based on a royalty rate of $1.47 per unit of infringing product.[20]  Microsoft was thus liable for each copy of Windows loaded onto machines by the foreign OEMs, and not just for each golden master disk shipped abroad.

As of this writing, the trial court had yet to rule upon the remanded issues.  However, three significant developments have occurred.  First, the U.S. Patent and Trademark Office ("USPTO") reaffirmed the '906 patent.[21]  Second, the Supreme Court denied Microsoft's petition for certiorari.[22]  Lastly, Microsoft announced that it would change the way that Internet Explorer handles web pages containing embedded content.[23]

C.        NTP v. RIM

The NTP and Research in Motion ("RIM") dispute has likely gripped the public attention more than any other recent high-profile patent litigation case.[24]  Presumably this is due to the popularity of RIM's handheld email device called BlackBerrys.  Founded in 1984, RIM is based in Ontario, Canada, and had sales of $1.35 billion in 2005.[25]  NTP was founded in 1992 by inventor Thomas J. Campana Jr. and patent attorney Donald E. Stout for the purpose of licensing Campana's patents relating to wireless email transmission.[26]

The dispute began in 2001 when NTP sued RIM for infringement of more than forty system and method claims of its patents.[27]  In 2002, the jury found in favor of NTP on every issue and awarded damages of approximately $23 million.  In 2003, the USPTO announced that it would re-examine five NTP patents, citing the possibility of relevant prior art.[28]  Later that year, the trial court entered final judgment in favor of NTP and awarded increased monetary damages totaling $53.7 million and also entered a permanent injunction against RIM.[29]  The injunction was stayed pending appeal to the Federal Circuit.  

The final judgment began a contentious three-year period where the two parties battled each other in and out of court.  In 2004, the Federal Circuit issued an opinion that was largely favorable to NTP, but it was later withdrawn by its 2005 opinion.[30]  In March of 2005 the two parties appeared to reach a $450 million agreement to settle the dispute.[31]  However, that agreement collapsed later that year in June.[32]  After rehearing the case, the Federal Circuit in August of 2005 partially reversed and partially upheld the trial court's findings.[33]  The Federal Circuit vacated the injunction and remanded for further proceedings. Back in the district court in November 2005, the court refused to enforce the purported March settlement.[34]  The court also refused to stay the court proceedings pending re-examination by the USPTO.[35]  RIM appealed to the US Supreme Court, which denied certiorari.[36] 

Entering 2006, the stakes escalated as the USPTO issued a final rejection of one of the five NTP patents at issue.[37]  At a hearing on whether an injunction should be issued, the trial judge indicated his belief that the parties should have already settled the dispute, but delayed a ruling on the injunction issue.[38]  Taking the hint, RIM and NTP settled, with RIM agreeing to pay NTP $612.5 million to settle all claims and for a perpetual license.[39]  Thus, the highest-profile patent case in recent history ended.  Generally, the post-settlement commentary regarding the dispute and settlement favored RIM's position, and further served to bring patent trolls to the attention of the public.[40]

II.        Predecessors to Patent Trolls

A.        Submarine Patents

Before the modern patent troll emerged, there were ancient trolls who arguably abused the U.S. patent system through the use of so-called "submarine patents."  A submarine patent is defined in Wikipedia as "an informal legal term for a patent published long after the original application was filed.  Like a submarine, it stays under water, i.e. unpublished, then emerges, i.e. is granted and published, and surprises the whole market."[41]  This strange patent is intrinsic to the U.S. because of the earlier patent act's deficiencies.  These deficiencies include lack of a patent publication system and the patent term's issue date basis.  Because of these deficiencies, the applicant enjoyed an unpublished (submarine) term using continuation applications lasting years or even decades.  

Currently, the emergence of submarine patents has become less likely because of improvements to U.S. patent laws.  These improvements encompass the adoption of a patent publication system in 2000 and the changing of the patent term's filing date basis in 1995.  These changes reduce the possibility of submarine patents.  Nonetheless, there is still the possibility of submarine patents due to the possibility of pending applications in the USPTO, which were filed under the old patent act.  Another reason is that there is an exception in the patent publication system under the current Patent Act.  Specifically, the domestic application can be waived from publication with the applicant's discretion.  Thus, there is still the possibility of a "submarine," even though the patent term is calculated from the earliest filing date.

B.        Examples of Submarine Patents

The following table lists some examples of submarine patents.[42]  It exemplifies the possibility of a patent submarine for longer than the patent term of 17 years.  Needless to say, when these submarines surfaced, many people would have been surprised.

Name Substance Application date Issued date Submarine term
Lemelson USP4,118,730 Machine vision and bar code technologies 12/24/1954 09/01/1992 38 years
Hyatt USP4,942,516 Application for micro computer basic technology 11/24/1969 07/17/1990 21 years
Williamson USP4,621,410 Automated machine installation and method 09/09/1966 11/11/1986 20 years
Gould USP4,704,583 Light amplifiers employing collisions to produce a population inversion 04/06/1959 11/03/1987 28 years
C.        Lemelson

The most famous predecessor to a modern patent troll is Lemelson, who is also listed in the table infra.  Lemelson filed patent applications for a barcode system in 1954 and 1956.  In 1989 the U.S. automobile industry announced that it would employ the barcode system.  A lawyer named Hosier learned this news and contacted Lemelson regarding his patent applications.  Together they filed many divisional applications claiming the barcode system.  In the early 1990s, 16 patents, which included the barcode claims, were issued and Hosier and Lemelson began to notify automobile companies of alleged patent infringement.  As a result, Japanese and European automobile industries paid huge royalties until 1992.  

In the U.S., however, Ford brought an action for declaratory relief.  The motion was denied in 1997 and U.S. automobile companies finally paid huge royalties.[43]  It is estimated that Lemelson demanded royalties from more than one thousand companies and the total amount of royalties reached 1.5 billion dollars.[44]

Lemelson passed away in 1997.  After his death, his famous submarine patents also ended.  In 1999, Symbols and other barcode reader manufacturers brought a suit for declaratory judgment.  At first, the Nevada District Court deferred to the Ford case and denied it.  Ultimately, the Federal Circuit remanded the case under the doctrine of prosecution laches.  Finally, in 2004, the District Court concluded that Lemelson's patents were indeed unenforceable due to prosecution laches upon a finding of strong evidence of intervening private and public rights and a determination that Lemelson's delay in filing and prosecuting the asserted claims was unreasonable and unjustified.[45]  The judgment signifies the end of the "submarine patent era."  Nevertheless, there are still possibilities for submarine patents because of pending applications from before 1995 and the exception from publication for U.S. domestic applications.[46]

III.       Definition of a Patent Troll

The term "patent troll" was first coined by Peter Detkin, a former assistant general counsel for Intel, in 1991.[47]  According to his experience dealing with this new breed of entrepreneurs, he gave them the name "patent troll" and defined a patent troll as "somebody who tries to make a lot of money off a patent that they are not practicing and have no intention of practicing and in most cases they never practiced at all."[48]  Detkin's definition provided the general image of a patent troll.  There are some other terms that also refer to patent trolls, such as "patent extortionist,"[49] "patent parasite,"[50] "patent pirate,"[51] and "patent speculator."[52]  In Japan, the term "patent mafia"[53] and "patent rouge"[54] have also been used. 

Detkin is now a managing director for Intellectual Ventures LLC, a Bellevue, Washington firm, which is a patent holding company that some observers fear could itself be a patent troll.[55]  Due to the change of Detkin's position, he defines patent troll differently now.[56]  Probably with the intention to get rid of the bad image of a patent troll, he now says that the term "patent troll" could be broadly used to mean any plaintiff you dislike.[57]  Following such a broad definition, Detkin has said that the University of California, Intel, IBM or even Thomas Edison could be a patent troll.[58]

In view of Detkin's statement that the term "patent troll" now can be broadly used to refer to any plaintiff you dislike, it is clear that various definitions could be developed based upon different perspectives.  From a narrow point of view, people may define a patent troll as someone who does not produce products, practice an invention or invent things, but rather purchases patents from others to enforce, like Acacia Technologies.[59]  On the other hand, people may also define patent troll broadly and contend that a patent troll is someone who may invent and manufacture products, but does not make products using patents that it is asserting against others, like Intel, Microsoft, or IBM.

A.        Background of a Patent Troll

Patent trolls come in all shapes and sizes.[60]  Trolls could be the companies who purchase controversial patents from others for the purpose of asserting them against someone else, like Acacia.[61]  Acacia Technologies is a company that acquires, develops, licenses and enforces patents.  Its clients are mostly individual inventors and small companies with limited resources.[62]  Under these circumstances, Acacia acts as a client's financial supporter to help them assert their patent rights. 

In addition, a patent troll could be a company that originally sold products, but has either completely or partially closed its operations, such as Mosaid or Patriot.[63]  Mosaid is a Canadian company based in Ottawa that is suing other memory manufactures for patent infringement.[64]  Mosaid still maintains some manufacturing; however, technology licensing has been the most important part of their total revenue since 1999.[65] 

Further, patent trolls could be the agents that assert patents on behalf of patent owners, such as IP Value Management and Thinkfire Services.[66]  IP Value Management is a business process outsourcing firm focused on commercializing intellectual assets.[67]  Thinkfire was formed by a former chief technology officer of Microsoft, backed by high-tech firms and venture capital investors, which acquires patents and manages patent licensing for others.[68] 

Finally, patent trolls could be law firms, such as Robin, Kaplan, Miller & Ciresi in Minneapolis or Makool Smith, PC in Dallas.[69]  Both firms help clients to exploit their intellectual property, for which they take contingency fees.[70]

IV.       Business Model of Patent Trolls

The basic business model can be ascertained according to the actions of the patent trolls.  Generally, a patent troll will accuse a company of infringing a patent and offer a license for a royalty on sales.  If the target company does not agree to a license, the patent troll will just sue them.[71]

Typically, patent trolls have no incentive to reach a business solution because they do not produce any products.[72]  Most of the time, all they want is quick cash.  Sometimes, patent trolls focus on certain big companies with high revenue like Microsoft.  Other times, they just send blackmails around against all companies, including manufacturers, distributors or retailers in a certain industry.  Under some circumstances, patent trolls might do nothing at all and wait secretly for development of the same technology by others.  After this technology has been broadly utilized and the revenue of the target companies has grown accordingly, the patent trolls would thereafter go against them for a royalty.[73]  Comparatively, target companies are left with only two choices most of the time: either pay a royalty or litigate.[74]  Target companies may file a declaratory judgment action to declare the non-infringement of their conduct.[75]  However, to not trigger a declaratory judgment action, patent trolls now may send softer cease and desist letters instead of hard ones.

A.        Cases involving Industry Standards

Companies that hold patent(s) on industry standard technology could be grouped under patent trolls because they are basically in the business of suing people for money.  The most notable example is Rambus.[76]  Rambus sued several memory manufacturers including IFX, Micron and Hynix for patent infringement.[77]  The DRAM companies contended that Rambus improperly influenced a standard-setting organization, Joint Electron Device Engineering Council ("JEDEC"), to adopt technology for which Rambus held patents.  However, Rambus argued that the disclosure policies of JEDEC did not require notification of current patents or patent applications. 

After IFX settled with Rambus with a quarterly license fee of $5.85 million dollars and a California judge denied Hynix's motion to dismiss a patent infringement lawsuit filed by Rambus, the current atmosphere seems advantageous to Rambus.  However, Micron filed a complaint against Rambus in Virginia alleging that Rambus intentionally concealed information through false testimony and other means regarding the ownership of key Rambus patents.  Micron also alleges that Rambus violated sections of the federal Racketeer Influenced and Corrupt Organizations Act ("RICO") and Virginia anti-conspiracy laws through a pattern of illegal conduct.[78]  The disputes are still ongoing.  If it turns out that Rambus obtained its patent rights upon proper grounds, the whole memory industry will not be able to avoid paying royalties, similar to the automobile industry.

Another case involving standard technology is Forgent Networks.[79]  Forgent's patent covers the technology relating to JEPG image compression, which has been widely adopted by camera manufacturers, software designers, cell-phone makers, and other companies.[80]  Forgent has launched a patent infringement lawsuit against 31 major computer and electronics vendors, such as Apple, IBM, Gateway, and Xerox and is seeking damages related to its claim to the technology underlying the widespread JPEG file format.

Similarly, in the Unisys controversy, people characterized Unisys as a troll because it did not invent, and does not own, the Graphics Interchange Format ("GIF").[81]  When GIF was first developed and released by CompuServe, no one realized that Unisys owned the patent for LZW data compression, which is used in the common GIF file image format.[82]  No action was taken for years until GIF got popular, then the commercial graphic program providers were required to pay a license fee to Unisys.  By that time, GIF was widespread and most companies producing programs with GIF had little choice but to pay.  However, the U.S. patent for LZW expired on June 2003.  Its equivalent patents in Europe and Japan expired in June 2004 respectively and the Canadian patent followed in July 2004.[83]  Therefore, Unisys can no longer collect royalties for use of the GIF format.

V.        Industry Perspectives

A.        Introduction

Since the patent system is very important for businesses, almost every industry suffers from the patent troll issue to varying degrees.  The problem seems most prominent in the Information Technology ("IT") industry, however.  The significance of the patent troll issue in the IT industry is evident from the lobbying activities regarding the Patent Reform Act ("PRA") by organizations such as the Business Software Alliance ("BSA")[84] and the Information Technology Industry Council ("ITI").[85]  On the contrary, the Bio and Pharmaceutical industries seem less concerned by the patent trolls.  For example, the Biotechnology Industry Organization ("BIO")[86] testified at the congressional hearings for the PRA and opposed some of the provisions that were commonly understood to provide countermeasures against patent trolls.[87]  This difference in reaction to the patent trolls issue and the proposed patent reform among industries may be due to the difference in character of the respective industries.

B.        IT Industry

The scenario of how patent trolls became prominent in the IT industry may be as follows.  At the time of the IT boom in the late 1990s, patent applications to the USPTO rapidly increased.[88]  As a result, workloads of examiners may have increased as well.  For example, in fiscal year 2005, pendency for IT patent applications in the USPTO was 43.5 months.[89]  This is very long compared to other technical fields.  In the biotechnology area, for example, pendency is 32.3 months and in the mechanical area it is 26.3 months.[90]  In addition to this increase, since IT is a relatively new field to be examined in the USPTO, the accumulation of prior art data may be insufficient.  These factors may have caused a decline in patent quality and patents may have been issued inappropriately.  When the IT boom collapsed in 2001, many IT companies went into bankruptcy, and gave up their patents at a low price.  It is speculated that the strategy of collecting patents from these companies spread among patent trolls at that time.[91]

Additionally, some of the characteristics of the IT industry may be attractive to patent trolls.  First, it is easier to enter into business.  In the IT boom, many small companies with good ideas got their ideas patented.  Compared to other industries, a higher amount of research and development is not necessarily involved for IT.[92]  Second, certain products in this field often embody hundreds of patented or patentable features within a single product.[93]  Thus, even though the infringement was for only one element of the product, patent trolls often use the threat of a permanent injunction to shut down an entire product.[94]  Third, in the IT industry, cross licensing is common because it is difficult and expensive to evaluate the infringement of all related patents.[95]  However, because many patent trolls do not manufacture products, they do not respond to cross licensing offers.[96]  Last, IT companies may not conduct careful prior art searches because small businesses lack resources and there may be too many patents involved.

C.        Biotech/Pharmaceutical Industry

In contrast, some of the characteristics of the Biotech/Pharmaceutical industry may avert patent trolls.  First, it is difficult to enter into business because the cost for research and development enormous.  In this field, a single patent can be worth billions of dollars.[97]  Second, biotech companies rely heavily on patents granted for a very few, highly important, discoveries.[98]  So, these companies do not ordinarily license the patents but rather, use them more offensively.  Therefore, if their patents are infringed, they want an injunction.  Third, they may conduct sufficient prior art searches because they spend an enormous amount of money for a single patent and many times, companies in this industry are sophisticated and can afford the research.  Furthermore, because not as many patents are involved, prior art searches may be easier to conduct.

D.        IT v. Biotech/Pharmaceutical

When we compare the reactions to the Patent Reform Act per industry, it is often described as IT v. BIO and Pharmaceutical because they take opposite sides with regard to some of the proposed revisions.  Over the recent patent reform movement, the IT industry is viewed as trying to change the system to counter patent trolls.  Thus, the IT Industry proposals are arguably more favorable for the infringer than under the current system.  However, the BIO and Pharmaceutical industries do not want these modifications because they might make their patents unstable and weak.  They are concerned with patent certainty for their business practice and because it is important to convince investors to fund them.[99]

E.         Other Industries

In other industries, the troll issue may be a relatively low priority.  For example, General Electric seems to have patents in broad area including IT and BIO or Pharma, and the vice president of the company testified at the PRA hearings that he thought that the limitations on the ability to obtain permanent injunctions would weaken their patents.[100]  The Intellectual Property Organization (IPO), which represents both companies and individuals in all areas, seems to be trying to strike the proper balance.  Although they may not entirely disagree with troll-related reforms, they contend that they should distinguish universities or small businesses from patent trolls.[101]

VI.       Industry Responses to Patent Trolls

Responses to the perceived threat posed by patent trolls can be categorized as either reactive or proactive.  As far as reactive responses, a company that receives a demand or infringement letter can take one of three basic courses.  First, it can do nothing and hope that the patent troll will go away.  Second, it can negotiate a license.  Third, it can attempt to litigate the issue.  However, in following this last course, a company is likely to be at the mercy of the patent troll as far as the timing and venue of the lawsuit.

A.        Reactive Strategies

A company that receives a letter claiming infringement has the choice of filing a declaratory judgment action in the hopes of getting a verdict/finding of non-infringement.[102]  However, a company is likely to be somewhat hamstrung by the personal jurisdiction requirements of the U.S. legal system.  Generally, a company is subject to personal jurisdiction in the U.S. wherever it does business.  This poses a problem for the company that desires to sue the patent troll in the company's forum.  Because patent trolls tend to be "virtual companies" or companies without extensive production or manufacturing facilities, they are almost certainly subject only to suit in the state in which they are registered or incorporated. 

In a 2005 case, plaintiff attempted to get a Utah federal district court to agree that it had personal jurisdiction over a patent troll whose only contact with the state had been to send out letters either offering a license or threatening suit.[103]  The court quoted Detkin's definition of a patent troll[104] and noted that "[d]efendant Furnace Brook appears to fall squarely within that category: it purchased its patent at a bankruptcy auction in 2003 and, without any apparent attempts to practice it, has since sent infringement letters to [numerous defendants]."  The court thus posed the question this way: "whether patent trolls should be subject to more general jurisdiction, perhaps as a way of deterring coercive baseless litigation."[105]  After a review of the relevant authorities, however, the court declined to allow personal jurisdiction over the defendant on that basis alone.  Perhaps the court saw the metaphysical trap posed by applying Detkin's definition: how could litigation be coercive and baseless if it wasn't even brought by the patent troll?  Or perhaps it simply yielded to higher authority.  The latter seems to be the case, because the court granted the defendant's motion to dismiss, stating that "any change in the case law must be left to the Federal Circuit and any change in the governing statutes must be left to Congress."[106]

The opposite result occurred in, Inc. v. Rates Technology, Inc.[107]  In that case plaintiff, Inc. sought a declaratory judgment of non-infringement and/or unenforceability and invalidity of various patents held by the defendant.  The defendant had "sent at least eight demand letters and made over fifty telephone calls to OpenLCR in Colorado."[108]  Despite strong Federal Circuit precedent that would seem to indicate a finding of no personal jurisdiction,[109] the court denied the defendant's motion to dismiss.[110]  In so doing, the court focused on the plaintiff's allegation that the defendant seemed more interested in intimidating OpenLCR into taking a license instead of protecting its patent rights.[111]  The court also noted that it was undisputed that Colorado had a "'manifest interest' in preventing harm to one of its residents caused by bad-faith enforcement of patent rights."[112]

B.        Proactive Strategies

Companies have adopted several proactive strategies to ward off patent trolls.  First, they have promulgated the Patent Reform Act of 2005, which is arguably pro-patent infringer.  The Act is discussed in more detail in Section XI, infra.  Second, companies are filing more patent applications in the attempt to boost their portfolios.[113]  Companies believe they can better defend against patent trolls by boosting their patent portfolios;[114] they believe that a large patent portfolio may either scare off a patent troll or reduce the asserted patent's expectation value.[115]  They may also be attempting to document prior use of a patented invention.[116] 

These stated reasons likely do not fully account for the phenomenon of increased patent applications at the USPTO, however.[117]  This is because one of the common complaints about patent trolls is that cross licensing is ineffective because patent trolls do not produce anything and thus would not infringe any patents.  If this is true, then a larger patent portfolio would only be a partial defense to a patent troll, as explained above.  It is beyond the scope of this paper to discuss the reasons for this phenomenon, but a more plausible explanation for the increase is that large companies (e.g., Microsoft, IBM, Hewlett-Packard) are seeking to monetize their intellectual property so as offset decreasing sales revenue growth.

Intellectual property law firms are spearheading an effort to share resources and information about how to defend against the threat posed by patent trolls.  Several law firms sponsored a recent conference titled "Strategies for Managing Patent Assertions" that discussed how corporations could strategically defend against patent trolls.[118]  Another to be held in May 2006 addresses the same issue.[119]  Companies are also banding together to share litigation costs and resources.  For example, Acacia Research, holder of several patents relating to streaming media on the Internet, sued numerous companies in the adult entertainment industry in 2002 for patent infringement.[120]  The companies formed the Internet Media Protective Association to better defend against Acacia's lawsuit.[121]  Acacia also sued various cable and satellite companies, and all the suits have been consolidated in one district court in California.[122]  Moreover, many companies in the high-tech industry are members of either the Business Software Alliance or the Information Technology Industry Council, both of which lobby Congress on patent reform.[123]

VII.     Aspects of the U.S. Patent Law System that Facilitate Patent Trolls

If trolls thrive in the U.S. patent system, as has been hypothesized, what are the aspects of the system that facilitate trolling?  Commentators have put forth a number of reasons to explain this phenomenon.  This section will discuss some of the most prominent and assess whether or not they plausibly explain the patent troll phenomenon.

A.        Liberal Approach to Patentability

One reason put forth is that the U.S. patent system's liberal approach allows one to patent nearly any process or method.  A line of cases interpreting 35 U.S.C. § 101, beginning with Diamond v. Chakrabarty in 1980 and ending with Ex Parte Lundgren in 2005, has removed many barriers to patentability for process patents.[124]  The result of this evolution in the case law is that nearly any method or process is patentable (provided the other requirements for patentability are met).  Theoretically, this forces companies to carefully navigate the "patent thicket" in developing new products and technologies.  However, at least with respect to software patents, acceptance of this view begs the question: If software patents were more of a detriment to innovation than an asset, wouldn't software companies advocate for exclusion of software processes and methods from patent protection?  This does not seem to be the case.  A recent law review article examined the claim that software patents hinder innovation and rejected it, based upon evidence of research and development spending and upon the actual structure and practices of the software industry.[125]

B.        Abuse of the Continuation Process

As discussed in Section II A, supra, abuses of the continuation process resulting in submarine patents definitely occurred.  However, the 1995 GATT-TRIPS treaty requires a patent term of 20 years from filing date.  The passage of the conforming legislation effectively ends the possibility of abusing the continuation process for all patents filed after June 8, 1995.  That said, submarine patents can still surface.

C.        Plain Meaning Approach to Claim Construction

Another reason put forth is that the "plain meaning" approach to claim construction allows patent holders to obtain broader meanings to claim terms.[126]  However, the Federal Circuit held that courts should look primarily to patent specifications and prosecution history when determining the meaning of patent claims.[127]  Theoretically, this should restrict a patent owner's ability to get a broader than originally intended meaning of claim terms.

D.        Too Few Patent Examiners

Does the USPTO have enough examiners?  In 2005 The USPTO had more than 4,000 examiners.[128]  A 2005 General Accounting Office ("GAO") report stated that patent examiners are expected to process an average of 87 applications per year, spending approximately 19 hours on each application.[129]  In 2005, the USPTO hired 978 new patent examiners, and plans to hire approximately 1000 in 2006.[130]  It's difficult to say what an optimal rate of examination or number of hours to spend on an application should be.  However, to the extent that too few examiners pose a problem by lessening patent quality, the USPTO clearly is taking steps to resolve it.

E.         Ability to receive a Permanent Injunction

Chisum writes that courts could award an injunction against further infringement since the adoption of the Patent Act of 1819 and that "[f]rom the early days of the patent system into the nineteenth and early twentieth centuries, injunctive relief was generally granted as a matter of course."[131]  In the case of Continental Paper Bag Co. v. Eastern Paper Bag Co., the Supreme Court affirmed the ability of a patentee to obtain an injunction against infringement.[132]  The Court has also stated that lessening this ability "runs contrary to the long-settled view that the essence of a patent grant is the right to exclude others from profiting by the patented invention."[133]  It is this issue that the Supreme Court considered in MercExchange v. eBay.

F.         Rampant Forum Shopping

As noted above, registered organizations are generally subject to suit wherever they do business.  For most large companies this means they can be sued nationwide.  Companies have protested having to defend infringement lawsuits in patent "rocket-dockets" such as those of Texas and Virginia, likely because the relative speed of these forums precludes them from using tactical methods to delay and thus add to the cost of the litigation.[134]  The Patent Reform Act incorporates a provision for change of venue, but if this fails to pass, companies will continue to be subject to suit nationwide.

G.        Treble Damages

Companies have also protested that the ability to receive treble damages provides an unbalanced incentive to bring patent lawsuits.  Federal law allows a court to increase damages up to three times the amount assessed.[135]  The Federal Circuit has held that the decision to increase damages is a two-step process: first, there must be willful infringement, and second, the totality of the circumstances must allow for it.[136]  Willful infringement is a high bar.  It requires that the court "determine that the infringer acted in disregard of the patent, that is, that the infringer had no reasonable basis for believing it had a right to do the acts."[137]  Thus, it's unclear if this truly stimulates patent troll lawsuits.

H.        Low Threshold for Nonobviousness

It has also been stated that the threshold for nonobviousness is so low in the U.S. that many undeserving patents are granted.[138]  Without going too much into the current standard for nonobviousness, two arguments against this assertion can be made.  First, simply because some arguably obvious patents are being granted doesn't mean that all patents or even those held by patent trolls are obvious.  Second, a point similar to the one that was argued in Section VII A can be made here: doesn't the low standard benefit all applicants, presuming it is equally applied?  It is worth noting that in 2005 the Supreme Court granted a petition for certiorari to review the Federal Circuit's "teaching-suggestion-motivation test" for obviousness.[139]

I.          High Reversal Rate of the Federal Circuit

Another explanation put forth to explain patent trolling is that the Federal Circuit's high reversal rate adds to the uncertainty of the patent system.[140]  This uncertainty supposedly favors patent trolls.  This is a debatable assumption.  If a patent troll prevails at a Markman hearing or at trial, would its victory also be subject to reversal? 

To summarize, the following reasons have been put forth by various commentators at one time or another to explain how the US patent system facilitates patent trolls: expansive limits on patentability, abuse of the continuation process, the plain meaning approach to claim construction, too few examiners, the ability to get a permanent injunction, rampant forum shopping, treble damages, the low threshold for nonobviousness, and the high reversal rate of the Federal Circuit.  It is our opinion that of all these reasons, none of these truly explain how the US patent system facilitates patent trolls. 

VIII.    Patent Trolls in Japan

A.        The domestic case - ADC Tech. K.K. v. NTT DoCoMo

There is no serious concern for patent trolls in Japan.  One reason is that there is only one famous domestic patent troll case.  The case is ADC Tech. K.K. v. NTT DoCoMo, Heisei 15 (Wa) 28554, (Tokyo D. Ct., Oct. 1, 2004).

ADC Tech. K.K. ("ADC") is a patent holding company founded by a patent attorney.[141]  NTT DoCoMo ("NTT") is Japan's premier mobile communication company.[142]  In 1999, ADC was founded and purchased the patent application for a Dutch patent holding company. The patent application included the idea of a mobile phone with two functional screens.  The patent was issued in 2003.  ADC sent cease and desist letters to NTT and other mobile communication companies.  In response to the letter, NTT brought an action for a declaratory judgment.  Shortly thereafter, the Japan Patent Office ("JPO") received an opposition to the grant of the patent.  Then, the JPO decided to revoke the patent on the lack of nonobviousness and the Tokyo District Court held in favor of NTT.[143]

This case is the most famous Japanese domestic patent troll case.  The troll, ADC, lost. Therefore, people think that patent trolls can not win in Japan as long as they abuse patent rights.

B.        Reasons that Keep Trolls Away in Contrast to U.S.
1.         Higher Judicial Stability

There are some additional specific reasons that keep patent trolls away in Japan.  In Japan, the trial to appeal differential rate of civil patent infringement cases is only 18%.[144]  This low rate indicates the judicial consistency between district courts and appeals courts in Japan.

Forum shopping among district courts is a big problem in U.S.  It causes confusion and debilitates judicial stability and predictability.  On the other hand, there are only two district courts that decide patent cases in Japan; the Tokyo District Court and the Osaka District Court have had exclusive jurisdiction since 2004.[145]  The Japanese consolidated jurisdiction is an advantage for judicial stability or consistency.

In the U.S., recently people have come to doubt decisions of the Federal Circuit.  The symbolical turning point may be when certiorari was granted in KSR v. Teleflex, which is supported by 24 intellectual property law professors.[146]  Certiorari was granted to consider "whether the Federal Circuit has erred in holding that a claimed invention cannot be Held 'obvious'.in the absence of some proven.suggestion.."  On the other hand, there is no serious criticism in Japan.  In addition, the IP division of the Tokyo High Court became established as the IP High Court in 2005.[147]  Japanese citizens will expect even more stability, which is backed by the accumulation of specialties in the IP High Court.

2.         More Reasonable Damages

The triple damages and entire market value rules in the U.S. enlarge the damages for patent infringement.[148]  They also enlarge the unpredictability.  These rules make an alleged infringer very nervous about being sued in the U.S.  In contrast, an infringer usually owes just compensation for damages in Japan.[149]  The damage is calculated from the invention's contribution to products.[150]  Therefore, damages are reasonable and predictable in Japan.

3.         More Effective Administrative Proceedings

There are several grounds that go unexamined by a patent examiner in the U.S.  That is, the best mode requirement, prior public use by the inventor and misappropriated applications are difficult for the examiner to discover.  On the other hand, the major unexamined ground is only misappropriated applications in Japan.  In the U.S., the reexamination is challenged only with written prior art consisting of patents or printed publications.[151]  On the other hand, the trial for invalidation can be challenged under almost all grounds in Japan.[152]  The wide ranges of grounds that are challengeable at the JPO contribute to reduce defective patents, which might be enjoyed by patent trolls.

IX.       The Patent Troll Situation in Taiwan

A.        Reasons No Trolls in Taiwan
1.         Litigation Ineffective

In Taiwan, there are no domestic patent troll cases.  One of the reasons might be that technology licensing transaction have not yet matured and are not well-established in Taiwan.  Moreover, Taiwan is a comparatively small market, which equates in a small base for royalty collecting for patent troll.  Also, from the cultural perspective, people tend to resolve disputes in an amicable way instead of filing a lawsuit, in accordance with Chinese old time course of dealing.  Accordingly, the way that patent trolls use litigation as a threat for collecting licensing royalties is rare in Taiwan. 

Despite the difference in culture and course of dealing, the unfavorable legal system for patent trolls might also be one of the reasons patent trolls are not prevalent in Taiwan.  Unlike the U.S. legal system, there is no special jurisdiction for patent cases in Taiwan.[153]  The validity and enforceability issues go to an administrative court and infringement issues go to civil court.[154]  When a motion for invalidity or unenforceability is filed in administrative court, the judge of the civil court may suspend the on-going patent infringement case at issue.[155]  The reason for such a holding is not only because the validity or enforceability of patent is the premised subject to patent infringement, but also under the purpose to avoid the contradiction between different courts and a waste of legal resources.  The disadvantage for the patent owner is that once the accused infringer has a third party file a motion for invalidity or unenforceability in administrative court, the proceeding for the patent infringement case could be pending and have no decision for a long time. 

Another reason for the long time process is that there is no special procedure like summary judgment or a Markman hearing in Taiwan, which were designed to shorten the trial process of patent cases in the U.S.  Also, because there is no discovery process in Taiwan's legal system, it would be hard for a patentee to obtain evidence to prove infringement by the accused infringer.  Moreover, due to the lack of professional technical knowledge of the judges and clear evidence provided by patentee, the civil court judges make their decisions with reliance upon the technical expert's written report only.  Therefore, there are no specific rules set in patent litigations for patent owners to follow.

2.         Reverse Injunctions

As to injunctions, the U.S. patent trolls usually threaten the accused infringers by filing a motion for injunctive relief.[156]  Sometimes, the target companies will surrender and pay up the licensing fee accordingly.  However, in Taiwan, when a patentee files a motion for injunctive relief, the accused infringer can always file the motion of reverse injunction asserting to stop the interference against their current sale and manufacturing.[157]  By such reverse injunction, a patentee may not be able to stop the manufacture of accused products successfully and will thus fail his purpose of frightening the accused infringer.

3.         Losing Party Pays

In Taiwan, the losing party will bear the whole court costs.[158]  Therefore, the patentee must carefully consider the quality of its patent before filing a suit.  This feature may defeat patent trolls to a certain degree since a patent troll will not be able to file a suit arbitrarily without considering all possible consequences.

4.         Criminal Procedures

In addition, before 2004, a patent infringer in Taiwan bore the criminal liability and most patent infringement cases, therefore, went to criminal court and followed criminal procedures.  However, the rate which accused infringers were held guilty was rare.[159]  Most patent infringement cases were held not guilty according to a judicial statistic reported by judicial authority.[160]  This statistical data in some way shows that the legal system disfavors the patentee.

5.         Fair Trade Commission

Lastly, U.S. patent trolls sometimes assert their patent rights by sending cease and desist letters to all related parties such as customers, distributors or retailers maliciously.  However, in Taiwan, if such behavior truly affects the market and economic order, the patentee could be fined by the Taiwan Fair Trade Commission in accordance with Fair Trade Law.  Under this kind of circumstance, the patent owner would not be able to threaten people by sending mail maliciously.

B.        IT Industry in Taiwan Affected

All of the above-mentioned factors indicate the direct or indirect reasons why there are no patent trolls in Taiwan domestically.  However, even if there is no distinct case domestically; Taiwanese IT industry seriously suffers by foreign patent trolls asserting their U.S. patent rights.  The main reason is because Taiwan is one of the top IT suppliers in the world with a high market share on chip foundry services, notebook PCs, LCD monitors and other computer components.[161]  The revenues of the key Taiwanese technical companies could hit $122 billion in 2006.[162] 

With the huge amount of exportation by the Taiwanese IT industry into the U.S. market, the Taiwanese IT industry turns out to be a great target for patent trolls who own different U.S. patents on numerous IT-related technologies.  Confronted with the challenges by U.S. patent trolls, some IT companies go straight into settlements because of the fear with unfamiliar legal system and costly legal fees.  Others are adopting delay tactics and are awaiting the upcoming judgments on cases involving patent trolls.

X.        Patent trolls in Europe

A.        Current Situation in Europe

In Europe, some European companies are being sued by U.S. patent troll-like companies.  For example, the German chip manufacturer Infineon Technologies entered into a settlement with Rambus with regard to a U.S. patent.  Infineon agreed to pay Rambus quarterly amounts totaling nearly $50 million dollars until 2007 with the possibility of further payments up to $100 million dollars.[163]

However, it seems that the patent troll issue is not so prominent in Europe thus far. As for the European-based patent troll, there seems to not be very many.  One example, however, is the BTG.[164]  BTG is a British company in the patent-licensing business.  They filed suit against and based on a U.S. patent acquired from Infonautics,[165] a Swiss software development company.[166]  BTG conducted research on the patent before the purchase and found out that the technology had been exploited by other companies.[167]

As a recent topic in Europe, the software patent bill was rejected by the European Parliament last July.  One of the arguments made against this bill concerned patent trolls because software is one area where patent trolls have set their sights.[168]  

B.        European Patent System - Software Patents

In Europe, business patents and software patents are not allowed according to the European Patent Convention ("EPC").[169]  However, with the growing commercial value of software and pressure from large software companies, the European Patent Office ("EPO") started to issue patents for software by practice and case law.  First, they tried to get around by using a "process claim."  The EPO allowed the claim for a process where software controls ordinary hardware to do something.[170]  And then in 1998, the EPO started to allow a "program claim" where the patent claim is directed to programs.[171]  

In 2000, they tried to omit software from the EPC, but faced strong opposition and failed.  Since then, attempts to deactivate the provision continued on and off.  In 2002, the EU Software Patent Directive was presented.[172]  This directive introduced a "process claim" and if passed, EU accession states would have to harmonize their national laws to comply with the directive.[173]  There were certain struggles and changes regarding this directive and last year, European parliament rejected it.  But, this issue still seems to be controversial.[174]

C.        European Litigation System

There are some differences between the litigation system in Europe and the U.S. and these differences may be keeping away patent trolls from Europe for now.

In Europe, patent litigation is handled in each country because there is no community patent court.  Therefore, issues such as validity or infringement of a European patent would be dealt with in each country.  The establishment of a community patent court has been discussed, but not realized.[175]  This different litigation system may make things difficult for patent trolls with the strategy of taking small amounts of money from many different companies because it is difficult and expensive to deal with a different system in each country.

Some of the factors in the European litigation system that may be not attractive to patent trolls are as follows.  First, contingency fees are not allowed.[176]  This may be less attractive to the law firm patent troll because it is one of the important sources of income and the factor that encourages them toward the troll business.  

Second, European countries follow a loser-pay system.[177]  In the U.K., litigation costs, including attorney fees, are basically paid by the losing party in civil cases.[178]  In the U.S., each party would have to pay the litigation costs regardless of whether they won or lost the case.  Considering that litigation costs in the U.S. are very high, these two factors may encourage companies threatened by patent trolls to pay a royalty rather than spending the higher cost of litigation that they may not recover even if they win.[179] 

Third, litigation costs are relatively smaller than in the U.S.[180]  In the U.K., where litigation costs are relatively higher among the European states, the average patent litigation cost for a small to medium-scale patent case is approximately $1,195,700.[181]  In Germany, it is estimated around $59,810 at first instance and $107,658 at second instance with a sum in dispute of $299,075.[182]  This may be less attractive to patent trolls because as mentioned above, in the U.S., higher litigation costs incentivize companies to pay a royalty rather than fighting against patent trolls.  However, there is another side to this factor: it may also incentivize patent trolls to take action in Europe.[183]

XI.       Patent Reform Act

Congressman Lamar Smith (R-TX) introduced the Patent Reform Act of 2005 on June 8, 2005.[184]  The Act is the result of proposals from the Business Software Alliance with the goal of curbing costly litigation.[185]  The PRA has undergone two revisions, the latest being an industry coalition print on September 1, 2005.[186]  An article in the Intellectual Property Law Bulletin analyzes the provisions of the Patent Reform Act that are relevant to the patent troll issue.[187]  Some of these aspects and others are discussed below, based upon the latest revision.

A.        Apportionment of Damages

The PRA would codify factor #13 from Georgia Pacific.[188]  It would direct the court to look at the contribution from the "claimed invention."  Essentially this would require the court to calculate damages based upon the value added by the claimed invention alone, and not in combination with other non-claimed elements.  This is clearly directed at producing lower valuations than have been seen in patent troll cases.[189]

B.        Duty of Candor Codified

The PRA would also codify a duty of candor for patent applicants in front of the USPTO.  It would also create a rebuttable presumption that fraudulent conduct by an attorney was known and approved by the applicant.  Those on the receiving end of lawsuits certainly would appreciate having this as a tool to use against patent trolls.[190]  It is uncertain, however, if a codified duty would prod patentees to disclose all potentially anticipating references more than the current, judicially-created duty.

C.        Treble Damages and Willful Infringement

The PRA would elevate the standards for notice of infringement by requiring that the notice include the patent, the claims, and the infringing product or process.  It would also preclude a finding of willfulness if the infringer had an informed good faith belief that it was not infringing. The likely effect of these provisions would be to require a patent troll to undertake a more extensive investigation in order to maintain a claim for willful infringement.[191]

D.        Venue

The industry coalition print would require "transfer of venue to a more appropriate forum in certain patent cases."[192]

E.         Prior user rights

The "prior user rights" defense would be expanded to apply to all manufacturers of all inventions.  It could be used as soon as a defendant began "substantial preparations for commercial use."[193]

F.         Injunctions

The original bill contained a provision modifying the standard for granting an injunction.  It would require a court to consider the fairness of an injunction in view of the interest of the parties.  The injunction could be stayed pending appeal upon showing that the stay would not result in irreparable harm to the patent owner.  However, the latest version of the PRA has removed this provision.

G.        Post-grant Opposition on Statutory Validity

The PRA also would establish a post-grant opposition system.  It would require a filing to be made within nine months of the patent grant.  The USPTO Director would be permitted to initiate an opposition proceeding if a substantial question of patentability is found to exist for at least one claim.  The Director would also be able to stay a proceeding upon the filing of an infringement action.  The opposer would have to prove invalidity by a preponderance of the evidence.[194]

Upon review of these provisions, it is clear that the PRA would tip the balance toward infringers and away from patent trolls.  As of this writing, passage of the PRA is uncertain.

H.        Open Post-grant Review on Equitable Issues

A 2005 Duke Law Review article proposed requiring the USPTO to conduct an open post-grant review in two instances: at the time when the renewal fee for a patent is due and whenever a patent is sold.[195]  The author noted that "some troll-like behavior is necessary to protect legitimate patent enforcers" and theorized that an open review would be flexible enough to weed out the good trolls from the bad trolls.[196]  This procedure would use the equitable principles of laches and estoppel as standards by which to judge patent troll behavior.  Although reasonable in theory, it's difficult to imagine the author's suggestion in practice.  How many reviews per year would the USPTO be required to undertake to achieve this system?  Isn't the USPTO struggling to keep up with the increased number of applications as it is?  The author does not address these issues.

I.          Securitization of Patent Rights

In addition to the exclusive right granted by Congress to the patent owner, patent rights could be treated as investable assets.  The idea of a Patent Investment Trust ("PIT") was proposed by Elizabeth Ferrill.[197]  According to her proposal, a patent investment trust would be similar with the system of real estate investment trusts.  A tax-advantaged corporation would be set up to trade and license patents and turn patent rights into securities, tradable on exchanges.  The patent owner may have more efficient monetization of patent right and thus allow patent rights holders to diversify their holdings and level the playing field for small inventors. 

Based on a similar rationale, Ocean Tomo is one example where IP is made tradable.[198]  Ocean Tomo is a Chicago merchant bank that specializes in intellectual capital.[199]  From their point of view, patent trolls are just a transitory phenomenon.  According to Ocean Tomo's president and CEO, "Ultimately, it will just revert back to the people employing the technology for commercial use."[200]  Upon this different thought on patent rights, people may look at a patent troll with a different view considering how they use patent rights as other types of investment.

J.         Loser-pays

Chisum writes that "[t]he general rule in litigation is that each party bears its own costs, including attorney fees.  This is known as the 'American rule.'  In other countries the prevailing party routinely receives attorney fees from the losing party.  This is known as the 'English rule.'"[201]  Currently, a court may award attorney fees to the victor only in "exceptional cases."[202]  Adoption of the English rule could have a beneficial effect upon the patent litigation system.  In a 1995 article, Walter Olson articulated the purported benefits of a loser-pays system: it would weed out unmeritorious claims of infringement, force claimants to carefully consider the quality of their claims before filing suit, encourage the use of settlements to resolve patent infringement disputes, remove the "bet the company" aspect from patent litigation, and shift the majority of costs of infringement lawsuits to losers.[203]  It is beyond the scope of this paper to examine all of these claims, but they are worth noting.  It is also worth noting that in the other three regions discussed above, each has a loser-pays system and each currently does not experience the phenomenon of patent trolls.

XII.     Conclusions

Some conclusions can be drawn from this discussion of patent trolls in the U.S., Japan, Taiwan and Europe.

First, the label "patent troll" is commonly used by a party that wishes to paint the opposing party in a negative light.  Patent troll is a pejorative term and if an alleged infringer can make the label stick on a patentee, it may gain an advantage in litigation and in the public opinion.  The discussion in Part III, supra, on how Detkin changed his definition of a patent troll after moving to his new company, Intellectual Ventures, is informative in this regard.  Yesterday's patent troll may be today's patent freedom fighter.  Consider this quote: "On 'patent trolls,' Dickinson said that 'one person's troll is another person's business.  While I think there are abuses that need to be carefully monitored, the fact that people own patents and then seek to use that or recover on that investment, I think that's how the system is supposed to work.'"[204]

Second, the incidence of patent trolls is lower in the surveyed regions than in the U.S.  It is unclear what factors are responsible for this, but it is our opinion that prevalent amongst these has to be the loser-pays system that each country or region has and the lower damages available to patentees.  If patent trolls truly deter innovation in the U.S., it is worth considering aligning the U.S. patent law system with its counterparts elsewhere.

Third, patent trolls may merely be a transitory phenomenon.  The Internet boom produced a large number of companies that later went bankrupt and sold their assets.  If this produced the patent troll phenomenon, it will likely subside in the future.  Indeed, this is the opinion of the Ocean Tomo merchant bank.

Fourth, patent trolls may actually promote innovation.  Much is said of the constitutional requirement of the U.S. patent law system: "To promote the Progress of ... [the] useful Arts."[205]  However, much less is said of the means by which that goal is to be achieved: "[B]y securing for limited Times to . Inventors the exclusive Right to their . Discoveries."[206]  Whether patent trolls truly advance innovation depends on how you read those together.  If you read them as saying that "by securing" inventors' rights, it follows that the progress of the useful arts is promoted, then patent trolls must be seen as advancing innovation in the US system.  This is because patent trolls vigorously protect inventors' rights.  This is the "natural rights" interpretation of the U.S. patent law system and it focuses on the rights of inventors - they are of primary consequence, and patent law exists to protect these rights, irrespective of any effect upon the public good.[207] 

It is our opinion that patent trolls exemplify the natural rights theory in the U.S. patent law system.  It is worth noting that this is the approach the Court took in Continental Paper Bag, where it granted an injunction to the patentee even though it was not practicing the invention, i.e., it was a prehistoric patent troll.  It remains to be seen whether the Court will reaffirm this long-standing precedent favoring inventor's rights following MercExchange v. Ebay and other key patent troll cases.

[*] Joe Brennan is a J.D. student and Hui-Wen Hsueh, Miyuki Sahashi and Yasuo Ohkuma are IP LL.M. students at the University of Washington School of Law. They wrote this collaborative research article for Professor Toshiko Takenaka's Advanced Patent Law Seminar.

[1] Ellen McCarthy, Waiting Out A Patent Fight With EBay, Washington Post, Jan. 6, 2005, at E01, available at

[2] Id.

[3] See

[4] Hoover's In-Depth Company Records, Mar. 2, 2006, available at 2006 WLNR 3541856.

[5] Id.

[6] MERCEXCHANGE, L.L.C. v. EBAY, INC., ET AL, NO. 2:01cv00736 (Docket) (E.D.Va. Sept. 26, 2001).

[7] U.S. Patent Nos. 5,845,265, 6,085,176, and 6,202,051.

[8] See MercExchange, L.L.C., v. eBay, Inc., 401 F.3d 1323, 1326 (2005) for a discussion of the procedural and factual background.

[9] Id.

[10] Id.

[11] Id. at 1339. ("We therefore see no reason to depart from the general rule that courts will issue permanent injunctions against patent infringement absent exceptional circumstances.")

[12] eBay Inc. v. MercExchange, L.L.C. 126 S.Ct. 733 (2005).

[13] See Eolas Corporate Profile, available at

[14] U.S. Patent. No. 5,838,906 (the '906 patent).

[15] Hoover's In-Depth Company Records, Mar. 8, 2006, available at 2006 WLNR 3883356.

[16] Id.

[17] See Eolas Technologies Inc. v. Microsoft Corp., 399 F.3d 1325, 1328-32 (Fed. Cir. 2005) for the factual and procedural background.

[18] 399 F.3d at 1341.

[19] Id.

[20] Id. at 1332.

[21] See Press Release, University of California, U.S. Patent Office reaffirms University's Web-browser technology patent (Sept. 28, 2005), available at    

[22] 126 S.Ct. 568 (2005)

[23] Microsoft Bows to Eolas, Revamps IE's Multimedia Handling, eWeek, Dec. 2, 2005, available at,1895,1895907,00.asp.

[24] A search of the Westlaw ALLNEWS database using the terms "RIM & NTP" turns up 1789 documents as of Mar. 14, 2006, compared with 147 for "Microsoft &Eolas" and 168 for "eBay & MercExchange."

[25] Hoover's In-Depth Company Records, Mar. 8, 2006, available at 2006 WLNR 3878864.

[26] See Mike Hughlett, Blurry on Blackberry, Chicago Tribune, Feb. 19, 2006 available at,1,2188886.story?coll=chi-techtopheds-hed  (describing Campana's history of invention and formation of NTP); see also Kim Isaac Eisler, BlackBerry Blues, Washingtonian (Sept. 1, 2005), available at (detailing the dispute from the point of view of the law firms involved).

[27] See NTP, Inc. v. Research in Motion, Ltd., 418 F.3d 1282, 1290 (Fed. Cir. 2005) (petition for reh'g en banc denied Oct. 7, 2005) (discussing the procedural history).

[28] Press Release, RIM, U.S. Patent And Trademark Office To Reexamine Patents Disputed In NTP Inc. Vs. RIM Litigation (Jan. 14, 2003) at

[29] NTP, Inc. v. Research in Motion, Ltd, No. Civ.A. 3:01CV767, 2003 WL 23100881, (E.D.Va. Aug. 5, 2003) (final order).

[30] NTP, Inc. v. Research in Motion, Ltd., 392 F.3d 1336 (Fed. Cir. 2004) (later withdrawn)

[31] Ellen Simon, Maker of BlackBerry settles patent-infringement suit, Seattle Times, Mar. 17, 2005, at E3.

[32] Simon Avery, Collapse of RIM's patent deal with NTP stuns investors, Toronto Globe and Mail, June 11, 2005, at B5.

[33] 418 F.3d at 1325-26.

[34] Judge denies RIM's request to enforce patent settlement agreement, CBC News, (Nov. 30, 2005) at

[35] NTP, Inc. v. Research in Motion, Ltd., 397 F.Supp.2d 785 (E.D. Va. 2005).

[36] Research In Motion, Ltd. v. NTP, Inc., 126 S.Ct. 1174 (2005).

[37] Simon Avery, Rejection issued on NTP patent in RIM battle, Toronto Globe and Mail, Feb. 23, 2006, at B3.

[38] Joshua Brockman, Judge defers ruling on BlackBerry case, International Herald Tribune, Feb. 25, 2006, at 15.

[39] Press Release, RIM, Research In Motion and NTP Sign Definitive Settlement Agreement to End Litigation (Mar. 3, 2006) at

[40] See, e.g., Steven Levy, BlackBerry Deal: Patently Absurd, Newsweek, Mar. 13, 2006, at 12.

[41] Wikipedia, (last visited Mar. 1, 2006)

[42] Japan Patent Office, (last visited Mar. 1, 2006) (Japan).

[43] Ford Motor Co. v. Lemelson, 42 U.S.P.Q.2d 1706, 1711 (D.Nev. 1997).

[44] See Robert G. Sterne et al., The US Patent Landscape for Electronics Companies, 22 No. 9 Computer & Internet Law. 1, 5 (2005).

[45] Symbol Technologies v. Lemelson 301 F.Supp.2d 1147, 69 U.S.P.Q.2d 1738 (D.Nev. 2004).

[46] Dennis Crouch of the Patently O blog recently highlighted two patents granted to applications filed in the 1930s and not granted until 2000! See; see also U.S. Pat. Nos. 6,097812 and 6,130,946.

[47] Breda Sandburg, Inventor's Lawyer Makes a Pile from Patents, The Recorder, July 30, 2001.

[48] Id.

[49] Id.

[50] Bruce Perens, Software Patent v. Free Software,

[51] Wikipedia,

[52] Testimony of The Honorable Q. Todd Dickinson, Perspectives on Patents: Harmonization and Other Matters, United States Committee on the Judiciary (2005), available at

[53] The Patent Mafia,

[54] Ryousuke Takatsuki, Minisutori Chizai-Bizinesu-Kousyou to Fainansu, IP business negotiation and finance, 58 No.8 Patent 33, 33 (2005).

[55] "Has the Enemy of Patent Trolls Become One?", CIO Insight, (December 5, 2005), available at,1540,1902291,00.asp

[56] Id.

[57] Id.

[58] Id.

[59] See Acacia Technologies, About Us,

[60] Jeremiah Chan & Matthew Fawcett, Footsteps of the Patent Troll, 10 No.1 Intell. Prop.L.Bull.1, 1-2 (2005)

[61] Supra note 59

[62] Id.

[63] See Mosaid Technologies Inc.,  See also

[64] Id.

[65] Andrew Wahl, Cash your chips,

[66] See IPValue Management Inc.,

[67] Id.

[68] William M. Bulkeley, Patent Litigant Pose Growing Threat to Business, The Wall Street Journal, available at

[69] Mark Voorhees, Ethereal Asset, Intell. Prop. L. & Bus., June 2004 at 40

[70] Id.

[71] Supra note 60, at 2

[72] Id.

[73] David G. Garker, Troll or no Troll? Policing Patent Usage with an Open Post-Grant Review, Duke L. &Tech. Rev. 9, 7(2005)

[74] Supra note 60

[75] 28 U.S.C. §2201 (a)

[76] See Rambus Inc.,

[77] See Infineon Technologies,  See also Micron Technology,  See also Hynix Semiconductor,


[79] See Forgent Networks,

[80] Jennifer Reingold, Patently Aggressive, 2006 WLNR 48629

[81] See Unisys,

[82] The GIF Controversy,

[83] Id.




[87] Hearing on an Amendment in the Nature of a Substitute to H.R. 2795 the "Patent Reform Act of 2005" Before the U.S.H.R. Comm. on the Judiciary Subcomm. on Courts, the Internet, and Intellectual Property, 109th Cong. (2005) (statement of Robert B. Chess, Executive Chairman, Nektar Therapeutics, San Carlos, California), available at

[88] United States Patent And Trademark Office, Performance and Accountability Report

for Fiscal Year 2005 119 (2005), available at

[89] Id. at 121.

[90] Id.

[91] Beisangyokai wo yurugasu (?) "patento tororu": dottokomu bumu/houkai ga motarashita shinshu no tokkyokennshatachi [ Will They Shake up U.S. Industry? "Patent Troll": New Patent Owners Brought by Collapse of the .com boom], IPR, February 2005, at 67.

[92] Hearing on "Patent Law Reform: Patent Injunctions and Damages" Before the Senate Judiciary Subcomm. on Intellectual Property, 109th Cong. (2005) (Statement of J. Jeffrey Hawley, President, Intellectual Property Owners Association). available at

[93] Amendment in the Nature of A Substitute to H.R. 2795, the Patent Act of 2005: Hearing on H.R. 2795 Before the Subcomm. on Courts, Intellectual Property and the Internet Comm. on the Judiciary U.S.H.R., 109th Cong. (2005) (statement by Emery Simon) available at

[94] Donald S. Chisum, Reforming Patent Law Reform, 4 J. Marshall Rev. Intell. Prop. L. 336, 340 (2005).

[95] Hawley, supra note 9

[96] Chisum, supra note 11, at 340

[97] Hawley, supra note 9

[98] Id.

[99] See Chess, supra note 4

[100] Hearing on "Perspectives on Patents: Harmonization and Other Matters" Before the S. Judiciary Subcomm. on Intellectual Property, 109th Cong. (2005) (Statement of The Honorable Q. Todd Dickinson, Former Under Secretary of Commerce for Intellectual Property and Director of the United States Patent and Trademark Office and Vice President and Chief Intellectual Property Counsel, General Electric Company Fairfield, CT). available at

[101] See Hawley, supra note 9

[102] 28 U.S.C. § 2201 (2000).

[103] See, Inc. v. Furnace Brook, LLC, Case No. 2:05-CV-00679 PGC, 2005 U.S. Dist. LEXIS 25983 (D. Utah, Oct. 31, 2005).

[104] See n. 47, supra.

[105] Overstock at *3.

[106] Id. at *1.

[107] 112 F.Supp.2d 1223 (D.Colo. 2000)

[108] Id. at 1225.

[109] See Red Wing Shoe Co. v. Hockerson-Halberstadt, Inc., 148 F.3d 1355 (Fed.Cir. 1998) (holding that there was no personal jurisdiction over a defendant patentee in a declaratory judgment action where the patentee's only contacts with the forum were three cease-and-desist letters sent to the plaintiff).

[110] 112 F.Supp.2d at 1234.

[111] Id. at 1228. (The court cited PDK Labs, Inc. v. Friedlander, 103 F.3d 1105, 1109 (2d Cir.1997) for support on this point. In that case, the defendant was an early patent troll: he had a patent for a method of producing weight loss by administering a specific product, but did not market a product for the general public.)

[112] Id. at 1229.

[113] See, e.g., Randall Stross, Why Bill Gates Wants 3,000 New Patents, The New York Times, July 31, 2005, at 33.

[114] See, e.g., Rob Garretson, Intellectual Security: Patent Everything You Do, Before Someone Else Does, CIO Insight, Dec. 5, 2005 ("Building a solid patent portfolio is key, particularly in industries such as financial services that are attracting increased attention from patent assertion firms.") available at,1397,1902227,00.asp.

[115] Id. (Noting that a patent arsenal "can encourage trolls to move on to easier marks.")

[116] Id. (Stating that aggressively building a patent portfolio helps document business processes which can help prove prior use of a patented method and thus defeat infringement claims.)

[117] The number of US patent applications has been steadily increasing.  In 2004, the latest year for which statistics are available, there were 382,139 applications, a 21% increase since 2000. See U.S. Patent Statistics Chart, Calendar Years 1963 - 2004, available at

[118] See

[119] See

[120] Seth Lubove, A Patent On Porn, Forbes (Apr. 4, 2003), available at

[121] See   

[122] See Brenda Sandburg, Porn, Cable And A Troll: Industries Run Up Against Huge Patent Enforcer, The Recorder (Jun. 29, 2005).

[123] See Jeremiah Chan and Matthew Fawcett, Footsteps of the Patent Troll, 10 No. 1 Intell. Prop. L. Bull. 1 (2005).

[124] See Diamond v. Chakrabarty, 447 U.S. 303 (1980) ("anything under the sun that is made by man."); Diamond v. Diehr, 450 U.S. 175 (1981) (allowing a patent on transformative industrial process implementing a mathematical formula); State Street Bank & Trust v. Signature Financial Group, 149 F.3d 1368 (Fed. Cir. 1998) (holding that the transformation of data by algorithm is patentable method); Ex parte Lundgren, Appeal No. 2003-2088 (BPAI 2005).  (holding that there is no independent technological arts requirement).

[125] Ronald J. Mann, Do Patents Facilitate Financing in the Software Industry?, 83 Tex. L. Rev. 961 (2005).

[126] See Texas Digital Systems, Inc. v. Telegenix, Inc., 308 F.3d 1193 (Fed. Cir. 2002) (panel decision) (holding that dictionaries and other sources may be used to inform the meaning of claim terms).

[127] Phillips v. AWH Corp., 415 F.3d 1303 (Fed. Cir. 2005).

[128] Kevin Maney, Examiners can't keep up with patent applications, USA Today, Sept. 20, 2005.

[129] H.R. Rep No. GAO-05-720 (June 15, 2005). The USPTO Has Made Progress in Hiring Examiners, but Challenges to Retention Remain.

[130] USPTO 2005 Annual Report at 5, available at

[131] Donald S. Chisum, Principles of Patent Law 1287 (2d ed. 2001).

[132] 210 U.S. 405 (1908).

[133] Dawson Chemical Co. v. Rohm and Haas Co., 448 US 176, 215 (1980).

[134] See, e.g., BlackBerry Blues, n. 26, supra (noting that RIM counsel Jones Day had a reputation for "constantly seeking tactical advantages through continuances and motions.")

[135] 35 U.S.C. § 284.

[136] See State Indus. Inc. v. Mor-Flo Indus., Inc., 948 F.2d 1573, 1576 (Fed. Cir. 1991).

[137] Stickle v. Heublein, Inc., 716 F.2d 1550, 1565 (Fed. Cir. 1983)

[138] See, e.g.,, an entire website devoted to patents that are silly and/or spurious in the author's opinion.

[139] KSR Intern. Co. v. Teleflex, Inc., 126 S. Ct. 327 (2005).

[140] See, e.g., Christian A. Chu, Empirical Analysis of the Federal Circuit's Claim Construction Trends, 16 Berkeley Tech. L.J. 1075, 1078-79 (2001) (suggesting the Federal Circuit has failed to achieve greater predictability).

[141] ADC Technology Inc., (last visited Mar. 1, 2006).

[142] NTT DoCoMo, Inc., (last visited Mar. 1, 2006).

[143] See Masatake Sugiura, NTT DoCoMo won the "2 displays patent" litigation, ITMedia, (last visited Mar. 1, 2006) (Japan).

[144] See Japan Patent Office, Material 4-3 of the Intellectual Property Litigation Investigative Commission, (2002), (Japan).

[145] Minsohō art. 6, para 1 (Japan).

[146] See Teleflex, Inc. v. KSR Intern. Co., 119 Fed.Appx. 282 (Fed. Cir. 2005), petition for cert. filed, 2005 WL 835463 (U.S. Apr. 06, 2005) (NO. 04-1350).

[147] See Chiteki Zaisan Koutou Saibansyo Settiho [Intellectual Property High Court Establishment Law], Law No. 119 of 2004 (Japan).

[148] 35 U.S.C. §284; See Slimfold Manufacturing Co., inc. v. Kinkead Industries, Inc., 932 F.2d 1453, 18 USPA2d 1842 (Fed. Cir. 1991) ("The entire market value rule allows a patentee to recover damages based on the value of an entire apparatus containing several features, when the feature patented constitutes the basis for customer demand")

[149] Tokkyoho [Patent Law], Law No. 102 of 2005, art 102 (Japan); See Mansei-Kogyo Kabushiki-Gaisya v. Oregon-syu-Kumiai Nosukon, 51 Minshu 2573 (Sup. Ct., July 11, 1997) (Japan).

[150] See Kazuo Masui & Yoshiyuki Tamura, Tokkyo Hanrei Gaido [Patent Precedent Guide] 294 (2d ed. 1997).

[151] 35 U.S.C. § 302.

[152] Tokkyoho [Patent Law], Law No. 102 of 2005, art 123 (Japan).

[153] 28 U.S.C. §1295 (a)

[154] §1-§2, Fayuan Chuzhifa (Organic Law of Court Organization, Republic of China)

[155] §182, Minshi ShuSongfa (Law of Civil Procedure, Republic of China)

[156] 35 U.S.C. § 283

[157] Id. note 155, §538

[158] Id. §79

[159] Judicial Yuan of Republic of China, Judicial Statistic,

[160] Id.

[161] Bruce Einhom ET AL., Why Taiwan Matters, Business Week, May 16, 2005

[162] Id.

[163] James Kanter, A New Battlefield: Ownership of Ideas, International Herald Tribune, October 3, 2005 available at

[164]  BTG announced that they would change business "to focus solely on early-stage opportunities in the life-science sector". They maintain the patent infringement suit against etc.

[165] Scalet Pruitt, Internet Trading Giants Face Patent Challenge, September 18, 2004,


[167] Pruitt, supra note 3

[168] See Yoko Sueoka, Oushu sofutouea tokkyo nitsuite kangaeru [ Considerations of European Software Patent] December 19, 2005,

[169] European Patent Convention art. 52(2)(c), October 5, 1973. available at

[170] mhatta, Oushu sofutouea tokkyo wo meguru kyouso: oushugikai ga hiketsu shita haikei [ Fuss Around European Software Patent: Background for Rejection by European Parliament] July 8, 2005,

[171] Id.

[172] Id.

[173] Id.

[174] Id.

[175] Kazuhiro Matsuda, Tokkyososho niokeru gijyutsutekisouten heno kakkokusaibansho no taiou [ The Handling of Technical Issues by Courts in Patent Litigation], Patent Studies, September 2005, at 22.

[176] Morag Macdonald, Beware of the troll, September 26, 2005

[177] Solveig Singleton, Patents and Loser Pays: Why Not?, Progress on Point, Feb. 3, 2006, at 3. available at

[178] Matsuda, supra note 13

[179] Macdonald, supra note 14

[180] Id.

[181] European Patent Office acting as secretariat of the Working Party on Litigation, Assessment of the impact of the European patent litigation agreement (EPLA) on litigation of European patents, app. (February 2006) available at

[182] Id.

[183] Macdonald, supra note 14

[184] H.R. 2795, 109th Cong. (2005).

[185] See Brenda Sandburg, A Modest Proposal, The Recorder, May 9, 2005.

[186] See the Intellectual Property Owner's Association website for a summary of the various bill versions, available at

[187] See Chan, supra n. 123.

[188] Georgia-Pacific Corp. v. United States Plywood-Champion Papers Inc., 446 F.2d 295 (2d Cir. 1971)

[189] See, e.g., Eolas at 1332 (noting that the jury awarded a royalty rate of $1.47 per unit of infringing product).

[190] Id. at 1336 (remanding for proceedings on the issue of inequitable conduct).

[191] See Chan, supra n. 123 at 8.

[192] H.R. 2795, 109th Cong. (2005).

[193] Id.

[194] Id.

[195] David G. Barker, Troll or No Troll? Policing Patent Usage with an Open Post-Grant Review, 2005 Duke L. & Tech. Rev. 9 (2005).

[196] Id. at *11.

[197] Elizebeth D. Ferrill, Patent Investment Trusts: Let's Build a Pit to Catch the Patent Trolls, 6 N.C.J.L. & Tech. 367 (2005).

[198] See Ocean Tomo, LLC,

[199] Jason Kirby, Patent troll or producer, Financial Post, Jan 14, 2006

[200] Id.

[201] Chisum at 1279 (citing Rohm & Haas Co. v. Crystal Chem. Co., 736 F.2d 688, 690 (Fed. Cir. 1984)).

[202] 35 U.S.C. § 285 (2000).

[203] Walter Olson, Civil suits - proposed loser-pays rule for lawsuits, Reason, June 1995, available at

[204] Kate Ackley, Roll Call: Patent Pending, Roll Call (May 25, 2005) (quoting Q. Todd Dickinson, vice-president of intellectual property for General Electric), available at

[205] U.S. Const., Art I, Sec. 8, Cl. 8.

[206] Id.

[207] Chisum discusses both the natural rights and the utilitarian theory (preconditioning patent rights upon improving the public welfare) at 42-58.

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