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The High Cost of Patent Trolls

Companies whose business is threatening alleged infringers exact money that could fund innovation.
By Kevin Ashton
Dec 01, 2011—As a child, I enjoyed the Norwegian fairy tale "The Three Billy Goats Gruff." In the story, the three goats need to cross a bridge to find food, but a troll threatens to gobble them up if they attempt to pass.

In the RFID world today, we, too, face trolls, only they're called "patent trolls"—people who hold generally worthless patents but threaten companies with legal action for infringing on them unless they pay a large fee. Often, trolls acquire patents for technology they did not develop, buying them for little money from companies that are bankrupt or not seeking to enforce them. Patent trolls do not build anything, nor do they intend to do so. Their entire business model is centered on threatening legal action for patent violation.

The only thing these trolls seem to be good at is making it difficult to take any action against them, regardless of the merits of their claims, which are usually weak. The U.S. patent system makes it hard to quickly dismiss these claims, so while the price of buying off the patent trolls is high, it is lower and less risky than the price of fighting them. Consequently, most companies threatened by trolls decide it's easier and quicker just to pay them. Patent trolls make a lot of money.

In the fairy tale, the troll makes a fatal error. The goats persuade him to obstruct just the biggest and strongest of the three, who simply knocks him off the bridge. The patent trolls have learned from this mistake: They never go after the big companies that might have pockets deep enough to fight them; they focus on smaller players, often startups, that can't afford the dollars or distraction of a fight.

These payments—really nothing more than legal blackmail—are a major drag on the RFID industry (most other tech industries face a similar plight). RFID technology providers could use that money to fund research and development to make better products, lower prices for end users or pay investors. Instead, it goes to people with no intention of ever making anything useful for the advancement of business or the betterment of humanity.

What's the solution? New patent laws—and there are two that could fix all this quickly. One would be to let companies defend themselves from trolls as a group—to take class actions to invalidate patent trolls' patents. The other would be to require anyone asserting a patent to be in the process of making a commercially useful product that incorporates the patent.

These new laws would be within the spirit of the current patent laws, which are intended to encourage useful innovation, but as far as I know, they are not being considered. Until they are, only the fairy tale has a happy ending.

Kevin Ashton was cofounder and executive director of the Auto-ID Center.
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