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If the general conception of patent trolls (entities that do not manufacture their own products nor participate in markets in which they hold patents) is readily addressed, what is there left to call a patent troll? There is one category of entities unaddressed by the explanations I previously gave (link above): patent licensing firms. These entities are relatively new, yet have caused controversy because they hold patents and the ability to pursue litigation with them. So, are such firms patent trolls?
A recent article in the Emory Law Journal poses the question of whether patent licensing firms are patent trolls, and answers, no, at least not in the negative sense; while arguing that these entities can positively impact the market for patents and consequently innovation. James McDonough, Emory University School of Law, The Myth of the Patent Troll: An Alternative View of the Function of Patent Dealers in an Idea Economy, Emory Law Journal, Vol. 56,189, 2006 (available at SSRN).
An impressive, and clarifying, aspect of the article is that McDonough distinquishes the controversies of patent quality and patent thickets from the concept of patent trolls. These are all distinct issues, although several high-profile patent cases have solidified a fuzzy association between them in the minds of many policy commentators. Patent trolls neither cause nor are responsible for poor quality patents and patent thickets. Patent trolls also do not generate unnecessary litigation above other patent holders. Once these veils are removed, McDonough refers to the “purified” activities of patent trolls as undertaken by patent licensing firms, or, “patent dealers.”
McDonough argues that patent dealers play an important role in the Internet economy. They serve as intermediaries for intellectual property transactions, and facillitate what McDonough refers to as the “market for ideas;” that diffuses innovations across the technological community and society. First, by increasing patent liquidity and decreasing risk, patent dealers incentivize individual inventors and small entities to invent, making more technology available to the public.
Second, patent dealers serve as a focal point for the patent market. By acting as a market intermediary for patents, collecting information regarding patents and their associated industries, and forming relationships with corporations, a patent dealer becomes a focal point for those who create and seek technology. This results in easier and broader access to inventions.
Third, patent dealers encourage people to invent around patents. With knowledge that patent dealers will enforce patents, potential infringers are forced to either license technology, or increase research and development to invent around these patents. Regardless of the choice, the end result for the public is broader access to works. Patent dealers are a free-market response to potential failures in the evolving market for patents, resembling the role played by securities dealers in capital markets. They facillitate transactions in buying, selling and licensing patents. Small firms and independent inventors can gain access to the market for patents through patent dealers, enabling them to hedge their risks and investments, and align incentives with larger firms to exchange technologies. The net effect is positive for an economy that relies on intellectual creations and technological progress.The presence of patent dealers in the market allows individual inventors and small entities to gain easy access to the patent market. Increased patent liquidity and reduced risk gives inventors more incentive to invent, which results in advancement within that particular industry. An interesting point made by McDonough is that the threat of litigation brought by patent dealers is not per se injurious to innovation (any more than that from any other patent holder), and has some positive effects. These are basic observations of the patent landscape that may be distorted by current political wariness over patent litigation. Although the cost of litigation potentially hampers innovating activity, without some credible threat of patent enforcement, there is no value in holding a patent. With the possibility of enforcement, firms are encouraged to exchange technologies through licensing. On this regard, patent dealers provide value to small firms and independent inventors, who often lack the resources to challenge large firms. However, to date, I'm not aware of any patent licensing firm bringing suit, or created with that purpose.
McDonough's article falls within academic research on the transactional value of patents and the market for patents, espoused by scholars like Paul Heald and Robert Merges, as well as Mark Lemley. I especially like how McDonough describes patent licensing firms as a step in the evolution of intellectual industries, which has been alluded to by Henry Chesbrough: “As innovation becomes a more open process, intermediate markets have now arisen in which parties can transact at stages which previously were conducted entirely within the firm... specialist firms now provide information, access, and even financing to enable transactions to occur.”
McDonough’s work is important and definitely worth a read. Those interested in markets should look at the section on: Emergence of Patent Dealers: A Necessary Step in Market Evolution. Still, I do take issue with McDonough’s handling of the term “patent troll,” as he could have emphasized it more as a distinct, but often conflated concept, with patent dealers. Such a simplified approach takes into account the fact that policy commentators will continue to (mis)use the term patent troll, without specifying its meaning. As for myself, I call patent trolls those who game the system, and patent dealers those who facillitate productive transactions in the system. This is a sufficient demarcation as I simply do not see a lot of overlap between patent trolls and patent dealers; and I've never questioned that patent licensing firms were in fact not trolls- perhaps because I see them as merely specializing in transactions that have long occurred (in some form) in the industries.
posted by Noel Le @ 7:00 AM | Academia, Patents
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