Non-Practicing Patent Assertion Entities or ‘Patent Trolls’ – What Are They?
Richard Gasparini1
WHAT IS A NON-PRACTICING PATENT ASSERTION ENTITY? Investopedia defines non-practicing patent assertion entities [hereinafter referred to as “NPEs”] or, to use a colourful metaphor, patent “trolls” as:
[p]eople or companies that misuse patents as a business strategy. A patent troll obtains the patents being sold at auctions by bankrupt companies attempting to liquidate their assets, or by doing just enough research to prove they had the idea first. They can then launch lawsuits against infringing companies, or simply hold the patent without planning to practise the idea in an attempt to keep other companies productivity at a standstill.2

Apparently, there is a measure of diversification within the trolling enterprise. There are at least three types. Each one approaches the business of patent trolling from a different, albeit profit-driven, perspective. There are: (1) lottery-ticket trolls, (2) bottom-feeder trolls, and (3) patent aggregator trolls.3 The first type is absolutely convinced that it has patented a reinvention of the wheel. It does not actually manufacture a tangible product based upon the invention. Instead, it lurks in the background, waiting for a techno-giant to discover and desire or infringe upon the patent, and this carries the potential for a settlement or litigation bonanza.
The second and most common4 type of troll in intellectual property compares to an ‘ambulance-chaser’ litigation lawyer who always guarantees a settlement against the tortfeasor. This is because while there is posturing by threatening and even initiating litigation, the end-sum reality is a negotiated settlement at all costs. Lemley and Melamed suggest that: while no individual patent suit in this model makes a lot of money, the model can be lucrative because patent holders can sue lots of defendants on the same patent, forcing multiple settlements, and because there are lots of patents to be had for very little money as long as quality is unimportant.5

The third type of troll and, by far the most sophisticated, elegant and complex is the ‘patent aggregator’. This large-scale business model actually is an exponentially more robust and volumized variation of the bottom-feeder. Often funded by large and highly respectable corporate clients, the NPE creates a truly staggering portfolio of thousands of patents from all over the world covering a veritable encyclopedia of technological innovation. The NPE often styles itself as an intellectual property asset manager but its ultimate functionality rests upon its sustained ability to trade in and monetize intellectual property on a global scale. Similar to the bottom-feeder, the patent aggregator may dangle the threat of litigation against a backdrop of polite license negotiations, but litigation actually is eschewed as a last resort and perhaps not even then.
WHAT ARE THE COMMON OBJECTIONS LEVELLED AGAINST NPEs? The negative comments levelled against NPEs are so numerous (and often venomous) that only a very small sampling of them can be mentioned. President Obama, referred to by some as the “patent troll slayer,” recently introduced a Bill and issued a number of executive orders aimed at eliminating the most pervasive criticisms of NPEs. It is the “I’m going to sue you unless you pay me to go away” mentality associated with patent trolling.6 The criticism is that such a mindset encourages useless, expensive and time-consuming litigation which, in turn, redirects the entrepreneurial focus away from where it should be on technological innovation and development.
A second, frequent criticism is that “patent trolls do not themselves invent anything, but buy patents from others and, because they do not even care whether the patents they buy are any good, they impose substantial costs on innovative companies without contributing anything to the world”.7 It is perhaps a romanticized scenario,