Are Patent Trolls the next China?

“Just like during the last 20 years it has been wise to move all the production to China, right now it is wise to sell IPs to NPEs. One day the threat will be reality and there are no other options available any more.”

Without any doubt there has been a lot of discussion related to NPEs or patent trolls. Their positive role in patenting has also been mentioned in some articles. After all they are one of the very few entities who are willing to buy patents that may be interesting in the future but only in the future.

But who are the organizations selling their patents and why are they doing so?

That is not hard to answer, there are several institutions who are willing to do so. And for a good reason. This may not be the case globally, but enough to be a fact over large geographical and cultural areas.

Take Finland as an example. It has been stated that granted patents are a good thing and an excellent measure among others how research institutions and universities are performing. Patents can also be listed in CVs and are merit to its inventor. It is especially very tempting when an individual does not have to pay the filing costs. In the long run very few patents actually generate any money for the institutions owning them. The overall costs for filing and holding a patent just in Finland for 20 years costs currently 8650 euros plus fees and patent drafting costs. Single patent easily costs 15 000 euros in minimum for its holder.

And a single patent is no merit for a respectable research institution who would like to enter licensing business in a significant manner. Some patent families may enable that but most not. Once we start talking about patent families in several countries, the costs are easily in the hundreds of thousands of euros or dollars per year. Which would indicate that the income should be higher, hopefully in the millions per year. Which usually is not the case.

In these examples I am leaving out the need and the burden to be able to defend one’s patents against infringement if under attack. Which adds to the costs – I’ve heard that lawyers usually get paid for their work. And that universities and research institutions are not in the litigation business. At least in Finland. They admit that openly as it is not part of research nor teaching that still (barely) is in their main focus.

We also have a lot of startups and small businesses who are trying to push their technologies and products forward. They especially need to have their work protected through patents. If for nothing else, to be investable for the investors. And if the business does not grow fast/big enough, there’s always the option to minimize the losses by selling the patents.

So when someone tries to sell a patent or a patent portfolio, NPEs are a good or perhaps the only option.

Sometimes they are used as  a strategic option as it is possible to build bigger patent portfolios and lessen the chance of an attack against a single, vulnerable company. We have seen a lot of evidence about such strategies when large corporations sell or out-license major parts of their patent portfolios to a newly formed or an existing company. Whose only task is to take care, license and defend those patents.
So it is good that there is someone out there willing to buy all these patents nobody finds valuable short term. Or is it?

Currently US patent office grants roughly 500 000 patents every year. I have not checked the latest numbers, but it is easy to guesstimate that in minimum NPEs acquire thousands to tens of thousands of patents per year. Even individual deals have included thousands of patents. NPEs also generate their own patents as we have shown in previous blogs.

After a (long) while they end up owning a lot of patents, more than today. I.e. there are entities out there who own patents that are just waiting to be able to cash their investments in a way or another. And they are not doing it just for fun, they are doing it for the business that other businesses fund directly or indirectly.

Some of such ways may be less worrying than making humanitarian help impossible, harder or just cost more, but it still begs to ask and answer if the whole patenting model overall is sustainable.

What comes out of the equation when everyone has the incentive to sell to patent trolls?

Is it like with China’s factories that everyone sees them as the best or the only option to do any production at all? After a while there is nobody else capable of producing anything or with limited capacity at best. Will it be the same for the patents that some NPEs end up owning most of the patents and actually control the markets through a common “nuclear threat”. Either you belong to one of the (future’s) major patent camps or pay dearly. If you belong to a group, you just pay a little less.

There are a lot of examples in the history that have resulted in such polarized systems. Soon to be ex music-mega-mogul-industry being one of them. The big ones control the rules and the prices.

Will it be the same for patents within the next 10-20+ years? I hope not, but I am afraid it will be the case. Unless the system is changed in a way or another when patents are once again more about inventions and building a better future. Producing exciting things than just plain business and maximizing profits.

Wishful thinking.

Before we stopped actively working on the Project Troglodyte, we found out there is not enough interest about the topic (or threat seen big enough) in Finland nor in Europe. It seems that in the US the view is changing and counter measures are planned. Very similar to what we have discussed in Troglodyte and Zygomatica during the last two years. Luckily some of the US projects and instances get the resourcing we never had.

In today’s Finland too many companies and institutions are focusing on cutting costs and turning (especially IT) experts with ideas into couch potatoes. Which seems to be a governmental goal, planned or unplanned.

If there is no interest, there are no resources. In the current economy everyone in Finland is just trying to cope and don’t need new ideas that cannot be built. Also in this scenario NPEs are a good thing and they are entering Finland that was seen improbable just a year or two ago.

Just like during the last 20 years it has been wise to move all the production to China, right now it is wise to sell IPs to NPEs.

One day the threat will be reality and there are no other options available any more.