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Consumer Costs of Patent Trolls

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As the number of Americans using high-tech 'Internet ready' products continues to grow, innovators and companies race to develop new innovative offerings that cater to this widening market. Yet, it seems that with the increase in consumer offerings comes an increase in bad actors looking to profit by limiting the availability of innovative products, tying up patents from productive use, and initiating potentially costly lawsuits in the hope of easy settlements. It is patent abuse and consumers are ultimately the victims.

Capitol Hill, the Federal Trade Commission and the White House all seem focused on the negative effects that Patent Assertion Entities (PAEs), commonly referred to as patent trolls, have on consumers. These PAEs acquire and hold patents with no interest in producing anything and with no desire to innovate. These organizations are frequently criticized for buying up and asserting patent rights through frivolous infringement claims in the hopes of recovering hefty legal settlements from those they attack.

One may suggest that if these infringement claims lack merit, why not just take the PAE to court and allow the judicial system sort it out? Well that may be an option for larger companies, albeit an expensive one, but smaller businesses frequently cannot afford the legal fees associated with these often very complicated intellectual property cases.

The problem gets worse, considering that some foreign governments have gotten into the patent trolling fray. France and several Asian countries have begun to form what is being referred to as Government Sponsored Patent Trolls (GSPTs). These foreign government funded and supported trolls are buying up as many patents as they can, usually patents originating in that country, and suing foreign companies and individuals for infringement. France Brevets, for example, was funded by the government to the tune of 100 million Euros. This GSPT openly states its intention to favor French businesses "in order to leverage on French assets, the best is sometimes to complement assets of French origin with assets coming from outside France."

The Italy-based patent troll Sisvel was founded in 1982 to collectively patent technologies that were widely used by Italian television manufacturers like Seleco, Brionvega and Imperial. Since it's founding Sisvel has grown into a dominant intellectual property holding behemoth, which produces nothing. Sisvel currently owns the rights to 12 separate pools and patent programs, many comprised of hundreds of patents per pool. One important differentiation between Sisvel and its patent troll peers is the length it is willing to go to push its infringement accusations.

If a foreign government subsidizes its domestic manufacturers, it would be regarded as an unfair trade practice. How is it different when a foreign government subsidizing trolling to impose costs on international competitors? There is no difference.

The business of patent trolls prospers because even the most frivolous of suits are usually cheaper to settle than the high costs of a lengthy court battle. That means that GSPTs, and patent trolls in general, have a stranglehold over innovation, they transfer wealth from productive activities to unproductive ones. That costs American jobs.

However, in the end, this means higher costs for consumers. These consumers are completely unaware of the impact that research and development costs can have on the price they pay for their new laptop, e-reader, smartphone, and gaming console. Indeed, it is unlikely that Grandma Flo spends much time thinking about the portfolio of intellectual property that was licensed to make certain she can view family photos. Yet, patents are a key to innovation and production; patent hoarding stifles innovation.

Hopefully, as Congress looks for a solution to the patent trolling issue, they don't forget important policy objectives surrounding innovation, productivity, economic growth and consumer welfare. Patent trolls advance none of these objectives.

Steve Pociask is president of The American Consumer Institute Center for Citizen Research, a nonprofit educational and research institute. For more information about the Institute, visit www.theamericanconsumer.org.

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