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White House and FTC Target “Patent Trolls”

  +Follow June 21, 2013 10:30AM
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TrollThe White House strengthened their resolve to protect intellectual property (IP) by releasing 2013’s Joint Strategic Plan On Intellectual Property Enforcement. According to the plan, IP is one of the biggest drivers of the American economy, accounting for $5.06 trillion in value added to the US economy, or 34.8 percent of U.S. gross domestic product.

This comes in conjunction with an announcement from FTC specifically targeting so-called “patent trolls.” Patent troll is a pejorative aimed at companies that tend to buy patents, sit on them, and then sue companies, often hoping the company will pay out a settlement rather than risk litigation. Academics James Bessen and Michael Meuer put the direct losses to the economy via patent trolls at $29 billion

 According to the Washington Post, Silicon Valley is ecstatic over the news. Venture capitalist Brad Feld said Obama “clearly understands the patent troll issue and is doing what it can to address the situation without having Congress have to change the law.” And it is very likely the FTC will vote soon whether or not to launch a full-blown investigation into the activities of the patent trolls.

The Phone Trolls

A renewed focus on IP could come as a major blow for companies like Intellectual Ventures (IV), often referred to as a patent troll. IV has raised some $6 billion to date via licensing and threatening litigation against large tech companies. On June 19th IV sued Google’s (GOOG) Motorola for second time, citing IP infringement with several of Motorola’s phones. Two of the seven patents cited in the lawsuit formerly belonged to Nokia (NOK) before IV snatched them up.

 In 2000 so-called patent troll NTP Inc. got Research in Motion (BBRY) to fork over $615 million to keep the Blackberry afloat. Research in Motion has also been sued by Canadian company WiLan (WLN), who still stay very busy in the phone patent litigtation game. WiLan brokered a major deal on June 19 with Korean phone manufacturer Samsung to utilize their patent holdings. Samsung reportedly was concerned if they didn’t enter into the deal they would be sued by WiLan. 

 This practice of targeting struggling companies like Nokia, buying their patents solely for litigious reasons (instead of developmental), and then using that IP as litigation ammunition are just the sort of practices the FTC and White House are hoping to curb. Obama stated in February that patent trolls “don’t actually produce anything themselves. They’re just trying to essentially leverage and hijack somebody else’s idea and see if they can extort some money out of them,” and now it appears the government is starting to act on this sentiment.

The Search Engine Trolls

IV isn’t the only so-called patent troll making big bucks suing major tech companies. Vringo (VRNG), first know as a ring tone company, has become a surprisingly large player in the patent troll game. According to the Journal of Business and Intellectual Property Law, Vringo used a patent they bought off of Nokia (again) for $20 million to successfully sue Google, AOL, Gannett (GCI), IAC (IACI), and Target for infringement on an information filter system. Vringo won several million dollars off of these lawsuits, although that was just a fraction of what they were seeking. Concerning Google alone, Vringo asked for $696 million. And in May  Google competitor Microsoft (MSFT) avoided getting sued by Vringo by agreeing to a handshake deal wrth $1 million.

Patent trolls are a divisive issue politically. Even initializing the FTC investigation into them will require bipartisan cooperation. But for several major companies that employ IP, a crackdown could be a huge boon. And the big tech companies, long wary of angering the trolls, aren't mincing words anymore. A Google spokesperson summed it up like this: “We’re fighting to stop patent trolls’ use of low-quality patents to extort money from companies that actually innovate and make real things."

[Image via Flickr]

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions.

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  +Follow June 21, 2013 10:30AM



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