Does Patent Trolling Actually Put Innovation at Risk?

By Haneen Daham

Many practitioners are vaguely acquainted with the concept of patent trolls, but are unfamiliar with its nuances. On a superficial level, one might recognize that the term “patent troll” is a pejorative moniker used to refer to a patentee that does not manufacture a consumer product.[1] This name is typically traded for a more neutral alternative: non-practicing entities (NPEs). Rather than make, use, or sell new products and technologies, trolls obtain essentially defunct patents to force third parties to purchase licenses.[2] They accomplish this by waiting for an industry to utilize a patented technology and then force the alleged infringers to either pay up or litigate.[3] Patent trolls can be divided into three categories: (1) those that purchase other companies’ controversial patents to assert them against an industry; (2) those that originally sold products but have either completely or largely closed their operations to focus on patent licensing; and (3) those that act as agents to help assert patents on behalf of patent owners for a fee.[4] Despite these variations, the business model of the average “troll” is largely uniform: (a) accuse a company of infringing a patent and offer a license for a royalty on sales; and (b) sue the target company if it does not agree to a license.[5]

According to critics, “trolls” do not contribute to innovation because they have no interest in finding business solutions or encouraging technology development, partnerships, or cross-licensing opportunities.[6] Their goal is simply to maximize profit margins from litigation, which is possible given the current patent climate. For one, the understaffed and underfunded United States Patent and Trademark Office (“USPTO”) is inundated with hundreds of thousands of ambiguous and dubious patent applications, some of which slip under the proverbial radar and get approved.[7] These “bad” patents are ultimately seized by patent trolls who then exact a toll on companies that commercialize certain technologies.[8] For companies that become targets of trolls, the high cost of litigation resulting from judicial uncertainty leaves them with no choice but to settle. If the high cost of litigation fails to deter a company from pursuing litigation, the severely constrained avenues of defense might do it. Ordinarily, a company’s patent portfolio would bolster its case against an infringement charge; however, it holds little value when dealing with a patent troll because trolls do not make or sell products, thus, the “target company has no basis for filing a countersuit, and [] no leverage to create an incentive for a . . . business resolution.”[9]

As patent trolls expanded their victim pool, Congress responded by proposing the Patent Reform Act of 2005[10] (“PRA”)—the most comprehensive change to patent law since the passage of the Patent Act of 1952. As it relates to patent trolling, the PRA proposed to give trolls a harder time in court by lowering the threshold for invalidating patents, thereby giving the target company a fighting chance to challenge dubious patents seized by trolls. Although the PRA was eventually passed as the Patent Reform Act of 2007, many inventors voiced dissatisfaction with the Act’s effect on the patent industry, arguing that the new rules failed to fix the underlying problems that lead to patent troll lawsuits. Thus, they’ve called on Congress and the White House to, once again, reform the patent system. However, critics contend that the patent system does not need fixing because there is no evidence that trolls hinder innovation.[11] This camp argues that calls for reformation are driven by a few large companies that do not want to pay inventors. They maintain that patent trolls strategically file suits in lucrative industries, but are not responsible for the recent surge in patent-related dockets. However, recent research suggests otherwise.

Three empirical studies—cited by the White House and the Congressional Research Service—provide “strong confirmation that patent litigation is reducing venture capital investment in startups and is reducing R&D spending, especially in small firms.”[12] Research reveals that patent trolls cost defendant firms $29 billion per year in out-of-pocket fees and destroy over $60 billion in firm wealth per year.[13]

In light of this evidence, what should an attorney do when representing new inventors and startups facing an infringement allegation from an NPE?

  • Be sure to comply with all notice requirements—failure to do so will allow the NPE to assert an easy willfulness claim.
  • Submit a list of clarifying questions to the complaining NPE to understand how the troll’s patent applies to the allegedly infringing technology. This will help the alleged infringer look for contradictions in the patent, which might reveal inequitable conduct, in order to devise a defense strategy for a possible pre-trial settlement. Note that trolls sometimes hope to scare new companies into paying for a license without a reasonable basis for alleging infringement. Thus, this step proves incredibly important in identifying whether there is a reasonable basis for the claim.

[1] Robert P. Merges, The Trouble with Trolls: Innovation, Rent-Seeking, and Patent Law Reform, 24 Berkeley Tech. L. J. 1583, 1587 (2009).

[2] Jeremiah Chan and Matthew Fawcett, Footsteps of the Patent Troll, 10 Intell. Prop. L. Bull. 1 (2005).

[3] See Chan and Fawcett, supra note 2 at 1.

[4] See Chan and Fawcett, supra note 2 at 1-2.

[5] See Chan and Fawcett, supra note 2 at 3.

[6] See Chan and Fawcett, supra note 2 at 3.

[7] See Chan and Fawcett, supra note 2 at 4.

[8] Michael Risch, Patent Troll Myths, 42 Seton Hall L. Rev. 457, 459 (2012).

[9] See Chan and Fawcett, supra note 2 at 4.

[10] H.R. 2795, 109th Cong. (2005). Later enacted as H.R. 1908, 110th Cong. (2007).

[11] See, e.g., Stephen Haber and Ross Levine, The Myth of the Wicked Patent Troll, The Wall Street Journal, June 29, 2014, available at

[12] James Bessen, The Evidence Is In: Patent Trolls Do Hurt Innovation, Harvard Business Review, Nov. 2014, available at

[13] James Bessen & Michael J. Meurer, The Direct Costs from NPE Disputes, 99 Cornell L. Rev. 387, 408 (2014).

NFL Player’s Lawsuit Against League Likely To Go Three and Out: Union Faces Uphill Battle in Convincing Court To Set Aside Labor Arbitration Award

By Tim VanCisin

On Friday, the National Football League Players Association (“NFLPA”) filed an Emergency Motion for a Temporary Restraining Order or Preliminary Injunction on behalf of Ezekiel Elliott – an NFL running back – to prevent the NFL from enforcing a six-game suspension it imposed on Elliott for violating its domestic violence policy. NFL Commissioner Roger Goodell executed the six-game suspension after NFL investigators found that Elliott harmed his accuser, Tiffany Thompson.

The NFLPA lawyers filed the brief in the U.S. District Court for the Eastern District of Texas. Interestingly, the brief was filed before Arbitrator Harold Henderson released his findings regarding Elliott’s appeal of the suspension.[1] This was likely done for two reasons. First, it is highly unlikely that Henderson will vacate or reduce the suspension. The Collective Bargaining Agreement (“CBA”) between the NFL and NFLPA allows the NFL to appoint the arbitrator in all disciplinary matters. Thus, Goodell chose Henderson – a longtime NFL executive – to arbitrate a decision handed down by Goodell, based on a standard created by the NFL. Although the local district attorney who investigated Elliott declined to bring charges, the NFL does not need to meet the same standards to impose discipline. When the U.S. Court of Appeals for the Second Circuit reversed District Judge Richard Berman’s “Deflategate” ruling and affirmed Goodell’s four game suspension of Tom Brady in Nat’l Football League Mgmt. Council v. Nat’l Football League Players Ass’n,[2] it established important precedent that under the current CBA, the NFL may create policies that require far less proof than courts to discipline players. Thus, Elliott and his lawyers have no reason to believe that Henderson will find the NFL violated its own policies in imposing the ruling, so they have no reason to believe he will alter the discipline, and hence no reason to wait for him to release his findings.

Second, Elliott’s lawyers likely did not want to end up in the U.S. District Court for the Southern District of New York, the NFL’s preferred litigation grounds. In the Deflategate saga, Goodell not only imposed the discipline on Brady, but he was also the arbitrator to whom Brady appealed. It was well expected that Goodell would uphold the discipline he imposed, and that Brady would then file suit in a federal court. Many expected Brady to file in the U.S. District Court for the District of Minnesota, where Judge David Doty sits. Doty has a history and reputation for siding with employees and players rather than management. However, the NFL anticipated this maneuver by Brady’s team, and moments after Goodell released his findings as the arbitrator, the NFL Management Council filed suit against the NFLPA and Brady in the Southern District of New York, asking the court to uphold its ruling. Anticipating that the NFL would use that same strategy, the NFLPA filed suit before Henderson could release his decision. While the judges in the Eastern District of Texas are generally thought of as siding with management in labor and employment matters, the NFLPA chose it to avoid the Southern District of New York, which views the Deflategate ruling as binding precedent. In Texas, that ruling is merely persuasive.

Regardless of the court, the NFLPA faces an uphill battle in convincing the court to overrule an arbitration award that was decided under the interpretation of its CBA. The Supreme Court has held that an arbitration award may not be overturned when “[the decision] draws its essence from the collective bargaining agreement”[3] and is not made in “manifest disregard of the law.”[4] As the CBA between the NFL and the NFLPA allows Goodell to impose discipline for conduct detrimental to public confidence in the league, and allows him or his representative (in this case Henderson) to arbitrate challenges to this discipline, it will not be hard for any court to find that the arbitrator acted within the scope of his authority in upholding Elliott’s six-game ban.

Elliott’s main argument is that the league’s appeals process was “fundamentally unfair,” and did not satisfy federal labor law’s minimal due process requirements. Specifically, Elliott argues that he was denied the fundamental right of facing one’s accuser when Arbitrator Henderson declined to grant the NFLPA’s request to have Tiffany Thompson testify at his hearing. But the Supreme Court stated in Major League Baseball Players Ass’n v. Garvey that “[w]hen an arbitrator resolves disputes regarding the application of a contract, and no dishonesty is alleged, the arbitrator’s ‘improvident, even silly, factfinding’ does not provide a basis for a reviewing court to refuse to enforce the award.”[5] His best hope is that the court finds the arbitrator’s denying Elliott from “confront[ing] his accuser and to have her credibility assessed against his” was critical, and led to a fundamentally unfair hearing. Even still, based on the Supreme Court’s high standard, it is unlikely that Elliott and the NFLPA will succeed.

This case serves as a reminder that neither unions or employers may “attempt[] to achieve in arbitration what it failed to win in negotiations.”[6] Here, the NFL was able to choose any arbitrator it liked under the CBA it negotiated with the NFLPA. To avoid one party being able to select a potentially biased arbitrator, parties should ensure that CBAs provide a pool of arbitrators where each party is permitted to strike one until a final arbitrator is agreed on by both sides.

[1] His decision is expected any minute (as of September 5, 2017).

[2] 820 F.3d 527 (2d Cir. 2016).

[3] United Steelworkers of Am. v. Enterprise Wheel & Car Corp., 363 U.S. 593, 597 (1960).

[4] Wilko v. Swan, 346 U.S. 427, 436-37 (1953), overruled on other grounds by Rodriguez de Quijas v. Shearson/Am. Express, Inc., 490 U.S. 477 (1989).

[5] 532 U.S. 504, 509 (2001) (quoting United Paperworks Intern. Union v. Misco, Inc., 484 U.S. 29, 39 (1987)).

[6] Meyer Products, FMCS No. 95-06610, 1995 BNA LA Supp. 115630 (Fullmer, 1995).