Why 'Patent Trolling' by High-Tech Companies is Stifling Competition & Innovation – And What we Should Do About It

Abstract:     
Recently there has been an explosion of patent litigation in the high-tech sector as companies buy up patent portfolios and use them to force settlement agreements from competitors. This has led to an environment in which “patent trolling” is prevalent, and smaller players are pushed out of the market because they lack the patent portfolios to compete. Patent trolls are companies that do not create products, but instead acquire portfolios of basic patents that they use to sue possible infringers for fast profits. Larger tech companies such as Google, Apple, and Microsoft have recently begun to use their vast patent portfolios in this way, especially in the mobile sector where competition is most fierce.

This note will analyze the current state of the patent system with regard to the big tech lawsuits including how broad “process” patents on software have helped create new problems, and will compare relevant aspects of the U.S. system to standards in other countries to assess ways to improve our system. The note will also evaluate current legislative efforts to reform the system and make recommendations regarding what the most effective changes would be.

The purpose of the patent system is to encourage innovation and to reward inventors by protecting the fruits of their labor. Abuse of this sanctioned monopoly is helping to consolidate the tech marketplace to the few large companies that are winning the patent “arms race.” This note will propose reforms that will encourage true competition while retaining incentives to encourage innovation in the tech sector.

Keywords: intellectual property, patent reform, patent troll, technology

JEL Classification: K00

working papers series