The Trouble with Trolls: Innovation, Rent-Seeking and Patent Law Reform

Abstract:     
This Article analyzes the secondary market for patent rights. It defines a patent troll as a participant in this market that does not contribute to the social goal the patent system was meant to serve: technological innovation. The legitimate secondary market, in which patent rights are bought and sold in ways that compensate real innovators (and also often involve the transfer of information and/or technology, in addition to the legal right), is distinguished from the more questionable market for the settlement of lawsuits involving weak, outdated or irrelevant patents. The presence of willing buyers and willing sellers does not necessarily imply that social welfare is being served; at times, the legal system must shut down markets when the things being exchanged have no social value — as in the case of blackmail. The Article reviews the prospects for corrective policies to reign in some activities in the current patent system. Political economy considerations make Congress a long shot to fix the problem, which leaves the courts, and in particular the Federal Circuit. Recent caselaw on damages is presented as a case study of a desirable Federal Circuit course correction involving the secondary market for patents. Economically rational valuation techniques applied to the question of appropriate damages for patent infringement can help to undermine the incentives to litigate, and hence the market for, patents on minor features that can be used strategically to demand large damage awards under some readings of damages doctrine.

working papers series