The Parable of the Non-Planting Entity and the Apple Tree: Understanding the Role of Non-Practicing Entities

By Kline, Mitch | Journal of Law, Technology and the Internet, Spring 2012 | Go to article overview

The Parable of the Non-Planting Entity and the Apple Tree: Understanding the Role of Non-Practicing Entities


Kline, Mitch, Journal of Law, Technology and the Internet


INTRODUCTION

Non-practicing entities ("NPEs"), pejoratively referred to as "patent trolls," are controversial. (1) A "patent troll" is commonly defined as an entity that licenses and enforces patents, but does not produce any goods. (2) Critics accuse these entities of filing frivolous suits for infringement of weak patents, while contributing no social benefit through innovation or commercialization of their technologies. (3) Members of the patent community argue that these entities are a drain on innovation (4) and encumber productive industries. (5)

Some scholars, however, take an opposing position. (6) Supporters of patent trolls argue that NPEs have an important role to play because they: (1) hold producing entities accountable for the technologies they employ; (7) (2) increase the liquidity of patents by acting as market-makers; (8) and (3) enhance efficiency by specializing in valuing, licensing, and enforcing patents.

The NPE debate has become more than an item of academic curiosity--it is receiving attention from the public, the legislature, and the judiciary. (10) Important legislative and judicial decisions are being made that will have lasting and potentially profound implications for the integrity of the patent system and, incidentally, for the economy. (11) James McDonough quoted the following passage from the Economist to demonstrate the economic moment of the patent system:

In recent years intellectual property has received a lot more attention
because ideas and innovations have become the most important resource,
replacing land, energy and raw materials. As much as [75%] of the value
of publicly traded companies in America comes from intangible assets,
up from around 40% in the early 1980s. Alan Greenspan, former Chairman
of the Federal Reserve Board, recently proclaimed that "[t]he economic
product of the United States... has become 'predominantly conceptual."
Intellectual property has become the new economic foundation of the
United States. (12)

Consequently, it is important to have a balanced understanding of the arguments surrounding NPE behavior and to meaningfully participate in the ongoing and evolving debate.

It is concerning that the discussion of NPEs has been rather onesided. (13) Save for a small body of academic literature, (14) the majority of material on the subject is starkly opposed to NPE behavior. (15) This is due, in significant part, to the efforts of large technology companies, (16) whose interests do not necessarily align with those of small entities, individuals, or society in general. (17) Lobbying groups--such as the Coalition for Patent Fairness ("CPF") and the Business Software Alliance--are well funded by large technology companies, (18) and have very clear agendas that include curbing the activity of NPEs. (19)

It is instructive to address the question of why many large corporations are so vehemently opposed to NPEs, (20) particularly if one entertains the idea that NPEs play a useful role in society. (21) The answer to this question begins with an analysis of how and why the interests of large technology corporations differ from those of other participants in the economy. Large technology corporations use the patent system differently than small entities. (22) As opposed to small entities and startups, which obtain patents in order to deter competition and to present a more attractive opportunity to investors, (23) large technology corporations typically use patents defensively. No single company in an industry can own all of the patents relating to the products or services of that industry. Competing companies build up their portfolios to have bargaining chips for cross-licensing negotiations; they inevitably find themselves infringing (or planning to infringe) each other's patents. (24) This "symmetry deters much patent litigation in the industries in which it operates." (25)

NPEs, however, act to disturb this arrangement. …

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