To read the press today, you would think patent owners who do not make or sell products—called “non-practicing entities” or NPEs—are all “patent trolls” who corrupt the innovation-promoting benefits of the patent system. This was unfortunately also the message from the White House on June 4, 2013 when it issued executive orders and legislative proposals targeting patent owners who, in the words of President Obama, “…don’t actually produce anything themselves.”
The truth is, however, that even though startup companies, university researchers, and technology licensing firms don’t manufacture products themselves, they still produce enormous value for the U.S. economy. Companies such as Dolby in sound systems, Tessera and Qualcomm in semiconductors, for example, function as NPE technology developers that help the U.S. maintain its technology leadership in critical economic sectors.
Meanwhile, professional intellectual property management firms like Conversant—which licenses patents and is also an active developer of NAND Flash computer memory—act as intermediaries. They facilitate the transfer of new technologies to firms that are best equipped to develop them into new products, services and medical treatments and other inventions that benefit society. Patent licensing has proven to be especially valuable in today’s outsourcing-rich economy, where so many once-vertically integrated firms have spun off their product manufacturing operations to other firms and other countries. It enables these firms to focus on what they do best—invention in the case of R&D leaders, or manufacturing, marketing, and sales in the case of product companies.
Patent licensing, the value of which in the U.S. was estimated to be worth $150 billion annually in 2006 also provides greater liquidity to the market for new technological innovations and makes that market more efficient.
Yet still the myth persists that all NPEs are “patent trolls.” To be sure, there is a “patent troll” species of NPE that abuses the litigation process to extort nuisance settlements from small businesses unable to pay the huge costs of standing up to them in court. But these trolls—the patent law equivalent of “ambulance chasers” in personal injury law—should not be confused with legitimate NPEs whose primary business is invention and/or patent licensing, not litigation.
Read more about patent licensing by downloading the Patent Licensing: The Founding Fathers’ Secret for Economic Success paper.