Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Patent Troll

What it is:

A patent troll is a person or company whose main business purpose is to sue other people or companies for patent infringement.

How it works (Example):

For example, John Doe buys a patent for the design and manufacture of a flat, rotating disc used to hold objects on a countertop or other flat surface. John Doe has no intention of manufacturing this item; he simply invests $25,000 to buy the patent and then sues every manufacturer of lazy Susans, record players, CD players, Asian restaurant table manufacturer, and cabinet-organizer manufacturer he can find. John Doe sends a letter to these people that states they are infringing on his patent. John Doe requests payment for the damages or threatens to sue the manufacturer in court.

In many cases, the defendants in patent-troll cases may be in fact infringing on a patent. But usually, the patents are vague and thus apply to nearly any company in business.

Why it Matters:

Patent litigation is very expensive, and the trolls know this. They sue because the chances are good that they'll just get a check as a settlement (that is, the troll will offer to settle for a "one-time lifetime licensing fee"); the defendant will probably not want to go through the time and expense of court proceedings.

In some cases, however, companies fight back and win. One famous case involved the computer store Newegg, which was a victim of a patent holder claiming to have a patent on the concept of the online shopping basket. Though the company lost its first court case, it appealed and won.