Tuesday, 23 February 2016

Terra of the unknown: trolling in Europe and corporate cosmetics

An Opinion piece published yesterday morning in Management Today reminds us of something that has sometimes been overlooked or deliberately ignored in the debate over the role of non-manufacturing patent owners that has taken place over the past few years in the United States. Abusive and evocative slogans condemning patent trolls have hogged many headlines in the course of this debate, and the distance from the headline to the head can be vast. Slogans are not however a convenient substitute for clear thinking and, even where the need to take action is clearly established, the need to avoid an over-reaction cannot be conveniently bypassed.  Patent trolls are a case in point. We can surmise that some patent-enforcement activity is good, some is neutral and some is bad -- but how we define and deal with the bad stuff is something that should be dealt with in an objective and logical manner, not on the basis of a knee-jerk response.

Yesterday's piece, by London-based patent attorney John-Paul Rooney (Withers & Rogers), bears the title "Blocking patent trolls threatens genuine innovators" and succinctly addresses a serious issue: the fact that the new European unitary patent and Unified Patent Court comprise a sort of terra incognita when it comes to trolls and the exploitation of patents. In his article he explains:
"Legitimate non-practising entities (NPEs) are similar to trolls in that they hold patents for products or processes they don’t directly bring to market. However, beyond this there is a fundamental difference in that although they develop products themselves they work closely with manufacturers, usually through long-standing collaborative relationships. They also tend to invest heavily in R&D and the development of new technologies. While they may choose to enforce their IP assets through the Courts, legitimate NPEs have a more positive role to play in fostering innovation and helping to bring new products to market.

Some of the UK’s most innovative companies are in fact NPEs and this business model tends to work particularly well in fast-moving sectors, such as consumer electronics. Some of the world’s leading fabless semiconductor developers, for example, are based in the UK and while they tend not to manufacture anything using their own technologies, they invest large sums of money in R&D and support innovation".
While this is all true, we are nonetheless faced with a problem in that patent ownership and enforcement does not occur in a binary setting in which all players are, by definition, trolls or non-trolls. Even assuming that we can all agree upon a legally cogent definition that enables us confidently to identify good and bad NPEs, patent-owning businesses in the real world appear to spread their activities across a wide spectrum of behaviour. Indeed, some may be both trolls and non-trolls at the same time, in relation to different technological sectors or territories. 

Within Europe, the European Union has had several decades to practise dealing with patent licensing practices via its competition policy, both through EU legislation (anti-abuse laws tempered by patent and then technology transfer block exemptions) and through Commission inquiries and litigation. All of this has been aimed at patent owners or groups of owners which have occupied a dominant market position and would appear to be ill-equipped to deal with the sort of trolling conduct that has attracted the attention and indeed the ire of legislators and legitimate businesses in the US. 

Soon the EU will offer the prospect of a pan-European patent injunction for the first time, potentially giving a patent owner a degree of economic leverage over a 28-country market with about twice the population of the US.  Yet there is no clear indication as to how the EU and its hybrid, synthetic and untried Unified Patent Court will tackle trollism.  Rooney continues:
" ,,. it is positive that those responsible for designing the legal framework in Europe are aware of the risks posed by patent trolls and are prepared to take action to block them. However, there is a risk that some legitimate European NPEs could get caught in the crossfire and find it more difficult to operate as a result. To avoid suffering in this way, these organisations may prefer to reshape their businesses so they can’t be confused with patent trolls in the future".
One can only feel sorry for "good" businesses that are mistaken for the "bad" boys. And how can the "good" boys reshape their businesses so they can't be confused with patent trolls?  It's hard to imagine that corporate restructuring ahead of a patent enforcement or licensing operation would be viewed by the European Commission as being anything other than a sort of cosmetic surgery, designed deceive if not disguise one's ulterior commercial motives.  One can only wonder if the day will come when a client, sitting across the desk from a corporate legal adviser, will be asked: "have you thought of making your business look a bit different ...?" 

You can read John-Paul Rooney's piece in full by clicking here.


  1. If so-called legitimate European NPEs can reshape their businesses in order to escape being identified as trolls, can't trolls do the same?

  2. "It is positive that those responsible for designing the legal framework in Europe are aware of the risks posed by patent trolls and are prepared to take action to block them". Can any kind reader give chapter and verse as to what "those responsible for designing the legal framework" are actually aware of, and precisely what legal powers exist to curb the excesses and abuses of rights that typically characterise the behaviour of patent trolls?

  3. Since the EU single market is a very different one from the US, and the unitary patent is actually governed by quite different laws, does anyone know what lessons the European Parliament and Commission might have extracted from the American experience of NPEs and the range of responses that have been suggested and mainly rejected?

  4. We've opened a LinkedIn discussion on this post. Check it out and, if possible, contribute to it here: https://www.linkedin.com/company/aistemos-limited