How to kill patent trolls once and for all

If you ask entrepreneurs and investors in Silicon Valley what's holding back innovation, patent trolls will surely be high on all of their lists.

Why are patent trolls so deleterious? Well, these companies exist for no other reason than to gobble up patents and then file frivolous lawsuits over semantic patent violations against any target they can find, with the hope of cashing in with a big settlement. Needless to say, this can wreck the finances of startup companies. (If you want more details, listen to this brilliant This American Life investigation of patent trolls from 2011.)

Patents are valuable. They protect intellectual property from copycats and thieves. But America's patent system is broken. The U.S. patent office grants very broad patents, or patents for inventions where "prior art" (to use the term of art) already exists. Shell companies find ways to buy those patents and exploit them to wring cash out of technology companies. Think of it as the tech equivalent of ambulance chasing.

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This is a tremendous drag on innovation, because patent trolls typically go after startups. Google and Apple have all the cash in the world to defend themselves against frivolous lawsuits. They're not particularly ripe targets for patent trolls. Much juicier are cash-strapped and time-strapped startups, which typically prefer to settle a frivolous lawsuit quickly rather than fight it all the way to the bitter end.

Sometimes patent trolls will extract payment in patents, so that they can go after even more firms. This creates a vicious cycle. Other times, they will kindly offer to lend their patents to the target firm for a fee, to protect themselves from lawsuit, a form of extortion.

Patent trolls cost defendant firms $29 billion per year in out-of-pocket costs, according to one study. But the drag on innovation is much bigger than that. Think of all the fledgling companies that miss crucial time-to-market opportunities, and whose products don't reach their full potential, because they have to fight patent trolls. Some would-be entrepreneurs are surely so frightened of patent trolls that they don't even bother trying.

In this regard, for once, Europe has got one thing right about regulation. In Europe, patent trolling is much less of a problem because of a simple provision: The loser pays. This discourages frivolous lawsuits. You're far less likely to file a bogus lawsuit if there's a risk that you'll have to pay your opponent's legal fees.

This is easier said than done in America, of course, where changing the law is always a messy business. But fear not: There's an easy way to fix our patent troll problem right now.

Think of the patent trolling problem as a collective action problem. If every startup hit with a frivolous lawsuit decided to do the right thing and fight it all the way, patent trolling would go away. Patent trolls' extortionary business model depends on the low cost of their lawsuits, and the likelihood that targets would rather settle than fight.

So here's the idea: A bunch of Silicon Valley billionaires should get together and endow a non-profit. Let's call it Trollbusters. Its job is to give grants to startups fighting frivolous patent troll lawsuits, so that those startups can fight them all the way — to the Supreme Court, if need be. An independent committee of competent lawyers and technologists would review cases and decide if they're actual patent troll lawsuits (rather than legitimate business disputes) and if they are, the wallet would be fully open. Perhaps startups would sign up with Trollbusters when they get started, agreeing ahead of time, in exchange for the financial support, that they will fight patent troll lawsuits all the way and never settle.

Don't scoff at the idea of Silicon Valley's richest men and women ponying up for this. This isn't squishy feel-goodery; they have a real vested interest in killing patent trolls. It would help their own businesses and industries. And further, it's likely that the fund wouldn't have to spend that much money.

Think of patent trolls like a playground bully. Collectively, all the other kids could take on the bully, but they're too afraid and too uncoordinated to do so. But once the bully is scared off, he goes quiet.

It's the same principle. Once it's established that patent trolling would become uneconomic, the simple deterrent effect of Trollbusters would be enough to make much patent trolling go away, without having to fight off most of those lawsuits.

I was bullied as a kid. I can't stand bullies. I had a much easier time in school, over the long run, when I realized I didn't have to give up. Bullies would do the most horrible things to me, but I would never stop fighting them. They got a few scrapes, realized I'd much rather literally get all my teeth kicked in than give in, and eventually they grew tired and granted me grudging respect.

Always, always stand up to the bully. It's the right thing to do, and it also happens to be the smart thing to do.