Patent Troll (Non-Practicing Entity)

What It Means

A patent troll, more formally called a non-practicing entity (NPE) or patent assertion entity (PAE), is an organization that owns patents but does not use them to make products or provide services. Instead, NPEs generate revenue by licensing patents to operating companies, often under the implicit or explicit threat of infringement litigation. The term "troll" carries a negative connotation, implying that these entities exploit the patent system for profit without contributing to innovation. However, proponents argue that NPEs serve a legitimate market function by allowing individual inventors and small companies to monetize their patents without needing to build products themselves. The economic impact of patent trolls is significant and controversial. Studies estimate that NPE litigation costs U.S. companies tens of billions of dollars annually in legal fees and settlements. The majority of NPE targets are small and medium-sized businesses that often find it cheaper to settle for $50,000-$300,000 than to fight a lawsuit that could cost millions to litigate. In the technology sector, broad software patents have been a favorite tool of NPEs because they can be interpreted to cover a wide range of products and services. Legislative reforms such as the America Invents Act and Supreme Court decisions like Alice v. CLS Bank have attempted to address patent troll behavior by making it easier to challenge weak patents and harder to obtain overly broad software patents. In patent portfolio analysis, the distinction between operating companies and NPEs is important because NPE-held patents are primarily offensive weapons rather than defensive assets.

Frequently Asked Questions