Newsletter Subscribe
Enter your email address below and subscribe to our newsletter
What is a Patent Troll?
A patent troll is a company or individual that acquires patents primarily to enforce them through litigation or licensing fees rather than to produce products or services.
Definition
A patent troll is an entity that holds patents with the main intent of extracting licensing payments or legal settlements, not commercializing the underlying inventions.
Key Takeaways
- Focuses on litigation and licensing, not innovation.
- Often targets operating companies for infringement claims.
- Legally permitted but widely criticized.
Understanding Patent Trolls
Patent trolls, often referred to as non-practicing entities (NPEs), purchase patents from inventors or bankrupt firms and then assert those patents against companies that allegedly infringe them.
Because defending patent lawsuits is costly and time-consuming, targeted companies may choose to settle even when claims are weak. This dynamic has raised concerns about innovation suppression, increased legal costs, and misuse of the patent system.
In response, many jurisdictions have introduced patent law reforms to reduce abusive litigation practices.
Real-World Example
A technology startup receives a lawsuit from a company that owns a broad software patent but produces no products. The startup settles to avoid prolonged legal costs, even though the patent’s validity is questionable.
Importance in Business or Economics
Patent trolling affects innovation incentives, legal risk management, and R&D investment decisions. Excessive litigation can divert resources away from productive activities and increase barriers for startups and smaller firms.
Types or Variations
Non-Practicing Entity (NPE): Owns patents without manufacturing products.
Patent Assertion Entity (PAE): Actively enforces patent rights for licensing.
Defensive Patent Holder: Holds patents to deter lawsuits rather than sue.
Related Terms
- Intellectual Property
- Patent Infringement
- Licensing Agreement
Sources and Further Reading
- Investopedia — Patent Troll
- Electronic Frontier Foundation — Patent Trolls and Innovation
- U.S. Patent and Trademark Office — Patent Policy and Reform
Quick Reference
- Acquires patents to enforce, not innovate.
- Relies on legal pressure.
- Controversial but legal.
Frequently Asked Questions (FAQs)
Are patent trolls illegal?
No. Their activities are generally legal, though controversial.
Do patent trolls create value?
Critics argue they impose costs without contributing to innovation.
How can companies protect themselves?
Through patent due diligence, defensive patents, and legal reform advocacy.
