Prof. Doug Lichtman, UCLA School of Law
April 2, 2012
Author and investment advisor James Altucher has been attracting a lot of attention the last few days. On Saturday, he published an article with the headline, “Why Google Might Be Going to $0”; his story is about a new patent lawsuit brought against Google where the patents at issue were originally pioneered by the search engine company, Lycos. As Altucher breathlessly reminds us, Lycos was an important and innovative company in its day, and it generated a portfolio of patents that might indeed have real value today.
My purpose in this column is not to comment on the merits of the lawsuit or whether Altucher is right in his sense of the magnitude of the case. I have views on those questions and am happy to talk about those issues, but that is not the purpose of this post. Instead, I was struck by something that Altucher wrote at the end of his article:
You can think to yourself: “ugh, patent trolls are disgusting.” But the protection of intellectual property is what America is built on. Smart people invent things. Then they get to protect the intellectual property on what they invent. Other companies can’t steal that technology. That’s why we have such a problem outsourcing to China and other countries where we are worried they might steal our intellectual property. Patents are the defense mechanism for capitalism.
I am someone who believes that patent trolls are indeed truly disgusting. They undermine everything the patent system is about, and patent reform needs to soon focus on further mechanisms for reducing their leverage. But Altucher is wrong in my view to so readily characterize Lycos and its corporate successor as a patent troll. And that is what I want to think about here.
Start with some terminology. A firm that monetizes patents but does not itself offer products or services is often described as a “non-practicing entity” or NPE. This is not a derogatory term. Columbia University is an NPE in that it licenses a valuable patent portfolio but does not itself directly commercialize the technology that its researchers pioneer. Yet no one looks down on the role Columbia plays, and indeed Columbia is doing exactly what a research university ought to do: Columbia specializes in fundamental research, and it uses its patents to in essence hand off its research to private firms that are then able to popularize it.
The derogatory term “patent troll” therefore must mean something more than simply that the patent holder at issue is a non-practicing entity. By my lights, two additional features define the category. First, the patents held by patent trolls tend to be patents that likely should never have issued in the first place. They are incredibly broad. They cover “inventions” that in truth were obvious at the time they were supposedly invented. They explicitly describe one thing, like a toaster, but are being read strategically to cover something completely different, like a wireless router. Second, a troll’s patents are patents that played absolutely no role in bringing the accused technology into popular use. The patent troll has a piece of paper that credits it with inventing something, but in the real world the patent troll neither itself brought the technology to market nor in any way helped the companies that actually did.
These concepts are obviously related. When the patent system works properly, a patent holder earns his living first by patenting a genuine invention and then by telling potential customers about the technology. The patent in this instance protects the inventor from having his idea stolen, but the patent is worth nothing unless and until the associated inventor can find customers for his idea. The patent system in those situations works: It encourages both the creation of new ideas and their dissemination. Patents that are issued wrongly, however, do not remotely follow this pattern. A patent holder whose patent covers a technology that was already obvious to those skilled in the art can sit quietly after the patent is issued, knowing full well that other parties will stumble onto that same obvious technology in time. When that happens, the patent holder can step forward, threaten litigation, and extract payment from infringers who neither knew of nor remotely benefited from the patent holder’s work. That is the strategy played by “patent trolls” today: using patents on obvious inventions quite literally to tax legitimate business activity.
Is Lycos a Patent Troll?
That takes us back to Lycos. I am no expert on the history of online search, but it strikes me as entirely possible that Lycos is in fact at least partially responsible for the very existence of Google. Lycos’s founders did not invent search algorithms and then hide them in the attic. Lycos brought all of this material public in meaningful ways, running a highly successful business that nearly all of us have heard of and used. As such, its work could well have been part of the foundation that later allowed Google to flourish. If that is true, of course, then Lycos can be rightly described today as a failed company, and its corporate successor in interest as something of an NPE. But does that make it a troll? I think not, at least if I am right about Lycos’s big-picture role in the development of Internet search strategies.