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Why Patent Trolls’ Greatest Threat To Innovation Is Invisible

These monsters gobble up vague patents and extort money from companies trying to make legitimate products. Here’s why that matters—even if you don’t own any patents.

The White House is taking on patent trolls—legal entities that buy up vague, over-broad patents and use them to extort money from companies. The specifics of the president’s plan will be hashed out in the coming days, but it’s a good time to take a look at a small example of a very big problem.

How big? The White House announcement was accompanied by a report from the National Economic Council and the Council of Economic Advisers, which notes that patent troll lawsuits have jumped by 250% in the last two years and now make up the majority (62%) of patent infringement suits. That means the vast majority of patent lawsuits aren’t inventors protecting their intellectual property, but specialized legal entities that will never produce anything.

The majority of their lawsuits target small and inventor-driven companies. In the moving conclusion of a must-listen This American Life episode on the subject, a young entrepreneur describes how he gave up his effort to create an artificial heart for fear of them. "However many jobs I could have created or however many lives I could have saved, that’s it," he said, tearing up.

But those are just the lawsuits. The full scope of the patent troll threat is much more insidious.

I spoke in April with Julie Samuels, staff attorney and Mark Cuban Chair to Eliminate Stupid Patents (yes, that is her actual job title) at the Electronic Frontier Foundation. "The most harmful actions happen pre-litigation," she told me.

One example: Personal Audio LLC sent numerous demand letters to small podcasters, claiming they invented the podcast. (This is not even the first patent troll to make this claim.) Given a median cost of $650,000 for litigating even a small case, many small businesses hit with the threat of a lawsuit make the rational economic decision to settle.

"It’s essentially a shakedown," says Samuels, who is helping to fight Personal Audio in and out of court. And a secret one: If a lawsuit isn’t filed, nothing is public. "This secrecy is something that fuels the troll business model."

The White House proposal (and pending legislation) could help address the plight of end users. But Samuels would like to see it go even further in dealing with the question of whether software ideas like "podcasting" can be patented at all.