Defending the troll

Today brings news that the 'Blackberry' case has been settled. This appears to be the end for the long running dispute between Blackberry's owners, RIM, and the owners, NTP, of key patents that RIM appear to infringe. The case brought interest in the idea that a valuable service may have been shut down in the interests of 'protecting the intellectual property system.' But it was also of interest in that to outsiders, NTP appeared to do very little innovation -- they patented an idea early -- while RIM sorted out all of the technical issues while themselves coming up with the idea. Their only crime: they came up with it late.

NTP is described as a 'patent troll.' Wikipedia define a patent troll as: "an individual or company with a patent portfolio containing important, fundamental software patents that it never intended to commercialize. " In order to become a troll, therefore, you do have to come up with various ideas and form them sufficiently to receive a patent (including incurring reasonable costs in that process). Then essentially you speculate on someone who has more technical skills coming up with a similar idea, working out the technical kinks, and then being forced to license the patent from you. Alternatively, innovators might realise a patent exists and pre-license it. Either way, the troll makes money from license fees.

In this light, patent trolls appear to be the worst kind of intermediary. They control key assets and hijack an otherwise working innovation process; denying profits to those who really do the work.

But this description should at least give us pause for a moment: this is the usual attack on any intermediary. Intermediaries have had a bad name historically precisely because they profit where people perceive they create no value. But, in reality, it is often the case that they are providing value. Usually, they are collectors of information, they are firms that match buyers and sellers more efficiently and they face competition which would eliminate their profits should they really provide no value.

So what of the patent troll. I am going to speculate here on where their value might be. (But let me emphasise this is speculation and there may be reasons they deserve our scorn as artifacts of broken property rights system).

Here is the argument. Getting a patent is costly. For many smaller firms they face real issues as to whether they should proceed with an innovation and develop it given that they might not be able to secure a patent. To do so would mean they would have to wait up to five years to find out. This might be sad when they have competencies to technically develop a product that is based on an idea that is more obvious.

Here is where the patent troll may provide a valuable function. Without regard to technical details, it speculates and applies for many patents. Most of these are not valuable but some are ones that others may wish to develop. Even with competitive pressure, when it licenses those patents, it must generate a fee that covers the costs of the non-valuable ones as well. So it may seem like their fee demands are high for a given patent but not so given that they have saved the would-be developer five years of waiting and permit development without the fear of potential weak property rights.

In summary, patent trolls are speculators. They buy IP and may speed up the development process overall by reducing innovator risk. Of course, if the wait to resolve patent application uncertainty doesn't really constrain the innovation process, then patent trolls are just that, opportunistic trolls.