1. Careers
Send to a Friend via Email

Patent Trolls

By

Definition:

Patent trolls are individuals or investment funds that purchase patents as a long-term investment, seeking the income stream from collecting royalties. The term has a perjorative connotation, casting these patent holders in a different light from companies that actually manufacture products or deliver services based on the patents. Patent trolls are frequently engaged in litigation against patent infringers who attempt to use the patented knowledge without paying for it (and who show their resentment at being forced to pay by characterizing their pursuers as "trolls").

Certain hedge funds and private equity firms are devoting growing amounts of their capital to buying patents as an investment. Some are looking to exploit pricing inefficiencies and resell at a profit.

Specialized patent brokerage firms are springing up. What they do includes gathering information on a patent's validity and known cases of infringement. Some of them conduct patent auctions, and others are creating patent exchanges.

Sellers of patents include universities and individual inventors who either cannot exploit the commercial possibilities of their patents, or who lack the legal resources to force infringers to pay royalties. Then there are companies, many of them small, that are in desperate need of cash, or which are using patent sales to manage earnings. There also are larger companies that wish to divest themselves of patents that are not applicable to their core businesses.

People with engineering and other technical or scientific degrees should be of great value in this area, having the expertise to review patents with an informed and critical eye.

According to an article in the September 12, 2009 issue of The Economist, about $4 billion worth of patents were traded in 2008, and the figure is growing by around 20-30% annually.

Examples:
Patent trolls tend to be long-term investors who seek ongoing royalty income from portfolios of patents, analogous to investors who collect interest income from bond portfolios.
  1. About.com
  2. Careers
  3. Financial Careers
  4. Glossary
  5. N-P
  6. Patent Trolls

©2014 About.com. All rights reserved.