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"When Lawyers Become Trolls"



A WSJ article finds that top patent attorneys are discovering that it's more lucrative to vertically integrate and represent their own patent-holding companies. So John Desmarais, with the help of venture capitalists, has formed Round Rock Research LLC, purchased Micron Technologies' portfolio of 4200 patents, and is making more money licensing and suing over it than he was in private practice. A troll can more effectively use a patent—valid or invalid—offensively in litigation than a business that actually makes things: the cost of a troll to litigate is less because it does not have the same sort of defensive discovery costs, or adverse collateral business consequences that might come from suing its customers. Thus, a legitimate business like Micron can unlock some of the unrealized value of its patent portfolio by selling it to a patent troll. This increases the returns to invention, but at the cost of increased transactions costs to the industry, and it is far from clear that the benefits outweigh the costs.

If nothing else, defendants will find that they have to pay their patent attorneys more as both demand increases and supply decreases. Too, as the returns to a science education plus legal education increase, we will see more human capital diverted from scientifically-productive positions to legal jobs that are simply societal transactions costs.

There is an interesting divorce of interests in a transaction like Micron's. Patent-litigation defendants can challenge the validity of a patent, and that often entails discovery of the inventors, which is a real cost to the inventors' employers. If the details of the Micron-Round Rock transaction ever become public, it would be interesting to see who is bearing the costs of that discovery, and how the contractual terms govern Micron's long-term obligations to Round Rock or the risk of patent invalidation.

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Isaac Gorodetski
Project Manager,
Center for Legal Policy at the
Manhattan Institute
igorodetski@manhattan-institute.org

Katherine Lazarski
Press Officer,
Manhattan Institute
klazarski@manhattan-institute.org

 

Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.