Impact of Patent Trolls on Small Businesses

One of the most significant threats to the innovation-driven industries in particular to the areas of technology, software development and biotechnology has been identified as the proliferation of patent trolls or Non-Practising Entities (NPEs). As opposed to conventional patent holders, patent trolls do not purchase patents to commercially exploit them or innovate technology; instead, they mainly seek to leverage their patent rights by waging aggressive litigation and strategic settlement claims. These parties get money by cashing in on the infringement suits rather than establishing a business opportunity after capitalizing on the uncertainty in patent claims and the prohibitive aspect of litigation. There are economic and operational consequences of patent trolling. Businesses often pay huge legal costs and the constant risk of lawsuit divert funds and time of management to research and development. Small businesses and startups are particularly susceptible, since they usually do not have the funding and legal means to survive a protracted legal fight, and many of them choose to settle expensive to comply, regardless of the soundness of the claims. These practices not only put a strain on scarce resources but also deter entry into the market, decrease competitiveness and slow technological advancement. This paper reviews the effect of patent trolling on small businesses, the legal frameworks of various jurisdictions that regulate NPEs activity, and assesses the effectiveness of reforms to strike the balance between effective patent protection and the necessity to preserve the innovation and entrepreneurial development. The study highlights the need to have greater procedural protection and policy change to ensure that small businesses are not victimized due to predatory patenting.