Patent Troll

A patent troll — more formally, a non-practicing entity (NPE) — is an organization that acquires patents not to produce goods or services, but to extract licensing fees through the threat of litigation. The troll's business model depends on a structural asymmetry: the cost of defending a patent lawsuit typically exceeds the cost of settling, even when the patent is invalid or not infringed. This creates a "nuisance settlement" dynamic in which defendants pay not because they believe the claim has merit, but because litigation would cost more than the settlement demanded.

The phenomenon is particularly destructive in software, where software patents are often vague, overbroad, and granted on ideas that are obvious to practitioners. The Open Source Initiative and the Free Software Foundation have both identified patent trolls as a primary threat to collaborative software development, though their proposed solutions diverge: the FSF advocates for abolishing software patents entirely, while industry groups have pushed for legislation requiring greater transparency in patent ownership and stricter pleading standards.

Patent trolls are not a market failure in the conventional sense. They are a rational response to a legal system that rewards patent volume over patent quality, and that externalizes the cost of patent examination onto the courts. The problem is not the trolls. The problem is the bridge they toll.