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Patent Trolls or Innovation Partners?

June 24, 2026

Introduction

Imagine a technology company, with about 10 people working for it. They just launched an application that a lot of people are using. One day they get a notice in the mail. It says their application is using an idea, like a way to send notifications or make pictures smaller. The notice requires them to pay a fee or go to court. The people who started the company are really confused. They made the application on their own.

When they look into it they find out that this company neither makes anything nor has a factory or any customers. They only do patents and ask people for money. This is what is called a Non- Entity or NPE.

Some people call NPEs patent trolls while some call them licensing companies. Some people think NPEs are good because they help inventors who do not have a lot of money. These inventors cannot compete with companies so NPEs help them. Other people think NPEs are bad because they use patents to get money from companies that are actually making things. This blog is going to cover both sides of the story.

Legal Provisions

The following statutory instruments and international frameworks are directly relevant to the analysis of NPE activity:

  • The Patents Act, 1970 (India)

  • Leahy-Smith America Invents Act, 2011 (United States)- Introduced Inter Partes Review (IPR), it enables third parties to challenge patent validity before the Patent Trial and Appeal Board.

  • Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), 1994

  • European Telecommunications Standards Institute (ETSI) FRAND Policy – Requires contributors to standards to commit to licensing on Fair, Reasonable and Non-Discriminatory terms.

What Is a Non-Practicing Entity?

A patent is a right given by the government to an inventor. This right allows the inventor to stop people from making or selling the invention without permission. In return, the inventor has to tell everyone about the invention. This helps people learn things.

Most of the time the company that owns a patent also sells products that use the invention. For example Apple Inc. has a lot of patents. Makes devices that use those inventions.

There are companies that own patents and do not make or use the inventions. These companies are called Non Practicing Entities. They own the patent, they don’t use it to make anything. Instead they make money from the patent by charging other companies to use the invention or by suing them if they use it without permission.

This is allowed because the law does not say that the owner of a patent has to use the invention to make money from it. Apple Inc. and other companies can own patents, Do whatever they want with them.

Business Models of NPEs

The main idea behind a NPE is that they think of patents as a means to make money.

Here are the main ways Non Practicing Entities do this:

  • Licensing First Approach : Non Practicing Entities look for companies that appear to be using their patents without authorisation. Then they give these companies a licence to use the patent. Usually the cost of the licence is less than the cost of going to court. So it is reasonable for the firm to pay for the licence even if they are not sure that the patent is really valid.
  • Suing Companies for Money: If a company does not want to pay for a licence, the Non Practicing Entity might take them to court. Going to court can be very expensive, costing between one million and a million US dollars. So this is why companies settle out of court even if they think they are right. They do this because it is less expensive than going to court.
  • Buying Lots of Patents: Some larger and more sophisticated Non Practicing Entities will buy hundreds or even thousands of patents at a time. Often they buy those patents from bankrupt companies or at auctions. These patents can be used against any company in an industry, whether that company makes wireless communication devices or sells things online.
  • Suing Companies When It Will Hurt Them the Most: One way Non Practicing Entities make money is to sue companies just before they launch a product. This is a time for the company because they are under a lot of pressure and do not want anything to go wrong. They may therefore settle the case quickly, even if it costs them a lot of money.

The NPE Controversy: Arguments For and Against

The case for NPES:

  • Helping inventors: When a patent holder does not have the ability to manufacture NPEs can be the only way for them to make money from their invention. 

  • Creating a market for ideas: NPEs think that patents should be like things that can be bought and sold. This way inventors can make money from their ideas without having to start their businesses.

  • Stopping people from using inventions without permission: People who support NPEs think that if big companies know they will get in trouble for using someone’s invention they will not do it.

  • Letting experts handle patent money: As companies get more specialized NPEs think that inventors should let them handle the money side of things. This way inventors can focus on inventing and let experts handle the business side of NPEs.

The case against NPES: 

  • The cost of going to court is too high: The main problem with NPEs is that they use the cost of going to court to get money from people.

  • NPEs hurt businesses: Small businesses do not have a lot of money or lawyers so when NPEs sue them it can be very bad.

  • Patents are not quality: NPEs like to use patents that are too broad or too vague. This is not good because it means that bad patents are being used to get money from people.

  • NPEs waste money: The money that NPEs use to sue people could be used for things, like research and development. Instead it is just being wasted on lawyers and court fees. This hurts everyone, including NPEs.

Real-World Impact on Companies and Innovation

The Non Practicing Entity activity has resulted in changes to the behaviour of companies across the technology sector.

  • Defensive patenting is one thing that has happened. Big tech companies are filing a lot of patents these days .  They’re not going to use all the patents. They want to have them so that they can use them as bargaining chips in case of disagreements with NPEs.

  • Companies also collaborate to shield themselves from the Non Practicing Entities. Groups such as the Allied Security Trust and the LOT Network have been formed to buy patents before NPEs can snap them up.

  • Cases where NPEs claim patent infringement are typically settled before going to trial. That means the court does not get to decide very often whether the patents are valid or not.

  • Start-ups are particularly weak to NPEs claims. A lot of these companies do not have much money.  Sometimes the new company will just settle the case because they don’t have the resources to fight it.

  • Because NPEs claims are risk insurance companies that now offer a special insurance to help companies pay for the costs of litigation.

Standard Essential Patents (SEPs) – A Special Case

The intersection between NPE activity and SEPs is a hotly debated section of IP law today. We consume telecommunications and consumer electronics, and for these things we need technical standards and agreed protocols, which enables devices from different manufacturers to play together. Examples of this are the cellular standards 4G LTE and 5G, and cellular networking standards like Wi-Fi.

When a patent covers a technology that is used by a particular standard, that patent is called a Standard Essential Patent. Any company making a device that follows that standard must use that technology, and so they are instructively infringing on one or more Standard Essential Patents. This gives the owners of Standard Essential Patents, including the Non Practicing Entities that acquire blocks of Standard Essential Patents, a great deal of power in the market.

To prevent this power being abused, companies that help set standards are normally required to license their patents on terms that are fair and reasonable. This requirement is known as FRAND – Fair, Non-Discriminatory terms.

Evolving Licensing Practices and Policy Responses

In the Non Practitioner Entity Litigation arena people in industry and in authorities have invented a number of ways of dealing with the problem.

  • Non Practitioner Entity patent pools are a method: Manufacturers of devices such as telephones or television identify all their Non Practitioner Entity patents and offer one licence for all of them. Makes things easier. Lowers the risk of being sued on a technology that has multiple claims on it.

  • Some large technology companies negotiate with Non Practitioner entities before any conflict: The agreements cover all of the patents currently owned by the Non Practitioner Entity and all of the patents that may be developed by the Non Practitioner Entity in the future. The company pays the royalties and can use the patents on Non Practitioner Entity without fear of litigation. 

  • There are efforts underway to make sure Non Practitioner Entity patents are high quality: The authorities creating the Non Practitioner Entity patents are adding an extra bar code for Non Practitioner Entity software and business methods patents. 

  • Some authorities require the identity of the person behind the Non Practitioner Entity to be disclosed in lawsuits filed in the name of a Non Practitioner Entity: This stops Non Practitioner Entity companies from hiding the people behind them. 

  • Alternatives to patent litigation for NPE patents: For example the Inter Partes Review (the US) provides for an inexpensive and short time non-practitioner Entity patent revalidation which can be brought into a lawsuit. This has led to a large number of NPE patents being invalidated.

Practical Implications

The practical implications of NPE activity expand across multiple dimensions of commercial and regulatory life:

  • For technology businesses (particularly startups)
  • For large technology companies
  • For independent inventors and universities
  • For policymakers
  • For emerging economies such as India

Conclusion

NPEs exist because patent law treats patents as property rights that can be bought and sold without any manufacturing. Meaning that inventors without factories can cash in on their ideas. But it also allows certain people to sue companies which are trying to make things.

The question with Practicing Entities is not just that they don’t make products but whether the patents that they have are good if they ask for fair licensing terms and if they use reasonable methods to enforce their patents. The point is not to get rid of patent holders who do not make products, but to stop people from abusing patents in the ways that are likely to hurt innovation, which patents are supposed to encourage.

As technology becomes more global and products are sold in many countries, problems with NPEs will get more complicated. Understanding NPEs is a key to navigating intellectual property law policies, innovation and the workings of the tech industry.

Author : Vaidehi Singh, In case of any queries please contact/write back to us via email to [email protected] or at IIPRD.

References

  1. § 48; 35 U.S.C. § 154 (United States).
  2. See generally Mark A. Lemley & A. Douglas Melamed, ‘Missing the Forest for the Trolls,’ (2013) 113 Columbia Law Review 2117.
  3. American Intellectual Property Law Association (AIPLA), Report of the Economic Survey (2021).
  4. European Telecommunications Standards Institute (ETSI), FRAND Declaration Policy, Clause 6 (2023 version).
  5. US Federal Trade Commission, Patent Assertion Entity Activity: An FTC Study (2016).
  6. RPX Corporation, 2022 NPE Litigation Report.
  7. World Intellectual Property Organization (WIPO), World Intellectual Property Report: The Global Innovation Index (2023).
  8. Leahy-Smith America Invents Act, Pub. L. No. 112-29, 125 Stat. 284 (2011).
  9. Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement), Annex 1C of the Marrakesh Agreement Establishing the World Trade Organization (1994).