How Patent Trolling Companies Protect Themselves With Multiple LLCs
Patent trolling companies are organizations that acquire and hold extensive portfolios of patents, not to create products or provide services, but to generate profit solely through litigation against companies that use similar technologies.
To do this, these Non-Practicing Entities (NPEs) — or Patent Assertion Entities (PAEs) as they are officially called — typically set up three layers of LLCs: one to hold the patents, another to manage licensing, and a third to handle litigation.
This layered approach creates a legal buffer that protects the parent organization, obscures liability, and makes it significantly harder for defendants to countersue or hold these companies accountable in court.
In this article, we’ve broken down how and why patent trolling companies rely on this intricate web of LLCs, as well as the strategies that you can use to protect your business from their tactics.
Why Patent Trolling Companies Use Multiple LLCs
There are five main reasons why patent trolling companies love using multiple limited liability companies (LLCs), which together make it nearly impossible for the companies that are targeted to fight back.
Through a series of cold and calculated legal maneuvers, patent trolling companies can:
- Keep their valuable patents safe: Patents are placed in a separate LLC, shielding them from risk while another LLC handles the legal battles.
- Choose favorable jurisdictions: Patent trolls can strategically file lawsuits in plaintiff-friendly courts, such as the infamous East Texas federal court.
- Avoid the impact of countersuits: If a defendant countersues, the litigation LLC typically has no significant assets, leaving nothing for the defendant to claim.
- Conceal important information: Lawsuits are filed through a “clean” LLC containing no sensitive or relevant information, making it impossible for defendants to obtain such details during discovery.
- Make defense overly complicated: The separation between ownership and litigation makes it difficult for defendants to invalidate patents or hold anyone accountable, which increases the pressure to settle.
If you’re wondering whether this is some kind of legal loophole, the answer is no. As a matter of fact, patent trolls didn’t invent this approach — they simply mastered it and turned it into a powerful tool for patent litigation.
Real-World Examples of Patent Trolling LLCs
Patent trolling companies have become infamous in recent years for the way they’ve managed to weaponize the LLC structure, complicate legal defenses, and pressure companies into settling rather than enduring lengthy and costly litigation.
To illustrate how these strategies are implemented in practice, let’s take a look at some real-world examples:
Intellectual Ventures
Intellectual Ventures stands out as one of the largest and most aggressive patent trolling companies worldwide, operating through a network of over 1,000 LLCs that manage its extensive patent portfolio.
In a notable 2010 case against Symantec over antivirus technology patents, Intellectual Ventures filed claims on multiple patents simultaneously, forcing Symantec to defend against a number of complex technical claims across several areas of its antivirus software.
The sheer volume of patent claims and technical documentation that Symantec’s legal team had to analyze and respond to created an enormous burden in terms of time and resources.
Rather than face years of costly litigation and the risk of multiple patent infringement verdicts, Symantec ultimately chose to settle — joining the long list of companies that have paid licensing fees to Intellectual Ventures rather than fight a prolonged legal battle.
Acacia Research Corporation
Acacia Research Corporation is another prominent patent trolling entity that operates through a vast network of subsidiary LLCs and is widely known for acquiring patents across various industries to aggressively enforce them through litigation.
In a widely discussed case against Apple in 2013, one of Acacia’s subsidiaries, Adaptix, sued Apple for allegedly infringing on a number of patents related to wireless communication technologies.
The lawsuit targeted Apple’s 4G LTE capabilities and other critical features of its mobile devices, with Apple initially mounting a strong legal defense and successfully winning several rulings. However, Acacia, through other subsidiaries and using different patents, continued to file additional lawsuits, repeatedly bringing new claims and prolonging the legal battle.
To avoid the uncertainty of a prolonged legal battle and the substantial financial risks tied to losing a patent case, Apple ultimately decided to settle with Acacia, illustrating how even the most powerful corporations are not exempt from the costs of prolonged litigation.
Uniloc Corporation
Similarly to other major players in the patent assertion industry, Uniloc Corporation is a significant force that is known for acquiring broad software and technology-related patents and pursuing wide-ranging claims.
In a high-profile case against Microsoft in 2003, Uniloc sued the tech giant for allegedly infringing on a patent related to anti-piracy software. The case focused on Microsoft’s use of product activation technology in its Windows operating systems and Office software.
Although Microsoft initially succeeded in having the case dismissed, Uniloc appealed the ruling, forcing the case to trial. A jury ultimately sided with Uniloc, awarding $388 million in damages for what was deemed as “willful infringement”.
Microsoft fought back and managed to secure a new trial after challenging the verdict, but Uniloc continued its relentless legal campaign through a series of appeals, procedural maneuvers, and additional claims, often filed by other LLCs within its network holding various patents.
Ultimately, in 2012, after nearly a decade of litigation, Microsoft agreed to a confidential settlement with Uniloc, which to this day remains undisclosed.
Personal Audio LLC
Personal Audio LLC first gained attention in 2009 by suing Apple for $84 million over patents related to digital audio playback technology. After being awarded $8 million in court, the company filed additional lawsuits, arguing that other Apple devices using the same technology were not covered by the initial ruling.
A few years later, in 2013, Personal Audio shifted its focus to the podcasting industry, targeting both major media companies and independent podcasters. The company filed lawsuits against prominent broadcasters, including CBS, NBC, and Fox, claiming that their podcasting activities violated its patent for “episodic content distribution” and seeking over $90 million in damages.
One of its most notable cases was a lawsuit against Adam Carolla’s production company, Lotzi Digital, which alleged that Carolla’s podcast network infringed on Personal Audio’s patent. Backed by over $475,000 in crowdfunding contributions, Carolla mounted a strong legal defense and openly criticized Personal Audio’s tactics as predatory.
Ultimately, Personal Audio reached confidential settlements with most of its targets and remains, to this date, one of the most far-reaching and controversial patent assertion entities out there.
How to Protect Your Business From Patent Trolling
If you’re wondering whether with all the patent trolling companies and aggressive tactics out there there’s any way to keep your business safe, the answer is yes.
To do this, you’ll need to:
- Start with the basics: Before launching your product or service, you should make sure to conduct thorough patent searches using free tools like Google Patents, USPTO, or Espacenet. While these tools may not be as comprehensive as paid services like LexisNexis or Derwent Innovation, they are an excellent starting point for small businesses to identify potential risks.
- Document your journey: You might think those napkin sketches and late-night brainstorming sessions aren’t worth keeping, but they are. Save everything — your development notes, dated sketches, prototype iterations, and any other relevant materials. This documentation can serve as important evidence of your independent development process if you ever face a patent dispute.
- Get insurance: You should consider investing in intellectual property insurance, especially if you’re in tech or software. While it might seem like an unnecessary expense at first, this coverage could be your financial lifeline if a patent troll targets your business.
- Be cautious with public disclosures: Be mindful of what you share in press releases, marketing materials, and social media campaigns. As a general rule, you should avoid revealing too much about your innovations before they’re fully protected, as this can draw the unwanted attention of potential patent trolls.
- Have a plan: You should also develop a clear response strategy before any threats arise. This means having a trusted IP lawyer’s contact ready, knowing exactly who to notify in your company, and having a documented action plan for those crucial first 48 hours after receiving a legal notice.
It’s important to understand that, while these measures won’t make your business completely immune to patent trolls, they can significantly reduce your risk and put you in a stronger position if you do face litigation.
The key is to be proactive rather than reactive, as investing in prevention is almost always less expensive than fighting a patent troll in court.
Patent Trolling Companies and Multiple LLCs FAQs
A patent troll is a company that acquires patents not to create products or services, but to profit by suing other companies for patent infringement.
These entities acquire overly broad or vague patents and target businesses they accuse of infringement, pressuring them to pay licensing fees or settlements to avoid the high costs of legal battles.
Patent trolling companies typically establish multiple LLCs to separate and protect different aspects of their operations.
This structure allows them to hold patents in one LLC, license them through another, and handle litigation separately, which makes it difficult for defendants to trace ownership and pursue countersuits effectively.
No, patent trolling companies are not illegal, as they operate within the bounds of existing patent laws.
Having said that, their tactics are widely criticized for being predatory and unethical, as they rely on aggressive litigation to extract settlements from businesses.
Yes, in recent years, efforts such as the Innovation Act and the America Invents Act have been introduced to combat patent trolling by increasing transparency and limiting abusive litigation.
That said, progress has been quite slow and to a large extent dependent on the jurisdiction in question, as different courts tend to interpret and apply these reforms in varying ways.