> why more smaller and medium sized businesses haven't banded together to form some kind of larger entity to combat these trolls

Well, one reason is that it may be illegal. We have antitrust laws that prohibit companies that make up a large percentage of an industry from coordinating in certain ways... this is an edge case but might be a problem.

But the main reason is just that it is prohibitively expensive. It's really, really expensive to fight a patent troll, and if you win then they turn out to be a shell company with no assets so you can't be reimbursed for your costs (and probably wouldn't be eligible for that anyway in the US). So for small companies, flying under the radar and hoping they won't notice you seems to be the way to go.

As an alternate thought, could companies encourage their developers to form an industry union--and then have the union sue?

That's a really unusual approach. The union has to represent the interests of the WORKERS, not the companies they work for, but one could argue that the workers benefit by not having their employers profits sucked away by patent trolls. At any rate, I can't imagine small technology companies encouraging their employees to form unions for ANY reason so I doubt it would be popular.

yet US has no problem with one company owning the majority of a market ( MS , Google ... ) so much for anti trust ... Small Companies could fund a non profit to help them against trolls, would it be illegal ?

I'm not saying that the antitrust laws are written the way I would write them if I were king, but they are rational, if you understand where they are coming from.

They prohibit independent actors from colluding to form a monopoly, but they do not prohibit a company from being successful enough in the marketplace to become an effective monopoly. However, if a company IS that successful, then the laws restrict what the company with monopoly power can do (for instance, they cannot leverage that monopoly to increase their power and market share in a different area of business).

My guess is that funding a nonprofit, something like the EFF or the ACLU but focused specifically on providing legal representation to those sued by patent trolls, would probably be allowed under the law as long as the nonprofit assisted ANY company attacked by a patent troll, not only contributors. If it assisted only contributors, perhaps it could work as some sort of legal insurance policy?

> Small Companies could fund a non profit to help them against trolls, would it be illegal ?

Someone could set up an insurance company specialising in patent-troll insurance.