Patent Litigation: Davids Seeking Many Millions from Goliaths
|Written by Gene Quinn
President & Founder of IPWatchdog, Inc.
Patent Attorney, Reg. No. 44,294
Zies, Widerman & Malek
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Posted: May 18, 2011 @ 2:41 pm
Many will recall that back in March 2006, the much anticipated patent settlement between Research In Motion, Ltd. (RIM) and NTP, Inc. was finalized for $612.5 million. In the five plus years since that settlement there has been a lot of talk about patent trolls, who are now more frequently referred to by the rather sanitized term “non-practicing entities.” Numerous articles have been written about the plague of patent trolls and many attempts have been undertaken to whittle away at patent rights in an attempt to make it more difficult for non-practicing entities to monetize their patent rights. Meanwhile, practically every independent inventor now believes that they have an invention that some Mega-Giant company is infringing and which entitles them to tens of millions of dollars. After all NTP was successful.
Indeed, over the years since that great NTP-RIM settlement there has been enormous focus on the $600+ million amount, and little on what lead to that settlement and the aftermath of that settlement, which has changed the patent law landscape. In some corners when listening to inventors one might almost start to think that any small company with a patent could easily stand up and take on industry giants. This, after all, was the David and Goliath — NTP v. RIM, right? Not so fast. First, the case was not as simple as it may have seemed. Second, for every David with a patent portfolio, there are numerous Goliaths defending their market shares vigorously. Third, thanks to judicial dislike of patent trolls all non-practicing entities have suffered. In fact, it is now extremely difficult to obtain an injunction as a non-practicing entity.
The NTPv. RIM case was not as straightforward as many contemporaneous or subsequent reports might imply. One particularly unique aspect was that NTP had rather fundamental patents on a technology that was employed by RIM. Another unique feature of the case was that RIM initially seemed to have a strong infringement defense because the process covered by the NTP patents did not occur completely within the United States. RIM had argued both at trial and on appeal that because the BlackBerry Relay was located in Canada, as a matter of law RIM could not be held liable for infringement under 35 U.S.C. § 271. I still scratch my head when I think of this case failing to understand exactly how such an extraterritorial expansion of the patent rights was justified. Regardless of the fact that I probably would have ruled differently had I been on the Federal Circuit, it is completely accurate to recognize that such latitude would not likely be offered a patent troll today given the legal climate and widespread vilification of those bad acting non-practicing entities, who are the ones most often referred to as patent trolls.
Notwithstanding, the United States Court of Appeals for the Federal Circuit explained that the plain language of section 271(a) does not preclude infringement where a system is used within the United States, even though a component of that system is physically located outside the United States. As a result of the Federal Circuit decision, when two domestic users communicate via their BlackBerry devices, their use of the BlackBerry system occurs “within the United States,” regardless of whether the messages exchanged between them may be transmitted outside of the United States at some point along their wireless journey.
If you ask me the Federal Circuit got this one wrong in favor of NTP, but at the very least it was a ruling that could go either way. Today it is unrealistic for any patent troll or non-practicing entity to anticipate that a close call on a matter of fact or law will be found in their favor. Simply stated, NTP has given those who are not practicing but seeking to enforce patents a bad name, or at the very least have created an uphill battle with respect to enjoying the full and complete exclusionary right that is supposed to be embodied in the patent grant. I still can’t understand how the inability to get a permanent injunction is anything other than a compulsory license. A successful patent plaintiff who cannot obtain a permanent injunction against an adjudicated infringer has little more than the right to continue to pay lawyers to chase infringement of those who have already shown the willingness to infringe.
RIM seemed to think it could win the war despite losing the battle at the Federal Circuit, at least until the United States Supreme Court refused to hear its appeal. The end result was an extraordinarily large settlement in favor of David and against Goliath so that they could continue to use technology protected by NTP patents. This settlement marked the age of unrealistic expectations for many patent owners, as well as the turning point in the public and judicial perception of patent trolls. Only months later the Supreme Court issued its decision in eBay v. MercExchange making it exceptionally difficult for any non-practicing entity to obtain a permanent injunction, and marking a big loss of rights for patent holders everywhere. See Happy 5th Anniversary: The Impact of eBay v. MercExchange.
Forgotten in most press reports and opinion pieces decrying this result, however, are the frequent situations in which a large company uses its patent power against a smaller upstart rival. Yes, the NTP-RIM case was the case of a patent troll acquiring a patent for the purpose of enforcing the patent, but at the end of the day the right was legitimately obtained, legitimately purchased and as it turned out RIM was infringing in a big way. It was the exception, not the rule, for the David to prevail over the Goliath, yet patent law and judicial perception has changed dramatically against not only patent trolls but all non-practicing entities as if to ignore the reality that the deck is universally stacked against the small business or individual patent owner when going after Goliaths.
Overall there will be few large paydays for small and mid-size companies against the Fortune 1000, and fewer still for those who do not engage an appropriate strategy and simply rush head first into litigation or licensing negotiations. Notwithstanding, cultivating or acquiring a patent portfolio will allow small and mid-size companies to hold assets that are capable of being leveraged in the event a large corporation comes knocking. Additionally, as the business grows and revenues become available having a patent portfolio can enable small and mid-size companies to pursue litigation against Goliaths, but the odds of prevailing and having critical leverage go up if the plaintiff is a practicing entity. Simply stated, without the threat of a permanent injunction the Goliaths of the corporate world are exceptionally likely to just push you around. Thus, even if you desire to be a non-practicing entity there can be significant advantages to being a practicing entity on at least some level.
But many non-practicing entities or even start-up companies or small businesses are not so worried about being sued, they are not very much interested in becoming practicing entities, but rather are interested in going after the big Mega-Giant corporation just like NTP did with RIM. They hear of judgments in the tens, or hundreds, of millions of dollars and want to get a piece of that action because, after all, their patent is flawless and it is being infringed. If only it were that simple!
It is not as hard as it once was to find representation if you have a patent that is being infringed. More and more patent litigators are taking cases on a contingency basis, but there needs to be enough infringement to warrant the risk of undertaking a case on a contingency basis, and the stronger the case the more likely you can find contingency representation, or perhaps a contingency-fee hybrid arrangement. But sometimes today, with the Mega-Giants like Google, Facebook, Microsoft and others, the question isn’t whether there is enough infringement, but rather there is too much infringement. A case against a true giant like those is not one that will likely settle quickly. The Goliaths of the world like to push smaller competition around and prolong the battle, anticipating that at some time funds will become scarce and the David will not be able to continue to pursue the matter.
This is not to suggest that there is not a path that the Davids of the world can take to go after the Mega-Giant corporations of the world. Obtaining a patent is but one step, but the review and effort that goes into obtaining a patent is on one threshold, which is far below the threshold of scrutiny the patent will be subjected to upon litigation. There is no such thing as a “no stone unturned” patent search prior to filing a patent application or even during the patent procurement stage. With tens or hundreds of millions of dollars on the line in litigation you can rest assured there will be a no stone unturned patent search. For that reason, if you are an individual patent owner, a small business or start-up looking for contingency representation or some kind of contingency-fee hybrid representation you will need to have done due diligence to make the case to those you seek assistance from.
When you approach a firm about either a blended, hybrid fee arrangement or a contingency arrangement they are going to want to assess the likelihood that there is provable infringement, but also the likelihood that the patent claims will stand up. Time and time again I hear from those “shopping around” that firm after firm wants to know what kind of patent search they have done and what kind of due diligence verifies a likelihood that the claims will be valid upon litigation. In my estimation the type of due diligence that needs to be done pre-litigation to go after a corporate Goliath ranges from a very low of $50,000 (just for the searching) to $100,000 (for searching plus analysis by a competent team of patent attorneys). Obviously, the more you do the better, as none of this research will go to waste. Without this level of due diligence it is just too risky for firms to get involved in anything other than a fee for service arrangement, and you can’t expect a firm to front the $50,000 plus attorney time on the hope they might have a winning case that will pay them tens of millions years down the road.
The NTP-RIM settlement has been bad for the industry for many reasons indeed. Changes to the law to address so-called bad actors affect everyone, and the unrealistic expectations of patent owners makes it difficult to help those who do have legitimate grievances. So the moral of the story for independent inventors, small business and start-ups is to be realistic and have a plan. Victory can be obtained, but an effective strategy is essential to success.- - - - - - - - - -
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Posted in: Gene Quinn, IP News, IPWatchdog.com Articles, Patent Fools™, Patent Litigation, Patent Trolls
About the Author
Gene Quinn is a Patent Attorney and the founder of the popular blog IPWatchdog.com, which has for three of the last four years (i.e., 2010, 2012 and 2103) been recognized as the top intellectual property blog by the American Bar Association. He is also a principal lecturer in the PLI Patent Bar Review Course. As an electrical engineer with a computer engineering focus his specialty is electronic and computer devices, Internet applications, software and business methods.