Today's Date: August 21, 2014 Search | Home | Contact | Services | Patent Attorney | Patent Search | Provisional Patent Application | Patent Application | Software Patent | Confidentiality Agreements

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
Blog | Twitter | Facebook | LinkedIn
Posted: May 18, 2011 @ 2:41 pm
Tell A Friend!


James Tissot's David & Goliath, circa 1896

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.

- - - - - - - - - -

For information on this and related topics please see these archives:

Tags: , , , , , , , , , , , ,
Posted in: Gene Quinn, IP News, IPWatchdog.com Articles, Patent Litigation, Patent Troll Basics, Patent Trolls, Patents

About the Author

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.

 

14 comments
Leave a comment »

  1. Gene,

    You meant to say NPE= Non Practicing EDISON

    see http://hallingblog.com/2011/05/08/edison-was-a-patent-troll/

  2. Step-

    Yes, Edison was a patent troll to be sure. Kind of puts things in perspective, doesn’t it?

    Hank Nothhaft and David Kline wrote an article on the same topic, which I published in July 2010. It was one of the most popular articles of 2010 at IPWatchdog.com. See:

    http://ipwatchdog.com/2010/06/01/was-thomas-edison-a-patent-troll/id=10829/

    Enjoy!

    -Gene

  3. As with most/all inventions, early on, there was significant uncertainty that there was even a market. If RIM would have bought the patents or obtained a license very early on, they could have paid a small fraction of the $612M. By not clearing and respecting the IP early on, RIM was continually increasing the value of the very patents they were infringing, by reducing the market uncertainties. Conclusion: Seems like RIM made a strategic mistake.

    The NTP-RIM lesson should have been: Clear and buy/license your IP early, when the IP is cheap (discounted by all the unknowns about market success).

    [This would have also allowed the inventors to be paid sooner … like while they were still living! ]

    Actual NTP-RIM result: Award considered outrageous. Tweak the law, so Mega can continue to ignore IP to an even greater extent.

  4. Gene,

    I agree that the eBay case is a disaster, but I do not think NTP gave non-practicing entities a bad name. RIM tried to low ball NTP, did not negotiate in good faith, and then tried to hide behind that fact that their servers were in Canada. RIM was clearly guilty of contributory infringement, 35 U. S. S 271 (c). For more information see the book The Invisible Edge: Taking Your Strategy to the Next Level Using Intellectual Property http://www.amazon.com/Invisible-Edge-Strategy-Intellectual-Property/dp/B002BWQ5BI/ref=sr_1_1?s=books&ie=UTF8&qid=1306024478&sr=1-1, which discusses the negotiations in detail.

    The simple fact is that large corporations have been waging a propaganda war against inventors for well over a decade. If Edison were alive today, the Microsofts of the world would brand him as a troll and claim that his inventions were obvious.

  5. Dale,
    If you are comparing Edison’s businesses to modern times, it would probably be more accurately described as a Microsoft than an NTP. After all, his MPPC lost an antitrust trial, and Edison funded the development of the electric chair (and demonstrations on animals, from which the term ‘electrocution’ was coined) in what would be described in modern terms as FUD against the competing AC.

  6. Gene,

    I think you are mistaken. Edison invented things and only ran operating companies long enough to sell the invention. Microsoft was built on an operating system invented by someone else. Microsoft has always been second to the market with me-too products. In the early days Microsoft did understand that the cost of the next piece of software was very low and they priced their products accordingly. This was a big reason for their success. However, Microsoft has never invented a single emerging technology. Edison invented dozens.

  7. Dale-

    Did you mean to address that comment to Bobby?

    I don’t think I disagree with what you are saying. What did you think you disagreed with?

    -Gene

  8. “Edison invented things and only ran operating companies long enough to sell the invention”
    You may be correct in a technical sense, as I can’t find what point, if any, Edison quit having a management role in the companies he founded, but it seems that he held control of Edison Studios until after the MPPC lost the antitrust suit, and I doubt think he ever sold all of his GE shares off.

    “However, Microsoft has never invented a single emerging technology. Edison invented dozens”
    The accuracy of those statements depends upon how you define ‘emerging technology.’ Microsoft has done some inventing if we are to believe the USPTO, but most of their patents would be on improvements of existing technology. However, the same largely applies to Edison as well.

  9. Consider the original Bell telephone patent:

    “Bell and his partners, Hubbard and Sanders, offered to sell the patent outright to Western Union for $100,000. The president of Western Union balked, countering that the telephone was nothing but a toy. Two years later, he told colleagues that if he could get the patent for $25 million he would consider it a bargain.” http://en.wikipedia.org/wiki/Alexander_Graham_Bell

    The value of the Bell telephone patent increased by more than 250 times in 2 years.

    Clear and buy/license your IP early … when the IP is cheaper.

  10. Bobby,
    I would define emerging technologies as those technologies that create new industries, not just improved products for existing industries. Microsoft, to my knowledge, has not developed any emerging technologies. Certainly, they lagged in the operating system market, were second or later to the office software application market, late to the browser market. Edison invented the whole electric power industry. Edison invented the recording industry. Edison started the motion picture industry. Edison contributed to the emerging telephone industry. He also invented the Fluoroscope, steel alkaline storage battery, devised an alternative method for making carbolic acid synthetically, etc. Edison’s inventions span numerous industries. He was usually one of the first inventors in these industries or at least early in the industries development. Microsoft’s inventions do not span multiple industries and Microsoft was usually late in its developments. Microsoft’s inventing pales in comparison to Edison’s.

    By the way this is completely consistent with the SBA study that showed that most emerging technologies are invented by start-ups and individual inventors. http://archive.sba.gov/advo/research/rs335tot.pdf

  11. “By the way this is completely consistent with the SBA study that showed that most emerging technologies are invented by start-ups and individual inventors.”
    I am not debating that start ups are where the bulk of technological growth happens, but to call Edison a start-up or individual inventor for a significant period of time is laughable.

    One could argue that Microsoft more or less invented to software market as a market to itself, but that was not a technological invention. They’ve also played a large role in the development of USB, ACPI, and some other technology and standards.

    “Edison started the motion picture industry. ”
    He played an important role in it’s formation, but he also broke anti-trust laws, and the powerful US film industry we know today was rooted in escaping his grasp. That is the very opposite of what one expects from a startup. Also, his methods of invention are even by his own admission basically brute force, which is arguably the way an IBM or a Microsoft gets things done.

    “Edison invented the whole electric power industry. ”
    No, he didn’t. If you wish to foolishly chalk it all up to one man, attribute it to Nikola Tesla. Edison was behind the aforementioned animal torture and electric chair largely to make people afraid of AC, so they would adopt the DC technology Edison profited from instead. Between this, the antitrust suits his companies faced, and other such misdeeds, the label of a ‘Non-Practicing Edison’ step back proposes may be far more vile than ‘patent troll’ could ever be.

    Even basic research on most of those things you mentioned shows that he was standing on the shoulders of giants, and in many cases, there were very important contributions after him as well. I’m not quite sure why it is that you and others have such a strong fixation upon Edison, but the man does not live up to the myth, and certainly not the specific myth you are trying to portray. The mythical Edison even contrasts with the ‘everyman inventor’ rhetoric that is usually followed with excessive levels of American patriotism.

  12. Clayton M. Christensen (of Harvard Business School) book”s: “The Innovator’s Dilemma”, “The Innovator’s Solution”, etc; illustrate how established practicing entities … often dismiss disruptive innovations as insignificant, low quality junk (e.g., a mere “toy”).

  13. Bobby,

    You are entitled to your own opinion, but not your own facts. To suggest that Microsoft invented the software market is absurd. They did nothing of the sort – they almost always created me-too products.

    Edison was a classic individual inventor/startup. Even when he became successful, he had a large group inventing emerging technologies some of which he built a startup around.

    Every invention is a combination of known elements – it’s called conservation of matter and energy. Demeaning Edison’s inventions because he built on existing knowledge is the height of arrogance and ingratitude.

    Antitrust laws, which turned the Statute of Monopolies on its head, are not laws they are politics. They take away or modify one group’s property rights to benefit another politically connected group. In all cases they interfere with and undermine the economy. Edison created the motion picture industry and no politically motivated antitrust attacks on Edison can change that fact.

  14. Dale,
    “To suggest that Microsoft invented the software market is absurd. They did nothing of the sort – they almost always created me-too products.”
    There is a difference between products and markets. Henry Ford’s vehicles were not by any means exceptionally good and it would be foolish to say that he invented the automobile, but his method of manufacturing allowed him to commercialize in a way others before him could not, making it appropriate to say that he created the automobile market. I don’t contend that Microsoft’s software was particularly innovative. The innovation in Microsoft was not in the products themselves, but the business model. Prior to them, hardware companies were largely seen as where the money was to be made, while software was just something needed to make it run. Microsoft was at least one of the earliest companies that proved a successful model focused on software, so it could be appropriate to say they created the market.

    “Edison was a classic individual inventor/startup.”
    Are you suggesting that General Electric, a company founded by Thomas Edison, was a startup other than shortly after it was starting up? I also seem to find quite a few references to him or his companies buying up patents, which is again not something typically associated with startups.

    “Every invention is a combination of known elements – it’s called conservation of matter and energy. Demeaning Edison’s inventions because he built on existing knowledge is the height of arrogance and ingratitude.”
    What I’m saying is that he was not the inventor of many of those ‘emerging technologies’ you mentioned. While not on your list, the most classic example that involves a misconception was the light bulb. Edison did not invent the light bulb. Edison did not even invent the vacuum light bulb. He made improvements to existing technology, which aided its commercialization, but even those improvements were largely superseded by later improvements.

    “Antitrust laws, which turned the Statute of Monopolies on its head, are not laws they are politics. They take away or modify one group’s property rights to benefit another politically connected group. In all cases they interfere with and undermine the economy. Edison created the motion picture industry and no politically motivated antitrust attacks on Edison can change that fact.”
    Again, Edison played an important role, but he was far from the only important one at the time. In the case of the MPPC, it’s demise at the hands of the Sherman Act appears to have allowed an American industry to flourish. Edison and the MPPC attempted to have tight control the film industry, but tight control does not productivity make, which is why Fox and other studios headed to California to escape his grasp. As Edison himself said “Hell, there are no rules here – we’re trying to accomplish something.”