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Patent Litigation Investors Follow the Money to the ITC

Written by Paul Roeder
Vice President and Associate General Counsel, Hewlett Packard
Posted: March 4, 2012 @ 7:30 am
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Bernard Cassidy, the General Counsel of Tessera Technologies, posted a provocative blog on IP Watchdog entitled Follow the Money – Will the ITC Lose Patent Jurisdiction?  In it, he accuses a group of tech companies, including HP, of lobbying Congress to “radically curb” the ITC’s enforcement powers and to “delegitimize all patents.”   He attributes this lobbying to a business model of his own invention he coins “efficient infringement,” under which he claims tech companies choose to infringe patents and pay damages later, rather than to take patent licenses.  After standing up this straw man, he knocks it down, claiming it enables tech companies to steal the fruits of the labors of the inventors of new tech products and services.  He repeatedly claims the victims of this scheme are “inventors who neither have the capital nor the business model to commercialize their own inventions.”  Finally, he associates this all with “outsourcing” to “cheap labor from China,” though he makes no link between “efficient infringement” and overseas manufacturing other than that both lower costs.

What Mr. Cassidy seems to be saying is that the recent stampede of complainants to the ITC (all of whom sell no products) had valuable tech inventions to commercialize, but tech companies refused to license these inventions and instead copied them to avoid paying license fees.  But Mr. Cassidy does not quite say that.  And he cannot.  All of the appropriation is by the complainants themselves, to whom I will refer as “patent assertion entities” (PAEs).  (I will not use the term “Non Practicing Entity” or “NPE” because it sweeps in patent holders who are not abusing the ITC, such as universities and, ironically, Tessera.)  The PAEs in the ITC are patent litigation investors.  For example, there is Beacon Navigation Gmbh, a Swiss PAE which is holding up Ford, GM and every other auto maker.  In virtually every  suit, these PAEs assert patents they claim read on products independently created and commercialized by others, with no knowledge of these patents or so-called “inventors.” 

And this is not merely a question of inadvertent infringement.  The avalanche of PAE cases, in the ITC and District Court, exists because the PTO issues hundreds, if not thousands of patents that can be asserted against every minute feature and functionality of tech products and services.  The overwhelming majority issued to so-called inventors who played no part in developing these features and functionalities, including to patent mills that specialize in stalking the development of technology standards and obtaining claims they hope will read on those standards.  And tech patent applications often pend (through continuations) for 10 years or more, enabling patentees to intentionally draft claims to read on existing products and services.  In fact, these euphemistically entitled “early priority date” patents are the grist of tech patent litigation today, including PAE cases in the ITC.

Mr. Cassidy’s blog repeats arguments being made by investors (large and small) in tech patent litigation.  Ironically, I consistently encounter these arguments in my attempts to advocate for ITC reform, indicating that patent litigation investors and have been busy with their own lobbying efforts.

Tech Companies Do Not Advocate to End ITC Investigations of Patent Infringement

HP makes two simple requests of the ITC.  First, the ITC should even-handedly enforce the technical prong of section 1337 (a)(2) and (3).  Currently, patent licensors alone are given a pass on this crucial jurisdictional requirement to pursue an exclusion order in the ITC.  Second, the ITC should invest the necessary time and effort (which will be substantial) to enforce section 1337(d)(1), which requires the ITC to consider the impact of an exclusion order on (1) the public health and welfare, (2) competitive conditions in the United States economy (3) the production of like or directly competitive articles in the United States and (4) United States consumers.  Enforcement by the ITC with these statutory requirements would not bar anyone from making a complaint with the ITC, would have no impact on investigations that are properly instituted, and would eliminate only exclusion orders that harm the public interest as that interest was defined by Congress in the statute.

Tech Companies Do Not Advocate Excluding Licensing Companies from the ITC

Section 1337, properly interpreted, allows licensors (including individual inventors such as today’s Thomas Edisons), to make use of the ITC to exclude products which infringe US patents. That licensor must show, as must every complainant, a substantial investment in a domestic industry in articles protected by the patent.  A licensor can establish domestic industry by showing that it commercialized its invention through licensees.  That licensor may then complain to the ITC and obtain an exclusion order against infringing imports that harm that domestic industry.  What is not domestic industry, under the statute and the clear legislative history and intent, is ex post or “hold up” licensing; that is, demanding license fees on existing products to which the licensor contributed nothing.  That is patent trolling, as the term was coined by Mr. Detkin of Intellectual Ventures.  Patent trolling has nothing to do with trade or protecting US domestic industry from unfair practices, and belongs in District Court.  Most PAE licensing is exactly that, often if not usually with patents obtained after the accused products were fully developed.

Tech Companies Do Not Challenge the Authority of the ITC To Decide Validity and Infringement

Many tech companies, including HP, file complaints in the ITC.  We do not use the ITC to enforce patents we simply believe read on imported products.  Rather, pursuant to the Congressionally-created limitations imposed on the ITC, we use it to exclude articles, produced by companies over whom we often cannot get jurisdiction, that are copies of our patented products.  We thereby protect domestic industries in articles protected by our patents, and thousands of US tech sector jobs.  Obviously, we do not question the ITC’s authority to investigate and decide patent infringement.

What many tech companies question, along with many outside the industry, is whether the ITC is invading the province of the judicial branch. By waiving the domestic industry technical prong for licensors, and failing to fully consider the public interest requirements, the ITC has leaped the boundaries of its mandate from Congress.  Those who defend these decisions by the ITC believe the ITC is an all-purpose IP enforcement agency, rather than trade agency with narrow and specific jurisdiction.  Mr. Cassidy, for example, claims every patent owner has a “Constitutionally-protected right” to use the ITC.  That simply is not correct.  PAEs have a constitutionally protected right to enforce IP, and to complain to the ITC, but not to have an investigation initiated.  The ITC’s power to investigate and provide an exclusion order is limited to circumstances threatening a substantial domestic industry in articles protected by the patent, and by the four public interest factors.

PAEs now account for a quarter of the cases and over half the respondents in the ITC, up from just a handful of cases before 2011. Patent litigation investors, with no domestic industry in articles protected by a patent, are suddenly using the ITC to avoid (1) the US Supreme Court’s eBay decision (2) Uniloc and other damages decisions by the Federal Circuit and (3) joinder law.  The basic purpose of the Judicial Branch – to define rights and remedies under US law – is being undermined by patent investor use of the ITC to circumvent the Federal Rules of Civil Procedure and Supreme Court and Federal Circuit rulings, raising a serious separation of powers problem.  The US cannot have two general purpose IP enforcement venues, defining essential patent rights and remedies differently, and the Judicial Branch is clearly the correct venue to define these rights and remedies.

Follow the money – PAE litigation in the ITC taxes the many to benefit the few

The real irony in Mr. Cassidy’s blog is his claim that ITC reform “is a vast effort to transfer wealth in a manner contrary to our nation’s fundamental principles and historical economic success.”  A wealth transfer is occurring, but not as Mr. Cassidy describes.  The recent complainants in the ITC have purchased patents in the secondary market and complained in the ITC so as to threaten exclusion orders against importation of all products claimed to infringe those products.  The most recent complainant, for example, is “Pragmatus AV, LLC,” a lawyer who purchased patents from Intellectual Ventures and seeks an exclusion order against a substantial share of all mobile phones and tablets. But of course, Pragmatus and the other PAEs don’t really seek exclusion orders.  All they want is money.  Despite having contributed nothing to the development of the accused products (PAEs rarely if ever allege copying), and despite having no domestic industry to protect, they want to tax tech products.  It is a tax that ultimately will be paid by all consumers of these products.  With due respect to Mr. Cassidy, these PAEs are trolls.  They have invaded the ITC because Congress and the US District courts, recognizing the harm caused by hold-up patent litigation, now prohibit mass joinder, require real evidence of the value of the patented invention and do not grant injunctions to PAEs.  Stymied in the lower settlements they can now extract in District Court, these patent litigation investors have followed the money to the ITC.

 

About the Author

Paul H. Roeder is Vice President and Associate General Counsel for IP Litigation and Public Policy at Hewlett Packard. He is a 1986 graduate of Harvard Law School, and spend 13 years in private practice as an IP and commercial litigator before joining Hewlett Packard to manage patent litigation.

19 comments
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  1. I am skeptical of the arguments based on the source of the arguments, and the initial read that tends to the provocative, and the subjective use of hot-button emotion laden words.

    I think a more effective response would have been an objectively written piece. Detached and rational would have been a more effective return fire.

    Especially in this context, the lack of objectivity is corrosive. One does not return fire with a bazooka when one is in a tiny enclosed metal box.

  2. You would deprive trolls of the right, under the guise of law, to extort real innovators and manufacturers? How un-American! Dammit, Congress gave those trolls the right to engage in such extortion! How dare you suggest that Congress screwed up. What are you, a commie?

    /sarcasm off/

  3. Perfect, “Anon.” Question the content based on the source, but don’t disclose who is paying you.

  4. Paul,

    Your innuendo is most unbecoming, further solidifying my negative view of your “style.”

    You could have innocently verified whether or not someone pays me for my comments.

    To set the record straight. No one pays me for my comments.

    And do you think “source” is not a fair basis to raise a question on bias?

    Really?

  5. Humorless Democrat-

    Can you please provide us with your definition for “troll.”

    Would you propose that patents not be alienable? Such a rule would not be at all in keeping with a property rights regime and it would affect all patent owners, including those large corporations that sell their patent portfolios.

    Just trying to figure out what your solution is to the problem because the issues are not nearly as easy as your sarcastic response suggests. After all, who are the “real innovators”? If someone is infringing how could they be a “real innovator”?

    -Gene

  6. “Troll – noun : a dwarf or giant in Scandinavian folklore inhabiting caves or cliffs.” Merriam-Webster Dictionary copyright 1994.

    Of course this definition later became the classic ogre that lives underneath bridges, who wakes up if he hears someone approaching *his* bridge that he might be able to extract a toll fee from for using *his* bridge. In this case though, the Troll doesn’t or rarely *owns* the actual bridge itself however. If the *troll* had built the bridge himself or bought it from whomever did, he would then cease to be troll, because then he would become a property owner. Don’t like it? Build your own bridge then, and see how you like that!

    About 800 years later, some mostly IT inventing corporations decided that they didn’t like getting sued for infringing patents, so decided to start calling the patent owners Trolls, that were just completely Wrecking their profit margins! Their litigation losses were less than 1 percent of their total profits. Personally, I happen to think it was more about them being caught as apparently being blatant thieves on National television.

    Stan~

  7. Dear Anon
    “Consider the source” is always a fair point. It’s just funny when it comes from “Anon.” It’s like a New Yorker cartoon. See what I mean?

  8. All I see sir, is a poor attempt at damage control. You making light of my “consider the source” comment when in the first instance you harangued that idea and accused my view of being one merely paid for.

  9. Here’s what I see, Anon. Two grown-ups having a conversation, both of whom have identified who they are so that readers can “consider the source,” and one heckler with a paper bag over his head claiming to be “objective.” If you don’t instantly get the irony of that, no one can explain it to you.

  10. Paul,

    It takes you nearly a week and that’s that all the snappy comeback you can come up with?

    You don’t even address Anon’s points. All you have to latch onto is the anonymity. That’s pathetic. I happen to know Anon. He is not a heckler. I am a heckler (or at least I can be with those who need to be disabused of their too-proud, and often too-empty, stances). You attempted portrayal of his comments as a “bought” view were directly negated. And yet your obviously bought view is deemed by you to be a “grown-up conversation.” You appraise your contributions way too generously. There is very little about your post that can be considered “grown-up.” And your reactions even less so.

    Anon is polite – to a fault. People like you see that and consider it a weakness. That is one reason why I suffer such fools as yourself not at all. As it stands, several points have been raised against you and you should be concentrating on answering those points, rather than taking a week to come up with a lame response to Anon.

  11. Yikes, Blind Dogma (clever name), another heckler!
    You guys are funny. Why hide who you are and what your stake is in patent litigation? And don’t say you have none. Please, I pity anyone who haunts this obscure corner of the web with no stake in the IP business.
    I did not say Anon’s view were “bought.” I asked who pays [employs] “Anon” because his ONLY substantive comment is that HP pays me. Seriously, go read him again. And where does Anon “negate” that his views are just as paid for as mine? By saying “they’re not?” OK, I say mine aren’t either!
    Now put up some content already. I put up 2000 words here, and many thousands elsewhere (visit Law 360). You two offer “he’s so rude and he’s not objective and he fires a bazooka from a metal box and his comebacks are not at all snappy.” Good heckling, now come up on stage. Say who you are and submit an ARTICLE on patent litigation policy. For example, should licensing be exempted from the technical prong under section 337, and why? Or, what royalty is “reasonable” where the patent claims are drafted to read on existing products? I’ve got a dozen more suggestions if you’re interested. Good luck. I look forward to your articles!

  12. Glad to see Gene publishing this argument in response to the previous, directly opposing, published argument as to appropriate ITC “domestic industry protection” jurisdiction for these import exclusion orders for patent infringement. The anonymous commentator who had ad hominem conniptions over my comment on the former article [which had pointed out that this is a Congressional intent statutory construction issue which the ITC and the Fed. Cir. will have to decide] must be having real apoplexy over this article.

  13. The anonymous commentator who had ad hominem conniptions over my comment on the former article

    I had to refresh my memory, but you are the same boob from the earlier article.

    As noted later in that same thread (in response to American Cowboy):

    And notice: he uses his real name here, unlike you and me.‘

    So what?

    Using a “real name” is meaningless. Pay attention to the “what is being said” rather than the “who is saying it.”

    If the vitriol fits, then it fits. Obviously, Mr. Morgan’s statements make it fit in this instance – unless of course you think Mr. Kline’s statements are either in error or outright false.

    You never did come back and address the points made by Mr.Kline. Just as I notice you never did address the points made by my friend Anon on the thread ” http://www.ipwatchdog.com/2012/03/08/are-some-patent-holders-more-equal-than-others/ “. All too often I see those who use their real name act as if the mere use of a real name confers some type of legitimacy to posts and a seeming right to not actually be accountable for the substance of the posts.

    There is no “apoplexy” over the publishing of the article itself. I applaud Gene’s desire to have such even-handedness. Any “apoplexy” comes from the ensuing dialogue wherein those who deem themselves of the “mature” caste act anything but. Let’s see some responses to the questions raised rather than lame attacks based solely on anonymity.

  14. “In Internet slang, a troll is someone who posts inflammatory, extraneous, or off-topic messages in an online community, such as an online discussion forum, chat room, or blog, with the primary intent of provoking readers into an emotional response or of otherwise disrupting normal on-topic discussion.”

    That pretty much sums up Anon and Blind Dogma, no? :)

  15. Drew-

    It seems to me that your comment is the type of “troll comment” that you charge Anon and BD with.

    Talk about off topic. Your comment has absolutely nothing to do with this article and attacks others who routinely comment on this blog without any substance whatsoever. This type of comment is not acceptable on IPWatchdog.com. A higher level of commenting is demanded here, so if you want to participate fine, but your comments have to be substantive.

    -Gene

  16. That pretty much sums up Anon and Blind Dogma, no?

    Drew, No.

    Review what I posted and tell me specifically what my “troll comment” was please.

    Being critical is not the same as being a “troll.” Rather, critical reading is mandatory and my post was geared to making a better presentation. When Mr. Roeder fired back, it was he that was off base.

    I called him on that and thus you see the results.

    BD can be bit like a bulldog, and I know he enjoys a good battle. When he sees vacuous responses he is a bit more direct in calling a spade a spade for he has little tolerance for gladhandling subjects. Such often comes from a background in adversarial relations.

    As noted though, once again those taking an overly rightuous tone and posting in real names have not answered the points put to them (on this and other threads). Hiding behind an attack on anonymity is a cowards path. There are many valid reasons for posting under a pseudonym, and I have posted previously onthis topic (even defending the poster known as IANAE). I would point out that even the foundign fathers posted with pseudonyms at times. Perhaps, “Drew” you too see the value in not revealing your full name, and perhaps you too might realize that a little “fire” under the feet is may be needed to obtain some responses. Clearly, the two Pauls were not responding to the actual points made. In your haste to label my (and BD’s) posts as “without substance,” you missed the point that we were asking for substance. One can (and should) take the meaning of “being critical” in more than one way and realize that “being critical” can be a very good thing.

  17. One of Mr. Roeder’s comments caught my attention:

    “The overwhelming majority issued to so-called inventors who played no part in developing these features and functionalities, including to patent mills that specialize in stalking the development of technology standards and obtaining claims they hope will read on those standards. And tech patent applications often pend (through continuations) for 10 years or more, enabling patentees to intentionally draft claims to read on existing products and services. In fact, these euphemistically entitled ‘early priority date’ patents are the grist of tech patent litigation today, including PAE cases in the ITC.”

    It’s worth noting that there are two key features of our patent law that make this possible: 1) Our continuations practice, and 2) Our written description requirement. For example, in Europe you can only file continuations (actually called divisionals) for a period of two years following the first office action in the earliest filed application in the family.

    Also, in Europe an other places like China and Japan, their written description requirement (or as they say, “original disclosure requirement”) is applied in such a way that makes it much more difficult to broaden claim scope after the original application is filed. I have been on the receiving end of this several times, and to the extent there is the political will to do it, adapting our practice in a similar fashion would likely cut down on the number of NPE cases because it would deprive them of their ability to get the types of claims that support their business model. I’m not necessarily advocating such a change, just pointing out. At least in this respect, our system gives the inventors more “bang for the buck” in terms of available claim scope for a given attention.

    For those with further interest, I did a post on this on my blog: http://hanseniplaw.com/2012/03/12/patent-trolls-effects-of-the-u-s-written-description-requirement-and-continuation-practice/

  18. Oops. I meant “At least in this respect, our system gives the inventors more ‘bang for the buck’ in terms of available claim scope for a given INVENTION.”

  19. Rambus’ share price has been volatile due to its court fights. The company’s shares rose sharply in early February following news it settled patent disputes with archrival Nvidia. And its share price dropped almost 60 percent late last year after the company lost a $4 billion antitrust lawsuit against Micron Technology Inc and Hynix Semiconductor Inc. Three of the five patents at issue in this case – collectively known as the Barth patents – have been declared invalid by an appeals board at the U.S. Patent and Trademark Office. Two were declared invalid in September and a third in January.