Raymond P. Niro is patent litigator with tremendous experience and a reputation that is larger than life. To some he is a champion of independent inventors and small business community, frequent clients of his. To others he is nearly the definition of evil.
It is certainly true that Niro is responsible for the coining of the term “patent troll,” a term first used by a journalist writing about a case he filed on behalf of a client against Intel in 2001. But how is it possible to characterize as a bad actor when those he represents are so often victorious? If you ask me the bad actors are the ones who infringe on patent rights, not those who stand up to have their rights vindicated. But I digress.
Niro has been trial counsel in literally hundreds of intellectual property cases, and since 1996, has won verdicts and settlements for his clients totaling more than $1 billion. In 2006, for example, Niro tried 6% of all the patent cases that went to verdict and, in the first six months of 2007, recovered the 11th, 15th and 35th highest patent verdicts (highest as of 2007), each resulting in a finding of willful infringement, an injunction and cumulative damages of more than $100 million.
On March 27, 2012, I will be speaking at the Managing Intellectual Property program titled US Patent Reform Forum 2012, which will be held at the Willard InterContinental Hotel in Washington, DC. Ray Niro will also be speaking at the MIP patent forum as well. It is through preparation for this patent forum that I met Ray. I asked him if he would be interested in going on the record and chatting with me about the industry, patent litigation, the erosion of patent rights and what the America Inventors Act means for enforcement of patent rights. On March 12, 2012, he did go on the record with me in the exclusive interview that follows.
Without further ado, here is part 1 of my 2-part interview with Ray Niro, Mr. Patent Litigation.
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QUINN: Well, thank you very much for taking the time to chat with me today. I know that we’re both speaking at the patent reform forum hosted by Managing Intellectual Property coming up in a couple weeks, so I thought this would be an interesting opportunity for us to interview you for IPWatchdog as well. Now I see you’re going be talking about the American Inventor’s Act and NPEs, and the impact of the Act on NPEs and so forth. What do you think the AIA has done in terms of non-practicing entities?
NIRO: Well, I think to some extent, maybe to a large extent, NPEs were targeted as the undesirable element of patent enforcement. And Congress was moved in the direction of trying to come up with ways to make the enforcement of patents more difficult for non-practicing entities. Something that the Constitution doesn’t authorize, something that years of patent law don’t authorize. But we now of course all understand that big corporations and super PACs can wield a lot of influence over Congress. There’s no question that Senator Leahy, for example, pushed hard for AIA and that Senator Leahy’s chief legislative aid was a key lobbyist for the Coalition for Patent Fairness, which is really a euphemism for Microsoft and a bunch of other high tech companies.
QUINN: I always thought that is one of the worst named entities that’s ever existed.
NIRO: Yes, it certainly is misleading, isn’t it?
QUINN: Yes. It doesn’t strike me that it’s about patent fairness at all. And maybe I can get you to comment on this. It strikes me that what those folks seek to do is to a large degree dismantled the patent system, make it harder to sue, make it harder to get patents, make it easier to challenge patents. And most of those companies built from the ground up, literally from garages or dorm rooms, on the backbone of patents and intellectual property. So it seems to me that since they have theirs now they don’t want anybody else to get theirs.
NIRO: Well, I couldn’t agree with you more. It’s really an unfortunate development. And there are two aspects of this. One, the big guys made their money, therefore they don’t want anyone else to have the opportunities they had. You look at an Intel, they were hugely aggressive in enforcing their patent rights. Apple, a garage entrepreneur, now you see them enforcing their rights. You see that withMicrosoft as well. You see that these companies don’t hesitate to crush competitors using patents or whatever other power that they have. And it’s unfortunate I think in that context that, you know, they’re the ones leading the charge against NPEs.
The second thing I find ironic is if you look at the Coalition for Patent Fairness and you see it’s Microsoft and Intel and some of those players. And then you look at Intellectual Ventures. Intellectual Ventures was created really as a result of Bill Gates and Microsoft parking $200 million with Nathan Myhrvold the former chief technical officer of Microsoft and getting a bankroll of money from high tech companies that were members of the super PAC Coalition for Patent Fairness to buy, I think at last report, 30,000 patents. Now, Intellectual Ventures bought these patents on the pledge that they would never enforce them. This was only going to be patents obtained for defensive purposes. Of course those of us who are skeptical of that turned out to be right. What is Intellectual Ventures doing? Again, the company created by anti-NPE forces for AIA has now morphed into the biggest NPE of all. I mean, just check the docket in Delaware, case after case after case being filed by Intellectual Ventures against companies that haven’t signed up to their membership. I don’t think there’s anything wrong in doing that, but there is a certain hypocrisy isn’t there? Tell Congress NPEs are bad while created the biggest NPE of all.
QUINN: Yes. I thought that they were going to rue the day that they decided to start Intellectual Ventures. And I don’t find what Intellectual Ventures is doing is bad. I do think it’s ironic that the people who funded them are the targets of litigation now.
QUINN: You know, one of the things that I think is—I see some interesting stuff I guess we can say. You know, my view of NPEs and patent trolls and the whole industry has morphed over time quite a bit. I don’t see a way that you can strip rights away from a patent or make it harder to enforce patents or make them inalienable without just striking a death blow to the entire system. It strikes me that there are some really bad actors out there that give everybody in the industry a bad name. Now, I don’t sense that’s you, I don’t sense that’s Acacia or Intellectual Ventures, but there are some folks out there that bring lawsuits without doing any kind of due diligence and seem to be engaging in almost a shakedown just to settle these cases for $5-, 10-, 15,000. Have you given any thought as to what could be done with respect to the bad actors without penalizing everybody that’s just engaged in legitimate business?
NIRO: Well, you raise an interesting point. There are clearly bad actors. And generally the bad actors fall into the category, I don’t think you can quantify based on what they’re seeking in damages. And I’ll circle back to that in a minute. I think you quantify on the basis of whether or not they truly represent the interest of inventors. I see an NPE as someone who’s created to help inventors. I don’t represent companies be they NPEs or whatever you want to call them, that are associated with inventors unless their model methodology is to help inventors. You do have a bunch of opportunists. Some of them are publically traded now. They’re playing a numbers game. They got—I don’t want to mention the company, but I think you can figure it out. That has a methodology of a bunch of people in horizontal across the board who’s job it is to generate revenue for the company. And their report card gets graded on how much revenue they generate. And they’re not as selective in what and how they enforce —they’re playing a numbers game. They don’t really care whether they win, lose, or draw, they get some lawyers to represent them and if I bring ten lawsuits and one turns out to be okay, that’s good for me. That methodology is bad. Because there isn’t a careful legitimate evaluation of the merits of the claim. They also happen to be the same kind of people that in my view are disconnected from the inventors. Their interest is not in helping an inventor. I mean, let’s be realistic. The cost of a patent infringement suit is $3-8 million, and that’s probably on the cheap side according to AIPLA that exceeds the ability of most individual inventors to play the game. So how are they gonna play the game? They need somebody to help them. Not just to help them on legal fees, to help them on the expenses because our experience is that about 25% of the overall legal fees are expenses. So if you’ve got $3 million in fees, that’s 750k in expenses. I’ve had cases where you spend a million in expenses. I try not to do that, but a million or more in expenses, experts, court reporters, you name it is not unusual. Who’s gonna pay that?
NIRO: You need someone willing to put the money in to help the inventor. So the one thing I wanted to mention to you that I think is important here is you mentioned 5,000, 15,000. I agree that the methodology that’s designed to coerce people to settle because of the cost of litigation is bad. People should evaluate the merits of the claim. And not be concerned about well, it’s gonna cost me so much more money, I might as well just pay the money, or pay the ransom. That’s the common theme. But let me ask you this question. What happens if you have a client who comes in and says, there are one thousand infringers of my patent. It has to do with online retailing. And the top 500 companies infringe. And what I want from each of them is only $200,000. Well, do the math, $200,000 times 1,000 is 200 million. And $200,000 times 500 is $100 million. So you say to yourself, well, how much is enough? What’s wrong with a patent enforcement licensing model that says, I’m gonna license this at $200,000.
QUINN: I totally get what you’re saying because I was writing some articles about this several months ago and somebody used an example of a company that was settling, I guess this person had worked it out to an average of $350,000 per license. And this person said to me that, well, that means that they’re a troll because these lawsuits cost millions to bring, so they’re just shaking people down. And that’s not true. The unfortunate part of it is that patent litigation has gotten so expensive. But a patent can be valuable. And then you also have to factor into the value whether you are licensing a whole bunch of people and you have one infringer who’s just refusing to license, well, you’ve have to go after that person otherwise all of the value of the patent erodes.
NIRO: Right. Well I have a case, still in existence, where the market determined that the royalty should be—it’s a case with 500 to 1,000 infringers, okay? It’s one of the examples I just gave you. And the market dictated a royalty of 200,000. That’s the sweet spot. People would pay 200,000, they’re not gonna pay 300,000. And the client’s not gonna take anything less than 200,000. Well, you know, very rapidly we signed a bunch of people. And I don’t think that that necessarily is bad. And you’re always going to find somebody that’s gonna say, I’m not gonna pay anything, period, I don’t care. And you’re going to test that patent in some way on the merits to see whether or not it meets the criteria for a litigated patent. Can it withstand a claim construction, and can it withstand the validity attacks and so forth. I don’t think that that’s contrary to the purpose of the patent law. On the other hand, I think there are abuses taking place. And it’s almost like the definition of obscenity. I think one of the justices said, “I don’t know how to define it but I know it when I see it.” It is sort of—there are some things that happen in some of these matters that don’t smell right. And I think they give the NPE a bad name and then generically you say, all NPE’s are bad. You know, that’s like saying all Italians are member of the mafia. I mean, you can’t generalize based upon some specific bad apple. Even if there are multiple bad apples.
QUINN: Yes. I’ll tell you, when I was in law school all that many years ago, and I remember in Civil Procedure we learned about Rule 11. And then you learn that it never gets used. And that bothered me then, and it’s bothered me to this day because it seems to me that rather than getting a whole lot more law on the books trying to deal with the outliers, it would be a novel approach for district court judges to use the tools that they have. And I understand it’s not district court judges’ fault because the appellate courts don’t really like Rule 11 and those sorts of things, and I get why. But it seems to me that the tools do exist if you really wanted to try and get to the bottom of this. Because I think you’re exactly right, trying to define the characteristics of the bad actors is difficult, but a judge using some discretion ought to be able to see that when it’s in front of them.
NIRO: Well, I agree with that. I mean, there ought to be ways to deal with the quote/unquote “bad apples.” If you can figure out what’s a bad apple. The problem I’m seeing is it’s become routine just like it was routine to charge inequitable conduct in every case, it’s become routine to seek attorneys fees in every case in which there’s an adverse decision against the patentee. I mean, statistically a patentee has no better than a 25% chance of success based on, you know, getting to the finish line with a favorable result. So that means 75% of the time if you’re representing the patentee, you’re gonna wind up with an adverse claim construction or summary judgment. And I think it’s become a plan. Every case results in a claim for attorneys fees under 35 U.S.C. § 285 or 28 U.S.C. § 1927. Sometimes it’s justified and judges I think get it right by and large. They’re not just going to automatically order attorneys fees, you have to show that there’s some exceptional circumstance. And that’s the way it should be. If they didn’t do a pre-filing investigation, they just routinely go sue people, trying to coerce them into, you know, settlements, and that’s their methodology and that’s uncovered, well, maybe that is an appropriate vehicle for consideration. But I think you’ve got to look at each case on its facts, you can’t just generalize it.
Preview: In Part 2 of my interview with Ray Niro we discuss the ITC Working Group’s efforts to curtail ITC patent jurisdiction, the impact the America Invents Act will have on patent litigation, the loss of manufacturing in the United States and what non-practicing entities can attempt to do to combat the growing narrative that suggest that those who merely invent ought not enjoy the same patent rights as others.