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The Enforcement of Bad Patents is the Problem


Written by Gene Quinn
President & Founder of IPWatchdog, Inc.
Patent Attorney, Reg. No. 44,294
Zies, Widerman & Malek
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Posted: December 3, 2012 @ 6:45 am
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Between the legacy issue of bad patents, patent auctions and the many who purchase patents, what has started to happen is that the patent system rewards those who have the finances and ability to game the system. But the problem is extraordinarily complex. What is clear, however, is that the enforcement of bad patents is a problem within the patent and innovation industry.

But at the same time it would really be GREAT if the media and anti-patent community would get a clue and understand that the problem with bad patents is largely a legacy issue. Those that say that the United States Patent and Trademark Office continues to hand out dubious patents like candy are flat wrong. The bad patents that we witness being used in unsavory shake-downs have not been granted over the last few years, but rather were granted many years ago, under a different patent regime and when there was little findable prior art for patent examiners to use.

Those that pretend that bad patents issue today by the dozen and for a dime are living in a fantasy world that does not approximate reality. Yet the misinformation continues, undaunted by reality. So if reality doesn’t support the mountains of misinformation about the patent system and how it operates today, what is going on?

Let’s be perfectly honest, the US patent system as a whole rewards far more than innovation. Right now the best business to be in at the moment is the patent enforcement business, at least if you are concerning yourself with low-risk monetization with high reward. You don’t even need a good patent, and whether there is actually infringement is largely a secondary issue. You acquire patents, often bad patents, and then sue individuals, small business and large businesses without discrimination. Settle, settle, settle — always for just enough that it isn’t worth fighting over.

There are those who acquire patents from innovators and pay a fair rate, which is part of the incentive bargain. It is the reward to those inventors at the end of the tunnel, which is incentive for them and others to keep inventing. Still others will purchase patents from companies that are struggling. Notably Kodak has attempted to sell its patent portfolio to raise capital to stay in business.  Are those who would purchase the Kodak portfolio doing nothing to benefit society, or are they playing their part to incentivize? Patents have value and when you acquire them you can sell them for profit, or to stay in business, so like a tangible asset they have value and can and should be acquired. The fact that patents offer many different value propositions contributes to the incentive bargain.

The problem is complex because it cannot be articulated in a quick sound-byte.  Identifying the problem requires more than facts, figures and statistics. If we want to incentivize and foster innovation we need to look behind the curtain on reality to see what is going. If we want a solution to the problem, which is right there to be had, those who are targets need to get serious about using the new tools and techniques available to find prior art and the procedural tools available under the law to do something about bad patents. You can wait until after the patent issues, or you can even start fighting before worrisome patents are examined.

The sooner you engage the less expensive, but you absolutely need prior art or you are going nowhere. Crowdsourcing patent research is one way to get that hard to find prior art, but you have to have a willingness to become proactive, go after the prior art and take the fight to those who see you as prey.

Patent Trolls

I really hate the term patent troll but it is the term that everyone uses.  Some will use the term to from the start tilt the linguistic high-ground in their favor because trolls are just plain bad!  Others will use the term patent troll in an attempt to identify who the bad actors are in contrast to those who no sane person could believe would be those that the patent system should hold up to scornful ridicule and constantly try and stamp out.  I am in this later group. I tend to think that by using the term “patent troll” instead of any of the more sanitized terms like “non-practicing entity” or “patent assertion entity” or “patent aggregator,” we can pretty clearly and quickly determine whether that which is being complained about is something that needs to be looked at and thwarted.

Of course, over time the term “patent troll” has over become synonymous in many corners with non-practicing entities (NPEs), patent assertion entities (PAEs) or patent aggregators.  But not all NPEs, PAEs and/or patent aggregators are bad actors though. How many would characterize Thomas Edison as a patent troll? Pretty much no one with any grasp of reality would label the greatest American inventor of all time as a patent troll, or even think that anything he did to commercialize his inventions was inappropriate business activity.  Yet, Edison did not practice.  Edison invented and then licensed.

Edison also didn’t invent very much that was pioneering, famously saying after a high-profile failure that he would only invent where a market existed.  That meant that Edison focused on incremental improvement.  He was one of the most prolific inventors ever known, and his improvements were sometimes more monumental than any pioneering innovation.  Simply stated, there is nothing wrong with incremental innovation. But the technology giants that scoff at the fact that there are so many patents are fundamentally taking a swing at incremental innovation, and by necessary implication the innovative path exploited so well by Edison and many others.

Likewise, there is nothing wrong with universities being involved in innovation, and although they are also non-practicing entities they contribute mightily to innovation through expansive research and development efforts.  Universities contribute in extraordinary ways to the U.S. economy, and in particular to job creation because university technology is the backbone of many thousands of start-up companies and we all know that start-ups create new jobs.

Thanks to the Bayh-Dole legislation, the most successful piece of legislation over the last 50+ years according to The Economist, universities have played a vital role to innovation and the economy.  Bayh-Dole gives incentive to universities to protect their inventions and then license them to businesses, particularly small businesses, who in exchange pay the university, which funds additional research and development. So universities cannot be considered patent trolls, they are the image of what we want to foster. Universities do pure research for the sake of science and this is not something that would or could be done in a commercial setting.

Any discussion of patent trolls and the problems presented by too much innovation, too much patenting and patent holders standing in the way of practicing companies must take into account Thomas Edison and also realize that universities, federal laboratories and research and development companies are NOT patent trolls that need not be stopped.  We need more of that type of innovation, not less.

Unfortunately, however, there are an awful lot of patent owners that do little more than acquire patents and then stand vigil as toll collectors.  They do not care whether the patents they acquire are good, they do not even care whether those they go after are infringing.  What they care about is that they own a patent and it is going to cost you more to defend against a patent infringement lawsuit than it will to defeat the patent.  Rather than call these bad actors patent trolls I would much rather call them what they really are — innovation vampires.

Innovation vampires grab hold of as many patents as they can and then sink their teeth into a company and begin to suck the life right out by holding the company, and often times the entire industry, hostage. No tax policy could ever do as much damage to an economy. There is massive redistribution of wealth without an iota of benefit to society!  Having an enormous treasure chest that can fund litigation ought not entitle you to reap the rewards carved out of the public domain to incentivize the creation of new technologies. The shake down of companies that are actually engaged in doing something, like creating technology and employing hundreds of thousands, if not millions, is the problem. This shakedown of large and small companies, individual programmers and mom & pop small businesses is an impermissible drag on the economy.

Dealing with the Bad Actors

Dubious patents cause media outlets to scandalously focus on the bizarre and rare and then pretend that it is commonplace.  Dubious patents lead to calls for ever more strict laws and rules about obtaining patents, which weed out real innovations that should be patented. Dubious patents cloud the judgment of those on the periphery of the industry, such as the Supreme Court who decides to review cases with bad patents and seemingly assumes that the problems are rampant.  This all leads treatment of the industry as if we are all still in the third-grade. If someone talks out of turn no recess for the entire class.  So real innovators get punished by the bad actors who attract media attention and the ire of judges, which leads to Congress to take notice and give a few speeches and demand action. Everyone has an interest in getting rid of the dubious patents that are the cornerstone of the empire built by those innovation vampires.

There are tools to deal with patents of dubious quality, which is really where the ire of the entire patent community should be focused.  For example, statistics issued by the US Patent Office suggest that reexamination is an extremely effective way to challenge bad patents. For example, between July 1, 1981 and June 30, 2012, ex parte reexamination is granted in 92% of requests and denied in only 8% of request.

An ex parte reexamination will be ordered when the prior art cited in the request raises a “substantial new question of patentability” of at least one claim reexamination will be ordered by the Patent Office.  Since 1981 when ex parte reexaminations are requested by third-parties (i.e., not the patent owner) the outcome is that all of the claims int he patent are lost 12% of the time and claims are changed 65% of the time.  This is an extraordinary success rate when you factor into the equation that reexamination will be considered a success even if you can only change claims!  A change in the claims means that you have effectively prevented retrospective claims of infringement.  A changed claim can only be enforced moving forward from the point of change, and there may well be equities involved that dictate that a changed claim will be capable of only ever resulting in a $1 royalty payment.

The America Invents Act (AIA) has also ushered in a host of mechanisms to further challenge bad patents, which include post-grant review, inter partes review and covered business method review, which is a flavor of post-grant review applicable to business method patents specifically. With these new ways to challenge a patent after it issues there is some potential downside — the estoppel concern.  That means that if you are going to go down this path you absolutely must present the best prior art at the time you file the challenge because you may not ever get a second chance.  Of course, filing the best request possible at the earliest stage makes all the sense in the world.  These procedures are there because they are inexpensive in comparison to fighting a patent infringement lawsuit. Although not cheap, there is a significant magnitude in the difference of the cost between these mechanisms and litigation.

Still further, there are other ways to give the patent examiner prior art that could prevent the patent from ever issuing in the first place.  Yes, thanks to the AIA prior art can be submitted to the examiner during prosecution of the patent application, which can and in many cases will result in claims being denied or at least more narrow than they otherwise would have been.

Vindication

Truthfully, for most people in the industry the bad actors are whoever they are looking at across the table. From an industry perspective, however, the bad actors are those who without justification claim someone is infringing a patent.  Bad actors are those who knowingly use dubious patents to extract unwarranted licensing revenues. But not everyone who loses a patent infringement lawsuit is a bad actor, and plenty of bad actors simply choose to infringe rather than engaging in meaningful discussions with innovators who deserve to be paid a fair and reasonable royalty.

It is hard to listen to all the animosity within the industry over patents. A patent is never objectively evil, but the way patents are used at times can lead to outcomes that do not provide incentive or otherwise foster further innovation. But if you listen to those who complain it becomes nauseating.  Do something about it!

The statistics for reexamination are overwhelming, yet that tool has been used relatively rarely given the objective success it provides. Who is to blame for that? The patent owner who is suing or the defendant who seems extremely happy with playing the part of the target?  Hunters shoot and deer get shot.  Which would you prefer to be?

Today there are ever more ways to find the best, most useful, prior art to win against dubious patents. For example, crowd sourced patent research puts tens of thousands of researchers all over the world on the task of looking for not only patents and published applications, but those nearly impossible to find non-patent references, which we in the industry call non-patent literature (or NPL).

How many of you have ever inquired about the possibility of using crowd sourced patent research? If you haven’t even looked into the possibility than how can you ever justifiably complain? Given what is at stake, given that there are estoppel considerations to take into account and given that the best prior art will come from non-patent literature why haven’t you considered crowdsourcing? It is up to you, but what you get for what you pay is rather astonishing.

Of course, you can always don your deer costume and wander into the woods during hunting season instead.  There are plenty of innovation vampires out there that would love nothing more than to continue to bleed you dry, and they will be most grateful that you are not very interested in putting up a fight.

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Posted in: Anti-patent Nonsense, 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.

 

18 comments
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  1. I’m not convinced that poor patent quality is merely a legacy problem that has been long since been solved. If crowdsourced prior art research is the answer to defending against patent troll lawsuits based on poor-quality patents of the past, why would it not also be the answer to insuring better quality patents now and in the future? Also, why should the defendant and not the troll bear the substantial cost of the crowdsourced research? I continue to believe that a right-to-sue requirement (or equivalent mutli-tier system) based on crowdsourced prior art search is where the burden of ensuring patent quality properly belongs.

  2. Perhaps I missing something, but it seems to me as if the main difference between a *bad* patent and a *good* patent is the extent to which all the relevant prior art has been found that might limit the included claims during examination. The legacy of the past is hurried and under-staffed examination, which has not found the relevant prior art (yet) due to a lack of time or resources, or perhaps both.

  3. To my way of thinking, the inventor is the really responsible party, as their job is to teach the invention to the practitioner in a very concise and detailed way, such that a very strong case is made for the grant of a patent right. That also includes a very rigorous patent search by the inventor personally, to make sure that they are not re-inventing the wheel before they spend time and money chasing possibly just rainbows.

    I figure I looked at several thousand patents during my search, because I had multiple iterations in the works, and needed to know where I probably shouldn’t try to go. Fortunately I seemed to have *guessed* right, and before I filed my NPA my patent agent had checked my search, and only found 1 very recent invention to consider, which was not a problem at all. About 4 other concepts that I had investigated at some length turned out to be anticipated in one way or another, or they simply didn’t work very well or weren’t efficient enough to suit my tastes.

    That’s not to suggest that someone in West Whereizitstan hasn’t already invented it decades ago, and just didn’t try to get a patent allowed so we couldn’t find it. Ya pays yer money, and ya takes yer chances.

  4. That also includes a very rigorous patent search by the inventor personally

    Stan, I hope you realize that while this may be a “best-practice,” there is no legal requirement for any type of prior art search, right?

  5. Yes, that is correct, but perhaps not very wise. If I don’t understand or find the prior art before my practitioner has to, I would seem to have failed in my duty of candor. I have heard of others that would rely on a USPTO examination search to see what they might actually have to license or sell, but I find it somewhat questionable that they will actually get it right in any really useful manner.

    I would rather make very sure that I am not wasting my time and money for all of my efforts that eventually lead to a valid invention. No invention, no donut. A guy needs to be a little careful about that, in my considered opinion. You either get the trend, or you will be left behind.

    Cheers,
    Stan~

  6. Anon- You seem to have missed a very important issue in my case. If I don’t know what others have done before, how could I possibly improve it in any really significant or efficient manner? A Patent attorney or Agent might not get that aspect at all, so I am once again all on my own in some senses. I happen to like it that way, even if it isn’t especially efficient or even wise.

    Best regards,
    Stan~

  7. Stan,

    I am not arguing with the idea of doing your own search. As I said, that is a “best practice.”

    And I did not miss out on the nuance of “If I don’t know what others have done before, how could I possibly improve it in any really significant or efficient manner” either. That runs along the same line of thought.

    What you seem to miss is my nuance that neither of these are legal requirements. Not a “best practice” is world’s apart from not a legal requirement. And there is a very good reason for having the system so.

    The function of the quid pro quo is still met even with a non-pre-searched application, and a “naked” approach may yield some pretty unconventional wisdom. I would rather err on allowing a system that has to deal with some chaff in order to gather that unconventional wisdom. Significance is not always a “planned against the known” or even an efficient thing, and there are many classic inventions that were actually mistakes, and thus likely to be thrown away if one is too focused on plans and efficiency.

  8. There are several good comments above. PTO examiners having only a few hours at best doing prior art searchs are going to find all of the material prior art all of the time. But making ALL patent applications much more costly, when only a very small percentage are ever asserted, does not make fiscal sense. Hence, more, and very much faster, reexaminations for the few patents that ARE being agressively asserted is what is needed.

    Howwever, a major problem is with our judicial system, not our patent system. Patent invalidity issues are rarely even considered, much less decided, in patent litigation until a full jury trial, which is usually only after millions of dollars must be spent in discovery and other legal expenses. Hence, most defendants pay off trolls just to escape litigation costs and burdens, irrespective of patent validity. [Most prior reexaminations have been too slowly run to help.] That is the main reason for the growth of the troll business.

  9. Paul-

    Very good point about the judicial system being so slow. Just the delay can be a huge problem for independents, especially, let alone the cost. As Chief Judge Michel (retired) pointed out very clearly in an article he wrote that appeared right here on IP WatchDog, we need to have about 3 times as many judges than we currently have. I can’t recall which month, but perhaps someone else might know? It was an excellent article that he wrote himself for Gene. Vote IP WatchDog for IP blog of the year!

    Stan~

  10. Paul-

    Why do you say that the problem you describe is a major problem of the judicial system? It seems to me that if a patent is invalidated “only after millions of dollars must be spent in discovery and other legal expenses” then that is a problem caused by the USPTO!

    Look at Apple’s dubious “rubber-band” patent, filed in 2007 and granted in 2008, the patent was challenged in 2010 and Apple sued Samsung (and a myriad of other companies) over it (and other patants) in 2011. The patent was invalidated by the USPTO this year, only after Apple had already won a $1 billion verdict against Samsung, and received who-knows-how-much money for licensing it to other companies.

    So the USPTO had about three years directly with this patent before it was able to come up with the correct decision that the patent was obvious and lacked novelty when it was filed. If the USPTO had done its job and come up with the correct decision in the first place then Apple, Samsung and the Judicial Branch all would have saved a hell of a lot of time and money from the get-go. I would note also that this time frame is an aberration, as the USPTO normally takes around three years to issue the original “bad patent,” rather than the one year it took in this case.

    This situation also belies the argument that these so-called “bad patents” are simply a “legacy” USPTO issue. The only difference I see between the USPTO now and the “legacy” USPTO is that now it takes the office three times longer to issue the same poor-quality patents.

  11. Paul-

    After reading Stan’s comment and then re-reading yours, I realize (I think) that you are arguing that the courts should consider validity before all else. I agree, and many courts already address the validity of a patent at the summary judgment stage, rather than later in trial. The problem is that even a determination at this stage is quite costly, as many standards that speak to validity, such as obviousness are completely subjective and therefore require the analysis and testimony of extremely expensive expert witnesses.

    Furthermore, courts are required to start with the presumption that a patent issued by the USPTO is valid, which can only be overcome by “clear and convincing” evidence to the contrary. Gene Quinn has even previously argued that the court should not be allowed to overturn the USPTO’s decision unless there is a finding that the USPTO abused its discretion, a much higher threshold. This, coupled with the fact that the decision maker in a court (judge or jury) will almost certainly not have the prerequisite knowledge to even understand what the patent is about, makes it much harder and less certain to overturn even patents that very obviously never should have been issued.

    The long and short of this is that it is almost impossible to make the judicial process for invalidating these “bad patents” any more efficient, less costly or more likely to come up with the correct answer, because the system was designed under the assumption that the USPTO would not consistently be producing complete crap, which it unfortunately is.

  12. One thing to consider is the amount of time that is allowed for the examination of any particular patent application. Last I heard, they were only allowed about 23 hours to search, and then try to examine the application in that light. Prosecute, if you will.

    That means probably 6 hours of searching, that might take 2 years to get to, so I prefer doing my own searches to prevent unfortunate surprises. If the search misses something, I might stand to lose perhaps a $10,000 investment, toward a patent that is so narrow that it will not be attractive to others, or maybe rendered worthless because I misread the trends and guessed wrong.

    Accidental happens though, as Anon mentioned a few posts back. Serendipity, if you will. The original Slinky toy was actually a left-over from a gyroscopic compass mount, that needed a soft suspension system for Naval vessels during WWII.

    One of the engineers discovered that it would *walk* down steps if started properly. Their attempts weren’t up to snuff though, so they ended up using a hydraulic system instead. I inherited an Inertial Guidance Compass from a latter day WWII Destroyer that I found at a wrecking yard, (about ten bucks) which was totally amazing. It took me several days to figure out how it worked and what it actually did. The *boats* could roll a full 360 degrees, and the *compass* wouldn’t even care at all. Superior technology, made obsolete by GPS and software fairly lately.

    Stan~

  13. Re: “Those that say that the United States Patent and Trademark Office continues to hand out dubious patents like candy are flat wrong.” and “Those that pretend that bad patents issue today by the dozen and for a dime are living in a fantasy world that does not approximate reality.”

    Straw man warning. Citation required that anyone has said either of those things – comparing patents to candy or dimes. They are both obviously untrue. but so what?

  14. So here we are Programmers who NAME their own tool LANGUAGES, our work CODE which we WRITE, and protect with COPYRIGHT.

    We name all software patents wrong/bad/unconstitutional, and there are still those who will not even acknowledge our voice.

    If its SO EASY to discover independently solutions in software, then what is PURPOSE of patent in software?

    Its not property as its GRANTED by gov. and can be REVOCKED by gov. solely to fulfill specific purpose. SPREAD OF KNOWLEGE.

    So if spread is so easy, and its lack do not harm substantially industry and society as whole. WHY do we need patents?

    Software industry NOT INNOVATIVE enough?

    Come one. EU based companies are as innovative as US based :P And EU do not have software patents.
    So nobody can claim innovation == patents in software industry.

    So we STILL get whole segment of patents that should not be granted as their purpose IS ALREADY achieved without them. While their NEGATIVE effects are still affecting.

  15. Justin,

    There have been several articles written regarding your statement of “The long and short of this is that it is almost impossible to make the judicial process for invalidating these “bad patents” any more efficient, less costly or more likely to come up with the correct answer, because the system was designed under the assumption that the USPTO would not consistently be producing complete crap, which it unfortunately is” which actually holds the opposite of your view. There is a certain cost effectiveness of a lowered examination rigor. This is actually borne out by the fact that far under 2% of all active patents are actually involved in litigation (and the percent of these that are outright bogus is an order of magnitude less than that).

    In fact, some of these articles point to the possibility of a no-examination, registration only system as a potentially viable option. I know that we at one time in our past had a registration system and that did not work out too well, but times have changed, communication capabilities have vastly changed, and if the Office spent one-tenth of its budget on a pure identification/tracking and information display system for purely registered patents, an argument (colorable in my mind) could be made to revisiting the concept.

    Having just survived the AIA though, I do not think we have the political will for such a change.

  16. While it is undoubtedly true that Examiner competence is a factor in patent quality, I still believe that inadequate prior art search is the main problem, and that selective use of crowdsourced search (as a prerequisite to litigation) is the solution.

  17. Anon -

    I do not see how a no-examination system would ever be viable. You say that “far under 2% of all active patents are actually involved in litigation” but I contend that this has nothing (or very little) to do with the quality of patents that are out there. Not all patents in litigation are bad and not all bad patents go into litigation. In fact, very few patents go into litigation, good or bad, because litigation is so expensive.

    The truth is that “bad patents” do not just create litigation. “Bad patents” keep inventors from exploring legitimate fields of innovation; are used to threaten innovators into shutting down operations or paying unneeded license fees; can keep potential investors from investing in a person’s company or product; and yes, are also used to embroil parties in litigation for money, competitive advantage and other reasons.

    All no-examination would do is to remove the burden of determining whether an invention qualifies for patent protection (is not obvious, is patentable subject matter, etc.) from the USPTO, and move it to…where? To the courts, where it is very expensive and inefficient to educate the judge and jury, where decisions are unpredictable and you have to be able to afford hundreds of thousands of dollars in attorney’s fees just to get through the summary judgment phase? It is more efficient in all areas to *avoid* litigation whenever possible, this instead would just ensure that almost every useful patent would end up in litigation, probably multiple times, just so we could figure out if it’s valid or not.

    The system only works when you can trust the patents out there, which is impossible under a no-examination system. Even if the USPTO does a lousy job of weeding out bad patents, what it turns away is even worse. As an example, a while back an attorney was trying to patent movie scripts. Those things would have gone through under a no-examination system, and then we would have seen big lawsuit every time a studio tried to produce “Romantic Comedy” or “Action Movie 2″, until the patents were finally, hopefully invalidated (juries can be unpredictable). How would a system like that ever be viable, or even more efficient than if the USPTO were to just do its job?

  18. [...] are inherently bad. Gene Quinn, a patent lawyer and vocal proponent of software patents, says that “The Enforcement of Bad Patents is the Problem,” once again evading the real issue. Paralegal Pamela Jones responds with: “That depends on [...]