The Enforcement of Bad Patents is the Problem
|Written by Gene Quinn
Patent Attorney & Founder of IPWatchdog
Zies, Widerman & Malek
Follow Gene on Twitter @IPWatchdog
Posted: Dec 3, 2012 @ 6:45 am
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.
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.
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.
About the Author
Gene Quinn is a US Patent Attorney, law professor and the founder of IPWatchdog.com. He is also a principal lecturer in the top patent bar review course in the nation, which helps aspiring patent attorneys and patent agents prepare themselves to pass the patent bar exam. Gene started the widely popular intellectual property website IPWatchdog.com in 1999, and since that time the site has had many millions of unique visitors. Gene has been quoted in the Wall Street Journal, the New York Times, the LA Times, USA Today, CNN Money, NPR and various other newspapers and magazines worldwide. He represents individuals, small businesses and start-up corporations. As an electrical engineer with a computer engineering focus his specialty is electronic and computer devices, Internet applications, software and business methods.