With all fuss about non-practising entities, or patent trolls as they are so frequently called, I thought who better to reach out to than Ray Niro. I floated the idea that he should consider either writing an op-ed article for publication on IPWatchdog.com, or perhaps we do another on the record interview. I first interviewed Ray in the Spring of 2012. See An Interview with Ray Niro, Mr. Patent Litigation. Ray’s response was that he would be willing to do both. This lead to Ray writing two articles in recent weeks: Why Bash Individual Inventor Owned Companies? and Déjà vu: Targeting Inventors as the New Boogie Man.
On July 1, 2013, we did speak on the record again. What follows is that interview with Ray Niro, the man for whom the media coined the term “patent troll.” Ray unapologetically, and unsurprisingly, comes out in defense of American inventors and those who engage in the hard work that is research and development of new and wonderful innovations. He pulls no punches and in part 1 of our interview he calls out Cisco, a strong critic of non-practicing entities, as a hypocrite for doing the very thing that they rail against.
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QUINN: Thanks a lot for taking the time to chat with me about this important issue. And as all these control issues have been swelling in the news I thought who better to call and talk to about it than you. So thanks for taking the time.
NIRO: You’re quite welcome.
QUINN: So I always don’t know where to begin and I’m almost at a loss for words, which is not typical for me. Maybe we could just start and see where things go. I’ll start by throwing out an open-ended question. When you are seeing all this stuff over the last 30 days, the President announcing Executive action, the op-eds in the newspapers, and the flood of new legislation aimed at the people who are characterized as non-practicing entities, what do you think?
NIRO: Well, it disturbs me. It’s like Yogi Berra’s famous quote, “It’s déjà vu all over again.” The exact same strategies used by some of the same people were also used to attack personal injury lawyers, civil rights activists, age discrimination cases and more. Arthur Miller, who co-wrote the book on Federal Civil Procedure, said it best in a 2013 NYU Law Review article:
Bogus caseload statistics are propagated, while empirical data is ignored, and fears are spread by claims that there is a litigation explosion in this country and that Americans are paying a litigation tax that renders our businesses uncompetitive.
[see page. 302]. Miller even correctly defined a frivolous case as “any case brought against your client and litigation abuse is anything the opposing lawyer is doing.” [see 88 NYU Law Rev. 361]. There is an often-repeated claim that NPEs cost industry $29 billion. But, that’s a flawed number. Nothing supports it but some flawed data from RPX. There is also the claim that NPE litigation has slowed the development of new products, increased costs for businesses and consumers, and clogged our judicial system.
The fact of the matter is, and this is what’s most disturbing, there is absolutely no analytical data, nothing to support those contentions. There is nothing that shows that new product development has been slowed. Or that cost to consumers has increased. Or that our judicial system is suddenly clogged. In fact, the data I’ve seen suggests that the number of lawsuits that go to trial each year in the patent arena is about the same for the past five years. It has not increased. And if you talk about clogging the judicial system, these cell phone wars, I would suggest, clog the courts more than the NPE suits.
Now, are there more lawsuits being filed? Yes. But in large part that’s just as a consequence of AIA and the venue requirements that don’t allow a plaintiff to join defendants in a single suit unless they’re related. So all this propaganda is disturbing, particularly since the President, Congress and even the Chief Judge of the Federal Circuit are adopting it verbatim.
QUINN: Yeah. You have to really wonder what goes on is when Congress passes legislation. For example, take the AIA joinder provisions. Did Congress really think that people would stop suing? It seems like the legislation is operating exactly as it was designed, which is to cause more lawsuits to be brought. Now there is this frantic complaining – “Oh my goodness there’s more lawsuits being filed, there is a huge problem.” Didn’t they understand what would happen?
NIRO: Well, I think that the theory behind that provision on venue was to prevent the filing of lawsuits where you would have a patent or two being asserted against 50 companies or 100 companies in one lawsuit. And I think that the idea was to make it more difficult for those bringing lawsuits to join in one case 50 defendants. So now what you have are 50 separate lawsuits assigned to different judges who find this ridiculous because now you’ve got maybe ten judges instead of one judge handling the same issues and what the judges are doing quite interestingly is consolidating the cases. They aren’t doing the very thing that Congress says has to be done. So AIA accomplished nothing other than to increase the cost to a plaintiff to bring a lawsuit and the burden on the courts to sort out his mess. The fact is there are efficiencies in having multiple parties that are asserting the same defenses in a single case.
QUINN: I wonder whether it really did accomplish nothing. I’ve thought this for a very long time, that the “Silicon Valley elite” want to have a boogie man in the room so that they can point to this activity that bothers them, whatever it is, and then then can run up to Capitol Hill and say, “Look, we’re getting raked over the coals.” So when they wanted that joinder provision in there in the AIA. They had to have some idea this was going to lead to additional lawsuits. And now the very thing that they wanted to have in there, they’re running up and they’re saying, “Oh, look, we’re getting sued even more.” It’s frustrating.
NIRO: There are a group of what I call West Coast high tech companies, but it’s really a Silicon Valley group , and maybe one from Seattle too, that have put tremendous resources together to create a lobbying group that is having an impact on Congress and I think on the President too. No question about it. And the point I am trying to make is the fact that they all say exactly the same thing using exactly the same words — it’s like the Manchurian Candidate. There’s a script that’s being written and it’s being written by this West Coast contingent. Which interestingly include people that are shipping hundreds of thousands of jobs outside the United States. These aren’t people creating jobs for America. These are people lining their pockets with wealth based upon their own use of the patent system. It’s almost like now that they’ve secured their dominant position in life they don’t want anyone else to have the opportunity to create the kinds of companies that they now have. I said to a jury recently in a case I tried in Santa Clara County Court, it was a breach of an NDA case, that it wasn’t that long ago that right down the street two guys in a garage created Apple Computer. And they didn’t have huge resources behind them to do it. That’s the American Dream. That’s the opportunity to create innovation for our country. And now that Apple, Google and others are in that position they want to stop it for others. There’s a great article by Steve Diamond, a law professor in Silicon Valley that really makes that point. He cites comments made by Bill Gates, a young Bill Gates at the earliest stages of Microsoft, about how important it was for him to take advantage of a strong patent system to create the behemoth that he now has created. So they’re putting their resources now into destroying the very thing that made them great. I think that’s ironic and unfortunate, really.
QUINN: Yeah. To some extent I totally agree with that and I’ve been writing about that for a while. And I get their position, you know, they want what’s best for them. But at some point in time you would really hope that the people who are calling the shots, the decision makers, in this case in the White House and in Congress, and in some cases in the Judiciary would see through this and would understand just how critically important it is to have a strong patent system because all of those companies benefited from a patent system and the exclusive rights that the patent provides.
NIRO: It’s interesting that this article that I mention from Steve Diamond quotes a more successful Bill Gates after Microsoft became successful and he was addressing an audience in Palo Alto and he said his biggest fear, that what really keeps him awake at night, is the two guys in a garage somewhere nearby that might develop a way of doing things that would threaten his business model. And as he was speaking, who’s out there doing exactly that but Sergey Brin and Larry Page who started a little company called Google in a dorm room at Stanford. And they ultimately went to a garage nearby. That is what we have to incentivize. I think it is critical for Congress and the people that are making all the noise to realize you don’t want to destroy innovation. And everything that I’m seeing is discouraging innovation. You want to discourage innovation? Just have this automatic fee shifting so that no inventor can afford the risk, and it’s bad enough they can’t afford the process period without a contingency lawyer, start shifting fees automatically and you’re going to see the whole system comes down. And if an inventor can’t use his or her patents to license and enforce them in some way, they have nothing, they’re done. They are not going to be able to compete on a level playing field with guys who just take their ideas. If that’s the end game, the country is going to suffer. We will be the losers here.
QUINN: A couple thoughts come to mind. When you go to these conferences and you listen to the presentations, whether it’s a CLE or whatever it may be, and there’s Microsoft folks on the panel they’ll come right out and say “we do not infringe valid patents.” As if their opinion is every patent asserted against them is simply invalid. And they talk about circular filing all letters that they get asking them to consider taking a license. What is an innovator to do in that scenario? Particularly if the Congress is going to wind up shifting fees?
NIRO: Automatic fee shifting for a class of plaintiffs who lose is going to have a negative effect on innovation eventually because, as you increase the cost and risk to an inventor or an inventor owned company to pursue a remedy to license his or her technology, if you make the cost prohibitive, then you have to discourage the activity. That’s going to be the consequence. And adding a layer of attorney’s fees increases the cost.
I’m not suggesting that there aren’t appropriate cases where attorney’s fees ought to be awarded. But they ought not to be awarded simply because you’re an NPE or because you bring a lawsuit as an NPE or simply because you’re an inventor who fails in an effort to assert a patent in good faith. I think Section 285 has got it right, if it’s an exceptional case, then you can have that remedy. But this over reaction that you’ve got to use fee-shifting selectively against NPEs because of this horrible cost to the society is unsupported in fact and there is no one that can show analytically that any of these horrible things, in fact, have happened as a consequence of NPEs. So they’ve created a boogie man and then they want to stomp him. It reminds me, Gene, quite frankly of the great line in a western where a mob of townsfolks were screaming “Lynch him, hang him,” and the sheriff says, “Oh, no, first we’re going to have a fair trial, then we’ll hang him.” Well, you know, the outcome is pre-determined here. They’re going to lynch these NPEs and they are going to get ‘em. We’ll give ‘em a fair trial, then we’ll hang ‘em.
NIRO: There’s no debate that is taking place because one side has money and the other is not organized and doesn’t have money. That’s basically what’s going down.
QUINN: Right, right. And not to necessarily get too political. But boy, you know, when the President repeatedly on issue after issue will say, “Let’s have a debate” but then, when the issue is NPEs, he wants no debate. One of the things that I see and hear about a lot in the patent litigation arena is how the Silicon Valley elite will settle bad cases for nuisance value. But then in the case where they really are infringing and there really is a good solid patent at issue and there’s a lot of money being made by people, they litigate those cases to the N-th degree and they don’t want to pay the innovators of these important technologies anything. It’s infuriating.
NIRO: Well, it’s interesting when you look at the piece where the President was in Silicon Valley and lashed out against the evil trolls. He was asked a question by a young lady software designer who said, “Mr. President, what’s going to happen when I develop a new piece of software and then these trolls sue me for infringement?” And that prompted the Presiden’ts negative comments about coercion by NPEs. But the correct answer, it seems to me, would have been that she will face a huge risk when she goes out to market because there might be a big company that could steal her ideas or even sue her for infringement. It’s not just a troll that might do it, it’s someone else that might do it. And I think the President was given a script and he read it. That script was written by the special interest groups that are creating the propaganda that inventors are evil.
Worse, you have total hypocrisy. Cisco is an outspoken critic of NPEs (they call them all trolls). They even brought a RICO case against Innovatio for enforcing basic Wi-Fi patents it purchased from Broadcom. So what does Cisco do — and you can check this out in the assignment records of the PTO — they assign a bunch of their patents to Acacia in March 2013 and Acacia, in turn, assigns them to a shell company named Dynamic Transmission who, in turn, sues AT&T, Sprint, T-Mobile, Verizon and others. Now who is the troll in this scenario? Cisco, who sold the patents to an NPE, just like Broadcom did, or the NPE they effectively set up? Talk about hypocrisy. I hope AT&T sues Cisco for RICO violations. We need intelligent debate, not slogans and propaganda put out by hypocrits.
QUINN: It would be great if that were the focus and we could have that discussion. But unfortunately we just never get there because the powers that be that are writing the checks and are the ones primarily talking to the decision makers don’t want to have that conversation. They only want to have the conversation that’s beneficial to them. And quite frankly getting back to your story about that woman who asked that question, which sounds like a planted question.
NIRO: Yes, it did.
QUINN: The thing that I always try and tell software people, because they complain about the patent system a lot of them left and right, is why should you in your business be any different than any other business? A lot of these software operators do not engage in any kind of appropriate due diligence about anything before they set out to go and write code or create something. And they tell me that they gleefully do not want to know whether or not they are going to infringe a patent because they have this belief that if they don’t know then they can’t get sued. And it’s so naive. And I don’t understand why there should be any difference in the way you should be expected to run your business simply because your business is as a software developer.
NIRO: Well, that’s right. And what I see happening at multiple levels is a concerted attack on non-manufacturing entities and inventors. And it’s coming, in part, from the Federal Circuit, where almost any significant damage award gets reversed. It’s almost like automatic reversal if you have a damage award of significance. I haven’t looked at statistics on this but anecdotally it looks that way to me. You have a Congress that now appears to be hostile to inventors. And you have an administration that is pushing for “reform.” And almost the joke of all time is the provision in the AIA that said the government would do a study on the real impact of non-manufacturing entities on the economy. And what do they do? They go out to the West Coast and hire a bunch of people that are supported by (indeed, paid by) the special interest groups and, predictably, what do they do? They come up with, not a study based upon data that they’ve gotten independently, but a study that essentially builds on this $29 billion farce which traces back to a Boston University article that has RPX data that included every type of non-manufacturing entity including universities, inventors, large and small companies that didn’t manufacture. And they say, oh, look this is the cost to business — $29 billion. So they never really addressed the issues of what is the true cost and is there some damage being done and how best to address that. If there’s a problem, have a debate. If there’s a problem, get the data. If there’s a problem, make an informed decision, not a hysterical one based upon propaganda. That’s what I see happening and that’s what scares me.
QUINN: It is scary. It’s as if the answer dictates the research. They know what they want the answer to be, so they just go out and find support, they’re not really looking to find any answer or come up with solutions. And that’s frustrating. And one of the other things I wanted to talk to you about too is the definition. If you really look at the definition of what these folks call a non-practicing entity or a patent troll or whatever term they’re using at the moment, all of the Silicon Valley elite are patent trolls or NPEs. As far as I can tell they don’t make anything either.
NIRO: Right. Cisco sure is when whey sell patents to Acacia. And so, too, are most major companies.- - - - - - - - - - I have been writing about patent infringement litigation abuses for quite a while, and Chief Judge Rader of the Federal Circuit has this spring in a variety of fora openly discussed the problems he sees. But at the beginning of June 2013 the anti was raised significantly in the ongoing discussion of litigation abuses in the patent arena. The White House chimed in, which you might be inclined to think would be an important development. Sadly the President getting involved in the discussion had more to do with grandstanding and perhaps political payback to investors in his two Presidential campaigns.
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About the Author
Gene Quinn 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.