Editor’s Note: Portions of this article are adapted from Problem Child: A Third Grade Approach to Patent Owners, originally published on the Patent Practice Center. For more about the GAO Report please see Manus Cooney’s article titled GAO Report Finds No NPE Patent Litigation Crisis.
Recently we published a five-part series that debunked many prevalent myths about patent trolls. See A Fractured Fairy Tale: Separating Fact and Fiction on Patent Trolls, written by Steve Moore of Kelley Drye. While a bit long, it should be considered mandatory reading if you want to understand the underlying facts instead of just buying into the hype and hyperbole associated with the so-called “patent troll problem.” Similarly, if you want to get a good, non-biased view of patent litigation in the United States you absolutely have to read the recent report of the Government Accountability Office, which is an independent, nonpartisan agency that works for Congress.
Moore, with co-authors Marvin Wachs and Timothy Moore, concludes that when you really look at the facts and underlying dynamics of patents and patent litigation, there really isn’t a problem at all. The GAO report released on August 22, 2013 confirms the extensive research by Moore. The GAO report explains that the number of patent litigations only slightly fluctuated between 200o and 2010, with a one-third increase in 2011, which the report attributed to changes to patent laws ushered in by the America Invents Act and not as the result of any problematic increase in litigations initiated by patent trolls. This increase in patent litigation was by design. While Congress may not have been aware that an increase in litigation would occur, the truth is that the design of the AIA was guaranteed to lead to one of two things. First, the joinder and consolidation provisions of the AIA would either substantially curb patent trolling because it is now much more difficult, if not impossible, to bring a single lawsuit with many dozens (or hundreds) of defendants. Second, increase in the number of patent infringement lawsuits because patent owners must sue infringing defendants one at a time, or at least in much smaller groups. It would seem that the AIA did not stop patent litigation, so the result is a greater number of lawsuits. See also The America Invents Act at Work.
Still further, the GAO found that “companies that make products brought most of the lawsuits and that nonpracticing entities (NPE) brought about a fifth of all lawsuits.” So there isn’t a patent troll problem at all despite the protestations of the Silicon Valley elite who think every patent they get sued on is invalid and every patentee plaintiff is a patent troll.
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Manufacturing Companies Sue 4 to 1 Compared with NPEs
Clearly, with oonly 20% of all patent infringement lawsuits commenced by so-called non-practicing entities the facts just do not show a patent litigation problem. This is particularly true when you consider the reality that independent inventors, research and development companies and Universities all qualify as non-practicing entities. Certainly there are some bad actors who file patent infringement litigation, but a meaningful portion of that 20% are those who no one in their right mind would ever characterize as a patent troll or who are engaging in litigation abuse. So the reality is that the GAO report, after thoughtful and extensive analysis and fact gathering, shows what industry observers already knew — there is neither a patent litigation problem nor a non-practicing entity problem. To the extent that there is a problem it is with bad actors who make up a small portion of all those who initiate a patent infringement action. See Enforcement of Bad Patents is the Problem. Thus the reforms proposed by the infringer-lobby and moving through Congress that seek to punish the entire industry are the sort of heavy-handed solution in search of a problem one might expect to find in a Banana Republic.
I think there is clearly litigation abuse, and some of that abuse probably does rise to the level of patent misuse. But we have laws on the books to handle that kind of litigation misconduct, which is exactly what it is — litigation misconduct. To try and sweep an entire class of patent owners together in a pile in order to address the few, easily identifiable miscreants is just plain stupid. We all knew that it was wrong when we were in third grade and the teacher punished everyone because one or two kids didn’t follow the rules.
Perhaps those crying wolf and claiming there is an enormous problem that requires a heavy-handed approach that punishes all patent owners didn’t learn that lesson like the rest of us. Perhaps those who want to punish all patent owners, weaken all patent rights and fundamentally alter the patent system as we know it didn’t learn the same lessons in grade school because they were the “problem child” (to quote AC/DC) that led to us all losing recess in the third grade! Or maybe they were that clueless third-grade teacher who just didn’t have the sense or patience to figure out who the problem children really were. Let’s just punish everyone (queue evil laugh track)…
But thanks to the GAO report, as well as the work of other industry individuals such as Moore, we know the truth. There is no problem with the patent system. Litigation abuse is a problem in isolated cases, but that does not mean that there is a problem with the patent system as a whole or patents generally speaking. The problem is that certain nefarious bad actors use a patent as part of a shake-down to force defendants to settle for pennies on the dollar or pay hundreds of thousands of dollars (at a minimum) to mount a defense. Sending cease and desist letters seeking $500 or $1,000 to avoid patent litigation. But is that a problem with the patent system? No, absolutely not! The problem is with using judicial inefficiencies and the sloth of the system to force settlements. Such nuisance shake-downs are not new the the judicial process, although they are relatively new to patent litigation. But district courts have the power to put a stop to this if they want. See Judges Can Make Patent Trolls Pay.
GAO Report Concludes Focus on NPE Misplaced
Returning to the GAO Report, the conclusion is particularly interesting because it explains that the focus on the type of litigant (i.e., whether the litigant is a maker or non-practicing entity) is misplaced. In the conclusion to the report the GAO explains:
Public discussion surrounding patent infringement litigation often focuses on the increasing role of NPEs. However, our analysis indicates that regardless of the type of litigant, lawsuits involving software-related patents accounted for about 89 percent of the increase in defendants between 2007 and 2011, and most of the suits brought by PMEs involved software-related patents. This suggests that the focus on the identity of the litigant—rather than the type of patent—may be misplaced.
This is hardly surprising given that even casual, objective observation of patent litigation has long shown none of the dramatic problems suggested by those advocating for a weaker patent system and curbs on patent litigation.
Where Do We Go from Here?
The GAO report raises two interesting questions. First, will Congress push forward with further patent reform efforts that would weaken the patent system and make it more costly to bring patent infringement claims despite the independent GAO report that shows no widespread problems that require legislative fixes? Second, will the fact that software-related innovations are found in 50% of all patented innovations finally cause critics, recalcitrant patent examiners, the PTAB and certain judges to finally come to grips with the undeniable reality that software is a critical area of innovation and such inventions deserve patent protection?
Let’s start with the later. The chart below, which was included in the GAO report, shows that by 2011 half of all patents granted in the United States included software to some degree.
Not surprisingly, the GAO report also explains this increase as being attributed to the growth in importance of computers in our day-to-day lives. No conspiracy against those who write code or nefarious actions to bottle up technology. Quite reasonably, the GAO report says that “the number of software-related patents grew as computers were integrated into a greater expanse of everyday product.” Indeed, you can’t even drive from point A to point B in your automobile of choice without software any more. Disable software and you turn that car into a giant paperweight. Software is a part of more and more. If we do as the PTAB presumably would prefer (see Did the PTAB Just Kill Software?) and as half of the Federal Circuit has voted to do (see Federal Circuit Nightmare) software would not be patent eligible. Exactly how 5 out of 10 judges on the Federal Circuit could rule that software is patent ineligible is bizarre given that the Supreme Court has definitively ruled that software is patent eligible subject matter. See Diamond v. Diehr.
In the upcoming weeks the question will turn to whether Congress will disregard the independent GAO report and continue to move forward with respect to so-called patent reform legislation aimed at addressing a patent troll problem that doesn’t exist. Only time will tell and predicting what Congress will do when the fight turns political is difficult. There is an enormous lobby behind continually modifying the patent system to make rights weaker and to make it harder to enforce patents. Despite the fact that there is not a problem to be solved here Congress may well take the key from these well funded high-tech companies that want to gut the patent system. Yet with the GAO exposing the reality that there is no patent troll problem it will be interesting to see how the line of attack morphs in an effort to extract a punitive solution on the patent system where there is no problem in the first place.