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“Main Street” Patent Coalition Wants Patent Litigation Reform


Written by Gene Quinn
President & Founder of IPWatchdog, Inc.
Patent Attorney, Reg. No. 44,294
Zies, Widerman & Malek
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Posted: January 29, 2014 @ 2:05 pm
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There is a new entry into the patent reform debate. The Main Street Patent Coalition is a national coalition of organizations that says they are dedicated to stopping patent abuse by so-called patent trolls. The Main Street Patent Coalition is encouraging Congress to pass what they call “common sense patent reform legislation.”

The Main Street Patent Coalition members include: the National Restaurant Association, the National Retail Federation, the American Hotel and Lodging Association, the National Grocers Association, the International Franchiser Association, the Application Developers Alliance, the National Association of Realtors, the Retail Industry Leaders Association, the National Council of Chain Restaurants, the American Association of Advertising Agencies and the American Gaming Association. These trade associations say they want Congress to give small businesses a fighting chance against the growing threat of patent trolls.

The Main Street Patent Coalition claims they represent the small business community at large, which has to make you wonder. On their homepage they talk about an innovative, family owned and privately held company named White Castle. According to the LA Time, White Castle has 9,600 employees. How exactly is that a small business? Answer: White Castle is not a small business, at least if you concern yourself with the way the Small Business Administration defines small business. To be a “small business” you have to have no more than 500 employees. Clearly the Main Street Patent Coalition recent press release Small Main Street Businesses Launch Patent Reform Coalition carries a misleading, if not false, title.

The falsity of the claim that this organization represents “small main street businesses” is further demonstrated when you look at who are members of the Associations that make up the Main Street Patent Coalition. The corporate members of the National Restaurant Association, and the members of the National Retail Federation are some of the largest corporations in the United States. The American Gaming Association membership likewise includes some of the largest corporations in America, including several of the largest banks in the world, including Goldman, Sachs and Morgan Stanley. 

So who is fooling who? The Main Street Patent Coalition may be the entity with the single most misleading name in the history of misleading organization names. Who could really think this group, which is overwhelmingly made up of the largest corporations in the United States, is really representing the interests of “Main Street America”? The name and their propaganda suggest this is an entity dominated by small, mom and pop establishments, but the truth couldn’t be any more different.

Regardless of the extraordinarily misleading name and assertions about who they represent, this organization is asking Congress to pass patent reform that deals with transparency of patent ownership, patent quality, demand letter reform, preventing lawsuits against infringing end users and to make patent trolls pay if they bring frivolous lawsuits.  These goals sound laudable, but when you dig a little deeper it is rather clear that the Main Street Patent Coalition is not really familiar with patent matters and they are not particularly well advised.

Patent Quality

The Main Street Patent Coalition wants Congress to improve patent quality and providing a way to fight bad patents. I am all for greater patent quality. Truthfully, patent quality has really been much lower than it could and should be. Far too few patents are granted on innovations that deserve protection, and far too many patents are granted on innovations that are rather trivial. The problem with the “patent quality” argument is it is always code for “the Patent Office grants too many patents.” That, of course, is ridiculous; a first level view that can’t pass even elementary scrutiny.

That problem with patent quality is the USPTO doesn’t have the ability, apparently, to have patent examiners uniformly apply the patent laws. Interpretations of obviousness are all over the place, which isn’t really the fault of the USPTO but rather squarely the fault of the Supreme Court because they refuse to allow for any bright line rules to be used and applied by the 7,500+ patent examiners, most of whom are not attorneys.

The other problem with the “patent quality” argument is that it seeks to fight a problem that existed 12+ years ago. The patents that are vilified as being too basic and not including enough innovative disclosure are legacy patents from a different era. The problem with patent quality is that real innovations cannot get patented in many high-tech spaces.

If the Main Street Patent Coalition wants to take a holistic view of patent quality then count me in. If they are just another of the many voices that pretends to want patent quality and instead really wants fewer patents then they are nothing more than a part of the problem. To have a coherent national innovation policy we can’t have actors on either side promoting only what is expedient for them today. The patent lobby is already full of short-sighted companies that couldn’t care less about a meaningful, coherent national innovation strategy. They don’t want to get sued today, period. That isn’t patent reform, it is whining.

Demand Letters

The Main Street Patent Coalition says they want to make it easier to punish trolls that send fraudulent and abusive shakedown demand letters. Simply stated, there is no need for additional federal legislation where laws already exist and are not being used to address the complained of problem.

The Main Street Patent Coalition wants laws to make it easier to punish patent trolls for sending fraudulent shakedown demand letters. Of course, this isn’t necessary at all. Just recently the New York Attorney General successfully went after MPHJ Technology Investments for sending false and misleading demand letters. The NY AG used consumer protection laws, which are already on the books. In at least some states violations of consumer protection laws carries with it mandatory attorneys fees as well. So there is no need for new federal legislation. The necessary laws exist even if the membership of the Main Street Patent Coalition choose not to use the laws that already exist to assist their individual members.

If the problem is as bad as the Main Street Patent Coalition says it is then why don’t they use existing laws to stop the conduct? Has to make you wonder, doesn’t it? They don’t seem interested in stopping the problem because if they were they would use the tools that already exist. So, just like so many others, they must have a hidden agenda themselves. That is the only logical explanation, which makes their calls for transparency all the more funny and hypocritical.

The call for demand letter reform is also extraordinarily hypocritical when the Main Street patent Coalition is misleading the public themselves when they assert that the small business community has come together to seek reform.

 Intermediary Manufacturers and Infringers

Let’s look closely at what the Main Street Patent Coalition says here. They say that they want to “protect end users from troll lawsuits based on infringements by intermediary manufacturers and producers.” Notice that they don’t say that these intermediary manufacturers and producers are not infringing, but rather they say that despite the infringement they want Congress to insulate them from patent infringement lawsuits. So they want a “you can infringe without penalty card” from Congress. Ridiculous.

For those who are more knowledgeable and nuanced they will say that they don’t think patent infringement actions should be able to be brought against the end users because ultimately it will be the manufacturers and distributors who sell and install the equipment who are ultimately liable as the result of indemnity agreements. That certainly makes some logical sense, at least until you actually hear the truth.

When did the problem of end users getting sued become an issue? It really is only recently, at least in the greater scheme of things. So what happened? The manufacturers and distributors who will be ultimately liable decided that they would simply refuse to talk to or negotiate with patent owners.

You can go to pretty much any industry event and in-house corporate counsel will gleefully announce to those in attendance that they simply throw away, or “circular file” any demand letters or letters sent in hopes of initiating licensing discussions. Of course, they then have their lobbyist on Capitol Hill run around town complaining that their clients get sued and no one even reaches out to them to negotiate and they would surely talk and negotiate but they are forced to spend large amounts of money defending lawsuits that they could have settled. Sickening!

The truth is most large companies no longer talk unless they are sued first. Even after they are sued if the patent is strong and the infringement clear and damages significant they will refuse to talk. Large companies ironically only negotiate and settle the cases where they are being held up as part of a shakedown. Amazing really, but that is the truth of the industry.

What this means is that to get the attention of those who otherwise refuse to negotiate both before and after lawsuit patent owners have chosen to sue everyone who infringes, including the end users. That gets the patent owner vilified, but what else is a patent owner to do when the true infringer simply ignores patent rights?

 Trolls Pay

The Main Street Patent Coalition says they wants trolls to pay when they file frivolous lawsuits. They also say they want Congress to do something to stop runaway litigation costs.

Of course, there is no need for federal legislation dealing with frivolous lawsuits because it already exists. It is hard to understand why this Coalition would be asking for something that specifically already exists, but clearly there are already laws on the books that allow District Courts to award fees when there is a frivolous lawsuit situation. See Judges Can Make Patent Trolls Pay.

With respect to stopping runaway litigation costs, I have no idea what the Main Street Patent Coalition has in mind. Perhaps Congress is supposed to wave some magic wand, or maybe institute price restrictions on lawyers fees and the cost of complying with discovery requests. I’m all for reducing the cost of patent litigation. That would make it much more economical for patent owners to sue infringers. Of course, the Main Street Patent Coalition isn’t really for reducing costs, they just want to reduce the costs of the infringers.

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Posted in: Congress, Gene Quinn, IP News, IPWatchdog.com Articles, Patent Litigation, Patent Reform, 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.

 

16 comments
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  1. Then again, even our own President wants to leash in the hounds of innovation:

    “And let’s pass a patent reform bill that allows our businesses [(fogetta bout inventors)] to stay focused on innovation, not costly, needless litigation.”

    For more out of the 2014 SOTU, see:
    http://patentu.blogspot.com/2014/01/state-of-unleashed-dogs-speech-sotuds.html

  2. step back,

    and what did you expect from that populist pos ?

    because “parent trolls”… hapless public cheers…

  3. I agree with Angry Dude. We can’t expect anything better from Obama. His non-inventing technology giant friends paid for his election and reelection so now it is time to return the “favor.”

    It is interesting that he wants the infringers, who don’t innovate, “to stay focused on innovation…” Like so many others who have barely a first level understanding our President doesn’t understand what it means to innovate. Taking a new product to market that infringes on hundreds or thousands of patents is not innovative. Innovation requires doing something new. What a sad state the U.S. education system is in that even supposedly learned individuals don’t understand the definition of innovation.

    -Gene

  4. White House position paper?

    “Our patent system is enshrined in our Constitution to encourage invention and to reward Americans for their hard work and risk-taking; but in recent years, that system has also seen an explosion of abusive patent litigation designed not to reward innovation but to threaten companies based on questionable claims. There are a growing number of companies, commonly called ‘patent trolls,’ who employ these litigation tactics as a business model – abusing the system’s strong protections, costing the economy billions of dollars, and undermining American innovation.”

    source= http://www.siia.net/blog/index.php/2014/01/tackling-patent-trolls-and-promoting-innovation-president-obamas-sotu-address/

  5. The answer to treating a patient with a cold is not to kill him.

  6. “Patentability shall not be negatived by the manner in which the invention was made” (35 U.S.C. § 103 )

    “Our patent system is enshrined in our Constitution to encourage invention and to reward Americans for their hard work …” (obama’s bs)

    question to obama and his corporate sponsors: if I come up with my patentable invention sitting on a toilet does it qualify as hard work ?

  7. angry dude,

    You are only in trouble when you start to believe the bs.

    You are not in trouble.

  8. Gene,

    Main Street is not being untruthful. While I would agree with you that Main Street’s use of the term is misleading, the definition of “small business” depends on whether it is being applied by the Small Business Administration or the Internal Revenue Service. A business can be “large” in terms of revenue, payroll and distribution, but “small” in terms of ownership under tax logic. In other words, the numbers of owners can define “small business.” Under tax logic, a small number of owners is the sole criterion for a “small business.”

  9. if you look at the way that Obama prefaced his support for patent reform, he fist called out how government research provided the smart phone, etc. Then he said that we need to pass patent reform.

    I think he believe that innovation should come from government and this patent troll issue is a vehicle to get there. First eliminate where most innovation comes from (individuals and small businesses), then when innovation slows and China gets ahead, argue that we need government to fund innovation because free enterprise has failed.

    He wins becasue he can direct innovation to where he wants it to go (green) and he gets a bigger government with more voters beholden to him and more control over the individual, which has been his trademark.

  10. Paul,
    I know first-hand how well “government-directed” innovation worked in the Soviet Union
    They launched rockets into space and built nuclear reactors, but never made a decent toilet paper, not to mention other small things like cars, TVs, tape recorders etc.

  11. West Coast Guy-

    I understand what you are saying, but I don’t believe there is local ownership in the case of Office Max, or LL Bean or Walmart or Brooks Brothers, for example. All of those companies, and many more that are not small businesses and do not have small business ownership, are members of the National Retail Federation.

    I also find it interesting that since I published this article the National Retail Federation removed the Lobbying Disclosure list of members on its site. Yesterday when you clicked on the NRF link in the article you were taken to a list of all their members and it was labeled Lobbying Disclosure. Today you click on the link and it takes you to the Board of Directors.

    -Gene

  12. A significant portion of this “main street problem” is caused by mega-corp behavior.

    Currently when a user buys a product, they may be unknowingly buying into a patent infringement action.
    … because mega-corps refuse to diligently clear patents for the very uses they are marketing & advertising to end-users.

    The Attorney-General(s) and end-users should be taking legal action against the mega-corps for negligently subjecting end-users to patent infringement actions.

    Mega-corps need to clear patents much earlier in the product cycle (before infringement has occurred), by cross-licensing, licensing, purchasing, or invalidating.

    With earlier clearing of patents, end-users are protected and patent litigation is reduced.

    Creators will be rewarded sooner for their inventions and receive a larger percentage of their created value (instead of being delayed & wasted on patent litigation following infringement).

    Small/disadvantaged patent-holders will not need to sell their patents for specialized patent-assertion, after infringement has occurred.

  13. ‘The Main Street Patent Coalition members include: the National Restaurant Association, the National Retail Federation…’

    Simple question… Are these parties technology creators or tech users? Naturally the latter. They benefit from weak property rights that let them seize the property of others without paying. They want to eat their fill at the tech buffet and not have to pay. But how would they feel if the public did the same to them with their offerings? Oh how they love to wail about software or copyright piracy when it’s their ox getting gored.

    Can you say ‘dissemble’?

    Property rights and jobs in America are now hanging from a frayed thread. Congress and the White House continue to follow the lead of their multinational campaign donors like lambs…pulling America along to the slaughter.

    Just because they call it patent “reform” doesn’t mean it is.

    All this patent ‘reform’ talk is mere dissembling by China, huge multinational thieves and their paid puppets -some in Congress, the White House and elsewhere in the federal government, and some masquerading as reporters. They have already damaged the American patent system so that property rights are teetering on lawlessness. Simply put, their intent is to legalize theft -to twist and weaken the patent system so it can only be used by them and no one else. Then they can steal at will and destroy their small competitors AND WITH THEM THE JOBS THEY WOULD HAVE CREATED. Meanwhile, the huge multinationals ship more and more American jobs to China and elsewhere overseas.

    Do you know how to make a Stradivarius violin? Neither does anyone else. Why? There was no protection for creations in his day so he like everyone else protected their creations by keeping them secret. Civilization has lost countless creations and discoveries over the ages for the same reason. Think we should get rid of or weaken patent rights? Think again.

    Most important for America is what the patent system does for America’s economy. Our founders: Jefferson, Franklin, Madison and others felt so strongly about the rights of inventors that they included inventors rights to their creations and discoveries in the Constitution. They understood the trade off. Inventors are given a limited monopoly and in turn society gets the benefits of their inventions (telephone, computer, airplane, automobile, lighting, etc) into perpetuity and the jobs the commercialization of those inventions bring. For 200 years the patent system has not only fueled the American economy, but the world’s. If we weaken the patent system, we force inventors underground like Stradivarius and in turn weaken our economy and job creation. For a robust economy America depends on a strong patent system accessible to all -large and small, not the watered down weak system the large multinationals and China are foisting on America.

    For more straight talk, please see http://piausa.wordpress.com/

  14. Ignoring “letters sent in hopes of initiating licensing discussions” is the evidence behind their strategy. They intentionally ignore external innovations because the current climate suggests this is the better strategy. Engineers are told NOT to look at any patents. How can they “stand on the shoulders of giants” without acknowledging others work? What is the point of publicly disclosing the details if others aren’t going to learn from it?

    Patent reform should aim to STRENGTHEN patents – and a good place to start would be to target this rampant and intentional ignoring of others innovations. MAKE IT MORE PAINFUL to ignore others innovations rather today’s ignore-now-and-fight-with-lawyers-later strategy currently commonly employed. Right now, it is less expensive/painful to simply ignore the small guy now and sick your lawyers on them later. And when that doesn’t work as well as they counted on, then setup lobbyists and change the laws.

  15. Agree (sadly) completely jodi.

  16. jodi,

    it’s even worse than you desribe…

    if a small patent holder is not extremely careful in wording his letter to infringer, he can himself be sued for declaratory judgement in some remote (to patent holder) jurisdiction, effectively bankrupting patent holder…

    In the current climate it is wise to have patent infringement lawsuit filed (not necessarily served upon infringer) in patent holder’s jurisdiction of choice BEFORE talking to infringer about patent licensing

    sue first, talk later

    unfortunately, after doing this kind of thing more than once (twice ?) – filing infringement lawsuit in order to initiate licensing talks but without determination/resources to proceed all the way to the trial followed by appeal, you/your attorney will be sanctioned by the courts… (and painted as evil “patent troll”)

    so much for “quid pro quo”…