The Patent Games Publicly Traded Companies Play

By Gene Quinn
May 6, 2015

chess-businessman-strategy-335One major problem in the debate about patent litigation abuse is that the debate hasn’t really focused much on litigation abuse. The rhetoric used is all about stopping abuse, but the proposals themselves have little or nothing to do with fixing the problems of the system. Instead, those pushing patent reform have tended to engage in a game of misdirection. For example, what could be wrong with forcing patent trolls who bring specious, extortion-like claims from having to pay the attorney fees of the prevailing defendant? Phrased that way most would likely say “let the evil troll pay!” But if that is the goal then why isn’t the proposed legislation written so that it would apply only to bad actors? Either the drafting is sloppy or the fix is intended to do more than fix the problem of litigation abuse.

Language could be written to make it more easy for district courts to levy attorneys fees against those engaged in a pattern of misconduct without establishing a presumptive fee-shifting law that would require losing parties to pay unless they can demonstrate they acted in good faith at all times, as the Innovation Act does. Further, why is it necessary to allow universities and Venture Capital firms to be pulled into litigation against their will and then have to pay the other sides attorney’s fees for a litigation they didn’t want to pursue in the first place? Is Congress trying to make it even harder for startups to get funding?

The problem with patent reform, particularly the reforms in the Innovation Act and in the PATENT Act, is that the rhetoric doesn’t match the language of the statute. Proposed reforms are not narrowly tailored to deal with abusive litigation. Instead the provisions are written to apply across the board to all patent owners whether or not they are bad actors. All of this in the name of stopping the so-called “explosion of patent litigation” that risks threatening the very survival of the entire system. Too bad it isn’t so. The patent litigation explosion story is just one big lie. When you look at the facts a wholly separate tale emerges.

After an exhaustive review of patent litigation the Government Accountability Office (GAO) concluded in an August 2013 report that there is no patent litigation crisis. The GAO report also found that 80% of the patent lawsuits are brought by operating companies who are suing other operating companies, which debunks the myth that most patent infringement lawsuits are brought by “patent trolls.” Only 20% of patent infringement lawsuits were even brought by non-practicing entities, not all of which qualify as patent trolls. Furthermore, according to data from Lex Machina, in 2014 there were 1,070 fewer patent lawsuits filed than during 2013, and the number of patent cases filed in 2014 was lower than the number of cases filed in 2012 by some 433 cases. Therefore, the stories of run away patent litigation are greatly exaggerated.

When considering the raw numbers of patent litigations filed it is also important to keep in mind that the America Invents Act (AIA), which was enacted in September 2011, introduced new joinder provisions for the express purpose of making it more difficult, if not impossible, for patent owners to sue large numbers of defendants in a single litigation. Prior to the enactment of the AIA dozens or hundreds of defendants were typically sued in a single case brought by a patent troll. This unfairly compromised defendants’ rights to mount an individual defense for a variety of reasons, so Congress wanted to separate out disputes. Although Congress may have naively thought otherwise, no one familiar with the industry suspected that the implementation of joinder provisions in the AIA would mean patent plaintiffs would give up suing, or that patent plaintiffs would sue fewer defendants. It is also worth keeping in mind that the joinder rules were not intended to prevent patent litigation, they were intended to make patent litigation fairer for defendants so that they would not be bundled together in cases where there really was no commonality of facts aside from the patent being asserted. The joinder provisions were designed to guarantee more patent infringement litigation, not less.


Those who profess there to be rampant problems associated with patent trolls and non-practicing entities suing for patent infringement are simply telling a tale that the factual data doesn’t support. Even despite the AIA requiring more patent infringement lawsuits the data suggests that there is less patent infringement litigation. That doesn’t sound like an explosion of patent litigation at all – because there is no such explosion to be seen.

So how has such a factually baseless narrative been able to dominate the discussion? Unfortunately, this propaganda was promoted by some of the elite Silicon Valley technology companies over the last several years, with Google leading the charge. But Google is a high-tech company. Why would they want to damage the patent system by spreading half-truths and reckless misrepresentations? That is a good question that deserves to be answered, but it needs to be asked first. Google shareholders and Members of the Board of Directors should be asking these and other difficult questions. Why is Google is spending so much money to patent innovations when they are spending tens of millions of dollars lobbying to weaken the patent system? They are spending billions to innovate and millions to make those innovations worthless. Something doesn’t compute. See Google collects patents while lobbying against them.

Sure, there are bad patents, but the problem with bad patents is not nearly what you have heard it to be. During 2014 there were 579,782 utility patent applications filed, with 303,931 utility patents issued. Even if the United States Patent and Trademark Office is correct 99.5% of the time that would mean that 1,520 patents during 2014 were improvidently issued. It is unrealistic to expect perfection in any system, particularly when there are nearly 8,500 patent examiners, who are the front line decision-makers. With that number of individual decision-makers and the volume the USPTO handles in a given year there will be some mistakes.

The fact that mistakes are inevitable doesn’t mean that the system should be or needs to be scrapped. But those who abhor the patent system would have the public believe that the Patent Office issues low quality patents routinely. Every honest observer will tell you that the far larger problem is that the USPTO can’t possibly be expected to provide the high quality demanded given the perpetual state of change the patent system has endured over the past 5 years.

Indeed, the real untold story is that the Patent Office is simply not to blame for low quality patents. According to a Commerce Department Inspector General report, over the last 5 years the Patent Office has had to change examination policy some 19 times in response to changes in the law brought about by judicial decisions. The report explains:

[S]ince FY 2009, USPTO has issued new examination guidance 19 times in response to federal court decisions and Patent Trial and Appeal Board decisions. Thus, the practice of not appropriately recording errors has had an ongoing impact on OPQA reviews and the official quality metric.

When you factor into consideration all the legislative changes that have taken place over that same time frame the scope of the problem facing the Patent Office is staggering. How can any system withstand so many changes over such a short time frame? Even assuming arguendo that there is a quality problem, which I dispute, can anyone blame examiners? How well would you do your job if you had to incorporate 19 separate, distinct and substantive changes to the way you do you operate? My guess is that you would probably think it unfair, not to mention unwise.

The IG report blasted the Office for low quality, but the real story is that with so many substantive changes it is unrealistic to expect perfection or anything that even approximates perfection. The IG report was nothing more than a political hit piece that threw the Patent Office under the bus in order to gin up the issue of low quality patents as the patent reform debate is heating up in Congress. In fact, without intending to do so the IG report makes the case for at least a temporary end to the activism in Congress and in the federal courts.

No one can succeed when the rules of the game are changing so fast, and no system can thrive when it is in a constant state of flux. U.S. patent laws and rules have been constantly shuffled without any real, substantive reform that would lead to a better system. Yet, all these changes are putting $5 trillion dollars in gross domestic product (GDP) and at least 40 million jobs at jeopardy. That is why reasonable voices are practically begging Congress to temper its enthusiasm for reform and to laser focus on the problem of fraudulent and misleading demand letters, which doesn’t need to have any negative impact on legitimate exercise of valid patent rights by innovators.

Sadly, we find ourselves at a place where detractors of the patent system have succeeded beyond their wildest dreams, convincing nearly everyone of problems that don’t exist. So successful has this misinformation campaign been that patents owned by everyone are worth less, if not completely worthless. By taking a shortsighted view of the litigation problems they took direct aim on the patent system, including their own patent portfolios and the essence of their own competitive advantage.

What are these companies going to do when foreign corporations push their way into the U.S. marketplace? How will CEOs explain away the existential threat they face when foreign manufacturers flood the market with goods and services without regard to long since crippled patent portfolios of the former tech elite? The patent portfolios these tech giants own have become so hopelessly compromised and many patents so worthless that all that money spent to build up significant barriers to entry will have been wasted and there will be no way to stop well funded foreign companies who will simply ignore the non-threatening patents the Silicon Valley elite hold.

Management in these Silicon Valley elite tech companies has been spending large sums of shareholder money on R&D. They have spent large sums filing for and obtaining patents on their own homegrown innovations. They have also spent large sums acquiring patents either directly or by acquiring companies with attractive patent portfolios. Yet at the same time they are spending money lobbying for the purpose of devaluing patents.  Can they really be oblivious to the fact that at the same time they are devaluing the patents of others they are also devaluing their own patents? Does spending millions in lobbying fees to undo billions spent on research, development and protection make sense to anyone?

In the patent arena it is not hypocrisy that is fueling the misguided strategies of tech companies. Instead it is the self-interest of tech CEOs who are increasingly only concerned about the short term. This is tragic because corporations are supposed to exist in perpetuity, not just until the current CEO can cash out with his or her golden parachute. Short term thinking of tech CEOs is destroying the patent system and wasting shareholder assets.

There is nothing wrong with public companies speaking out on patent reform, but shouldn’t they have to report the material risk their positions pose to the interest of shareholders?

The Author

Gene Quinn

Gene Quinn is a Patent Attorney and Editor and founder of IPWatchdog.com. Gene is also a principal lecturer in the PLI Patent Bar Review Course and an attorney with Widerman Malek. Gene’s specialty is in the area of strategic patent consulting, patent application drafting and patent prosecution. He consults with attorneys facing peculiar procedural issues at the Patent Office, advises investors and executives on patent law changes and pending litigation matters, and works with start-up businesses throughout the United States and around the world, primarily dealing with software and computer related innovations. is admitted to practice law in New Hampshire, is a Registered Patent Attorney and is also admitted to practice before the United States Court of Appeals for the Federal Circuit. CLICK HERE to send Gene a message.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 11 Comments comments.

  1. Anon May 6, 2015 10:53 am

    Thanks Gene,

    Separating the rhetoric from the reality appears to be a never-ending job.

    At least it is not a totally thankless job, as I do appreciate your efforts – Thank you.

    The concept of “on-book” valuation is an interesting one – and one that has not seen everyone on the same page, even here with a guest writer you had within the last year.

    I find the concept of “shareholder” an interesting one. Typically, though, the proxy for the shareholder are the ones that are active in the formation and execution of the strategies at the core of your article. “Shareholders” have merely played the role of absentee rent collector. I do not see their concern changing in any meaningful way that would make them stand up and demand more from the people in place with actual power, the people driving the short-term results (and to tie into a recent observation, this is NOT a patent problem – this is a corporate structure problem – so perhaps the answer lies instead in some meaningful “accountability” corporate law reform….)

  2. Brian Smith May 6, 2015 4:14 pm

    Gene,

    Should the new so called Reform contain something to make sure there is NO “Agency Capture” with PTAB, especially the APJ’s ?

    Here is an Example of Agency Capture I just saw on the wire.
    Judge Scott Kamholz Joins Foley Hoag from PTAB

    http://www.prnewswire.com/news-releases/judge-scott-kamholz-joins-foley-hoag-from-ptab-300078573.html

    Since the APJ are not the same as regular Article III judges I can see a lot of potential for abuse.

    I think Robert Greenspoon, challenging the constitutionality of inter partes review at the Fourth Circuit, had raised that as one issue in his brief.

    -Brian Smith

  3. Gene Quinn May 6, 2015 4:23 pm

    Anon-

    With respect to shareholders there are two options that I see. The first is the activist shareholders that have a large stake in a company and are dissatisfied. Personally, if I were an institutional shareholder or activist investor I would be upset that companies are spending billions to innovate and millions to make the rights they obtain worth less (if not worthless). Second, although it is not my area of expertise I wonder where the shareholder lawyers are. It would seem to me that there could be lawsuits brought by shareholders against companies. Those likely can’t come until after the stock craters, but I expect that will happen once large Chinese companies start to compete and the patents they have obtained provide no barrier to entry.

    As for valuation, I think the problem is that the valuation of companies and the way they do their books is so complicated no one can understand it. How or why you might have a different obligation about reporting devaluation of patents based on whether it was your own innovation or whether the patents were acquired makes no sense to me. It is as if patents have no value on the books, which we know is ridiculous since most of these companies enjoy their valuation simply because they are the only ones that can do something. If anyone could have copied Google’s page rank algorithm they would never have gotten off the ground.

    -Gene

  4. Gene Quinn May 6, 2015 4:26 pm

    Brian-

    I don’t know where I come down on the APJ vs. Article III judges. I know it is an issue being raised. I do think it is an important issue, if for no other reason than to make the point that patents are a property right of constitutional significance. Robert Greenspoon makes excellent arguments.

    Incredibly troubling with respect to APJs is that their decisions on instituting post grant proceedings are not reviewable. That would seem to be unconstitutional. I don’t know how you can have any agency decision insulated from review by an Article III judge. Even more problematic is that the decision relates to a patent.

    -Gene

  5. Brian Smith May 6, 2015 5:00 pm

    Gene,

    I think Agency Capture would be big issue.

    For example 1:

    If you has a APJ working for a firm representing Google and get hired as a APJ , work there to kill patents littigated by Google and then 3 years later go back to the law firm or hired by Google.

    Example 2: what if the firm is representing Kyle Bass or someone like him, then get hired as APJ, make some institution decisions for pharma , Kyle shorts the stock make money and then in 3 years go back to the law firm or go work for Kyle Bass.

    I don’t think it is that far fetched. If the new upcomming rules are that only one APJ to make the institution decision.

    And also he gets to tip the scale if needed in the final PTAB decision.

    I think this need to be raised by the Pharma companies.

    -Brian

  6. Night Writer May 7, 2015 6:38 am

    I think you are right Brian. The other thing about the APJs is that CJ Smith was likely pressured by Obama to hire people that would be tough to build the death squads.

    The problem with Obama is that he is smarter than Bush and knows how to cripple patents better than Bush. Obama knows all is has to do is load the APJs and Fed. Cir. with anti-patent judges and that patents will be severely weakened.

    What gets me about all this is that it does not lead to better quality prosecution or a better patent system just one where your political juice will get you patents. One more step to our third world status.

    I think too that APJ has become just a career move to be able to move to a firm to do post-grant work to make the big bucks. That does set up the same situation where we see corruption in DC. The way it works in DC is you work for an agency and get the industry what they want and then they take care of you by offering you a job that pays 3x what you were making. Not sure how it will pan out for the APJs, but if the APJ is just a short-term job they take for jumping back into a law firm then we can be sure that money will corrupt the process.

  7. Night Writer May 7, 2015 6:52 am

    You have to believe that the IG report was political and that Obama told them to produce it.

    Also, let’s be real. How can Obama say anything after appointing a director to improve prosecution quality when the new director has no prosecution experience? It is outrageous to appoint someone to manage 8,000 examiners when she had essentially zero prosecution experience.

  8. Night Writer May 7, 2015 7:17 am

    From what I’ve seen, all this goes to almost all of the big corps wanting patent litigation to be a sport of kings. They want it as still an option to knock out upstarts, but don’t want it welded against them. And they seem to be getting what they want.

  9. Andrew S Levetown May 7, 2015 11:15 am

    I agree with Night Writer. None of the changes or the proposed changes to the patent system effect Google or Intel very much. They have deep pockets and can afford to traverse the circuitous path to enforcing their patents, and they can pay loser legal fees if requires as well. To the extent that Big Corps have been hurt the most, its probably Big Pharma and its probably a result of Alice. Where Google and other Tech companies may ultimately get hurt is in the acquisition space. If innovative companies cannot obtain financing because they cannot protect their IP, ultimately Google and the like will not be able to acquire innovative companies and it will hurt their growth. For the time being, however, while there is a supply of funded start-ups who obtained funding under the old rules, they will still have ample opportunities to purchase innovative companies. Ultimately, however, they will harm themselves, but in the meantime, they are destroying new SME’s, the engines of job creation and innovation in this country.

  10. Night Writer May 8, 2015 9:23 am

    Thanks for the reality Gene. The anti-patent propagandist are definitely winning despite reality. Another giant area of concern is functional claiming. Lemley sees this as a way to end software patents as well as 101. He has generated so much misinformation and provides the intellectual credibility. Meanwhile, Lemley is raking in millions a year to burn the patent system down.

  11. Den May 15, 2015 4:31 pm

    Thanks, Gene. Stumbled in here while looking for a downloadable licensing agreement. Lucky stumble. If anything, patent quality has gone up, not down. As a pro se applicant (now successful patentee), I spent two years fighting mindless objections and finally having to face off against a foreign-filed U.S. patent which was so badly written and even more badly illustrated that it at first escaped me as to what the examiner’s objection really was. To be fair, that piece of cited prior art deserved, EXTRINSICALLY, to be issued a patent. But INTRINSICALLY, as to its presentments, it should have been rejected. So I ended up with a slightly narrowed but far stronger patent than I would have.

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