The peer-reviewed academic journal Science, published by the American Association for the Advancement of Science (AAAS), seems to have sprung a new leak by publishing an article in late April titled, ‘The growing problem of patent trolling.’ The summary to this piece is enough to get the gist. Essentially (and please, stop us if you’ve heard this one before), patent litigation reached near-historic levels in 2015, much of which is driven by non-practicing entities (NPEs) and data “suggests that NPEs – in particular, large patent aggregators – on average, act as ‘patent trolls,’ suing cash-rich firms seemingly irrespective of actual patent infringement.” The problem is, as Science puts it, these trolls are negatively impacting innovation at “targeted firms,” all of which suggests “a need to change U.S. IP policy, particularly to screen out trolling early in the litigation process.”
Pre-litigation review of cases to weed out instances of patent trolling sounds like a great idea, but what more weeding out do the authors want? Since the Supreme Court decided Alice v. CLS Bank nearly 70% of all software patents have been invalidated by district courts as being patent ineligible, which is almost always done at the motion to dismiss stage. Furthermore, the Patent Trial and Appeal Board (PTAB) institutes 80% of the challenges to patents they receive. Indeed, it seems that over the past 5 years with nearly every court decision and piece of legislation more rights are taken away from patent owners, patents are no longer presumed valid and district courts are disposing of an alarmingly high number of patent infringement cases on motions to dismiss. It is enormously ignorant to suggest changes to “U.S. IP policy” that would make it more difficult for patent owners. Only those unfamiliar with industry reality could make such a recklessly suggestion. Of course, familiarity with the industry is unfortunately not a prerequisite for academics hell-bent on reaching the wrong conclusion.
Sadly, this is just another in a long line of one-sided tales about patent litigation told by those with an agenda. The authors seem to have picked which facts to rely upon in order to reach a previously determined conclusion, which is particularly ironic given the definition of the word “science” provided by Merriam-Webster: “knowledge about or study of the natural world based on facts learned through experiments and observation.” Perhaps the vast majority of the peer-reviewed content published by Science allows for the facts to drive the analysis, but that does not seem to be the case here.
Let’s take a step back and start at the beginning, with the assertion that patent infringement litigation was incredibly high during 2015. That claim is not technically wrong, although it does take a rather skewed view of the situation and seems to ignore more recently available data.
It’s very easy to make the make the case that patent infringement caseloads did reached terrifying heights in 2015. But why are those numbers up? Well, as it turns out, the answer has at least as much to do with the effects of legislative changes to the patent system as it does with actual trolling practices. Changes wrought by passage of the America Invents Act of 2011 (AIA) make it so that plaintiffs can no longer include multiple defendants in the same lawsuit, requiring all lawful patent owners to file more cases in order to enforce their patent rights to the same degree that they could prior to the AIA. Patent trolling is not responsible for more cases being filed since 2011 — Congress is responsible. After all, did anyone really think patent owners wouldn’t sue infringers simply because they had to sue fewer at the same time in the same case?
It is also deeply troubling for Science to conflate non-practicing patent owners with patent trolls. See Who is a Patent Troll? First, the fact that you do no practice your invention does not mean you are a patent troll, period. Patent trolls are those who engage in bad behavior and it is flat ignorant to pretend that those who are patent owners, or those who are patent owners who do not practice their invention, are patent trolls. Thomas Edison would be a patent troll if being a non-practicing entity that licensed inventions made you properly characterized as a patent troll, and no right thinking person believes Edison was a patent troll. See Was Thomas Edison a Patent Troll? Neither do right thinking people believe that independent inventors, universities, and research and development companies who are solely in the business of inventing are patent trolls either. It is the height of self-important ignorance to conflate being a patent owner with being a patent troll.
Seriously, would Science classify IBM, General Electric, Microsoft and the many other companies that have licensing divisions as patent trolls? It has nothing to do with whether they are an operating company or a non-practicing entity, or sometimes operating and sometimes a licensing entity. What makes a patent troll a patent troll is the odious behavior. Sending tens of thousands of fraudulent demand letters to mom and pop businesses would qualify. Interestingly, those who want patent reform don’t seem interested in demand letter reform. Why is that? Everyone agrees on giving the Federal Trade Commission (FTC) more authority to fight that type of odious behavior, yet proponents of reform seem hell bent on chasing all-or-nothing reforms of the Innovation Act instead. It has to make you wonder why ire isn’t direct at the bad actors and why so much time is spent trying to tar all patent owners with the “patent troll” label.
It becomes even more troubling to conflate patent trolling directly with a higher number of cases filed when one considers the reasons behind that particular change instituted by the AIA. The AIA stipulation requiring that individual lawsuits be filed per defendant was inserted into the bill as a method of making it more difficult for NPEs to enforce patent rights against many entities at once. Whether or not that particular change has done much to curb patent system abuses is unclear. What is clear is that it’s done a good job of increasing the overall number of patent infringement cases filed, and that fact is now being used to argue for further patent reform.
“Wait, but 2015’s patent infringement caseload is still larger than 2014’s,” one might wonder. “That’s an uptick you cannot attribute to the AIA.” That’s also correct. However, that spike in 2015 is likely attributable to a different change in the patent system’s ecosystem, the abolition of Form 18, which was used to plead patent infringement in district court. In September 2014, the Judicial Conference of the U.S. unanimously voted to get rid of Rule 84 from the Federal Rules of Civil Procedure on the belief that many of the forms which the rule modeled were outdated and they weren’t being used; this included Form 18. In previous conversations with Lex Machina data scientist Brian Howard, it was pointed out that the high-water mark of patent infringement case filings seen late last November correlates strongly with the last date Form 18 could be used as a motion to plead patent infringement. The fact that there’s no clear indication that it would be more difficult to plead patent infringement without Form 18 makes it even clearer that the patent system is an ecosystem that is highly sensitive to any change.
Of course, if 2015 hit near-historic highs in terms of patent infringement litigation, you might also think it important to consider that the first quarter of 2016, which saw a very steep decline in those numbers. Indeed, the Science article ignores both the drop in patent infringement litigation during Q1 2016 and the 30% drop in patent infringement litigation filed in the Eastern District of Texas during Q1 2016. See IP Litigation Report Shows Downward Trends. As Howard pointed out in our previous overage, 2016’s first quarter could have lost some cases that were pursued earlier because of the loss of Form 18, but it’s still a fact that flies directly in the face of Science’s hypothesis. Why a peer reviewed publication that focuses on knowledge provided by facts wouldn’t take such important facts into consideration would normally seem like a mystery. Given that this type of skewed analysis of the so-called patent litigation and so-called patent troll problem always ignores facts that disprove the points made it is sadly all too typical and speaks of an agenda. So much for unbiased interested in the truth as dictated by the facts.
Moving on to the second point made by Science, it’s should be relatively easy to understand why NPEs would be regularly involved in patent litigation. NPEs do not practice the intellectual property they own to manufacture goods or provide services; they license them to other companies who do that more cost-effectively than the NPE can itself. The licensee can sell a product or service and the NPE takes a royalty. NPEs need the legal leverage of the litigation process in order to protect their very legitimate business model.
Indeed, as the laws have become so thoroughly against patent owners over the last decade what Congress and the Supreme Court have done is pushed patent owners to have to sue. For the most part it is impossible to achieve a fair licensing deal when there is ongoing infringement and the patent owner is a non-practicing entity. So rather than encouraging private settlement of disputes Congress and the Supreme Court have practically mandated that aggrieved patent owners must sue. See Fixing the patent system requires strong patent rights (discussing the Coase theorem). Following the suggestion of this ill-conceived Science article would simply do more the same. As more rights are stricken from the patent bundle achieving a private resolution becomes increasingly impossible, which will further push patent owners to court. Honestly, you’d think a group of supposed economic and business experts like the authors of this article would be more familiar with the Coase theorem than they apparently are. Suggesting a course of action that will further frustrate private resolution is simply nonsensical, and it goes against the fabric of U.S. law.
Of course, it is insulting to suggest that companies somehow have more “legitimate” rights because they practice the technology they own. This outrageous view not only insults independent inventors, biopharma research companies and universities, but it also takes a dim view of other patent owners, including large, successful corporations like semiconductor designer Qualcomm Inc. (NASDAQ:QCOM). We’ve also provided recent coverage of the marketing of a patent portfolio related to autonomous cars held by Eagle Harbor Holdings (EHH), a company which has been mischaracterized in the past as a patent troll. We have also written about Finjan Holdings, which is frequently called a non-practicing entity despite having interests in operating companies. The patent portfolios of Qualcomm, EHH and Finjan have all been built from in-house research and development; they are not patent trolls. These organizations are only conflated with trolls because patent trolls pass themselves off as licensing entities in demand letters. So, as to Science’s charge that NPEs are simply “firms that generate no products but amass portfolios for the sake of ‘enforcing’ IP rights,” we find that to be pretty sophomoric. Qualcomm’s research and development has generated plenty of products that Science’s authors themselves probably use if they own a smartphone.
Finally, as to the charge that all of these points naturally lead to the idea that the U.S. needs to pursue changes to IP policy “to screen out trolling early in the litigation process,” it should be clear that nothing is further from the truth. Any changes to the U.S. patent system, whether it’s legislative changes from AIA or the judicial system eliminating Form 18, causes a nearly violent reaction from players in the patent system. More importantly, these changes almost always create unintended consequences. The AIA, which was intended to curb abuse, created the Patent Trial and Appeal Board (PTAB) to address the issue of patent quality. However, there have been accusations that the inter partes review (IPR) has been abused in some cases by hedge funds shorting a stock after filing an IPR, which can scare investors and lower stock prices because of the low percentage of patents who go through the IPR process unscathed.
While there’s no reason to vilify individual authors for the points of view they bring to the table, consider the organizations affiliated with those authors. One thing that jumps out is that there is a heavy Harvard contingent among the authors. Two of the three are affiliated with the Harvard Business School, one of whom is also an economics professor at Harvard University, and it’s not hard to find anti-patent sentiment coming from that academic institution. The Harvard Business Review was banging the drum on the dangers of patent trolling back in October 2014, and this article’s assertion that higher levels of patent infringement litigation are proof that patent trolls are having a negative effect sounds a strong echo right about now. Harvard seems to have an anti-patent bias, which would be fine if they weren’t trying to pass off this nonsense as fact.