Yesterday we published an article authored by Karl Fazio, who is Chief Patent Counsel for Pearson. In the article Mr. Fazio begins by interchangeably using the terms patent troll, non-practicing entity and patent assertion entity. While there is certainly a contingent within the industry that view virtually all patent owners as bad actors when they choose a licensing business model, and then sue for infringement when licenses are refused, I do not find that type of rhetoric particularly useful.
I am not alone. The FTC recently acknowledged the term “patent troll,” which has widely been used to vilify all patent owners and not just those committing abuses of the patent litigation system, isn’t helpful. “In the Commission’s view, a label like ‘patent troll’ is unhelpful because it invites pre-judgment about the societal impact of patent assertion activity without an understanding of the underlying business model that fuels such activity,” the report reads. The FTC’s officially position against the use of the term “patent troll” hasn’t filtered down into the debate, unfortunately.
I do not agree that those who engage in patent assertion activity are bad actors or patent trolls simply because they choose to exercise the exclusive rights granted by the federal government. Of course, it would be naïve to pretend that there are not bad actors that are properly characterized as patent trolls who continue to use extortion-like tactics in search of nuisance settlements. These bad actors do exist, and are unfortunately allowed to exist due to inefficiencies in the judicial system and poor business decisions on the part of their targets.
It is true that the number of patent infringement lawsuits are up significantly compared to the 1980s, as Fazio mentioned in the article. It is also true, however, that the increase in patent infringement lawsuits that come after passage of the America Invents Act (AIA) was deemed desirable by Congress. Indeed, let us not forget that Congress specifically wanted more patent infringement cases (i.e., a higher volume) because they made the conscious choice to make it difficult (if not impossible) for patent owners to sue large numbers of infringers in the same lawsuit. Thus, the spike in cases that came after 2011 was an intentional feature of the AIA. Even that being the case, quarter after quarter we see patent litigation declining. See here, here and here, for example.
None of these disagreements, however, should detract from serious consideration of the major premise of Fazio’s article, which is the industry has the power to clear the underbrush and deprive patent trolls of the patents they use to assert against large operating companies. Indeed, Fazio raises three very important points.
First, Fazio says: “More than 80 percent of patents litigated by PAEs are acquired from operating companies.” There can be little doubt that Fazio is exactly right on point. The patent troll problem (to whatever extent it actually exists) has always been a creation of large operating companies. These large operating companies obtained dubious, highly questionable patents that in many cases should never have been issued (as we have all come to see thanks to PTAB and Federal Circuit decisions). These low quality, overbroad patents that are lamented by large operating companies were obtained by these same large operating companies and then sold to other entities so they could specifically and intentionally be used to sue other large operating companies. AT&T and Cisco have been linked to schemes to sell patents to those who would harass their competition. So while we likely disagree on the extent there is a patent troll problem, I absolutely agree the problem is a creation of those large operating companies who, ironically, are the ones complaining about the problem they created.
The second important message that comes from Fazio’s article is that companies should consider joining the LOT Network. Fazio goes on to explain:
By joining LOT, members agree that if one of their patents falls into the hands of a PAE, all other LOT members have their conditional license to that patent activated, granting them immunity.
In other words, if large operating companies want to do something about the patent troll problem they can. Joining LOT would seem to me to make all the sense in the world. Like so many other times throughout the history of law, private actions are far better at solving a problem (or insulating from a problem) than crammed down legislative or a judicial solution. Frankly, it would seem entirely inappropriate for Congress to step in to address the abusive litigation issues large operating companies complain of when they created the patent troll problem in the first place and there is a private sector solution available. Market forces can fix 80% of the problem, so until such time as those complaining about the problem have addressed the 80% that they can themselves address it would seem foolish for Congress to act.
Finally, and perhaps most importantly, the Fazio article demonstrates how and why the Patent Trial and Appeal Board (PTAB) has fundamentally failed its purpose. Fazio writes:
These broad, vague patents have become glaring targets for trolls, who are eagerly buying them up and asserting them wherever they can. As a result, companies are being sued for patent infringement for things that aren’t directly related to their end products and services.
Rather than wasting time, energy, and money litigating such cases, many companies simply settle their troll cases, further depleting their IP budget.
Post grant challenges were created in the AIA for the express purpose of getting rid of these low quality patents. The large operating companies that so desperately lobbied for new procedures to challenge these low quality patents instead continue to pay extortion-like settlements to patent trolls who apparently continue to sue alleging infringement of low quality patents. Of course, these low quality patents were supposed to be challenged at the PTAB, invalidated and the patent troll problem was supposed to eventually go away because trolls would learn there was no money to make. Instead, as Fazio explains, large operating companies sued on low quality patents choose to settle those cases. In a mind-boggling twist, however, these same large operating companies fight to the death against high quality patents where there is ubiquitous infringement of highly valuable commercial technologies.
The entire purpose of the PTAB and the post grant challenges was to rid the system of low quality, dubious patents, which in many cases were ironically obtained by large operating companies. But those being sued on those low quality patents make what they believe to be a smart business decision to settle. The decision to settle is not a smart business decision and only ensures further bogus lawsuits; after all once you demonstrate a willingness to pay extortion why would the next troll do anything other than sue? See Patent Trolls: A Conspiratorial Symbiosis.
Regardless of whether you think it is a good or bad business decision, the fact that large operating companies continue to settle when sued on low quality patents rather than use the PTAB demonstrates that the PTAB is simply not achieving its purpose.
Then Secretary of Commerce Gary Locke, explained post grant proceedings were intended to “provide a check on patent examination, ultimately resulting in higher quality patents.” See page 87 of the House Judiciary Committee Report on HR 1249. Furthermore, the legislative history is replete with mention that the PTAB and post grant proceedings were intended to provide a lower cost alternative that would enable challenges to low quality patents. Obviously, if operating companies continue to pay extortion-like settlements on low quality patents, both post grant challenges and the PTAB itself have miserably failed to achieve these laudable goals. In short, the PTAB and the three new post grant challenges have been an abysmal failure.
How much longer must we suffer the indignity of the PTAB when the PTAB is failing to do anything about the patent troll problem or get rid of what we are told are so many low quality patents that continue to harass large operating companies?