Former Cisco Executive Giancarlo peels back ‘false narrative’ on patent trolls, patent reform

By Steve Brachmann
May 25, 2017

“Let’s call patent reform for what it is: a blatant economic and power grab by tech firms to infringe on technology created by others,” Giancarlo said.

Charles Henry Giancarlo

Charles Henry Giancarlo, former Cisco CTO, explained that the patent system specifically envisioned those who do not manufacture being able to license their patents.

The mainstream narrative surrounding the U.S. patent system has been hijacked in recent years by individuals and entities who have sought to weaken a patent owner’s ability to assert patent rights, most notably by labeling any patent owner trying to assert those rights as a “patent troll.” As Sen. Dick Durbin (D-IL) recently noted during a Senate Judiciary Committee hearing on intellectual property as a driver of American innovation that the term “mischaracterize[s] anyone who goes to court to assert patent rights.”

A close look at the false narratives, which have been promulgated throughout the U.S. patent system, was offered at the International IP Commercialization Council’s policy event at the U.S. Capitol on May 8th by Charles Henry Giancarlo, former CTO and chief development officer for Cisco Systems and former managing director at private equity firm Silver Lake Partners. Giancarlo’s presentation also sought to explore the true agenda of those who are involved in the current U.S. patent reform debate.

“Patents are the driving force of U.S. economic expansion,” Giancarlo remarked, citing the high correlation between the growth of developed economies and the strength of patent laws within those jurisdictions. Giancarlo also used figures from political science professor Stephen Haber’s 2016 article Patents and the Wealth of Nations to show that periods of high dynamic economic growth also see large numbers of issued patent grants and patent litigation filings.

Like others at the IIPCC event, Giancarlo spoke about the unique nature of the American patent system as it was developed in its earliest days to be separate from patent systems seen in Europe. Prior to the U.S. system, patents were granted as the rights of sovereigns. It was a truly American innovation to grant patents to individuals and not to companies, which Giancarlo said enabled every single American to engage in innovation, not just a certain class of citizens. Further, the U.S. system allows inventors to assign their inventions to companies, enabling an entire licensing system for patent owners to commercialize their invention as fully as possible.

Yet the conversation about the patent system promoted by larger tech companies has nothing to do with the benefits of this licensing industry and everything to do with trolls which, apparently, exist for the very first time. Those entities decry weak patents, the extraction of tolls through manufacturer suits and entities which don’t practice their own technology themselves. “The proposed solutions don’t even address the false narrative,” Giancarlo said, noting that the higher expense for non-manufacturers to pursue patent infringement claims and investor joinder rules to lift the corporate veil during legal proceedings favor the defendant in most actions.

Much of the false narrative involving patent trolls hinges on the argument that things are different today and that an outsized increase in patent litigation is proof of abuse of the U.S. patent system. Historical data provided by Giancarlo, however, showed that, from 1790 through 2000, the rate of patent litigation as a percentage of total patents granted hit a low of about 0.5 percent in 1860 and has remained around that level ever since. High-profile patent wars are also not a new phenomenon, Giancarlo noted, pointing out that many treasured American inventors like Thomas Edison, Charles Goodyear and the Wright Brothers would likely be seen as trolls today for their licensing and litigation activities. “High levels of patent caseloads and trials occur during periods of intense economic and technology development,” Giancarlo said, later adding that high rates of patent litigation were also seen during the heyday of the telegraph and telephone systems.

Further discussion of the revenues of non-practicing entities (NPEs) and patent assertion entities (PAEs), the two types of entities which are often labeled as trolls, showed that the revenues of these companies were small enough to beg the question as to why such comprehensive reform measures were required in order to rein in these entities. The high tech industry contributes about $1 trillion to the overall U.S. economy. The revenue base of all publicly traded NPEs and PAEs is approximately $7 billion, less than 1 percent of all tech revenues in the U.S.

Other aspects of the patent troll narrative were addressed during Giancarlo’s talk. The contention that trolls are asserting weak patents flies in the face of the fact that weak patents which are asserted are often thrown out early in legal proceedings. Many of those “weak” patents come from the late 1990s and early 2000s, leading Giancarlo to opine that many of those have either expired or been eliminated through validity challenges such as inter partes review (IPR) proceedings available at the Patent Trial and Appeal Board (PTAB). If tech companies actually wanted to prevent patent trolls from shaking down “mom and pop” companies, they had a good chance to do so by supporting the TROL Act of 2015. They didn’t, and Giancarlo had a compelling reason as to why. “It addressed the real problem by targeting shakedown artists, eliminating the narrative they were using to weaken the patent system,” he said.

Many proponents of patent reform point to the economics of mobile phones, which they argue are greatly impacted by suits from trolls, as a way of getting mainstream American consumers more interested in supporting reform. This argument also fails under the weight of hard data presented during Giancarlo’s presentation. Data from a 2015 study on the smartphone industry found that patent licensing only constituted 3.3 percent of the total cost of smartphones to consumers. This low cost percentage flies in the face of any argument that patent owners in the mobile tech space hold monopoly powers within the industry which are greatly inflating the cost of the end product.

The true agenda of those who support further reform of the U.S. patent system is as follows: to discriminate against entities which license technologies instead of manufacture; to increase the costs of asserting patent rights to the detriment of individuals and startups; and to stilt the conversations surrounding tech licensing in favor of the infringer bringing a product to market. “If you trip over our patent, you’re a thief. If we trip over your patent, you’re a troll,” Giancarlo said.

Overall, recent reform efforts has caused a rapid migration to Old World systems of patenting in which patent rights were stronger for companies than for the individual. “Let’s call patent reform for what it is: a blatant economic and power grab by tech firms to infringe on technology created by others,” Giancarlo said, who further noted that the term patent troll was invented at Intel in the late 1990s. In his opinion, the true trolls are the entities trolling Congress to get a competitive advantage over smaller entities.

The Author

Steve Brachmann

Steve Brachmann is a writer located in Buffalo, New York. He has worked professionally as a freelancer for more than a decade. He has become a regular contributor to IPWatchdog.com, writing about technology, innovation and is the primary author of the Companies We Follow series. His work has been published by The Buffalo News, The Hamburg Sun, USAToday.com, Chron.com, Motley Fool and OpenLettersMonthly.com. Steve also provides website copy and documents for various business clients.

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 25, 2017 1:18 pm

    Perfect opportunity for an update from Ron Katznelson on his own efforts in fighting the “Tr011” propaganda…

    Ron, anything new?

  2. Night Writer May 25, 2017 3:08 pm

    He should add that the number of patents per $1 billion of GDP generated by high-tech companies has fallen since 1980. (Normalized taking out foreign filings.)

    It is strange how powerful K Street is that the propaganda wins.

  3. JPM May 25, 2017 7:20 pm

    Amen. Charlie hit the nail on the head. Hopefully his voice will be heard and we will get either a PTAB shutdown or significant reforms that benefit inventors and other patent owners.

  4. step back May 25, 2017 7:47 pm

    One has to wonder about the extent to which foreign governments are contributing to the propaganda war against the American inventor. If they can interfere with our elections, they can also interfere with other things that used to make America great; like a functional and strong patent system.

  5. Night Writer May 25, 2017 9:05 pm

    @4 step back: interesting thought step back.

  6. angry dude May 25, 2017 10:27 pm

    too little, too late

    to the morgue…

  7. angry dude May 25, 2017 10:31 pm

    step back @4

    I can assure you that Putin and Kim Jong-un don’t give sh1t about US patent system

    China, on the other hand, is the key beneficiary

    Makes you wonder what kind of deals they struck back in Florida

    Like I said… to the morgue…

    burn it all

  8. Ben Mandeville-Clarke May 26, 2017 10:14 am

    Have you guys heard of Cloudflare trying to invalidate the patents of a so called patent troll? I personally believe Cloudflare know they’re infringing patents and stealing other people’s technology, so they’re playing on the patent troll narrative and offering “bounties” to the public of 50,000 for prior art to invalidate the plaintiff’s patents. This sum is far less than the sum they’d have to pay if they were found to infringe, which is highly likely in my opinion.

    In my opinion, we need more entities like Intellectual Ventures to provide a strong counter balance to the efficient infringement players. Giant patent funds that provide liquidity to inventors will help to counter balance the negative patent laws, and provide checks and balances to the unfettered theft of private property by the mega corps.

    In fact, to tell a secret, it’s actually my dream to one day run a patent fund like IV that provides liquidity to inventors and plays a “game of chess” with the mega corps. 🙂

  9. angry dude May 27, 2017 11:55 am

    Ben Mandeville-Clarke @8

    Yes , we do need patent agglomerates to provide liquidity and free marketplace for patents

    but its all useless without proper patent enforcement

  10. Larry Glaser May 30, 2017 12:36 am

    Deliberate mis-characterization is fraud on the court (fraud on Congress), and I would say, TREASON on top. We WON WWII because of individuals who invented for us, rather than for the triple axis. It is that simple. Globalists exist to defuse any possible disruption of their control over big business and big banking.

  11. staff May 30, 2017 11:20 am

    ‘a blatant economic and power grab’

    Lets be clear on this, it’s private property they are grabbing (stealing) which can be worth an immense amount of money. It’s about property and property rights and the legalization of their theft. More importantly, while these large multinationals rob and crush their small competitors by their theft they also forestall any possibility that their small competitors can use their patents to put these thieves out of business with a strategic injunction forcing them out of lucrative markets if not out of business entirely. That’s what has had these thieves sweating. Still, we are happy to hear some truth and that the ranks of thieves are being broken.

    For our position and the changes we advocate (the rest of the truth) to truly reform the patent system, or to join our effort, please visit us at https://aminventorsforjustice.wordpress.com
    or, contact us at aifj@mail.com