How patent troll rhetoric has wrecked the U.S. patent system

By Steve Brachmann
June 4, 2017

There can be little doubt that over the past few years, the U.S. patent system has been rocked by a series of seismic shifts which have either been enacted by Congress or stem from decisions of the U.S. Supreme Court. 2011 saw the enactment of the America Invents Act (AIA), a piece of legislation which created the Patent Trial and Appeal Board (PTAB) and post-grant review proceedings to challenge the validity of any patent, especially those which are being asserted in U.S. district courts. Federal court proceedings have been affected by major court decisions like 2006’s eBay Inc. v. MercExchange, L.L.C., which reduced the ability for patent owners proving infringement to successfully obtain an injunction, and 2014’s Alice Corp. v. CLS Bank International, a decision which has called into question the patent-eligibility of all software subject matter.

These and other challenges to the U.S. success engine were the focus of the second panel at the International IP Commercialization Council’s (IIPCC) May 8th event in the U.S. Capitol. The panel featured a collection of voices from business, legal advisory and even academic entities including Elvir Causevic, managing director of Houlihan Lokey Tech+IP Advisory; Robert Taylor, president of RPT Legal Strategies and a venture advisor for New Enterprise Associates; Damon Matteo, CEO of Fulcrum Strategy; Orin Herskowitz, senior VP of IP and tech transfer at Columbia University and the executive director of Columbia Technology Ventures; and Bill Elkington, chair and president-elect of Licensing Executives Society USA and Canada and senior director of IP management for Rockwell Collins. Moderating the panel was Art Monk, VP of IP transactions for TechInsights.

Compared to patent transactions seen during more stable incarnations of the U.S. patent system, Causevic said that transactions today often involve large portfolios which are trading at drastically reduced prices. “If you have less than a hundred patents, it’s really hard to get any kind of a deal done, because the masters of the universe will figure out a way to drain you out of cash or run you out or ignore you for long enough to where it doesn’t make sense to do a deal,” Causevic said.

Part of Causevic’s concern was that anti-patent reform efforts weren’t just hurting small inventors but also significant investments into research & development made by larger entities. “Even when large companies own these patents… they’re selling to the masters of the universe. The masters of the universe are forcing them to basically give them a free license… not just to the master of the universe, but to all of the customers of the master of the universe,” he said. The eradication of patent value leads to a “race to the bottom” among companies, which is why semiconductor companies have been merging to deal with increasingly low profit margins. “They are treated like the guys that supply toilet paper,” he said. “The guy that brings the next toilet paper a little bit cheaper, one cent per roll, gets the job.”

Elkington followed with his opening statement in which he focused on what he called a “completely different perspective” on ways that friction in the patent ecosystem are typically handled through litigation, legislation and regulation. “We try to use these sort of adversarial models to address a problem that can often be dealt with by experts in a cooperative way,” Elkington said. He brought up the example of product quality in certain industries which use voluntary consensus standards to self-regulate, such as aerospace standards promulgated by SAE.

Herskowitz’s opening remarks focused on the tremendous amount of innovation that occurs in academic environments, especially in the medical and life sciences fields, which is fueled by the U.S. federal government’s annual investment of $40 billion into basic research. In 2015 alone, U.S. universities and medical reported 25,000 inventions leading to more than 6,000 issued patents and more than 6,000 voluntary licenses to more than 1,000 startup companies, Herskowitz said. At Columbia, about 25 such startups have licensed the university’s patents but marketing these innovations is often very difficult. “Hard science is hard to commercialize,” Herskowitz said. “The challenge is if, with the weakening of the patent system that we’ve seen over the last few years… no [venture capital firms] will invest in these hard science products unless they have a clear title and the ability to exclude infringers.”

“The U.S. has had the largest, most productive, and most profitable economy in the world for decades,” Matteo said in his opening remarks. “And, for that, we owe an enormous debt of gratitude to our innovation capabilities and the patent systems that protects those assets.” Unfortunately, Matteo said, we’ve been neglecting this engine of American success as a result of both self-inflicted wounds to our patent system as well as improved patent rights in foreign jurisdictions. “Put simply, the rest of the world is stepping up their game,” he said. Matteo provided a comparison of the differences in the current patent regimes of China and the U.S. as an example of this. Chinese national investment in R&D has grown by 60 percent in the last five years due in no small part to the fact that innovation is named as one of only five major tenets in that country’s current five year plan. “Here in the United States, we spent the better part of a decade dismantling patent protection in every conceivable fashion,” Matteo said, noting the devastating patent mortality rates at the PTAB and the negative impacts extending from the eBay and Alice cases. In contrast, China offers better patent protection for software and business method innovations. “Increasingly, China is becoming the office of first filed,” Matteo said. “Which means it’s where people think it’s the most important (and most profitable) place to protect their innovations.” Matteo said that this trend was “incredibly alarming.”

“It occurs to me that an important question to ask is how we got here,” Taylor said at the top of his opening remarks. He recalled the U.S. patent system of the 1970s, a time when many entities weren’t enforcing patents, the U.S. Department of Justice (DOJ) discouraged licensing activities and the Supreme Court was also hostile to patents. “By 1980, we were watching entire industries leave the United States because we weren’t enforcing patents,” Taylor said. This tide began to change in the early 1980s with former President Ronald Reagan’s appointment of a Commission on Industrial Competitiveness which concluded, in part, that if the United States was to remain technologically superior on a global scale, the enforcement of intellectual property was essential. Other actions, such as the creation of the U.S. Court of Appeals for the Federal Circuit (Fed. Cir.) and a change of heart at the Supreme Court, led to a period of explosive growth in innovation which lasted nearly 30 years. “Somewhere in the 2000s that began to go the other way and it’s really important for us to understand the cause and effect,” Taylor said.

Monk started questioning by asking the panel what changes Congress could make to foster R&D investment in the U.S. Taylor said that federal lawmakers should restore exclusivity to inventors. “A patent is a property right and the Constitution was created to give inventors the exclusive right to exploit their property and in the eBay decision the Supreme Court took that away,” he noted. Taylor opined that, for all intents and purposes, what we currently have is a de facto system of compulsory licensing in the U.S. as a result. From a university perspective, Herskowitz said that the U.S. Patent and Trademark Office (USPTO) to stop its diversion of funding away from efforts to improve patent quality. “The general belief was if the PTO continues to make sure that the Examiners have enough time and experience and training to do their job, we’d end up with stronger patents getting out of the PTO and less uncertainty around whether those would stand thereafter,” Herskowitz said.

In terms of certainty driving investment, Causevic said that he works with big tech firms who are “seeing some of the short-sightedness of the overreach on the troll narrative,” using the current trade secret case between Uber and Google’s Waymo as an example. “The Google guy who took off from Google Waymo and went to Uber and now all they really have is trade protection? Well, guess what? That cat’s out of the bag,” Causevic said.

“This is one of those totally foreseeable and totally preventable unintended consequence situations, where all of the companies in the United States who worked so vehemently to eviscerate patent protection in the [U.S.] are going to be the same ones knocking on these very doors and asking Congress, ‘What on Earth did you do to us?’” Matteo said. He envisioned a potential future where Chinese products enter the U.S. market en masse and American entities cannot compete because they don’t have the competitive advantage of patent protection.

Monk moved to Elkington and asked him to explain his views on why a strong patent protection regime was critical to entrepreneurship and Elkington brought up the example of famed Scottish-Canadian inventor Alexander Graham Bell. “[Bell] was a troll. He was absolutely a troll,” he said, noting that the inventor had up to 300 patent infringement suits in district courts at one point. “And for Alexander Graham Bell to be successful, you have to have a strong patent system. But you have to have a common understanding of patent quality.” Many entities work very productively with patent owners, Herskowitz added, but “we’ve heard behind the closed doors, ‘I’m sorry, you’re going to have to sue me in order to get a license.’” He added that weakening the patent laws with respect to activities affecting one industry has the effect of weakening patents throughout the entire system which chills innovation across all industries, including medicine and life sciences. “And that would be not only an economic loss, that means people will die from this,” Herskowitz said. Causevic added that a weaker patent system also reduces the incentive for companies to engage in the R&D that lays the groundwork for industry standards for future infrastructure. “Now you remove the patents and they’re saying, ‘Well, we’re not stupid. We’re not going to spend another $10 billion developing the next 5G infrastructure and have it stolen again.’” Taylor also noted that the Obama Administration’s DOJ helped the thousands of end-user companies gang-up on the relatively far fewer innovators to the point that it has strained the willingness of companies to participate in standards set by the Institute of Electrical and Electronics Engineers (IEEE).

IPWatchdog founder Gene Quinn asked the panel about the typical progression of standards and standard-essential patents (SEPs): “Doesn’t it get to a certain point eventually, where the people who are the users want to take what the creators have created and pay increasingly less to the point where they marginalize the creators?” Taylor responded by noting that many of the current issues surrounding standards and SEPs came into their own with the smartphone revolution, where there are “literally thousands of standards interfacing between the various components.”

Inventor and patent owner George Aposporos questioned the panel on why venture capital firms tended to hold a negative view of patents despite IP’s importance in protecting an investment. Taylor noted that, in his work with the National Venture Capital Association (NVCA) during the development of the Innovation Act, that once members were informed on the issues, they came to the conclusion that strong patent rights were important. “The problem that we’ve had in this country is the troll narrative,” Taylor said, noting that the term has become a brand much like “fake news” has. “The troll narrative became so powerful, even within the venture capital community that venture capitalists didn’t fully understand what they were supporting,” he said.

The pressure to adhere to the patent troll rhetoric was difficult for people to grasp if they don’t live within Silicon Valley, Causevic noted. He noted a conference which he was invited to speak at which changed its title from “Have We Gone Too Far in Weakening Our Patent System?” to “Where Are We in Eradicating Weak Patents?”, a radical shift in focus. “The pressure is very personal,” Causevic said, citing a paper he had worked on which found that company directors were often pressured against telling shareholders to monetize their patents as it could hurt their chances at employment with an anti-patent tech firm later on. As Taylor would add, this pressure affects the “tens of thousands of little companies started by entrepreneurs” in that region which live under a cultural overhang created by the large Silicon Valley entities.

The panel’s final question came from Raj Davé of Pillsbury who asked if the general perception that patents were good and trolls were bad was a dichotomy. “The completely accurate and completely unsatisfactory answer is: it depends,” Matteo said. “It depends on which patents, which trolls, how they are practicing, and what they are doing.” “One of the places where we get out of whack is we divorce the valuation of the underlying technology from the valuation of the patent,” Causevic added, stating that the two shouldn’t be separated. “This is where the troll problem comes in, where we try to separate this idea and all of a sudden there are abusers of the patent system, either under litigation or the threat of litigation, that are able to extract what offends the sensibility of a lot of my clients,” he said. Herskowitz added that it was because of the rhetoric on patent trolls that we’re left with a PTAB with unacceptably high kill rates and a lack of injunctions for patent owners.

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 24 Comments comments. Join the discussion.

  1. angry dude June 4, 2017 6:15 am

    Too little, too late…

    The doc said ‘to the morgue’, to the morgue it is!

  2. anon June 4, 2017 8:51 am

    THE NEED FOR “INNOVATION CERTAINTY” AT
    THE CROSSROADS OF PATENT AND ANTITRUST LAW https://www.competitionpolicyinternational.com/wp-content/uploads/2017/04/CPI-Michel-Dowd.pdf

  3. Anon June 4, 2017 9:50 am

    angry dude,

    If indeed you believed what you post, then I fail to see why you would bother posting at all.

    If indeed, the call to the morgue is proper, there is no need for you to say so, and saying so – without any need – is rather useless.

    On the other hand, many simply do not feel as you feel, and there is ample evidence in the success of grass roots movements to “swing the pendulum back” as it were.

    When one looks at the history of patent law, one sees many pendulum swings.

    With those last two thoughts in mind, your constant mantra appears to take on a different hue (one perhaps that you are not aware of).

    That hue is one of FUD – one of attempting to dissuade anyone from caring enough to even bother making an effort to swing the pendulum back in the other direction.

    I have to wonder if you realize that in your emotive releases, that you appear to be serving the very cause that you seem so intent on being angry about.

    Instead of stewing in your anger and wanting to throw up your hands and quit (and invoking everyone else to do the same), may I suggest that you find a better outlet for your anger?

  4. Bemused June 4, 2017 5:43 pm

    Anon@3: Well said

  5. angry dude June 4, 2017 7:31 pm

    @Anon

    You can say whatever you want about me – I don’t care
    Better tell us all what are they going to do with all those scotus decisions which collectively destroyed US patent system
    From EBay to Alice
    Huh????

  6. Anon June 4, 2017 7:45 pm

    I don’t care

    Maybe – just maybe – you either do (and you are engaged in FUD to try to stop anyone else from caring), or you do not (and you are just being a whiny baby who only cares about their own hurt feelings).

    Either way – why should anyone at all listen to you?

    And if you don’t want anyone to listen to you, why bother posting in the first place?

  7. angry dude June 4, 2017 8:12 pm

    Anon@6

    They (newcomers to this sh1tty patent “business”) should listen to me and not to you if they care about their family finances.. like not losing their homes and stuff like that

    It is you and guys like you (lawyers of all kinds who do not put their money where their mouth is) who are engaged in FUD and misinformation

    Answer the question, please:
    What are they going to do with all those (at least half a dozen) detrimental SCOTUS decisions ??? (even assuming “they” actually want to improve the current situation with patents which they don’t)

  8. Anon June 4, 2017 8:39 pm

    It is you and guys like you (lawyers of all kinds who do not put their money where their mouth is) who are engaged in FUD and misinformation

    Not at all.

    You are clueless as to the warnings that I give my clients. That you think otherwise only shows how disconnected you are.

    Time for you to NOT let your emotions guide you.

  9. angry dude June 4, 2017 9:27 pm

    Anon@8

    I am not clueless and in fact very real (some sh1tty SV corp can attest to that)

    Did you give warning to “your clients” who happened to file lawsuits in ED Texas or say Illinois that they might have to pack their bags and fly (their entire crew) to Delaware ?
    Huh ???
    The warning to your clients should read like this: if you guys want to lose your money better go to casino – you will at least enjoy the process, won’t lose it as fast and might actually win some…

  10. Anon June 4, 2017 11:12 pm

    You enjoy the FUD too much, my friend.

    I simply do not believe that you are attempting anything other than to try to make people not care enough to even try to make a difference.

    You are either a charlatan or a quitter, who does not want anyone else to succeed where you failed.

    Take some time and heal your emotions. You have lost all reason and thus there is no reason to listen to you.

  11. angry dude June 4, 2017 11:41 pm

    Anon @10

    I DID NOT FAIL. Period.

    US government failed me as an aspiring independent inventor trying to start a REAL high-tech company with REAL products based on assumption (valid at the time – year 2001) that patent protection meant something
    Call me a quitter then
    Yes, I quit inventing (in a large sense of this word) cause it does not help to pay my bills
    The good thing is that I was wise enough to quit before it was too late and stopped throwing good money after bad – I already saw the deluge coming in early-mid 2000s (after NTP vs RIM and all the PTO dances)

    And you, my friend, did not answer my question:
    What are “they” going to do with all those SCOTUS decisions destroying the very essence of the US Patent System ???

  12. Tesia Thomas June 5, 2017 1:55 am

    @angry dude

    Congress can change it’s mind, overturning its own prior decisions, if another case comes up and they see the facts of the matters in a new way.

    Also, individual states can amend the Constitution with 3/4 vote of their legislatures.

    I’m not a Constitutional scholar but I’d say…we have hope.

    But yes hope won’t pay bills.

  13. Tesia Thomas June 5, 2017 1:59 am

    Oh yeah and Congress can make a new patent law or amend AIA to favor us! 🙂

  14. Benny June 5, 2017 5:54 am

    Contradiction – Matteo says “Increasingly, China is becoming the office of first filed,…Which means it’s where people think it’s the most important (and most profitable) place to protect their innovations” and then envisions ” a potential future where Chinese products enter the U.S. market en masse and American entities cannot compete because they don’t have the competitive advantage of patent protection”

    American entities can (as Matteo suggests) obtain patent protection in China and confront the Chinese manufacturers on their home ground. Any sensible manufacturer files for patent protection where the competition is based, not where they themselves are based.
    Chinese products are taking over the US consumer market primarily because the production costs are significantly lower – US entities cannot compete on price.
    If you want innovation to be stamped “made in USA” perhaps you should invest heavily in the education system before you invest in the patent system. For many innovators, patent protection in the US is priced out of the market anyway.

  15. Anon June 5, 2017 8:00 am

    Benny,

    I am not seeing the contradiction.

    I am seeing multiple arguments being somewhat mashed together.

    The multiple arguments can be unmashed and done so without a contradiction of what has been stated.

    Angry dude,

    What are “they” going to do with all those SCOTUS decisions destroying the very essence of the US Patent System ???

    Are you not paying attention? Stop focusing so much on your own whining and read what others – including myself – have posted on the question that you have asked.

    The answer is most definitely not “whine as if no amount of effort to change things will work,” which is ALL that you are doing.

  16. Benny June 5, 2017 8:13 am

    Anon,
    I’ll spell it out in engineering terms for you.
    Problem – American companies have difficulty competing with Chinese manufacturers.
    Solution – (NOT second problem, as Matteo is suggesting) – American companies obtain patent protection in China.

    What Matteo seems to miss is that innovation assigned to a US entity is precisely that, regardless of which jurisdiction it is assigned in. Conversely, with a strong patent friendly environment, a Chinese competitor can obtain patent protection in the US and keep the Proudly made in the USA product off the shelves. Robust patent protection works to the advantage of your offshore competitors, too.

  17. angry dude June 5, 2017 9:33 am

    Anon@15

    And you still didn’t answer my question: what is to be done with at least half a dozen detrimental SCOTUS decisions which collectively destroyed US patent system ?
    You are a typical lawyer- full of bs and never a straight answer

    Benny@16

    Dude, do you honestly believe that a small US startup can enforce any patents in China against Chinese manufactures ???
    What kind of weed are you smoking ?

  18. Anon June 5, 2017 9:56 am

    angry dude – please do as I suggested, as I have in fact provided answers to your questions – and I do so on a regular basis.

    Your “just give up” FUD playing right into the hands of whom you are supposedly mad at would be hilariously ironic, if I did not get the feeling that you are simply running amuck in your emotions.

    Are you even aware of how you giving in to your emotions helps those that you claim have maddened you so?

    Benny,

    Thanks. I did have a different take and was not seeing that the obtaining of patents in China was being viewed as a second problem (hence my missing the contradiction).

    I agree with you that obtaining Chinese patents may protect manufacturing here (as long as there is no “must make locally” requirement in any sovereign’s patent grant.

  19. Bemused June 5, 2017 9:59 am

    angry dude: You have every right to be pissed off about what has happened (and is still happening) to you, to many other inventors and to the US patent system. Many of us that read this blog are also outraged and enraged at what the Obama administration, Google, the efficient infringer lobby, etc have done to destroy patents and American innovation.

    But the point of all this isn’t to stew and incessantly spew vitriol about what has already happened. Which, bluntly speaking, friend is what you have been doing in the comments section of this blog.

    My advice, for what it’s worth, is to channel that anger into something constructive: (1) Make sure it doesn’t happen to you again because when you come up with the next big thing (and you will) you’ll use the lessons you learned the first time around to prevent a repeat. At a minimum, you may save someone else from getting ripped off; (2) Publicize your story loudly and repeatedly to the mass media, to the politicians, to anyone who will listen. One of the reasons I admire Gene Quinn is because he uses this blog oftentimes as a bully pulpit to push back against the false patent troll narrative which has been so effectively used by the infringer lobby to eviscerate patent values. Here’s your chance to use your story to do that same thing. Get in touch with Gene and see if he’d be willing to get something up on IP Watchdog about your experience; (3) Get involved. And publishing comments on IPWatchdog doesn’t qualify. Join US Inventor or any of the other pro inventor organizations. Write your US representative. Better yet, visit them in person. Remember, Paul Morinville – the President of US Inventor – pretty much single-handedly defeated Congress’s last moronic attempt at further patent “reform” showing what the efforts of one highly pissed off and determined man can do in this fight.

    Join the fight, angry dude.

  20. Benny June 5, 2017 10:49 am

    Angry @ 17,
    I don’t smoke, neither weed nor nicotine. I do speak to Chinese patent attorneys, though. You pay the piper, you call the tune. They are more than happy to take up a case. (Yup, I’ve heard all the bribery stories, but they are not so common nowadays).
    BTW, I’ve taken to ignoring all your comments which include the word “morgue”.

  21. angry dude June 5, 2017 2:29 pm

    Bemused @19

    If you haven’t noticed, aside from usual cursing (fitting my name btw), I advise prospective inventors to use trade secrets wherever possible
    Granted, trade secrets suck and they don’t promote progress.. but if that’s what they want then be it
    Once the trust is broken it will take enormous effort from US government to restore it and I see no signs of it coming any time soon
    “Fool me once – shame on you, fool me twice – shame on me”

  22. Anon June 5, 2017 9:56 pm

    angry dude,

    You have at least achieved one thing: getting Benny and I to agree on a point.

  23. Anonymous June 6, 2017 10:51 am

    Would the following blog post count as ‘patent troll rhetoric’ of which you are critical?

    http://www.ipwatchdog.com/2010/12/09/intellectual-ventures-becomes-patent-troll-public-enemy-1/id=13711/

  24. Gene Quinn June 6, 2017 11:37 am

    Anonymous-

    Thank you for finding a post that is nearly 7 years old! Too bad you choose to mischaracterize the article as if you only read the headline. But I guess that is to be expected from an anonymous coward like yourself uninterested in any real discussion and just engaging in a petty drive by that makes you feel more important than you obviously are.

    My view of so-called patent trolls has evolved, which I’d love to discuss with you if you were not such a coward and unwilling to identify yourself. Of course, we both know you won’t identify yourself. Misrepresentation is much easier when it can be done anonymously.

    Nevertheless, the problem with Intellectual Ventures circa 7-10 years ago was that they were engaging in doublespeak and at least some misrepresentation. They said they would never sue anyone for patent infringement, but they were suing for patent infringement using a variety of different mechanisms. So I didn’t like the hypocrisy, which you would understand if you actually read the article. The article explains:

    “While I do not begrudge any patent owner their day in court to seek redress for infringement, we really should at least notice the obvious hypocrisy of Intellectual Ventures, who for years said they were only amassing a defensive portfolio and had no interest in becoming what we all knew they could become; namely that most massive patent troll on the planet.”

    So thank you for digging up a very old article. Too bad it doesn’t say what you think it says, or want it to say.

    -Gene

Post a Comment

Respectfully add to the discussion.

Name *
Email *
Website