The necessary legislative effort to curb bad actors in the patent industry has been “hijacked” by a small handful of very powerful global technology companies intent on forcing broader changes in the patent system to make it better serve their business interests.
Under the banner of “patent reform,” these giant firms have spent tens of millions of dollars on lobbyists and media relations to promulgate a series of dramatic but false claims about America’s supposedly-“broken” patent system — claims that are now almost universally accepted as true by the media, Congress, and the public at large.
In Parts 1 and 2 of this series, we examined the false claim that there is an “explosion of patent litigation greater than any in history” as well as the myth that non-practicing entities are a new breed of parasitic patent holder who contributes nothing to society. In fact, we showed that NPEs were consciously created by the U.S. Founding Fathers as a way to kick-start the fledgling American economy by involving as many people as possible — even those without the wealth or resources to commercialize their own inventions — to participate in innovation.
When the Administration invoked its authority to over-rule the International Trade Commission’s (ITC) order against the importation of certain Apple products, there were discussions about whether that was the right move. But while those discussions were going on, another very different scheme was brewing. Some saw an opportunity to twist the story in furtherance of their agenda of undermining patent protection. To that end, they claim that this decision concerning a particular tool for patent enforcement in the IT sector is the same as denying basic elements of patents in the pharmaceutical and biotech sectors. It is not and undermining innovation in health care is bad for patients.
An order from the ITC is one of the tools in a patent owner’s toolbox. The ITC is a U.S. Government agency. It conducts investigations and if it concludes a product is infringing, it can issue an order that prevents that product from being imported. However, the President can veto that order, and in August he did just that, through his designee U.S. Trade Representative Michael Froman.
Patents are issued to protect the investment in new inventions. Innovators can spend years and billions of dollars in research before they come up with a breakthrough that can help solve some of the world’s most challenging problems. Patent protection gives those innovators a chance to recoup that investment before copycat versions flood the market.
I have absolutely no problem with enforcing patent rights, and frankly I don’t think it should matter how the patents were acquired, but there is something exceptionally seedy about the use of shell companies and taking a back-end on revenues like Intellectual Ventures is routinely accused of doing. But if there is infringement of solid patents then there should be recourse. Having said that, it would be naive to pretend that there is not real evil lurking in the patent infringement realm. Stories of $500 to $1,000 offers to settle and avoid patent infringement litigation that would cost millions of dollars to defend abound. Some courts have openly acknowledged what feels like “extortion-like” activity. See Indicia of Extortion and Troll Turning Point?
That there are bad actors is hardly surprising, particularly given the lucrative nature of the business model and the fact that many district courts feel as if they do not have the tools to do anything other than allow their courtrooms to be used as the main prop in the extortion-like shakedown. Of course, despite what some district court judge say, there are considerable powers that can be exercised if judges really do want to stop the bad behavior. See Judges Can Make Patent Trolls Pay. But the shell game played with the ownership of patents does add a layer of complexity to figuring out what is really going on and who is calling the shots. Why is it so necessary to have such secrecy? As Justice Brandeis once said “sunlight is the best disinfectant.” The troll industry could use some disinfecting. It is a sin that these nefarious actors tar those innovators with real, strong patents that are infringed.
Every month I stumble across a number of items that catch my attention. That is why I started again publishing News & Notes. In order to try and segregate items of interest based on audience, News & Notes will be something of a catch-all column. I am resurrecting Patent Business, which will focus on those litigation, deals and licensing stories of interest. Obviously, this is not intended to be an exhaustive summary, but rather interesting items that might be worth knowing in order to keep your finger on the pulse of the industry.
Without further ado, here is Patent Business: Litigation, Deals & Licenses for September 2013. Please also see News & Notes for September 2013 and Pharma & Biotech News for September 2013.
Universal Electronics sues Peel Technologies over remote control patents
On September 23, 2013, Universal Electronics Inc. (UEI) (NASDAQ: UEIC) announced it has filed a lawsuit in the United States District Court in the state of California against Peel Technologies, Inc. (Peel), based in Mountain View, California, for patent infringement. UEI seeks a permanent injunction in addition to monetary damages against Peel.
Cypress Semiconductor Corp. (NASDAQ: CY) announced earlier this week that it will continue to aggressively enforce its patents despite an unfavorable final determination from the International Trade Commission that GSI Technology, Inc. does not infringe any of the four patents asserted by Cypress.
“The ITC’s confirmation of the earlier ruling changes nothing,” said Dana Nazarian, Executive Vice President of the Memory Products Division at Cypress. “We remain steadfast in our conviction that GSI has violated our patents, and look forward to moving this fight to the district court where we can argue our case to a jury.”
Given the disjointed nature of patent enforcement a loss in one forum does not preclude a party, such as Cypress, to continue to fight in another forum.
Yesterday the U.S. International Trade Commission (ITC) issued a final determination in one of the many ongoing proceedings between Apple and Samsung. These companies are battling each other in a variety of forums across the globe, which all together form the worldwide patent war over smartphones and tablets between the two tech giants. In this case the ITC found a violation of section 337 and issued a limited exclusion order prohibiting Apple from importing wireless communication devices, portable music and data processing devices, and tablet computers that infringe claims 75-76 and 82-84 of U.S. Patent No. 7,706,348. The ITC also issued a cease and desist order against Apple prohibiting the sale and distribution within the United States of articles that infringe claims 75-76 and 82-84 of the ’348 patent. No violation of U.S. Patent Nos. 7,486,644, 7,450,114, and 6,771,980 was found.
Which Apple products are implicated? The ITC determined that Samsung proved that AT&T models of the iPhone 4, iPhone 3GS, iPhone 3, iPad 3G, and iPad 2 3G infringe the asserted claims of the ’348 patent.
The ITC determination is now final, and the investigation is terminated. Apple has the opportunity to appeal the ITC final determination to the United States Court of Appeals for the Federal Circuit. But there is also another avenue for Apple, which could essentially nullify the ITC determination. Pursuant to 19 U.S.C. 1337(j), the President has 60 days to review the ITC determination. If the President disapproves of the ruling for policy reasons he has the authority to nullify the determination. The statute specifically explains that upon disapproval of the President an ITC determination “shall have no force or effect.”
Today the White House announced major steps to improve incentives for future innovation in high tech patents, a key driver of economic growth and good paying American jobs. The White House issued five executive actions and seven legislative recommendations designed to protect innovators from frivolous litigation and ensure the highest-quality patents in our system. Additionally, the National Economic Council and the Council of Economic Advisers released a report, Patent Assertion and U.S. Innovation, detailing the challenges posed and necessity for bold legislative action.
In 2011, the President signed the Leahy-Smith America Invents Act (AIA), a landmark piece of legislation designed to help make our patent system more efficient and reliable. As technology evolves more rapidly than ever, we must ensure our patent system keeps pace. As President Obama said in February, “our efforts at patent reform only went about halfway to where we need to go. What we need to do is pull together additional stakeholders and see if we can build some additional consensus on smarter patent laws.”
The AIA put in place new mechanisms for post-grant review of patents and other reforms to boost patent quality. Meanwhile, court decisions clarifying the scope of patentability and guidelines implementing these decisions diminish the opportunity to game the patent and litigation systems. Nevertheless, innovators continue to face challenges from Patent Assertion Entities (PAEs), companies that, in the President’s words “don’t actually produce anything themselves,” and instead develop a business model “to essentially leverage and hijack somebody else’s idea and see if they can extort some money out of them.” These entities are commonly known as “patent trolls.” Likewise, the so-called “Smartphone Patent Wars” have ballooned in recent years and today, several major companies spend more on patent litigation and defensive acquisition than on research and development.
The House Judiciary Subcommittee on Courts, Intellectual Property, and the Internet on March 14, 2013, heard from six witnesses that the business of “patent assertion entities” (PAEs) is inflicting severe harm on a broad range of technology users.
That business involves the enforcement of weak or invalid patent claims against initial and downstream users of devices that are remotely related to the patent claims for the sole purpose of extracting settlements in amounts much lower than the cost of litigating the rights. The witnesses at the hearing agreed that, when confronted PAE demand letters on frivolous claims, settlements by and large are economically unavoidable.
Committee Members Are Cautious
The Subcommittee had before it a particular bill (H.R. 845; the Shield Act) to create a limited loser-pays system. It would award full costs to the prevailing party unless the plaintiff is (1) the inventor, (2) the original assignee, (3) one who produced or sold items covered by the patent, or (4) a university or technology transfer organization.