Not a week passes without commentators extolling the need to remedy a “broken” patent system — a system where patent trolls (also referred to an “non practicing entities” or “NPEs”) that don’t manufacture anything can garner extensive licensing fees from companies, both big and small, which do. And as the debates surrounding NPEs rage on, so too do the calls for patent reform. But if the reform to date has had the unintended effect of creating more opportunity for NPEs, while making it substantially more difficult for innovators without millions of dollars in the bank to protect their intellectual property, shouldn’t we be wary of the harm future reform may cause?
Already, Congress has passed sweeping patent reform known as the American Invents Act (“AIA”). Implemented over a multi-year period, the AIA contains several provisions designed to disrupt NPE advantages and to make it easier for defendants in patent litigation to gain the upper hand. Whereas, for instance, NPEs could previously sue as many defendants as they liked, in one case and with one filing fee, the AIA changed that, requiring the filing of multiple cases and as many filing fees. But much more significantly, the AIA created a slew of game changing, “post grant” proceedings, run very much like mini-trials, which defendants facing NPE district court litigation can file in the patent office and yield to their significant advantage.
Several weeks ago I had the opportunity to speak with Jane Muir, who now serves as President of the Association of University Technology Managers (AUTM). At the time of our conversation there had been a number of so-called “news reports” that were characterizing universities as trolls. That, of course, is utter nonsense. The role of the university is to push technologies into the marketplace and work with those who license university innovation, which is the antithesis of what a patent troll does. Still, some in the popular press who obviously have their own agenda see it otherwise, which is both curious and sad.
In this segment of the interview we talk about concerns over patent trolls and Muir explains exactly how and why universities are NOT patent trolls. To begin reading from the beginning please see Exclusive Interview with AUTM President Jane Muir.
QUINN: There’s this belief that innovation just happens. And that if you do come up with a great invention it’s 1, 2, 3 and you’re done and there’s going to be checks starting to arrive. And you’re going to be laying on a beach somewhere living a life of luxury. And that’s just not true. It’s not true for the individual, it’s not true for the startup, and it’s not true for the university.
MUIR: That’s absolutely correct. When you talk to an entrepreneur as an investor and the entrepreneur shows their plan with how long it’s going to take or how much money it’s going to require, you always take that and multiply by two or three, right?
QUINN: Exactly, because things are going to go wrong. Estimates are going to be wrong. I remember the first business I ever started. And this is, you know, many, many, many years ago. It was a shock to me that the electricity cost more when it was being sold to a business. Just silly things like that, you know, that if you’ve never started a business you don’t really understand that on every level, no matter how insignificant, it seems there’s a hurdle.
Trolls of lore were ugly creatures who lived under bridges. They charged travelers to safely cross the raging waters and threatened harm to those who refused to pay. Trolls and their kindred spirits have haunted the nightmares of our children for generations.
But Peter Detkin, a co-founder of Intellectual Ventures, repurposed the term to represent the activities of non-practicing entities (NPEs) or patent assertion entities (PAEs). Perhaps our collective subconscious childhood fears of the trolls of old make it too easy for the media, our elected leaders and even some savvy CEOs to vilify modern trolls for everything they represent. I bet Mr. Detkin now wishes he used a more attractive term to describe the activities of his company.
What defines a troll? Most would agree that a company that does not make products, but buys up patents to assert against others, would be in the category. However, there seem to be as many permutations to this basic formulation as there are companies. What about large manufacturing companies with divisions that purchase patent portfolios for the purpose of assertion? What about companies that spin-off their unused patent portfolio to wholly or partially owned subsidiaries that assert those patents? What about companies that buy up portfolios for defensive purposes, compelling membership by companies that join for protection? What about universities? They don’t make products. Most would say that universities don’t fit into the category of trolls, because they license to companies that make the products covered by their patents. But what if the university sells its patents to a patent assertion entity with an agreement to share in the profits?
The March 17, 2014 issue of Fortune magazine contained an unusual article, RPX: Taking on the Trolls. This biased PR piece with few actual facts was written by Mr. Roger Parloff, Senior Editor for Legal Affairs who fell hook, line, and sinker for the spin that RPX is putting out, aided by large corporations and those in academia who wish to weaken if not eliminate the U.S. patent system. He is not to be completely blamed for being duped by the same stories that large corporations have been promoting to politicians, reporters, and the public about the terrible “patent trolls” as these corporations attempt to dominate markets, put individual inventors and small companies out of business, and sue each other into oblivion while crying into their bank accounts.
First, what is a “patent troll”? No one really knows, and the anti-patent people do not want it defined too precisely because if it were defined, it would include not only the companies that send demand letters for $1,000 to mom-and-pop coffee shops and hardware stores for using “patented” fax machines and copiers, but it would also include all major U.S. universities (that manufacture no products), most individual inventors (who have not yet gotten their inventions funded), most startup companies (that have not yet gone to market), and most bankrupt companies (that are trying to find value for their shareholders). In fact, it also includes companies that create a great invention but have trouble competing for shelf space at Walmart or Target against larger, infringing competitors. These companies do produce products, but when they sue their huge competitors, the press is encouraged to call them trolls.
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 Part 1 of this series, we examined the false claim that an “explosion of patent litigation greater than any in history” is imposing an unwarranted burden on industry and diverting resources better spent on innovation. In fact, today’s patent litigation rate is less than half what it was during the golden age of American innovation in the 19th century Industrial Revolution — a revolution which thrust the U.S. into the top ranks of industrial nations.
Congress is on the cusp of passing legislation that is said to be designed to control the so-called “patent troll.” Of course, as belatedly recognized by the person who came up with the moniker “troll” in 1993, Peter Detkin (former Assistant General Counsel at Intel at the time), the word “troll” is often in the eye of the beholder. Indeed nearly every litigator will tell you that term “troll” is commonly used against any opponent in a patent litigation suit, much as Arthur R. Miller asserted that “a frivolous lawsuit is any case brought against your client, and litigation abuse is anything the opposing lawyer is doing.” Miller, Simplified Pleading, Meaningful Days in Court and Trial on the Merits: Reflections on the Deformation of Federal Practice, 88 NYU Law Rev. 286, 302 (2013).
Overstock.com, Inc. (NASDAQ: OSTK) recently announced that plaintiffs in two patent infringement lawsuits dismissed their cases against the company without any settlement or any money paid.
“They just walked away,” said Patrick M. Byrne, Overstock.com chairman and CEO. “Patent trolls find us unappetizing. While we have the highest respect for intellectual property rights, we don’t settle abusive patent suits—we fight.” Byrne added, “You can’t fork over your lunch money today, and expect a bully to leave you alone tomorrow. Patent trolls understand a bloody nose and in the long run, it’s the asymmetrical response that pays off. It is only right that we take this opportunity to make explicit this litigation strategy. As Dr. Strangelove says, ‘What’s the point of having a Doomsday Device if you don’t tell anyone about it?'”
Regardless of the number of patent reform bills, IP industry conferences, and risk management business models, the number of patent infringement lawsuits remains exceptionally high. Resolving disputes through the inefficiencies of litigation represents an enormous waste of resources and lost opportunities. And this issue runs beyond the usual suspects—a GAO August 2013 report found that 80 percent of patent litigation is brought by manufacturing companies. Thus, IP games are being played on all sides, resulting in demon dialogues, negative patterns and quick escalations to legal actions. In order to foster productive discussions, both sides need to stop playing games and start being transparent and candid about their intent at each stage of an IP licensing discussion. This is a foundation for building trust, developing cooperative behaviors, and allowing business creativity that is critically needed in our knowledge based economy.
The dialogue begins with a demand letter from a patent rights holder, which can take the form of a soft invitation to enter into mutually beneficial licensing discussions or detailed allegations of patent infringement. Often times, the intent behind this letter is to seek a payment to compensate the patent rights holder for the commercial exploitation of its patented technologies by the receiving side of the letter, not to stop the exploitation. There is nothing condemnable in this intent– trading IP rights offers a way to support the broad dissemination of technological advancements, which in turn create rewards for investments in innovation and job creation. These IP trades are so common that seasoned IP executive speak regularly about “IP monetization” or “IP value creation” in trade associations (e.g., the Licensing Executives Society) and conferences (e.g., the IP Business Congress).
While there are no guarantees in life, there may be some things that you can do in order to proactively protect yourself against the threat of a patent lawsuit.
There is no better way to prepare yourself for what may be lurking behind the next corner than knowing your business and the market in which you operated. Knowledge of the patent activity in your market is a critical first step to developing a proactive plan that will insulate you to the greatest extent possible. Of course, the first thing you need to do is to monitor the patent filings in your technology markets.
By keeping an eye on the publication of patent application in your sector you can spot potentially problematic patent application in advance of them ever issuing. While it may not be appropriate in every situation, if a patent application seems to be particularly dangerous you can elect to submit prior art to the examiner so that it can be taken into considering. This is called a third-party pre-issuance submission, which can be made in any non-provisional utility, design, and plant application, as well as in any continuing application. A third-party preissuance submission includes a concise description of the asserted relevance of each document submitted. There are strict time limits within which to file though. A third-party submission can be filed prior to the earlier of: (1) The date a notice of allowance; OR (2) The later of: (i) 6 months after the date on which the application is first published by the USPTO, or (ii) The date of the first rejection of any claim by the examiner. Thus, keeping a vigilant watch on patent filings is critical for those who may want the option to at least consider third-party pre-issuance submissions as an option.
Last week the Obama Administration announced a series of new Executive Actions and updated the industry on progress relating to previous Executive Actions relative to the patent system. See White House Announces Patent Related Executive Action. One of the line items in this announcement related to the creation of a Frequently Asked Questions (FAQ) section on USPTO.gov. Essentially, the White House announced the launch of what they refer to as an “online toolkit” aimed at answering common questions and providing information about patent lawsuits. The aim of this section of USPTO.gov is apparently to help consumers understand the risks and benefits of litigation or settlement so they can pick their best course of action.
Several things jump out at you when you visit this section of USPTO.gov, which is labeled as a BETA. First, although the section of the website falls under “litigation” and is found at uspto.gov/patents/litigation, all of the information is aimed at accused infringers, giving them advice about what they can and should do. Nowhere do I see any information or links to helpful resources that would be useful for the many hundreds of thousands of patent owners who routinely have their rights infringed, sometimes willfully. No, this “help section” is purely intended to provide help to those accused of infringement as if they are all victims.
It is almost incomprehensible that the Patent Office would put together a litigation resource that ignores the reality that many companies, both large and small, trample on the rights of innovators who have spent large amounts of time, money and energy to receive a patent and disclosing their innovation to the world. Indeed, the inconvenient truth is that many innovators simply do not have the resources to enforce their legitimately obtained and examined patents. Many of those innovators make up the backbone of the U.S. economy and in large part embody the American Dream. Yet, the Patent Office only offers a one-sided help section that gives advice to infringers and sets a tone that comes across as anti-patent and anti-patent owner. This strikes me as fundamentally misguided and clearly demonstrates the anti-patent bias of the Obama Administration.