One of the real problems with the debate over patent litigation abuse is that it hasn’t focused on litigation abuse at all. Instead, the debate has focused on attempts to characterize patent owners with pejorative labels, such as calling anyone who has the audacity to seek to enforce their rights a “patent troll.” Unfortunately, the term “patent troll” has evolved to mean “anyone who sues me alleging patent infringement.” This has lead the media, the public and Members of Congress to incorrectly believe that there is a “patent troll problem,” which has influenced decision-makers all the way from Capitol Hill to the United States Supreme Court, who increasingly seems to be deciding patent cases with one eye firmly on what is a completely non-existent problem.
You have probably heard the narrative start something like this: there is an explosion of patent litigation. The objective reality, however, is that there has not been an explosion of patent litigation. The Government Accountability Office, after an exhaustive review of patent litigation, concluded that there was no patent litigation crisis. The same GAO report also found that 80% of the patent lawsuits filed are brought by operating companies suing other operating companies. Thus, those who profess there to be rampant problems associated with patent trolls and non-practicing entities suing for patent infringement are simply telling a tale that the factual data doesn’t support.
More recently Lex Machina has come forward with some eye opening statistics as well. A recent report from Lex Machina concludes: “Plaintiffs filed 329 new federal patent cases in September 2014, a 40% decrease from the 549 cases filed in September 2013.” Indeed, if you dive deeper into the 2013 and 2014 statistics you see that through the first nine months of 2013 there were 4,548 patent infringement lawsuits filed, but during the first nine months of 2014 there were only 3,887 patent infringement lawsuits filed, which represents a 15% reduction in patent litigation in 2014 compared with 2013. Furthermore, in 7 of the 9 months during 2014 there have been fewer patent infringement lawsuits filed during 2014 than during 2013. The statistics and independent GAO report just do not support a narrative that proclaims there to be a run away problem with patent litigation run amok.
Phil Shaer (right) with law school friend Mervyn Valadares, who was also in attendance at AIPF annual meeting in Washington, DC.
Conversant IP is a patent owner that licenses their portfolio to others. They were the first such licensing company to take on the issue of ethical patent licensing. In fact, in November 2013, Conversant IP issued a groundbreaking set of guidelines for ethical patent licensing practices, in an attempt to initiate a discussion within the industry and to distinguish the many licensing entities that are not abusers of the patent or litigation systems. Then in July 2014, the company became the first licensing entities to launch a public awareness campaign.
“Sending ill-founded patent demand letters may be legal, but it’s just plain wrong,” said John Lindgren, President and CEO of Conversant said in July 2014. “This practice is hurting small business owners financially. It’s giving legitimate patent licensing a bad name. And it’s seriously undermining the public’s belief in the U.S. patent system and the value of patents as stimulants to innovation and economic growth.”
What brings this issue back to the pages of IPWatchdog is a recent presentation by Phil Shaer, Senior Vice-President and Chief Licensing Officer of Conversant IP, which occurred on Monday, September 29, 2014. Shaer was a featured speaker at the annual meeting of the Association of Intellectual Property Firms (AIPF), which was held at the Washington Plaza Hotel in downtown Washington, D.C. During his presentation he explained that Conversant IP is wading into the patent troll debate because it is necessary for them, and other licensing companies, to “stand up to the bad practices that are damaging the industry.”
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).