For more on earlier proposals to address patent trolls see A Review of the SHIELD Act.

The latest incarnation of the SHIELD Act was introduced on February 27, 2013, and changes direction as if the first iteration were waived off in disgust before it could even lower its gears.  SHIELD Act 2, scuttles the “reasonable likelihood of succeeding” idea floated and introduces a new tool aimed at walling off the troll: a bond requirement.  If the plaintiff is not an original inventor or assignee, did not make a substantial investment in practicing the invention, or is not a university, that troll must post a bond.

“Patty Sue Just Won’t Go Away.”  So went a 2002 article in the San Francisco Chronicle, one of a many articles spanning several years about Patricia McColm, a vexatious litigant blacklisted since 1994.  She was the Most Vexatious Pleader of the vexatious litigants.  If she were a patent attorney, frightened examiners would give her a 100% allowance rate without amendments.  If the anti-joinder provisions of the America Invents Act (“AIA”) applied to Patricia McColm, she would have her own clerk’s office.

One draws similarities between the problems presented by firms such as Intellectual Ventures, Acacia, and Lodsys and those presented by Ms. McColm, and a flurry of proposals were recently introduced in Congress.

To start, on August 2, 2012, a “bipartisan” bill was introduced in the House aimed to fix the perceived problems caused by patent trolls, or Non-Practicing Entities (“NPE”), entitled the “Saving High-Tech Innovators from Egregious Legal Disputes Act of 2012,” or the SHIELD Act.  The main point of the bill was to make patent holders pay the fees of those they allege infringe to (1) invalidate the patent or (2) defend an infringement action.[i]

On June 4, 2013, President Obama announced a set of 12 initiatives – 7 proposed legislative actions and 5 executive orders – intended to address perceived problems from Patent Assertion Entities (PAEs).  The announcement quoted aspersions Obama had cast at PAEs earlier in the year: PAEs “don’t actually produce anything themselves;” instead their purpose is “to essentially leverage and hijack somebody else’s idea and see if they can extort some money out of them.”

Obama’s action plan was heavily influenced by a report, “Patent Assertion and U.S. Innovation,” which was released by the President’s Council of Economic Advisers, the National Economic Council, and the Office of Science & Technology Policy.  The full text of the report can be read here.

It is surprising that a report that was prepared by such an august and high-level set of entities could be so blatantly biased and one-sided.  The body of the report slams PAEs and points to everything that’s bad about them. It creates an artificial distinction by referring to “good” patent middlemen as “patent intermediaries,” although there is no indication in the report of what are the characteristics of a good “patent intermediary” versus an evil PAE.

Just ahead of President Obama’s fundraising trip to Silicon Valley later this week the White House announced that the Obama Administration is taking action to address the problem of patent trolls. News outlets were touting the executive action that President Obama was going to take to put an end to the problem of patent trolls once and for all.

There is no doubt that the Obama position will be loved by Google and other Silicon Valley technology giants that despise the patent system. Given the revolving door between the Obama Administration and Google, the long-term close relationship between President Obama and Google (see here, here and here), and the fact that patent issues don’t resonate with John Q. Public, it seems likely that the President stepping in now to allow him to tout that he is engaged with issues of importance in the minds of tech giants who will be asked for large checks later this week.

But what executive action could the President really take that would make a difference?

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.

Late yesterday I was contacted via telephone by a representative of Google about my article titled Is Patent Litigation Really a Problem for Big Tech? I was told during that telephone conversation that I misunderstood what Suzanne Michel said during the symposium at American University. I was also told that Google does not sell patents to patent trolls, although other big tech companies do, which concerns Google.

There is a video tape of Michel’s presentation, which you can view online courtesy of American University. I have reviewed the pertinent part of the video tape multiple times, and I have asked for input from several trusted advisers. I have also received unsolicited input from others who have also seen the video tape and who were present at the event. What is most clear is that there is a reasonable difference of opinion about the meaning of what was said.

Google has asked for a retraction based on what was said at 58:45 into the video segment, but what I wrote relied upon what was said at 53:45 into the video segment. I am not entirely comfortable with a retraction because I think my interpretation of what Michel said was fair, although I’m willing to accept Google at face value when they tell me that they do not sell to patent trolls. So rather than retract and say I misinterpreted what was said I will leave it to the readers to determine the reasonable interpretation of what was said during the presentation.

UPDATED: May 2, 2013 at 12:17am ET — An earlier version of this article explained that Google sells to patent trolls. Google has since informed me via telephone that they do not sell to patent trolls, but other big tech operating companies do sell to patent trolls, which concerns Google. See Google: We Don’t Sell to Patent Trolls.

Recently at a conference at American University Washington College of Law a senior patent attorney from Google — Suzanne Michel — lamented that big technology companies are practically forced to sell their patents to patent trolls. See Fixing the Patent System. So as it turns out big tech companies are responsible for creating at least a portion of the so-called “patent troll problem” by and through their own actions and business decisions. So how and why should their position relative to patent litigation be taken at all serious when they themselves admit to creating the problem in the first place?

If big tech companies are selling unwanted patents to patent trolls who then turn around and monetize them there are a lot of questions to ask. First, why are they selling to those who then turn around and sue them? There is an obvious solution to this problem, if it is indeed a real problem and not one made up for sake of publicity and swaying public opinion (and political opinion on Capitol Hill). Second, what are they doing selling patents that can be monetized? If they are giving these patents away how is that appropriate at all when the company needs to answer to shareholders? Isn’t the goal of any company to maximize returns for shareholders? Finally, if operating companies are selling to patent trolls then how is it possible that patent litigation is as big a problem as it is claimed to be? Something just doesn’t smell right here, but a room full of symposium attendees were told that big tech companies sells out to patent trolls. Curious.

As counter-intuitive as big tech companies selling to patent trolls may be, equally head scratching is how big tech companies complain about getting sued but refuse to negotiate unless they are sued. Seems like their actions force lawsuits that they complain about and hoist up to proclaim the patent system broken. Talk about the emperor wearing no clothes!

On Friday, April 12, 2013, I was at American University Washington College of Law for a program titled Patent Subject Matter Eligibility Today: Software, Genomics, and Business Methods. I participated on a panel titled CLS Bank en band: Are Software Methods Patentable? What I want to write about today, however, is not our panel presentation, but rather the Keynote presentation by Suzanne Michel (no relation to Chief Judge Michel), a former deputy director of the FTC who is Senior Patent Counsel at Google, Inc., working in Google’s policy office in Washington, DC.

It is no great surprise probably, but I disagreed with practically everything she said, although I did enjoy her presentation. I love to debate the issues, and she is extremely knowledgeable and well briefed on what is happening in the trenches. Those of us who disagree with the proffered narrative that the patent system is broken can’t ignore competent advocates like Michel. She is not a patent-hater and her message is sharp, crisp and clear, although I do think it is misleading. The patent system is not broken, and for reasons I can only guess the best and brightest leaders in much of the big-tech industry are pursuing paths not calculated to succeed; at least if the goal is to stem the rise of patent litigation and innovate for the future.

With this in mind, what follows is a summary of Michel’s presentation, which if not titled was certainly themed — Fixing Problems of the Patent System to Improve Innovation. I also provide my thoughts and comments in the format of comments from the peanut gallery, or perhaps as a patent law equivalent to Mystery Science Theater 3000.  In order to differentiate my thoughts/comments from Michel’s presentation, my comments are italicized, colored, indented and tagged with the IPWatchdog logo.

Public attention is increasingly focused on the phenomenon of patent monetization entities. Known colloquially as “patent trolls,” these entities concentrate on creating income from licensing or litigating patents, rather than producing a product.

The activity of patent monetization is coming under increasing scrutiny from a variety of governmental entities. In December of 2012, the Federal Trade Commission and the Department of Justice held a joint workshop on the behavior of patent assertion entities.[1] The Patent and Trademark Office held its own workshop a month later on proposed sunshine rules that would have the effect of providing greater transparency of patent ownership. The study and identification of activity by patent monetization entities has been hindered by the complex structure and arrangements of many such entities, whose activities are shrouded in complex layers of subsidiaries or revenue-sharing agreements.[2]

In an effort to better understand the nature of patent monetization, Congress directed the nonpartisan Government Accountability Office (GAO) to study “the consequences of patent infringement lawsuits brought by non-practicing entities.”[3]  The directive was passed as part of the 2011 patent reform legislation, the America Invents Act. At the request of the GAO, two of the authors provided data on patent monetization entities using a database from Lex Machina.

Recently I learned that Drinker Biddle & Reath LLP and NERA Economic Consulting are teaming together to co-sponsoring a luncheon on May 8, 2013, at the Four Seasons Hotel Silicon Valley at East Palo Alto to discuss effective responses to patent infringement claims and threats of such claims from patent assertion entities – also known as patent trolls. According to Bob Stoll, former Commissioner for Patents who is currently with Drinker Biddle, “Our program will explore the reasons for the steady — some would say explosive — rise in PAE enforcement practices in recent years and what various categories of the targets of these practices might do about it.”

The reason this luncheon discussion caught my attention was because it cross through my e-mail box at a time when I was already working on updating patent litigation statistics I have accumulated dated back to 1980. See The Rise of Patent Litigation in America: 1980 – 2012.

Certainly there is an increase in the number of patent litigation lawsuits brought, particularly over the last several years. Many want to blame patent wars over smart phones and pretend that they are something unusual, when in fact patent wars over important technologies are hardly new. In fact, there were 600 patent lawsuits brought over an 11 year span relating to the invention of the telephone. See Worldwide History of Telecommunications. Yet, Apple has been involved in 142 patent lawsuits relating to the smartphone since 2006 according to the NY Times.  This should help put into perspective the so-called smartphone patent war problem. The smartphone patent wars are of a much smaller scale and hardly the first battles of their kind. Amazing how telephone technology prospered even with 600 patent lawsuits. The patent nay-sayers would have you believe that is impossible, but we know it happened.

But what is the solution? Do we even need a solution?

There is no doubt about it. Even a casual glance at patent litigation statistics shows a sharp increase in the number of patent cases being initiated over the last several years. For example, see the following three charts. The data for which comes from the Office of Administrative of the United States Courts, and dates back to research I initially started in 1997 while working on my Master’s thesis, which dealt with patent litigation and the use of alternative dispute resolution.

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.