Raymond P. Niro is a nationally recognized trial attorney specializing in the enforcement of patent, trade secret and related intellectual property rights. The name Niro, however, is not like any other in the patent industry. It was as a consequence of a lawsuit one of his clients brought against Intel in 2001 that the term “patent troll” was coined. It seems to me, however, that the fact that Niro is viewed by some as a bad guy is owed to the fact that he has been extremely successful, which means infringers have paid his clients an awful lot of money over the years.

On March 12, 2012, Niro went on the record with me in an exclusive interview.  This interview came about because Niro and I will be speaking at the Managing Intellectual Property program titled US Patent Reform Forum 2012 on March 27, 2012 in Washington, DC. In a preview of what Niro will discuss on the 27th, we discussed many things, including the nearly constant attempts to erode patent rights, efforts to make it more difficult for patent owners to seek redress for infringement and what the America Invents Act will mean for patent litigation moving forward.  We also discussed the undeniable reality that there are bad actors in the industry.

Raymond P. Niro is patent litigator with tremendous experience and a reputation that is larger than life. To some he is a champion of independent inventors and small business community, frequent clients of his. To others he is nearly the definition of evil.

It is certainly true that Niro is responsible for the coining of the term “patent troll,” a term first used by a journalist writing about a case he filed on behalf of a client against Intel in 2001. But how is it possible to characterize as a bad actor when those he represents are so often victorious? If you ask me the bad actors are the ones who infringe on patent rights, not those who stand up to have their rights vindicated. But I digress.

Niro has been trial counsel in literally hundreds of intellectual property cases, and since 1996, has won verdicts and settlements for his clients totaling more than $1 billion. In 2006, for example, Niro tried 6% of all the patent cases that went to verdict and, in the first six months of 2007, recovered the 11th, 15th and 35th highest patent verdicts (highest as of 2007), each resulting in a finding of willful infringement, an injunction and cumulative damages of more than $100 million.

Bernard Cassidy, the General Counsel of Tessera Technologies, posted a provocative blog on IP Watchdog entitled Follow the Money – Will the ITC Lose Patent Jurisdiction?  In it, he accuses a group of tech companies, including HP, of lobbying Congress to “radically curb” the ITC’s enforcement powers and to “delegitimize all patents.”   He attributes this lobbying to a business model of his own invention he coins “efficient infringement,” under which he claims tech companies choose to infringe patents and pay damages later, rather than to take patent licenses.  After standing up this straw man, he knocks it down, claiming it enables tech companies to steal the fruits of the labors of the inventors of new tech products and services.  He repeatedly claims the victims of this scheme are “inventors who neither have the capital nor the business model to commercialize their own inventions.”  Finally, he associates this all with “outsourcing” to “cheap labor from China,” though he makes no link between “efficient infringement” and overseas manufacturing other than that both lower costs.

What Mr. Cassidy seems to be saying is that the recent stampede of complainants to the ITC (all of whom sell no products) had valuable tech inventions to commercialize, but tech companies refused to license these inventions and instead copied them to avoid paying license fees.  But Mr. Cassidy does not quite say that.  And he cannot.  All of the appropriation is by the complainants themselves, to whom I will refer as “patent assertion entities” (PAEs).  (I will not use the term “Non Practicing Entity” or “NPE” because it sweeps in patent holders who are not abusing the ITC, such as universities and, ironically, Tessera.)  The PAEs in the ITC are patent litigation investors.  For example, there is Beacon Navigation Gmbh, a Swiss PAE which is holding up Ford, GM and every other auto maker.  In virtually every  suit, these PAEs assert patents they claim read on products independently created and commercialized by others, with no knowledge of these patents or so-called “inventors.” 

To hear some critics tell it, the explosion of patent suits in the smartphone industry is evidence of a patent system that is fundamentally “broken,” at great cost to U.S. innovation.

Such histrionics, however, ignore one crucial but little known fact: throughout American history, the buying, selling, and litigating of patents has always been essential to U.S. economic success. Not only that, the truth is that today’s patent litigation rate is less than half what it was in the mid-19^th century, a period widely-recognized as the “golden age” of American innovation.

The patent world is quietly undergoing a change of seismic proportions. In a few short years, a handful of entities have amassed vast treasuries of patents on an unprecedented scale. To give some sense of the magnitude of this change, our research shows that in a little more than five years, the most massive of these has accumulated 30,000-60,000 patents worldwide, which would make it the 5th largest patent portfolio of any domestic US company and the 15th largest of any company in the world.

Although size is important in understanding the nature of the shift, size alone is not the issue. It is also the method of organization and the types of activities that are causing a paradigm shift in the world of patents and innovation.

These entities, which we call mass aggregators, do not engage in the manufacturing of products nor do they conduct much research. Rather, they pursue other goals of interest to their founders and investors. Non-practicing entities have been around the patent world for some time, and in the past, they have fallen into two broad categories. The first category includes universities and research laboratories, which tend to have scholars engaged in basic research and license out inventions rather than manufacturing products on their own. The second category includes individuals or small groups who purchase patents to assert them against existing, successful products. Those in the second category have been described colloquially as “trolls,” which appears to be a reference to the children’s tale of the three billy goats who must pay a toll to the troll waiting under the bridge if they wish to pass. Troll activity is generally reviled by operating companies as falling somewhere between extortion and a drag on innovation. In particular, many believe that patent trolls often extract a disproportionate return, far beyond the value that their patented invention adds to the commercial product, if it adds at all.

Just say the name Acacia Research Corporation (NASDAQ:ACTG) to patent attorneys and those in the high-tech community and you are likely to observe an uncomfortable reaction.  Acacia has long been considered by many to be the mother of all patent trolls.  But are they really a patent troll?  The term “patent troll” is one that is nearly impossible to define given the reality that one man’s patent troll is another man’s innovator who just chooses to license.  Increasingly, however, the true bad actors in the non-practicing entity community are engaging in what the Federal Circuit has called extortion-like behavior.  Is Acacia Research one of those patent trolls that engages in mafioso tactics, or are they a godsend to inventors and small businesses who otherwise couldn’t monetize their patent portfolios?

Hardly a week goes by without Acacia Research issuing at least one press release.  These press releases hardly give any useful information and seem more aimed at what I will call “the Borg strategy.”  Star Trek fans among us will recall that resistance is futile when dealing with the Borg.  Likewise, resistance is probably futile when dealing with Acacia Research.  They send this message not so subtly in their near constant press releases, which tout the acquisition of one or another unnamed patent portfolios from an unnamed “major technology company,”  or the entering into a license with unspecified terms.

Earlier today Intellectual Ventures (IV) sued Motorola Mobility for patent infringement in the United States Federal District Court for the District of Delaware.  At issue are six patents that IV claims relate to Google’s Android operating system — US Patent Nos. 7,810,144, 6,412,953, 7,409,450, 7,120,462, 6,557,054 and, 6,658,464.

This litigation is worth noting for several reasons.  First, this is yet another patent infringement complaint against Google’s Android operating system.  It seems that practically every month there is another lawsuit claiming that Android infringes this or that patent, which has to raise eyebrows with respect to the underlying intellectual property Google owns in its operating system that is intended to compete against Apple.  Second, once upon a time Google funded IV and vouched for the company and its founder, Microsoft alumnus Nathan Myhrvold.  Now IV has turned the tables on Google, is going after Android and in so doing is suing the company that Google is set to acquire for $12.5 billion.

A great deal of attention has been directed to provisions of the recent Leahy-Smith America Invents Act and the provisions of the act directed to first inventor to file, post grant review, and other such changes to U.S. Patent Law. This attention is much warranted as these represent some of the most significant changes to U.S. Patent Law in recent history.

At least one other provision of the act, however, which appears to be receiving significantly less attention, is likely to have a substantial impact upon the manner in which many patents will be enforced following enactment.

Last week the Federal Circuit handed a major victory to a defendant who fought a baseless patent infringement litigation, giving hope that the district courts and the Federal Circuit have had enough of patent litigation used as a ploy to shake down defendants. In Eon-Net v. Flagstar Bancorp, the district court found that Eon-Net’s litigation misconduct and its filing of a baseless infringement action in bad faith for an improper purpose warranted an exceptional case finding. The Federal Circuit decision, with Judge Lourie writing and Judges Mayer and O’Malley joining, concluded that the district court did not clearly err in finding and addressing the litigation misconduct.

As a result of the misconduct found, Judge Martinez of the United States Federal District Court for the Western District of Washington slapped the patentee-plaintiff with Rule 11 sanctions totaling $141,984.70 for failure to perform a reasonable pre-filing investigation. The district court also awarded the defendant $489,150.48 in attorneys fees and costs pursuant to 35 U.S.C. 285. The Federal Circuit affirmed the district court’s rulings and cited with approval the district court’s characterization of the underlying lawsuit as bearing “indicia of extortion.”

Recently several of my articles have been critical against patent trolls. This is not something new for me, I have been critical of patent trolls for quite some time. Over the years I have also been very supportive of patent owners having the right to bring patent infringement lawsuits to enforce rights that have been granted in the patent; after all, if you cannot enforce a right is it really a right? I think not. This has lead me to at times champion the patent grant and oppose any watering down of the rights of patent owners, as was contemplated in years past with previous versions of patent reform.

For some my pro-patentee and anti-patent troll positions have been difficult to reconcile. I have been contacted privately by some who have urged me to tone down my use of the term patent troll, and that is a fair point. After initially resisting using the term for a great while I embraced its usage years ago, back when earlier versions of patent reform were seeking to curtail the right of a patent owner to obtain due compensation (in the form of damages) for infringement by a defendant. Periodically the Supreme Court has even raised the issue of patent trolls in a casual manner as justification for one bad ruling or another. Typically most use the term “patent troll” to refer to non-practicing entity, but doing that is simply absurd. So I turned to embracing the term. Does it feel right to call a university a patent troll? I think not, and I think most would agree. So not all non-practicing entities can be patent trolls, can they? See how the usage of the term starts to really crystallize the issues?

In an interview with Tech Crunch published yesterday, Kent Walker, Google’s Senior Vice President and General Counsel, proclaimed: “A patent isn’t innovation. It’s the right to block someone else from innovating.”  How someone who has achieved such a high profile position with one of the tech giants of the world could have such an erroneous, even myopic, view of patents is nearly astonishing.  It is self evident to anyone who objectively looks at the patent system as it relates to innovation that patents do not block innovation, but rather they encourage innovation.  That has always been the case.  Obviously there is more to Walker’s statement than meets the eye.

On Thursday, July 21, 2011, attorneys for Lodsys LLC, a company rapidly becoming a reviled patent troll, filed an amended complaint in the United States Federal District Court for the Eastern District of Texas. (*) As a result of this amended complaint some big names in the gaming world have been brought into the ongoing patent litigation battles being waged by Lodsys.  Lodsys had already sued a number of Apple App developers and others such as Best Buy and the New York Times, see here and here.  More specifically, as a result of the filing of this latest complaint Lodsys has brought patent infringement charges against Atari Interactive, Inc. and Electronic Arts, Inc. (NASDAQ:ERTS), among others. But in the mind of the general public the highest profile defendant to date will almost certainly be Rovio Mobile Ltd., the maker of the extraordinarily popular game Angry Birds, which is available for iPhone, iPad and Android, among other platforms.

Recently Judge Martin Reidinger of the United States Federal District Court for the Western District of North Carolina issued an interesting and perhaps important decision relating to the granting of attorneys’ fees and costs in Precision Links Inc. v. USA Products Group, Inc.

The case was an action for patent infringement involving U.S. Patent No. 5,673,464. The invention disclosed in the ‘464 Patent is a tie-down strap used to restrain cargo during transport. The Plaintiff is the owner of the patent and the manufacturer of the adjustable tie-down strap that is claimed to be covered by the Patent. The Defendant, USA Products Group, is alleged to import a strap accused of infringing the ’464 patent and was alleged to have sold the accused strap to Defendant Home Depot USA, Inc., which is alleged to have sold the accused strap. Shortly after the Markman ruling the district court entered summary judgment in favor of the Defendants. Not being satisfied with victory, the Defendants moved for attorneys’ fees and costs, arguing that the case was “exceptional”, as defined by 35 U.S.C. § 285.

Unfortunately for small businesses and start-up companies, some patent owners are becoming far more litigious.  Once upon a time small businesses might be able to fly under the radar screen even if they were infringing because the cost associated with going after such folks was prohibitive.  But welcome to the brave new world of the patent troll, where certain nefarious bad-acting patent owners seek to enforce dubious patent rights against those who are engaged in a business vaguely related, but who are almost certainly not infringing.  These bad actors, who seek to extract licensing payments with threatening letters or lawsuits if necessary, know that because it can be expensive to fight most will simply fold and pay what amounts to extortion.  See Extortion Patent Style.

Despite the gathering storm, some businesses would prefer to pretend that patent infringement is not a problem for them and they won’t be sued.  The graph below shows that since 1980 the number of patent lawsuits filed has only gone up, with a record number (3,301) being filed in 2010.  Add the frequency of the “dime a dozen” threatening letters sent by those seeking to extract licensing payments to the number of lawsuits filed and you can readily see that patent infringement litigation, and the associated threats thereof, are a growth industry.

There is no doubting that being in the patent troll business is exceptionally lucrative.  In 2010 PriceWaterhouseCoopers released the 2010 Patent Litigation Study, which gives a peek into just how lucrative it is to be a patent troll.  Between 1995 and 2009 the overall median patent litigation damage award was $5.2 million, but between 2002-2009 there was a huge discrepancy between the average damage award for practicing entities versus non-practicing entities.  The median award for non-practicing entities was $12.9 million, while the median award for practicing entities lagged far behind at $3.9 million.  No wonder there is ever increasing activities by those the Federal Trade Commission refers to as “patent assertion entities,” which seems to be yet another sanitized name for patent troll.

According to a recent FTC Report, The Evolving IP Marketplace, the high damage awards for non-practicing entities has generated a lottery-ticket mentality that encourages entities to purchase patents solely for the purpose of asserting them against established products and services.  But solving the problem is not at all easy.