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.
Anti-patent groups who seek to diminish patent rights have turned the public’s imagination against licensing entities. Sometimes called NPEs or PAEs, sometimes called an epithet that need not be repeated here, such licensing entities do not practice the patent rights that they seek to license out. For now, let’s call them monetizing companies. I have previously written about the economic utility that monetizing companies bring to the patent system, and to the overall economy. As a general matter, they ensure that patents achieve their uses to promote technology transfer, promote commercialization of marketable ideas, and enable securitization of intangible assets to facilitate startup financing.
The anti-patent forces have convinced many members of the public – and their representatives in Congress – that such patent monetizing companies “abuse” the court system. But what do the data say?
If monetizing companies as a class “abuse” litigation more often than plaintiff operating companies, we would expect to see data that show that they bring less meritorious patent cases. Some have sounded the alarm that such data already exists. They cite to the annual PricewaterhouseCoopers report on patent litigation. But is this a reliable source for this conclusion?
The chart to the left, which is Chart 5b from page 12 of the latest PwC report released in 2013, appears to show comparative “success rates.” The chart appears to answer the question negatively for monetizing companies. As depicted in the chart, operating companies seem always to have had a higher “success rate” in court compared to monetizing companies, most recently 38% compared with 26%. That is, in fact, how alarmists (including those at the highest levels of government who advise the present Administration) have used these statistics. Examples are everywhere. Here are four notable ones:
Regardless of intent, the number of patent infringement lawsuits is increasing rapidly. Also rising at an alarming rate are the number of infringement assertions, which can often take the form of a threatening letter that goes over the top and even crosses the line into open misrepresentation. In fact, the New York State Attorney General recently entered into groundbreaking enforcement settlement with MPHJ Technology Investments, LLC, who had incorporated misleading statements into demand letters in an attempt to scare small businesses into paying patent licensing fees, even though they didn’t design or sell products. See NY Attorney General Settles Investigation into Patent Troll.
In order to address some of the perceived issues with patent trolls, the patent reform bills in front of Congress include suggestions such as: requiring asserting companies to identify the real owner of the patent, allow more discretion in awarding legal fees to the prevailing party, limiting assertions against end-users of a technology, and allowing more challenges to broad patent claims. Some proposals from industry observers have gone as far as to suggest that software patents should not be allowed, as a large number of the filed cases involve disputes over software functions. New Zealand’s Parliament, for this and other reasons, recently voted almost unanimously to abolish software patents. The Supreme Court is poised this term to rule about the extent to which software and other computer implemented inventions are patent eligible in the United States. It seems unlikely that the Supreme Court will abolish software patents in the United States, which means defendants and those accused of infringement will need to continue to utilize various strategies to protect and insulate themselves.
There is no more alarming moment for an accused infringer than the moment the demand letter arrives. While large entities are sued frequently and it is part of doing business in America, a small business receiving a demand letter that alleges patent infringement may be the first time it has faced this reality. An understandable initial reaction is to get in touch with the party sending the demand letter and just explain that you are not infringing. However, if you have been sued by a company legitimately characterized as a patent troll, a lack of infringement may be of no consequence, as the patent troll may continue to require a choice between a license and a more-costly lawsuit defense.
It’s no secret that the regulatory environment is challenging for companies that license patents – in our case, patents that are deemed essential to wireless standards and that our company, InterDigital, has developed in-house over the course of multiple decades, and continues to develop today. Some of the companies that dominate the wireless market today had little or nothing to do with the development of the standards that have contributed so much to their success, so they make every effort to devalue standards participation. And many in Washington lend them a willing ear, and take up arms to wage their battle for them.
One of the greatest frustrations for me is that so much of this rests on a bedrock of total miscomprehension of how standards are developed, the enormous cost and risk of investing in standards development, the value that standards provide, and the kind of licensing practices that have made the market successful, benefitting everybody. Late last year in New York, I met with a reporter for one of the primary tech websites in the world, and he dismissed standards development. It became apparent he didn’t understand how the process worked at all. When we asked him how he thought these things got developed, he said that he “figured there must be an engineering organization somewhere that did it.” And this is from the legal correspondent of a major tech website, someone whose articles influence debate!
He didn’t realize that it was private sector companies – companies like ours – that committed significant engineering time and resources, and competed to develop the best solutions, and in so doing committed to licensing them fairly. So – for his benefit, should he read this, and for the benefit of anyone involved in the debate – I’ll describe our company’s story, and draw some conclusions about what should and shouldn’t be done to protect, foster and incent innovation that benefits everybody.
There is a new entry into the patent reform debate. The Main Street Patent Coalition is a national coalition of organizations that says they are dedicated to stopping patent abuse by so-called patent trolls. The Main Street Patent Coalition is encouraging Congress to pass what they call “common sense patent reform legislation.”
The Main Street Patent Coalition members include: the National Restaurant Association, the National Retail Federation, the American Hotel and Lodging Association, the National Grocers Association, the International Franchiser Association, the Application Developers Alliance, the National Association of Realtors, the Retail Industry Leaders Association, the National Council of Chain Restaurants, the American Association of Advertising Agencies and the American Gaming Association. These trade associations say they want Congress to give small businesses a fighting chance against the growing threat of patent trolls.
The Main Street Patent Coalition claims they represent the small business community at large, which has to make you wonder. On their homepage they talk about an innovative, family owned and privately held company named White Castle. According to the LA Time, White Castle has 9,600 employees. How exactly is that a small business? Answer: White Castle is not a small business, at least if you concern yourself with the way the Small Business Administration defines small business. To be a “small business” you have to have no more than 500 employees. Clearly the Main Street Patent Coalition recent press release Small Main Street Businesses Launch Patent Reform Coalitioncarries a misleading, if not false, title.
SimpleAir, an inventor-owned technology licensing company, holds eight issued U.S. Patents and several pending patent applications in the areas of wireless content delivery, mobile applications, and push notifications. SimpleAir has licensed its inventions to many leading technology companies, including Apple. See also Apple, others settle with patent troll SimpleAir. Google decided not take a license and/or otherwise settle a patent infringement litigation brought by SimpleAir and now has been found to infringed one of SimpleAir’s patents.
A federal jury in the Eastern District of Texas returned a verdict on Saturday, January 18, 2014, following a week-long trial presided over by the Judge Rodney Gilstrap, finding that Google infringed SimpleAir’s U.S. Patent No. 7,035,914. The ‘914 patent covers a system and method for connecting on-line networks with on-line and off-line computers. The system provides for broadcast of up to the minute notification, which thereby provides an instant call to action for users who are provided with the ability to instantaneously retrieve further detailed information. The notification is wirelessly broadcast to wireless receiving devices attached to computing devices. The services accused of infringing the ‘914 patent were the Google Cloud Messaging (GCM) and Android Cloud to Device Messaging (C2DM) services. Those services are used by Google to process and send instant notifications for Android applications, such as Facebook, Twitter, and Gmail.
The jury was unable to reach a unanimous decision on the amount of damages to award for Google’s infringement. The damages issue will be decided by a separate jury in a second trial limited to the issue of damages. SimpleAir has announced that they will seek damages in excess of $125 million for Google’s infringement in the damages retrial.
On Monday evening I wrote an article titled Supreme Court Refuses Soverain v. Newegg. It seems that this article caught the attention of Newegg’s Chief Legal Officer, Lee Cheng, who proceeded to contact me through LinkedIn and berate me in bizarre fashion throughout the day yesterday.
In the aforementioned article I pointed out that upon receiving news that the Supreme Court would not take the case, Lee Cheng made comments that could easily be interpreted as misogynistic. He proclaimed: “The witch is dead,” which is hardly the type of thing that your typical successful defendant in a patent infringement lawsuit would first think to say. It seemed relatively clear to me based on what I know of Cheng that the comment was directed at Katharine Wolanyk, Soverain’s President and CEO.
If Cheng was in fact calling Wolanyk a witch it was an extraordinarily inappropriate statement, not to mention incredibly offensive. But was this just a poor choice of words? As the bizarre rantings of Cheng came through LinkedIn periodically throughout the day on Tuesday it became clear to me that Cheng is emotionally unstable and that he really does have tremendous ill will toward Wolanyk. Quite telling, for example, despite my claim that his statement carried misogynistic undertones, he made no denial and never once said he didn’t intend or mean to call Wolanyk a witch. Had this been a slip or simply a poor choice of words it seems to me that he would have walked the comment back or apologized, but that never happened.
Attorney General Eric T. Schneiderman announced earlier today that a groundbreaking settlement was reached with MPHJ Technology Investments, LLC, a patent troll according to Schneiderman. Schneiderman’s investigation focused on MPHJ’s use of deceptive and abusive tactics when it contacted hundreds of small and medium-sized New York businesses in an effort to get them to pay for patent licenses characterized as being of dubious value.
“So-called ‘patent trolls’ exploit loopholes in the patent system and have become a scourge on the business community,” said Attorney General Schneiderman.“They drain critical resources from small and medium-sized businesses that would otherwise be available for reinvestment and job creation, which are sorely needed across New York. State law enforcement can’t cure all the ills of the federal patent system, but the guidelines established in today’s settlement will put an end to some of the most abusive tactics by placing the industry on notice that these deceptive practices will not be tolerated in New York.”
Law Professor Robin Feldman, the Director of the Institute of Innovation Law at the University of California Hastings College of Law and a frequent contributor to IPWatchdog.com, said this of the announced settlement: “Misrepresentation and downright fraud have become a major problem with patents, particularly against vulnerable targets like individuals and small businesses. Today’s historic New York settlement agreement strikes at the heart of this inappropriate behavior while protecting the legitimate exercise of patent rights. The agreement provides a model for other states, and for federal regulators as well.”
Phil Johnson (left) and Judge Michel (right) will be on the panel at this Sedona Conference. Shown here at the 2013 IPO Inventor of the Year ceremony.
Next Wednesday, The Sedona Conference will present a webinar that will take a look at an important, topical issue facing innovators – is legislative patent litigation reform necessary or can the Courts handle what some observe are abusive litigation tactics. On January 22, 2014, Patent Litigation Best Practices: A Matter for Congress or for Bench and Bar? will address the issue with an all-star faculty of leading practitioners in the field. The faculty includes former Federal Circuit Chief Judge Paul R. Michel, as well as current Federal Circuit Judge Kathleen O’Malley. Tina Chappell of Intel Corporation, Philip S. Johnson of Johnson & Johnson, and Alexander Rogers of Qualcomm will also offer their perspectives and insights as faculty members.
Patents and patent reform has been in the news, even the popular press, on an increasing basis. The issue of patents generally and patent litigation specifically has been the subject of intense debate over the last 8 years. Congress passed the America Invents Act (AIA) in 2011, with the bill being signed into law by President Obama on September 16, 2011. The overhaul of U.S. patent law was extraordinary, but not all of the parties involved were happy. Some thought the law went too far in some ways, others thought the law did not go far enough. Despite the AIA being the most significant change to patent laws since at least 1952, Congress is considering further reforms again, with the House of Representatives already passing the Innovation Act (HR 3309). Companion legislation in the Senate is likely to move forward during Q1 2014.
With the enormous media focus on the so-called problem of patent trolls one might start to think that any patent owner can easily stand up to and take on industry giants to obtain lottery like winnings. Not so fast! The great irony is that if you want a larger entity to fold like a cheap suit and settle quickly you would be better off filing a frivolous patent infringement lawsuit using a dubious patent. You see, the great irony is this: Only when large entities get sued on completely frivolous patent claims do they settle right away. Now I’m not advocating that course of action, rather just observing the truth of the matter asserted.
On the other hand, if you have a strong patent that covers real technology, perhaps pioneering technology, and there are substantial damages, the tech giants you sue will vilify you as a patent troll in the media and do whatever they can to make sure that they never pay you a dime. This is particularly true when the small company is building upon a base technology already owned by one of those technology giants.
Many large companies are happy to pay nuisance value on frivolous claims, but they are never going to pay meritorious claims if they can avoid it using any and all techniques and procedural machinations. The reality that frivolous claims get settled and meritorious claims get litigated has to make you wonder whether the so-called patent troll problem is really a problem or whether it is something that they actively perpetuate in order to achieve the “reforms” they continually ask Congress to adopt.