Posts Tagged: "patent troll"

In their submission to the Washington Post’s series this week on so-called “patent reform” and “patent trolls,” James Bessen and Michael Meurer repeat the same junk science claims we’ve all heard many times before. This narrative is the unfortunate byproduct of unreliable and unscientific studies. This past March, I joined forty economists and law professors in a letter to Congress expressing “deep concerns with the many flawed, unreliable, or incomplete studies about the American patent system” that have been injected into the patent policy debate. Unfortunately, Bessen and Meurer themselves have produced some of this junk science, infected with mistakes that render their conclusions utterly meaningless. For example, they once estimated that litigation by so-called “patent trolls” cost the U.S. economy $29 billion in 2011. This figure has been thoroughly debunked and criticized for the fundamental and methodological flaws, such as using proprietary, secret data collected by a company that has a stake in lobbying for more legislative revisions to patent litigation rules.

”An anecdote is a snapshot, a one-dimensional shard of the big picture. It is lacking in scale, perspective, and data,” authors Steven Levitt and Stephan Dubner write. I was struck by how well the dynamic of anecdote vs. story captures the heated Washington debate over patent legislation we have witnessed in the past few years. The ”patent troll” narrative — fueled by anecdotal tales of mom-and-pop operations snared by fraudulent patent suits and the image of ugly green trolls paraded from the House floor to the White House – became the conventional wisdom on patents almost overnight. The only ”data” offered to support the narrative were compiled from surveys with unscientific methodologies, nonrandomized survey bases and ill-defined notions of a ”troll” that swept in universities, small inventors and anyone who owned a patent but didn’t manufacture, market and distribute the related product.

While hedging risk is a well known and widely accepted investment tactic, there is something rather bizarre about someone who is such a vocal critic doing exactly what they criticize others for doing.

Fears about trade secret trolls are based in mythology, not on fact. If those claiming federal trade secret legislation would lead to trade secret trolls actually understand trade secret law they simply couldn’t possibly come to a conclusion that there is any risk there will be a single trade secret troll, let alone some kind of zombie-like rise. Simply stated the fear is pure fiction. In addition to seeing absolutely no evidence of trade secret trolls on the State level, trade secrets require a relationship or some nexus between the parties to the dispute. You simply cannot commoditize trade secret litigation in the same way patent trolls can and do commoditize patent litigation.

What may be less well known is that Octane was not itself a “patent troll” case. Rather, Octane involved another kind of abusive patent litigation; namely, a large company asserting a patent it pulled “off the shelf” against a small start-up competitor. While patent trolls gain economic advantage through economies of scale, large companies have economic advantages over smaller competitors by virtue of their size and resources, and can similarly abuse the system. They can use the high cost to defend patent litigation as a competitive weapon, either to force the smaller competitor to exit the market, discontinue a product line, or pay an unwarranted royalty (thereby hindering the competitor in the marketplace). On remand, the District Court in the Octane case recognized just this sort of economic coercion, and found the case exceptional warranting a fee award. And last week, the District Court awarded almost $2 million in fees and costs to Octane, the prevailing accused infringer.

Google is giving away patents to small-ish tech firms who apply and agree to join the License or Transfer (LOT) Network. Google retains a license to the patents, which can only be asserted defensively and asks the participant stay in the LOT Network for 2 years or the patents revert back to Google. Also, Google gives the participant access to browse Google’s “inorganic patent portfolio” (i.e., acquired from third parties) with an eye towards selling and licensing more patents to the participant.

I think there was certainly a level of abuse prior to patent trolls from larger companies that weren’t scrupulous trying to sue smaller companies and using the high cost of patent litigation to get things they weren’t entitled to. The only difference was these smaller companies that were being abused didn’t have any lobbying efforts before Congress. So when the whole patent troll issue came to a fever pitch the biggest companies in America were being held hostage to it. Apple, Microsoft, Facebook, LinkedIn, all of the most notorious companies that are just great technologies were being sued by smaller entities. And how do these smaller entities get economic leverage over these big companies? They did it because they could file 40 lawsuits at a time so the incremental cost beyond case number one didn’t cost anything. And they would just hold out for these nuisance value settlements and that’s why even the largest companies in America were being held hostage. How Octane changed that is now that you have a realistic chance of getting attorneys’ fees, now you have that chance now the bigger companies can stand up to a troll.

In the patent arena it is not hypocrisy that is fueling the misguided strategies of tech companies. Instead it is the self-interest of tech CEOs who are increasingly only concerned about the short term. This is tragic because corporations are supposed to exist in perpetuity, not just until the current CEO can cash out with his or her golden parachute. Short term thinking of tech CEOs is destroying the patent system and wasting shareholder assets. What are these companies going to do when foreign corporations push their way into the U.S. marketplace? How will CEOs explain away the existential threat they face when foreign manufacturers flood the market with goods and services without regard to long since crippled patent portfolios of the former tech elite?

Google announces its response to the Patent Troll issue they call the Patent Purchase Promotion.

It’s great that John Oliver brought the subject of patent trolls, about which IPWatchdog has already produced some considerable coverage, to an audience that topped 1.4 million viewers. But there are a significant number of stakeholders in the ongoing patent debate who are not in favor of the Innovation Act and they’re not, as John Oliver would have you believe, simply lobbyists for trial lawyers. For example, the Innovation Alliance, which is made up of innovator companies, does not support the Innovation Act. Neither do independent inventor groups, independent inventors, innovative startup companies, biotechnology companies or universities. If John Oliver is for helping small business victims of patent trolls while preserving patent rights he should actually be promoting the STRONG Patents Act and not the Innovation Act.

HHS is suing a defendant that merely wants to market a generic version of a drug that is used to treat patients with human immunodeficiency virus (HIV). Not only is the United States government a patent troll, but the government is also trying to deprive patients who need live saving HIV drugs an affordable generic version. Egad!

To hear the rhetoric from lobbyists for some large tech companies you would think patent licensing is some sort of shady business, akin to extortion. Never mind the hypocrisy inherent in these same firms earning tens of millions of dollars annually licensing their own patents — most of which are never used in their own products — to other companies. The truth is that patent licensing is as American as apple pie, and always has been.

Punishing everyone for the actions of an easily identifiable few is an abuse of power. The difference is when Sister Mary did it we lost a few minutes of play or had to sit quietly and watch seconds tick off the clock. Today the overlords who want to stamp out abuse risk destroying the engine of the American economy. If you haven’t noticed manufacturing jobs have gone. All we have left, by and large, is innovation. Are we going to kill that too?

It is truly a shame that so many have bought into the demonization of patent owners without any critical thought. In order to believe the narrative emanating from certain Silicon Valley giants you would have to believe the existence of helpless multinational, multi-billion dollar companies on their knees and wholly incapable of defending themselves against despicable independent inventors, diabolical universities, and monstrous scientific researchers. After all, looking to find a cure for cancer, or trying to figure out how to clean up the environment, or invent the next great kitchen gadget that will be the darling of QVC by definition makes someone vile, immoral, corrupt and down right sinful! A real devil in disguise!

One of the largest risks for a successful technology-based small business, startup, or individual inventor, is success itself—successful inventions invite predation by large market incumbents. The only protection many inventors have against loss of substantial investment in bringing a raw invention through the process of R&D, manufacturing, and establishing a market, is the patent system; patents provide the foundation of the market for inventions. For the patent system to work in “little guy vs. big guy” situations, the help of patent enforcement specialty firms is often required. This help must be financed, and often the best financing is through contingency arrangements, partnerships, or outright sale of the patents. For over a century, such patent intermediaries have provided important avenues for patent owners to keep control and coordinate investments and appropriate returns on their inventions. The patent enforcement-specialty firms of today are NPEs, more commonly referred to pejoratively as “patent trolls.”