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.
Last week the United States Court of Appeals for the Federal Circuit issued a decision in State of Vermont v. MPHJ Technology Investments, LLC. The decision, which was really not much of a decision because the Federal Circuit concluded they lacked jurisdiction, is interesting for at least several reasons.
While Vermont’s actions are undoubtably laudable, despite what some conclude I suspect that when challenged the legislation will fall because it pre-empts patent law, which is federal. For example, one of the factors that would suggest a bad faith patent enforcement under the Vermont statute is if there has previously been a lawsuit or threatened lawsuit based on the same or similar claim of patent infringement.
Patent licensing company Conversant Intellectual Property Management today launched an educational campaign against the use of extortionist demand letters that are victimizing thousands of small and medium-sized businesses. The goal of Conversant’s Stand Up to the Demand campaign is to help small businesses spot unscrupulous demand letters sent by patent trolls. Conversant’s Stand Up to the Demand campaign follows the company’s November 2013 release of a set of ethical patent licensing principles, which built upon the belief that patent licensing companies should take the lead in curbing patent abuses within their own industry.
Bad demand letters are a big problem for U.S. small businesses, costing them millions of dollars in settlement fees and legal costs annually. Patent trolls often operate through shell companies and these bad acting companies send form demand letters to hundreds or even thousands of small businesses at a time, claiming with little or no evidence that they are infringing on patents. These mass demand letters are often misleading and sometimes outright false. This type of activity has been characterized as “extortion-like” by the federal courts, and gives hard working innovators a bad name. See also Extortion Patent Style.
Earlier this year New York Attorney General Eric T. Schneiderman announced a groundbreaking settlement that sanctioned a patent troll that was engaged in abusive pre-litigation tactics by sending letters with the intent to deceive those receiving the demand letters, scaring them into settling. Additionally, recognizing the stakes involved, a dozen U.S. states have already enacted laws to curb extortionist demand letters, and 14 other states are actively considering such laws.
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.
“The Commission shares this Subcommittee’s goal of stopping deceptive patent demand letters while respecting the rights of patent holders to assert legitimate claims, and recognizes that achieving this goal is not easy,” the testimony states.
Earlier today the Federal Trade Commission issued a second Federal Register Notice containing the revised information requests for its study on patent assertion entities (PAEs). The Commission vote approving the second Federal Register Notice was 5-0. The Notice is styled as a submission to the Office of Management and Budget (OMB) because under federal law federal agencies must obtain approval from OMB for each collection of information they conduct or sponsor.
The second Notice also calls for additional public comments. As explained more fully in the Notice, the FTC proposes to collect information about Patent Assertion Entity (“PAE”) organization, structure, economic relationships, and activity, including acquisition, assertion, litigation, and licensing practices.
The study is designed to develop a better understanding of how PAEs may impact innovation and competition. PAEs are firms with a business model based primarily on buying patents and then attempting to generate revenue by asserting them against businesses that are already practicing the patented technologies. The FTC says it is conducting the study in order to further one of the agency’s key missions, which is to examine cutting-edge competition and consumer protection topics that may have a significant effect on the U.S. economy.
Critics of the patent system, and specifically the critics of software patents, would have the United States forfeit the future in favor of something that has never worked. Curtailing patent rights has never worked to produce more innovation anywhere it has been tried. So why would we try such an experiment in the United States when it hasn’t ever worked anywhere ever? Unfortunately, it seems that many of our leaders in Washington, DC, are listening to those who have fanned the flames and worked exceptionally hard to create an unhealthy anti-patent climate.
Newsflash — innovators are not evil. The fact that this even needs to be said shows just how far we have come and how pervasive the anti-patent climate has become. Rather than celebrate innovation day after day like the drone of a metronome we hear how patents are evil and how they stifle innovation. But if you actually look through the rhetoric you notice that those claims are made with zero supporting evidence, but that is because all of the available objective evidence directly contradicts the growing orthodoxy.
Once upon a time the United States celebrated innovators, and gave them a meaningful opportunity to reap the deserved reward from their hard work and ingenuity. Today, we vilify innovators as evil all because there are a handful of bad actors that engage in abusive patent litigation tactics. Of course, these tactics have nothing to do with patents substantively and everything to do with the fact that these bad actors are allowed to manipulate the judicial process and exploit inefficiencies in the litigation system that are wholly unrelated to the substance of a patent.