Enter Professor Robin Feldman, who has become the preeminent researcher on issues of patent litigation, particularly as it refers to so-called patent monetizers. Professor Feldman has found striking new data on patent trolling and the effects of the America Invents Act, which to me suggests that the AIA has clearly been successful in its intended goal of reducing the number of defendants in a single patent infringement litigation.
Professor Feldman’s new analysis was developed by breaking down the massive data set she collected into a month-by-month analysis of patent infringement lawsuits. The data examines all patent lawsuits over four key years, which represents approximately 15,000 patent infringement lawsuits and 30,000 patents asserted. Not surprisingly to those of us who have closely followed the America Invents Act, but there was an enormous spike in litigation leading up to the implementation of the AIA in September 2011. The following graph tells the story.
In December of 2011, we published an article in the New England Journal of Medicine describing the current crisis in cognitive testing. Doctors and medical researchers are scrambling to adapt to the recent assertion of copyrights in a popular screening method that has been used for decades to measure cognitive impairment. Although the assertion of this particular set of rights is relatively new, doctors are increasingly facing copyright claims in a variety of tests, including those for depression and for pain.
In the New England Journal article, we tried to encourage the creation of a cultural norm in the field of medicine, in which medical researchers would ensure continued availability of their tests through appropriate open access licensing for any copyrights that might exist. In this companion piece, we consider the legal side of the question. Although copyrights in medical testing are being asserted frequently, are those rights valid, and should they be upheld in whatever courts eventually hear the issue?
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. 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.
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.” 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.
I began by describing the facts of the Myriad case, which is currently before the Supreme Court, and the science behind the issues, as well as introducing the panelists. I then began the discussion by asking the panelists if genetic sequence and cDNA patents interfere with scientific research and with those who provide health care. Vern Norviel of Wilson Sonsini argued that it does not matter either way with regards to patents and new biotech product innovations. Mr. Norviel pointed out that the entire human genome was already mapped and the company who mapped it was not sued. More importantly, he argued, is that human genes are limited and it would be a very small bit of information that could be determined to not be patentable. He did, however, caution that the Court should try and restrain itself and not go too far such that it destroys what is currently a massive and successful life sciences industry. The bottom line is that regardless of whether a patent exists, professors and researchers will continue to do the research. Dr. James Mullen of Morrison & Foerster further argued that patents encourage research and innovation as venture capitalists want to know if (1) the research does what it is claimed to do and (2) if the party owns that research.
The Honorable Alex Kozinski immediately posed the question—by way of an analogy to scientists who stare at the stars—of why should someone be able to get a gene patent just because there was a significant amount of effort put in to discover that gene. Throughout the event, Judge Kozinski took on the role of the generalist judge, who would need to be convinced that the invention in the lab is anything other than a product of nature. Professor David Winickoff of UC Berkeley followed that question up by discussing James Watson’s amicus brief and the idea that genes are both symbolic in our culture and shared by all humans, thus making them a unique item in our world.
In an efficiently functioning patent market, producers could quickly and inexpensively do the following: 1) identify which rights might be relevant to the product they wish to produce; 2) find the parties who control the interests in those rights; 3) determine the value of those rights in relation to the value off the product to be produced; and 3) secure a license with competitive terms. We are worlds away from such a system, but the Patent and Trademark Office’s proposed rules on disclosure of real-party-in-interest information would take an important step towards that vision, particularly the “broad definition” proposal. As always, promotion of an effective and efficient marketplace for innovation should be of paramount importance to regulatory agencies.
In the last five years, the patent market has undergone a change of seismic proportions. Patent rights are now regularly stripped from any underlying product and traded much like commodities in a largely unregulated market–the market for patent monetization. Prior to this time, the patent system had long operated with the comfort of knowing that more than 90% of patents would never bring any form of direct monetary return. I would refer to these as shadow rights, given that they have hovered on the periphery of the patent system, never fully actualized or fleshed out. We are now shifting to a system in which the opposite will be true–a drastic shift that is likely to have an extensive impact on innovation and the national economy. In our brave new world, large numbers of patents, that would not have garnered any direct return in the past, are being traded and monetized. Their presence in the market, particularly in the form of commoditized, tradable rights, enhances the uncertainty and game playing that may allow patent holders to obtain returns above the value of patent itself. See Robin Feldman, Intellectual Property Wrongs (describing amplification and shadow rights)(forthcoming).
The Federal Trade Commission (FTC) and Department of Justice (DOJ) announced today that they will hold a joint public workshop on December 10, 2012, to explore the impact of patent assertion entity (PAE) activities on innovation and competition and the implications for antitrust enforcement and policy.
This workshop will examine the economic and legal implications of PAE activity, as distinct from prototypical “non-practicing entity” (NPE) activity, such as developing and transferring technology. By contrast, PAE activities often include purchasing patents from existing owners and seeking to maximize revenues by licensing the intellectual property to (or litigating against) manufacturers who are already using the patented technology.
Supporters of the PAE business model say that it facilitates the transfer of patent rights, rewards inventors and funds ongoing research and development efforts. Critics describe adverse effects on competition and innovation, including increased costs and a lack of technology transfer, ultimately taxing consumers and industry.
Guest Contributors: Sara Jeruss (left), Robin Feldman (center) and Joshua Walker (right).
Any discussion of flaws in the United States patent system inevitably turns to the system’s modern villain: non-practicing entities. They are known more colorfully as patent trolls, although the business model of non-practicing entities has appeared in copyright markets as well as well as in patent markets.
In the America Invents Act, Congress directed the nonpartisan Government Accountability Office (GAO) to conduct a study “on the consequences of patent infringement lawsuits brought by non-practicing entities.” At the GAO’s request, we provided data on non?practicing entities for five years (2007-2011) using a database from Lex Machina, formerly the Stanford IP Clearinghouse. The GAO requested only the coded data without analysis, and we provided this with the understanding that we would publish our own analysis of the data at a later time.
Our current article, which is in draft form and available at SSRN and the final study will be available from the Duke Law & Technology Review. We note that although the cases were compiled at the GAO’s request, all conclusions are our alone and not those of the GAO.
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.