To begin reading the interview from the start please see A Conversation with Patent Defense Litigator Ray Niro.
QUINN: Given that the Obama Administration is already out in front anti-NPE, anti-patent troll, and seems to be taking the Google philosophy which is who their advisors are, it seems to me foolish to think the Patent Office is going to moderate that decision and limit it narrowly.
NIRO: Right. The Administration has become a shill for Google — you even have a Google person running the Patent Office. So you have a situation where any number of patents, tens of thousands of patents, are going to be affected by Alice and also by the Limelight decision on split infringement.
You know, I did the MuniAuction case. And when you look at the patent in that case, it was found valid and willfully infringed. The judge enhanced damages, doubled them up to around $85. And by the time the case was on appeal, damages were around $150 million that our client was entitled to recover.
It was a municipal bond auctioning process where you had one element of the claim was submitting a bid. Another element of the claim was viewing the results of the auction. And the third, fourth and fifth elements were manipulating the bid, ranking the bids, determining of priority and so on and so forth. It was that middle guy that we sued. And the defense was, well, all we do is the stuff in the middle. We don’t submit a bid and we don’t view the results of the bid. If you changed two words in that claim instead of “submitting” a bid, you say “accepting” a bid. And instead of saying “displaying the results,” you say “transmitting the results for viewing by a third party,” you’ve put everything inside the box. And the person that wrote the claim ten years before did it the way it was done then. Now you have tens of thousands of patents with this split infringement, where you have multiple parties necessary to infringe, that are gone. They can’t be asserted for infringement purposes. I mean that’s just taking people’s property away after the fact.
QUINN: I couldn’t agree with you more. And that’s the thing that I’ve had some difficulty explaining to people who don’t operate in the software space is they’re like, well, why did you write these claims that way? They seem abstract to me. We write them that way because that’s the way the courts told us to write them.
QUINN: You know, this was not a construct that we just came up with and said, oh, let’s try this. They were telling us how to go into these claims and even after the machine or transformation test when you’re starting to put in, it has to be tethered to a machine. Okay, well, that’s fine, we can do that, but suddenly that isn’t enough. Ironically, in retrospect the machine or transformation test made a lot of sense, right? Although it would have been much better if they actually said a mental process, a purely mental process, isn’t patent eligible. Okay, we can argue about whether it should be that way but fine, it’s that way so we’re going to put these concrete tangible items that you can touch into claims and now that still is not enough. How a claim with tangible items recited can be an abstract idea is beyond me.
NIRO: Well, it boggles my mind when these judges say if you’d written the claims better or if your client had written the claims better, you wouldn’t have this problem. And I’m tempted to say, you know, Your Honor, with all the respect that I can give you, did you ever write a claim? Did you ever sit with an inventor and try to define a new invention? And I’ll bet you the answer is no. In hindsight, everything could be done differently and better. But what they do is they change the rules of the game and then they say well you could have fixed it. I mean that’s like saying in a baseball game, well, you know what, I don’t like the outcome. I think I’m only giving you one strike instead of three. And we’ll play only seven innings, not nine. I mean, come on. You play the game under one set of rules. You don’t change them and then change the result as a consequence of that change.
QUINN: Well, it’s interesting that you say that because another friend of mine who is in the software space said nothing shocks him about what the Supreme Court does any more because they were willing to change the rules in the middle of the game relative to eminent domain where they can take your real property and hand it over to some other private citizen. At what point in time are we going to cease believing that the Supreme Court is limited by principle?
NIRO: Well, is there any Supreme Court justice who’s spent a day in an engineering class? Probably not. Or in a science or technical arena? Probably not. And you have them talking about how simplistic and easy and obvious in hindsight this invention is. And you have them talking about disqualifying certain categories of invention from protection. And you know, I think back to the debate that existed when biotechnology first emerged and how this was horrible and we shouldn’t have patent protection on biotechnology. And it went to the Supreme Court in a different makeup of the Supreme Court; they said no, this technology is eligible. Look at what’s happened as a consequence of that. You have companies like Genentech, you have pioneers in the technologies creating new revolutionary pharmaceutical products that benefit mankind. Now, would that have happened without a strong patent system? History would say no. So what we’re doing is we’re taking an entire category of potential invention and we’re disqualifying that from protection because it hasn’t been defined properly. And that’s a huge risk here that you’re going to create a disincentive in one of the areas of technology that is booming.
QUINN: I agree with that as well. And on top of what you just said, what they actually say is just factually incorrect. I mean it’s a faulty premise. All these judges on whatever level seem to think that this is just easy, simple, trivial and even during the oral argument in Alice, Justice Kennedy said something to the effect that a high school student could code this up once you gave them the requirements. The reality is software doesn’t work that way. And it’s striking to me that they don’t get it. Because how many times do you start up your own computer and you’ve got this critical patch that absolutely needs to be downloaded because what you’ve got on your system is so horribly flawed. It’s like every week, every week. And for almost every piece of software you have. And I’ll tell you last weekend I got really worked up about the Alice decision because right ahead of the decision coming out we had been down due to server issues, denial of service attacks, people trying to log in brute force, malware, you name it. And it’s like for software that is so trivial to operate, you know, a webserver software, which is ubiquitous at this point, it just doesn’t work very well. Because at the end of the day, it is an engineering problem. Anything that can go wrong will go wrong – Murphy’s Law. People try and exploit it. And the innovation lies in the elegance of the design and the fact that it works. And these judges just don’t get that.
NIRO: Well, that’s right. And the MuniAuction case is another good example. Here are a couple of guys in Pittsburgh who worked in the municipal bond auctioning business and saw first-hand all the problems that were taking place because of the non-electronic nature of the process that people couldn’t read the fifth decimal point. There were fights about whether the fax was at 12:01 versus 11:59. And you know, you had all of this nonsense going on because of the mechanical nature of the auctioning process. And they came up with this idea to do an electronic auctioning process using the Internet. And it was phenomenal. It became a huge instant success, revolutionized the whole space. And if you want to put this after the fact under a microscope to say, what’s the invention here? All they did was take some old ideas and put them on the Internet. Hey, but nobody had thought of doing that. Nobody—they were trudging around doing it in a different way. So what you’re seeing from judges and justices is 20-20 hindsight. Oh, it’s easy, it’s simple. Well, you know, if it’s so easy and simple why didn’t somebody do it?
QUINN: Well, that’s true. And you know I really get worked up when they talk about how the Apple pinch and swipe and that sort of thing is just simple and it really shouldn’t be patented. And the history of it is it took them seven years to figure out how to do that. And once they did it, and once they came out with it then everybody copied them, you know? I mean it seems to me the obviousness law along with everything else is just messed up. Because, yes, has it made it more difficult to get these “trivial inventions” or “stupid things” patented? Yes. But what it’s also done is is it’s made it really more difficult on a lot of levels to get and keep a patent on something that is truly innovative. After something becomes ubiquitous, keeping the patent is extremely difficult. We should be celebrating inventions so important that they become ubiquitous, not invalidating them because they are allegedly obvious.
NIRO: Well, I like to tell juries that invention is like the lost purse along the highway. Hundreds pass it by until somebody more observant sees it, finds it, and returns that purse to its owner. That’s the problem here. You have trivializing of inventions because they didn’t take forever to figure out and they weren’t the product of massive amounts of research. I mean Judge Posner would disqualify from patent protection anything that was the result of instantaneous discovery. How about penicillin? Penicillin was discovered by accident. So, too, with “Post-Its,” “NutraSweet” and lots of other inventions.
NIRO: A mold growing on a Petrie dish. Yet it saved millions of lives. Why would you not want to protect something like that? Accidental or whatever—it was an invention, it was a huge invention, it was a tremendous discovery. And look at the product. Look at the result. So I think that we’ve got things backwards because people making the decisions unfortunately have never had to sit and study and work through some of the things that those of us who chose an engineering or science background in their lives at one point had to do. And I think that that skepticism, that ego, that it’s “easy,” it’s “simple” is bad. And you see it in the Alice decision. It’s nothing but an abstract idea. Can’t be patentable. That’s an interesting play on words. But when you dig beneath what went on to create this new idea, I’m not so certain it so easy and obvious and why it should be disqualified from protection.
QUINN: No, I don’t either. And frankly I don’t know how in our system of laws you can have something that has a name, the abstract idea doctrine, without it being defined.
QUINN: What that means is patent eligibility today is purely subjective. If you don’t think it deserves protection, then you just call it an abstract idea. It is perfect really because no one knows what it means, so the patentee can’t hope to really meaningfully rebut it. It is so frustrating.
QUINN: And the laws were specifically changed in 1952 to try and eliminate that subjectivity, but everyone forgets that, or perhaps better to say that many judges choose to ignore that inconvenient truth.
NIRO: Yes. When you look at KSR, there are portions of KSR that suggest that, if all you have is a combination of old elements, it can’t be patentable. I mean that disqualifies from protection just about everything.
QUINN: Yes, you have to have a pioneering paradigm shifting invention if KSR is applied literally.
NIRO: Right. And if you apply that logic to music, you wouldn’t have a single song that’s new, since they’re all starting with the same eight notes and they’re all old and they’ve all been available forever.
NIRO: And you wouldn’t have a new novel either because all the words are old. It’s so ridiculous that it doesn’t pass the giggle test. It’s just craziness.
QUINN: So when you said earlier you think this is not a matter of months but this is a matter of years. If you had to predict, what do you think we’re looking at over the next couple years? Intermediate and then long term.
NIRO: Well, I think the quick effect will be immediate, you’re going to see fewer and fewer individual inventors and small entrepreneurial type companies able to maintain cases against the big guys. I don’t think they’re going to be able to afford it. I don’t think they can assume the risk. Now there may be insurance options where people will start insuring risks on fees and that could happen. But I think short range you’re going to see fewer individual inventors and small companies bringing patent cases. Longer range, I think you’re going to see people, the inventors, begin to retreat and, not having a strong patent system, you’re going to see fewer and fewer of the new ideas emerging. That’s going to affect our country badly because you’re going to have less of an entrepreneurial spirit. You know, if you’re an entrepreneur and you create a new idea and then you find out that the big guy can just take it from you and you can’t do anything about it, what incentive do you have to keep doing that? You don’t. So I think that’s going to take a little time to play out. And it’s also going to take a little time for the big guy who has a portfolio of patents, the IBMs, the Microsofts, the Apples and so forth, to realize that their portfolios have been devalued significantly because of some of these decisions. And I think that’s about a ten year time frame before the pendulum swings the other way. I hope it’s not that long, but that’s my prediction if I had to guess.
QUINN: I’m holding out hope that it’s not that long. And the one wild card in all of this I think could wind up being in an odd way something that has nothing to do with the patent system or intellectual property. But I wonder what the impact of Sarbanes-Oxley is going to be on all of this because I do think that a lot of companies just had their patent portfolios devalued by an extraordinary amount. You take Google who spent a lot of money, billions and billions of dollars acquiring patents. I mean how many of those now are really just worthless? How many would be worth anything if ever challenged in a proceeding at the PTAB? And if they don’t explain that to shareholders, then it seems to me that they were violating the law.
NIRO: Yes. I mean Google’s whole play on getting the Motorola patents was to balance Apple getting the Nortel patents. So I think that people fail to realize that they’ve created a monster under the guise of eliminating or punishing “trolls,” whatever those entities are. And you know they’re sweeping in just about everything and everybody. But under the guise of fixing the system, they’re actually destroying the system. And I think you’re going to see the consequences of that. Both immediate and long range. And maybe these special interest guys are going to start looking at their portfolios and ask why did we spend billions of dollars buying these patents when 90% of them are worthless?
QUINN: To be honest, I threw out the Sarbanes-Oxley issue. I don’t think any of them are going to look at it that way. What I do think could wind up getting interesting would be is if you had some attorneys trying to bring some creative shareholder derivative lawsuits.
NIRO: Oh, that’s interesting. I hadn’t thought of that.
QUINN: I don’t believe there’s a direct action under Sarbanes-Oxley, but I don’t know that you could present evidence from coming in that what was going on really did violate that law. And people hate lawyers; you know that, I know that. But at the end of the day, vehicles don’t blow up because lawyers pursue those companies who are indifferent.
NIRO: Right, right, right. If anything, it was the product liability lawyers that made products safer by holding people accountable.
QUINN: And I think maybe it may be lawyers from a different discipline that ultimately wind up turning the tide.
NIRO: Yes. You may be right. I hope it’s the patent bar that makes a difference. We will see.
QUINN: Well, Ray, I really appreciate you taking the time. I know we’re out of the time that we agreed to but it’s always great to talk to you.
NIRO: Well, thank you, Gene, but one further thought I want to share on this whole business of patent trolls. To me, these are just words used by anti-patent advocates to undermine the rights of individual inventors and the small businesses they create — people I have largely represented for the past 20-30 years. And it bothers me that the big, rich, elitist, special-interest groups are willing to do just about anything, and spend massive sums of money doing it, to destroy the ability of individual inventors and their companies to have a fair opportunity to be heard, not in back alleys, but in courts with judges and juries. It’s what our founding fathers fought so hard 240 years ago to protect. What these guys and their big-firm lawyers are doing, quite simply, is undermining innovation in our country. I say: shame on them all.
QUINN: I couldn’t agree more. We should be celebrating innovators, not treating them like they are the problem. I really appreciate you taking the time to chat with us again.
NIRO: Thanks for the opportunity to talk about some of these things.
NIRO: I think you provide an opportunity for people to say some things that need to be said.
QUINN: Thanks Ray. I appreciate that.