How misleading scholarship contorts patent enforcement into a Patent Troll fable

Fantasy FigureIn the widely publicized campaign to curb purported “patent troll” litigation abuses, there are many anecdotal stories on non-practicing entities’ (NPEs) alleged abusive patent assertion. In view of the paucity of accurate accounts of the real stories behind these “patent troll” stories, I have written a detailed paper that exposes the machinery used to manufacture one of these fictional “patent troll” fables—profoundly misleading scholarship.

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.”

This is a story about the real circumstances of Dr. Jorge Inga and Thomas Saliga, a Neurosurgeon and an electrical engineer respectively, the named co-inventors of U.S. Pat. No. 5,321,520 titled “Automated High Definition/Resolution Image Storage, Retrieval and Transmission System” and a continuation thereof issued as US. Pat. No. 5,416,602, both having application filing priority date in 1992. The need for the inventions arose through Dr. Inga’s experience in clinics and operating rooms, requiring access to multiple high resolution images contained in antiquated film-based storage and retrieval systems for medical image data such as X-ray, CAT scans, tomograms and MRI. After several years of failed attempts to commercialize and license their patents at substantial personal costs, the inventors enlisted the help of an intermediary, Acacia Research Group, an established and well-known NPE.

The commercial use of this technology began taking hold in the late 1990s and early 2000s in medical imaging systems. Dr. Inga’s early identification and participation in devising an inventive solution of these real practical problems proved to cover essential elements of systems that were broadly used in commercial medical imaging systems. The early priority date of the fundamental inventions proved to have been instrumental in sustaining their validity. The two patents survived two invalidity challenges in reexamination proceedings at the PTO that reaffirmed the patentability of all claims in each patent. These could hardly be called patents of “questionable validity.”

The market leaders in supplying such imaging systems were large multinational firms in the healthcare Information Technology industry that had often ignored “little guy” licensing overtures. Dr. Inga approached several of the manufacturers to offer licenses, but was rebuffed and ignored. For example, one company insulted the inventors with an offer of $500 for their patents, explaining that this was commensurate with the consideration their own employee inventors receive for assigning their inventions to the firm. Throughout their efforts, including filing for foreign patents, the inventors have spent several hundred thousand dollars over several years, but were making no real progress in licensing or income generation to recover their costs.

Ultimately, the inventors sought help from Acacia, a well-capitalized NPE specializing in patent enforcement. Acacia partnered with the inventors for sharing patent enforcement profits and over the period beginning in 2007, sued and obtained settlements with over two dozen medical imaging vendors, during which Acacia had to defend the two patents in reexaminations at the Patent Office. These efforts likely cost millions of dollars and there can be no doubt that the two inventors could not have obtained any deserved monetary compensation for their patents without partnering with an NPE.

This story of virtuous patent enforcement has attracted the attention of those who stoke the “patent troll” narrative, who used it as a story of abusive litigation that causes social harm. Indeed, the story could be (and had been) shaped around the ingredients of the “patent troll” narrative: (a) an oft-demonized “patent troll” sues a dozen productive innovative suppliers of life-saving medical imaging systems; (b) the lawsuit unleashed by this demonic “patent troll” brings to a halt the introduction of new product releases and new sales by these otherwise innovative defendants; and (c) the result is to reduce innovation and technology diffusion, causing substantial social harm.

This story was to be shaped into a “patent troll” fable through the imprimatur of scientific scholarly work that empirically establishes a conclusion of social harm. What was necessary for the “patent troll” fable to work, though, was some finding of post-suit suppression of sales or cessation of new product introduction and a “plausible” reason for this observation that is tied to the patent lawsuit. Enter Professor Tucker, who demonstrated in previous empirical work that healthcare IT saves babies’ lives (a study which is by no means questioned here). Her paper is titled “Patent Trolls and Technology Diffusion,” a paper that turned out to be highly influential, as it was relied upon in a report issued by the White House on “patent trolls.”

The Tucker Paper claims to observe a decline of medical imaging software sales and a cessation of new releases thereof by firms named as defendants in the NPE litigation after they were sued, whereas only milder decline was observed for vendors who were not sued. It turns out, however, that Professor Tucker obtained this observation by inexplicably selecting for her analysis only four of the 14 vendors that were sued, only about 1/8 of the eligible sales of vendors that were not sued, and discarding two years-worth of sales data following the litigation. The Tucker Paper also found that “there was a complete collapse in the number of new incremental product releases and upgrades during the period of litigation” from vendors that were sued. We find, however, that Professor Tucker’s data source identified products by their brand name only and lacked information on release versions. She therefore must have detected only introductions of new brand names and missed the distinct versions released under the brands.

To explain these (erroneous) observations, the Tucker Paper posits that the accused vendors learned about the patents in suit only when sued and therefore voluntarily ceased sales of accused products and new releases thereof (essentially, imposed an injunction upon themselves, forgoing billions of dollars in sales) for fear of “willful infringement” liability of treble damages.

Contrary to the Tucker Paper’s findings, the true facts reveal that new product versions were released by accused vendors during the litigation and that the major vendors were aware of the patents in suit well before they were sued. That knowledge came from the patents in suit having been cited in these vendors’ own prosecution of their later-filed patents in the same technological field.

I show that the Tucker Paper simply documents a downturn in hospital medical imaging purchases that affected all vendors, not a voluntary halt of sales, let alone one related to litigation. The decline in purchases and reduced demand was due in part to purchasing disincentives introduced by the Deficit Reduction Act legislation, and in part due to saturation in the medical imaging market. Professor Tucker’s hypothesized cause-and-effect is simply not factually and economically plausible as an alternative to the market issues discussed throughout my paper. In conclusion, this “patent troll” fable is untrue; contrary to the Tucker Paper’s assertion, there is no evidence that the law of innovation works against itself.

Read the full paper.

The Author

Ron Katznelson, Ph.D.

Ron Katznelson, Ph.D.  
Dr. Katznelson is the Founder and President of Bi-Level Technologies in Encinitas, CA. He is also the Chairman of the Intellectual Property Committee of the IEEE-USA. This article expresses his personal views only and does not represent any position taken under his official capacity at IEEE. From 1990 to 2005, Ron was Chief Technology Officer, Founder and Chairman of Broadband Innovations, (formerly known as MCSI), where he led the company’s entry into the digital RF CATV industry. Prior to that, he was with the VideoCipher Division of M/A-COM Linkabit Corp., later acquired by General Instrument Corp. (GIC), where he served as Director, New Technology Development. At GIC, he directed R&D in the areas of Advanced Television Systems that led to GIC's video compression technology, now forming the core of the MPEG-2 standard and a basis for the Grand- Alliance ATSC High Definition Television standard. His responsibilities also included the management and development of the VideoCipher Division's intellectual property portfolio as well as representation in industry groups and standard bodies.

Prior to his work in industry, Dr. Katznelson was a Professor of Electrical Engineering at the University of California, San Diego (UCSD). He taught courses in Linear System Analysis, Probability and Stochastic Processes.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 13 Comments comments.

  1. step back March 23, 2015 10:00 pm

    Ron,

    Thank you for sharing.

    I grow tired of repeating this, but here it goes.
    Even in large organizations (the allegedly “Practicing Entities” –PEs) the actual inventors rarely “practice” their own invention. Instead their know how is transferred to various in-house and out-of-house other groups who take on the formidable job of “making it so” (as Captain Picard of the Starship Enterprise was fond of saying).

    So, even in the case of large organizations, the inventors are NPEs (Not-themselves Practicing Entities) and the labeling of some inventors as trollish NPEs and others (those who happen to work for the large starship enterprises) as not being NPEs is a complete ruse and farce.

  2. Curious March 23, 2015 11:22 pm

    This paper being discussed is just another example of the non-rigorous scholarship that seems to permeate patent law. Trying to model the impact of a single external factor to a particular business result across an industry is extremely difficult. As this article spells out, there are a vast multitude of factors that impact how a business performs. Financial analysts spend careers trying to model how current inputs impact future results with limited success. There are just too many inputs having unknown (or poorly known) interrelationships with one another. Moreover, to attempt this without having intimate knowledge of the industry is pure folly.

    What particularly galls me about this paper (assuming it is true) is that the author cherry-picked the data.

    I checked out her CV. I noted that it shows little experience in the patent realm. However, what I did finding very interesting is that she listed two grants from Google (one in 2009 and one in 2012). Of course, it is no secret that Google is at the forefront (and perhaps backstage puppet master??) of the anti-patent campaign. Coincidence?

    In perusing her article I note that she cites to Lemley (noted anti-patent writer) as well as Bessen and Meurer (i.e., authors of the discredited article frequently cited by the anti-patent crowd).

  3. Night Writer March 24, 2015 7:23 am

    I think too Curious that Google (or someone) has flooded the blogs with paid bloggers. For example, patentlyo is dominated by MM who spends at least 40 hours a week blogging and yet Dennis continues to maintain he has no proof that MM is a paid blogger. Dennis has verified other frequent bloggers including me and anon, and yet MM remains completely anonymous and continues to spend 40+ hours pushing the Google agenda.

    The problem is really that there are some big corps out there that are determined to end patents and are endless paying money to get what they want. And, there is Lemley and R. Stern who are the judicial activist “scholars” who provide the framework and intellectually justification for the anti-patent group.

    I am fairly pessimistic because what I see is a constant push on patent rights and some rallying and small victories by the real scholars and people that have the structure of the system in mind and not increasing their corporate profit.

    One part of this that is often over looked is employment contracts. It is no mistake that the trade secret legislation would include Google workers in CA. Take away patents and strengthen trade secret law and what you have is no sharing and no ability to move to another job. It astounds me that so many programmers are against patents when the framework of patents has provided them free discussions of the technology and the ability to move to other jobs.

  4. Night Writer March 24, 2015 7:30 am

    And, if you want to see where we are going then just look at this “functional” claiming nonsense. Lemley is pushing his judicial activist ideas in the courts and we are getting opinions that evince such an ignorance of science and patent law from the fed. cir. that –to my mind–we should abolish the Fed. Cir. and start over. But, watch the functional claiming nonsense. And realize that Obama appointed Lee –someone with no prosecution experience–to manage 8,000 examiners. And, Obama meet with business leader in the Oval Office with Lee to have her approved and commit to burning down patents. And, Obama has appointed more non-science judges to the Fed. Cir. than judges that have any science background at all. This is an outrage. Google spends more money than Goldman Sachs lobbying Congress and Google’s tactics are well documented at this point. See the article on Google and search results in the WSJ over the weekend.

    Anyway, that is what we face. Money. And, Citizen’s United makes it so money wins.

  5. aldo March 24, 2015 7:52 am

    gentlemen & ladies,

    i am an independent inventor who has had ideas taken by large entities & lived to tell the tale – here is a short cbs new video:

    http://www.x-itproducts.com/news/

    one irony is that our first patent did not issue until a few weeks after the jury verdict.

    with all due respect – maybe some added though should be given to what defines a patentable invention.

    my area of specialty is in simple mechanical patents and i am aware of many patents that look viable on paper but do not function when actually made or prototyped – or even exist in the marketplace.

    at what point in the process of ideas being turned into reality does society benefit? what type of protection or sharing should be allocated along that spectrum or process that maximizes societal benefit, including the inventors?

    in the simple mechanical world, my opinion is that protection should be provided to the entity that actually delivers benefit to society in the form of finished product that provides benefits… this is especially important for small entities to be able to compete against larger entities.

    i am not against the little guy – i am a little guy – i am for rewarding performance and persistence while not inhibiting societal prosperity…

    ideas can be inspiring, but until they are birthed into real benefits for society the invention process has not served its purpose – and some inventions become the building blocks for others later in time.

    hope this is helpful.

    blessings & be safe,

    aldo

  6. Benny March 24, 2015 8:06 am

    Aldo,
    “at what point in the process of ideas being turned into reality does society benefit?” – that’s a question for the economists, not the lawyers. The nearest answer I can give you is, when you make the minimum return on investment to make your effort worthwhile to you, at which point the cost to society is also minimal.
    I’ll give you a little hint – in our field, the immediate financial beneficiaries of the system are neither the inventors nor the consumers.

  7. Benny March 24, 2015 8:07 am

    Aldo,
    Forgot to mention – I do not belong to the legal profession, so consider my opinions accordingly.

  8. aldo March 24, 2015 8:13 am

    thanks benny,

    you bring up a great point – why is the system or process taking so much of the value and leaving inventors with precious little… that was one of the unusual outcomes in my case…

  9. Curious March 24, 2015 9:28 am

    Night Writer — I frequently commented on the “O” website as well. However, I have long grown tired of Dennis coddling MM and I have gone cold turkey (on posting) for many months now. It is one thing to debate the law, but it is entirely thing altogether to incessantly push an agenda for years on end based upon (blatant) misreading of the law and misstating facts.

    Any reasonable host would have banned MM years ago.

  10. Curious March 24, 2015 9:36 am

    at what point in the process of ideas being turned into reality does society benefit?
    Society benefits as soon as the patent system is implemented. The patent system is an incentive system that changes human behavior so as to encourage the discovery and development of new ideas. The full realization of those changes in behavior may not be realized until later, but everything needs a beginning.

    The planting of an apple seed may not yield fruit until many years later, but the benefit of the planting starts immediately. Each year the tree grows is one year closer to the tree bearing fruit.

  11. American Cowboy March 24, 2015 10:12 am

    Aldo says: “ideas can be inspiring, but until they are birthed into real benefits for society the invention process has not served its purpose”

    There is some merit to that contention, and the patent system is intended to ensure that there are real benefits for society by requiring would-be patentees to disclose the invention, including how to make and use it. If those requirements are not met, then no patent. Occasionally the PTO issues patents on non-enabled subject matter, but very rarely, IMHO.

    Really, the issue is little guy vs big guy. Big guy has the market position, established manufacturing and marketing apparatus, and access to capital. Generations of in-house patent lawyers have advised their clients to ignore outside submissions (i.e. little guys with patents or patent applications or only NDA-protected ideas). That advice to ignore the little guy has been taken up a notch to attack the validity and legitimacy of the legal rights that the little guy has acquired by making the disclosures demanded by the patent statute.

  12. Benny March 24, 2015 10:46 am

    Curious,
    “Society benefits as soon as the patent system is implemented?” Not only. Society benefits when any individual is rewarded for his efforts, be it by marginal profit as in commodities or by copyright as in artistic works. Patent protection tips the balance slightly in favor of the individual. That said, I don’t think you can use the term “society” as an all-encompassing definition.

  13. angry dude March 24, 2015 12:13 pm

    This thing about “practicing” invention is completely bogus and really annoying.

    I practice it as much in my basement as any university dude on campus or any corporate dude in his corporate lab – it is completely irrelevant if I can only “practice” building “software” prototypes whiles those rich corporate dudes can prototype hardware devices (actually they outsource this task to other dudes in their organization as well)
    And If by “practicing” they mean large-scale manufacturing then even Apple does not practice their own inventions – read the back of your IPhone:
    “Designed in California, made in China”
    So much for practicing….