In 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.