November 8th is fast approaching and it seems inevitable that Secretary Clinton will prevail and become our next President and no one in the know believes she and President Obama share the same view of patents. Clinton is not particularly close with the same Silicon Valley cabal as Obama, and instead finds her support coming from Wall Street and Hollywood, where property rights matter. This means the patent troll meme is now history. The current meme that matters is one of “efficient infringement.”
Nervous down ballot candidates are listening, and show increasing concerns with whether patent reform has gone too far and is harming America’s innovation future. This is a good thing, but there is still no short “elevator speech” explaining the permanent harm HR 9 (and its next-session successors) will inflict on the commercialization of patented products and therapies. Until recently, the patent troll meme forced pro-patent advocates to explain patent law complexity to Hill lawmakers, almost exclusively from a defensive posture.
Now troll abuses have been judicially curbed by: (1) new requirements for pleadings; (2) new district court discretion to address abusive patent enforcement by cost shifting; and (3) the threat of state and federal fines based on new initiatives defining abusive trolling as an unfair and deceptive practice. Perhaps most importantly, the recent FTC Patent Assertion Entity (PAE) case “study” characterized past Hill references to “patent trolls” by anti-patent lobbyists as “unhelpful” (case study. p.17). Thanks to this, pro-patent advocates no longer need to offer a seminar on arcane patent litigation in order to prevail in the debate. Simply put, there is nothing to see here. The courts have addressed the problems to the extent there were problems to be addressed, and even the FTC found that the use of the term “patent troll” was unhelpful because it was prejudicial and unwarranted to lump all patent owners together as if simply owning a patent somehow makes you a villain.
But now, after quickly dispatching with the patent troll meme as much ado about nothing, we can, should and must now unleash a more simplified counter attack by referencing a commonly deployed patent abuse known as “efficient infringement.” This deliberate disdain for patent property is the business model driving mega-tech IT incumbents to continually pressure Congress to enact measure such as HR 9 and S.1137.
Efficient infringement is a cold-hearted business calculation whereby businesses decide it will be cheaper to steal patented technology than to license it and pay a fair royalty to the innovator. Large entities realize there are a certain number of patent owners that are just simply not going to assert their patents for one reason or another, frequently because they don’t have the money to do so. Then there is another group of those that will assert their patents but will not win. The calculation progresses to realize that there is a small group of those who are likely to assert and prevail, thanks to all the hurdles put in place (i.e., patent eligibility challenges, the PTAB, etc.). The calculation further recognizes that even if a patent owner prevails a permanent injunction is virtually impossible to obtain as the result of the Supreme Court’s decision in eBay v. MerchExchange, and damages are likely to be minimal thanks to a continual judicial erosion in damages available to victorious patent owners who hold valid patent rights that have been adjudicated to be infringed.
This cold-hearted business approach to stealing intellectual property resonates when it is conveyed properly. Here is a simple script for research universities to use when they communicate with candidates’ pre-election and Staffers and those who prevail after the election. These arguments are easily adaptable to all pro-patent advocates.
Commercialization of federally-funded scientific research is critical to successfully conducting our university research and regional economic development missions. We do not develop, make and market our scientific discoveries into products. To move our basic science into publicly beneficial products and therapies, we must attract private sector investment to conduct applied research, product refinement, development and distribution. We monetize promising discoveries not because we expect or financially rely on future royalties. We commercialize them through technology transfer because to qualify for future federal grants we must demonstrate continuing capacity to commercialize. Federal scientific research grants strengthen our research program’s overall quality. They help attract high-quality students and faculty. Like anchor tenants in a shopping mall, they help structurally support our entire research mission by increasing our research program’s productivity and public benefit. Commercialization’s importance to us cannot be understated. Yet it has never been more threatened.
Prudent private investment requires predictably profitable return on investment (ROI). Risky early stage investment must be protected by reliable patents and assured control of future final product pricing. Private investor commercialization often costs three times our expenditures in new scientific discoveries. It may produce no ROI for ten years or more. Yet as the bridge between public funding and citizen availability, commercialization’s public private partnerships are the crucial connection between early stage basic research discoveries and eventual public enjoyment of its benefits. Private sector commercialization partnerships convert basic science into public benefit. Congress assumes commercialization’s continued viability when it annually appropriates more than $130 billion dollars funding scientific R&D, but commercialization is now increasingly avoided because patent reliability has been weakened. Costly patent property protection by enforcement is effectively denied to lesser-resourced patent holders.
Pending measures like HR 9 are designed to make patent enforcement less likely. Early stage commercialization’s purposes and value are substantially diminished as the result of efficient infringement. In certain business circumstances those who are unafraid to trample on the rights of others are virtually compelled to deliberately infringe, especially when patent enforcement proceedings are increasingly unaffordable for lesser-resourced patent holders and available remedies are increasingly less available. In short, why commercialize when you can plagiarize?
A hypothetical may help explain
Assume you are a university. One of your material science researchers discovers a new material and structure for a battery strong enough to run a smart phone without recharge for a month. It is impervious to liquid submersion, high impact shock, and is inflammable. You code-name the new technology “Gizmo”. After retaining the best available legal firm, you patent Gizmo, then selectively shop it to several hardware manufacturers. They say ”don’t call us, we’ll call you”. One year later, one of them deploys its own version of Gizmo’s battery technology, infringing your patent. The alleged infringer ignores your notification. To obtain its attention your university must bring suit. The litigation costs of that “best available legal firm” become research budget busters. But failing to sue may encourage similar infringements, and if you don’t sue those who did take a license will wonder why they are paying and may simply stop paying. Failure to act risks angering your researchers and scientists. The publicity is not consistent with your public mission, but because your research commercialization program must retain its strong reputation and there is no other way to protect your patented technology from those who would engage in deliberate, cold-hearted efficient infringement, unfortunately you are forced to bring suit.
Now assume you are a high-tech hardware CEO. Your company is aware of the Gizmo technology. Rivals are aware as well, or will soon discover it themselves. Infringement soon is more economically efficient in a fast-developing market than plodding through commercialization’s licensing negotiations. Your company is well-resourced with cash reserves. It maintains strong, branding, marketing and distribution channels. It is full-time staffed with well-qualified licensing and law departments able to delay and deter patent enforcement for years, perhaps decades if necessary. Market timing bottom-line realities dictate beating rivals in cutthroat competitive markets. Distribution will not be enjoined while this technology remains relevant, so there is no risk to infringing but great reward since infringing will allow you to enter the marketplace early while the patent still exists and establish your own market share many years, perhaps a decade, sooner than you otherwise could when patents were a meaningful right. In a Moore’s Law driven hardware market, Gizmo infringement is compelled. You can delay patent enforcement infringement findings by stalling and/or triggering inter partes review (IPR) and court proceedings. If the patent holder doesn’t falter by attrition and if you are found guilty of infringement, your company can still appeal. And any damages awarded must be “reasonable”.
In short, why NOT infringe when:
- The AIA’s IPR and court proceedings are available to ensure delay and postpone patent holder infringement damages, if any.
- Congress may enact infringement protection “insurance” with measures like HR 9 and S. 1137 to further shield your shareholders from damages and/or punish the few patent holders who could afford to bring suit.
- As a well-resourced incumbent, you can simultaneously stall disruptive technology, time your own Gizmo technology release, keep a smaller start-up from getting started, and prevent a strong competitor from beating you to market.
- Why risk licensing Gizmo’s unproven new technology ten years earlier when your quarterly bottom line, asset investment reserves and maintaining your incumbency in cutthroat global markets dictate otherwise?
In these common circumstances, business efficiency economically compels efficient infringement. Like abusive patent trolling it must be judicially curbed, not legislatively encouraged.
Efficient infringement is driving mega-tech-promoted patent litigation reform. HR 9 and its assured successors will, if enacted, further shield infringers from the consequences of their cold-hearted business calculations and will further deter patent enforcement by punishing patent holders who risked all to innovate. That is how and why efficient infringement undermines the R&D objectives of the Congress and our nation’s innovation ecosystem.