Don’t Feed the Trolls: Practicality in View of the FTC’s Report on Patent Assertion Entities 

By Ravi Mohan
November 2, 2016

Don't feed the trollThe Norwegian fairy tale “Three Billy Goats Gruff” was far ahead of its time and the moral of that story has a very relevant, modern application.  In short, the story introduces three goats that want to cross a river to eat some luscious grass.  To do so, however, the goats must first cross a bridge; under which lives a fearsome troll, who is so territorial that he eats anyone who dares to cross it.  By working together, the goats are able to plot against the troll, and ultimately knock him off of the bridge.  After knocking the troll off the bridge, the three goats lived happily ever after. So, if these goats can figure out how to get rid of trolls, why can’t sophisticated companies do the same?

One of the biggest fears for any company is the danger of an event that is highly unpredictable and cost intensive.  This fear is further magnified when the danger poses a risk of preventing the company from making, using or selling their core goods and services. In many cases, it is easier and more cost effective to just settle with a patent assertion entity (PAE), often pejoratively referred to as a “patent troll.” Companies sometimes prefer to settle due to the inherently defined nature of settlement. These issues are exacerbated when patents are asserted, mainly due to the: a) highly technical nature of many patents; b) potential for inventive obfuscation;  and c) lack of finality with respect to scope, considering that claim construction does not occur until later in the litigation process.  Indeed, from the company’s perspective, settling early for a “reasonable” amount comes down to making a business decision.  Thus, the cycle persists, and trolls continue to troll.

Fortunately, at least three “goats” (read: legislative and judicial recommendations) are provided in the FTC’s Patent Assertion Entities Report.

The first proposed recommendation is to “develop rules and case management practices to address discovery burden and cost asymmetries in PAE litigation.”  In most patent cases involving a patent troll, discovery is an entirely one-sided proposition.  In other words, it is usually the client that has the relevant materials, documents and information that are the subject of discovery.  Propounding discovery on the patent troll is usually a necessary, albeit futile exercise.  How many relevant materials can you even request when the opposing entity does not invent, develop, or manufacture products incorporating the patented technology?

To ameliorate these challenges, the FTC Report suggests that early disclosure of asserted claims and infringement and invalidity contentions in PAE litigation would help to “balance the asymmetries of plaintiff and defendant-side discovery costs.”  Theoretically, the concept has teeth, but perhaps the teeth are not sharp enough to be practical.  Let’s dive a bit deeper – to cover simple Rule 11 bases, the PAE would necessarily conduct some diligence via drafting of infringement charts (for example) to provide notice to the accused entity. However, in practice, the infringement charts typically received from patent trolls are low-quality and ripe for back-and-forth motion practice. The real impact of such practice is that the patent trolls effectively sue multiple parties using relatively poor infringement analyses, and the cases still proceed.  In that sense, the burden on patent trolls is very low.

From the accused entity’s perspective, prior art still needs to be researched, analyzed and applied with respect to the asserted claims.  This can involve very heavy lifting and corresponding expense.  Thus, by accelerating this aspect of the discovery timeline, settlement with the patent trolls is even more foreseeable because the targeted entity will be faced with tremendous front-end costs with respect to the litigation.  Perhaps one modification to the FTC’s recommendation is to include a mechanism that requires higher quality and more narrowly tailored infringement analyses from the trolls before discovery is warranted on behalf of the accused entity. See also Orders On New Patent Rules Show Plaintiffs Have Higher Bar.

The FTC’s second proposed recommendation suggests “[a]mend[ing] Federal Rule of Civil Procedure 7.1 to reach a broader range of non-party interested entities or persons.”  From a practical standpoint, this recommendation makes sense, but it is arguably the weakest of the bunch.  When dealing with PAEs, most experienced IP counsel will be well aware of the manufactured operations that are designed purely for venue purposes.  Thus, while full disclosure of a PAEs organizational structural would be beneficial, the fact remains that the substantive merits of the case would still be in controversy – requiring the targeted entity to settle or continue the fight.  To be sure, when a PAE is involved, clients pay less attention to “how the PAE is structured” and focus their attention on the bottom line: “what do they want for this to go away?”

The third proposed recommendation is to “establish procedures encouraging courts to stay a PAE’s infringement action against a customer or end-user, where the PAE has also sued the manufacturer of the accused product under the same theory of infringement.” From an implementation standpoint, this is a fantastic recommendation.  Having parallel cases arising out of the same nucleus of facts serves to do nothing more than usurp our precious judicial resources.  Nobody wins in that circumstance, and for that reason alone, I concur that “Congress and the Judicial Conference should enact provisions that encourage a district court to stay actions against end-users until the manufacturer suit has been resolved.”

Just like the goats we discussed earlier, it is unlikely that any one of these proposed recommendations can independently get us across the proverbial bridge.  Indeed, analyzing the patent landscape and the FTC’s provision of these recommendations is definitely a great start.  However, from a practical standpoint, the narrative needs to shift to the topic of patent quality more than any other singular point.  For example, even a brief analysis will show a dramatic shift in how PAEs have asserted software patents – if at all – post Alice.  Perhaps that is a discussion for a different day, but if change is seriously desired, then initiatives should be crafted so as to balance inventive protection while simultaneously curbing the potential for PAE activity.

Finally, from a perception standpoint, one of the best aspects of the FTC’s Report is its careful approach with respect to focusing attention on PAEs, instead of other economically and culturally significant entities that procure, utilize and assert patents (e.g., solo inventors, companies that develop their own patent portfolios, and universities.)  The FTC’s Report defines a “PAE” as a firm that primarily acquires patents and seeks to generate revenue by asserting them against accused infringers. Critically, the FTC’s definition of PAEs excludes non-practicing  entities (NPEs), that is, “firms that, for various reasons, do not make or sell products and therefore are not vulnerable to a countersuit for patent infringement when they sue on their own patents.”

In closing, it is imperative to applaud the efforts that are being made to curb PAE activity. Admittedly, it is easy to be critical of the judicial and legislative recommendations provided for by the FTC because a one-size-fits-all solution simply does not exist. And, if one is ever proposed, it will likely ignore the complex, symbiotic relationships that exist in order for the United States to “promote the progress of science and useful arts” as required by our constitution.

If we intend to get across the bridge to safety one day, all goats will need to work together.

The Author

Ravi Mohan

Ravi Mohan is a patent attorney at Rutan & Tucker LLP’s Intellectual Property group where his practice emphasizes patent drafting and prosecution, intellectual property litigation, freedom to operate analysis/opinions, and intellectual property due diligence. Along with district court practice, he has practiced patent litigation in Tokyo, Japan; drafted responses for post-grant proceedings before the Patent Trial and Appeal Board; and litigated cases before the ITC. Ravi has broad experience with patents in a variety of technical fields including mobile devices, circuits, software, data security, radio frequency identification (RFID), Internet technology (especially networking across various IEEE standards), and more.

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 9 Comments comments.

  1. Anon2 November 2, 2016 8:12 am

    This is interesting and relevant for falsely accused non-infringers. As for willful infringing entities, they do not deserve to conduct business in any country of Western Civilization based on individual rights, and hence deserve no analysis here.

    Which raises this question: How should a law abiding and honorable defendant, which genuinely is concerned that it might be infringing patent rights duly owned by another party, conduct itself diligently and efficiently to ensure proper and upright compliance with that law, to ensure those rights are respected, and to ensure that justice is done?

  2. Paul F. Morgan November 3, 2016 9:03 am

    Thanks for a summary of specific details the FTC recommendations.
    Re “[a]mend[ing] Federal Rule of Civil Procedure 7.1 to reach a broader range of non-party interested” entities or persons.” Could they have meant companies who’s employees made the inventions, procured the patents, and sold them to the suing PAE while retaining a % interest in the outcome? Or the other party in a joint research agreement from which the patent derived? Or suppliers of customers being sued?

  3. staff November 4, 2016 1:30 pm

    ‘One of the biggest fears for any company is the danger of an event that is highly unpredictable and cost intensive. This fear is further magnified when the danger poses a risk of preventing the company from making, using or selling their core goods and services.’

    If that ever was true, it certainly isn’t true today. Large infringers have always had a great advantage over their small inventive competitors -lots of cash to delay and frustrate justice. Today that advantage and others have grown exponentially. As the patent system now exists it is far too hard, expensive and slow for inventors and small entities to get and enforce their patents. Large infringers have little risk of being sued for stealing their small competitors inventions as it commonly takes small firms 5 years or longer to get a patent, and if they dare assert it they often end up back at the Patent Office which inventors will tell you has become a tool to protect large infringers thanks to a PTO management straight from large infringer central. When we have to fight to get or keep our patents we go out of business. As a result, infringement is about as cozy now as it has ever been for large multinationals who infringe at will. Is this attorney spreading propaganda for large multinational infringers?

    And by the way, why is it when someone takes your car or cash they call it theft or robbery, but when they take your invention they call it infringement? Can’t we call invention infringement what it is…theft? What’s with the spin? Can’t we speak plainly and call it what it is rather than obfuscate the theft which only adds to the injustice?

    The patent system now teeters on the brink of lawlessness. Call it what you will…patent hoarder, patent troll, non-practicing entity, shell company, etc. It all means one thing: “we’re using your invention and we’re not going to stop or pay”. It’s a pure red herring by large invention thieves and their paid puppets to kill any inventor support system. As Mark Twain said, ‘truth is not hard to kill, and (that) a lie well told is immortal’. Those who use the amorphous phrase ‘patent troll’ expose themselves as thieves, duped, or doped and perpetuate the lie.

    For our position and the changes we advocate (the rest of the truth) to truly reform the patent system, or to join our effort, please visit us at https://aminventorsforjustice.wordpress.com/category/our-position/
    or, contact us at aifj@mail.com

  4. Paul F. Morgan November 4, 2016 6:50 pm

    Staff, certainly several Supreme Court cases and IPRs have made it more difficult to obtain licensing revenue from patents. But it was no all “golden age” of patent law before that either, in which a small company with valuable patents could easily, quickly and quickly stop a determinedly infringing large company from infringing its patents. Merely as three examples that come to mind of many, the very many years RCA fought and delayed Col. Armstrong’s important FM patent suit until some time after he had finally committed suicide. All the years Ford legally fought paying the inventors of safe and effective electrostatic painting [Randsburg] while saving millions of dollars in paint by using it over those years. The Adams Battery patent that it took going all the way to the Sup. Ct. to get the government to finally pay for its use.

  5. Paul F. Morgan November 4, 2016 7:04 pm

    BTW Staff, an analogy of patent infringement to car theft is not valid. All that a patent ever gives anyone is the right to sue infringers in a Federal Court. There are no taxpayer supported patent police, patent prosecutors or patent prisons,

  6. Anon November 5, 2016 8:12 am

    Suing is enforcement, and not the “right” Mr. Morgan.

  7. Anon November 5, 2016 8:17 am

    The better – but more subtle – response would be that a patent provides a negative right, in opposition to a positive right.

    However, that negative right is still a propery right.

    Sadly, it is the judicial and executive branches that have been stealing that property right with the kowtowing to the Efficient Infringement propaganda and mistreatment of that property right.

  8. staff November 8, 2016 12:38 pm

    From an inventors view Inventions are property -the “faculties of the mind”. So said James Madison in the federalist papers. Taking property is theft. Therefore, taking inventions which are a form or class of property is theft. A patent is merely a title to an invention just as a title documents ownership of a car. It really is that simple.

    We agree that enforcing patents never was a sure thing -far from it. Armstrong and many others are great examples. But now the patent system has been so perverted that infringers/thieves now steal at will. The system is in crisis.

  9. staff November 8, 2016 2:39 pm

    President James Madison wrote in Federalist No. 10:

    “The diversity in the faculties of men, from which the RIGHTS OF PROPERTY originate, is not less an insuperable obstacle to a uniformity of interests. The protection of these faculties is the FIRST object of government.”