The term – efficient infringement – is a sanitary term used to describe a truly cold-hearted approach do doing business. Efficient infringement occurs when one, usually a large entity, steals the intellectual property of another without consequences. The property taken is typically a patent, and the victimized party is always an individual or business of much less size. The efficient infringer takes from someone unable to stand up to the bully tactics of those who will simply take whatever they want. If efficient infringement were played out in a Country Western movie those practicing this business model would be wearing the blackest of black hats.
Efficient infringement occurs because it can. The efficient infringer makes a business calculation that it will be cheaper to steal patented technology than to license it and pay a fair royalty to the innovator. It is cheaper to steal from anyone rather than to design or invent around, to disrupt, to compete on the merits. Of course, it is easiest to steal from a startup because their venture-backed timing will not allow them to outlast the deeper pocketed patent thief. Indeed, this model works exceptionally well for a variety of reasons.
These black hat entities realize there are a certain number of patent owners that are simply not going to assert their patents for one reason or another, typically 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 only a very small group of those who are likely to assert their patent(s) and actually prevail, thanks in no small part due to all the hurdles put in place by legal process (i.e., the Patent Trial and Appeal Board, for example) and the law (i.e., the massive uncertainty surrounding patent eligibility). The calculation further recognizes that even if a patent owner prevails a permanent injunction is virtually impossible to obtain in the United States as the result of the Supreme Court’s decision in eBay v. MercExchange, which means from the infringer’s perspective at worst the U.S. has a compulsory licensing regime. Still further, even a victorious patent owner cannot expect to ever receive the damages actually awarded by a jury because damages are likely, if not virtually certain, to be reduced on appeal if not completely erased due to a continual judicial erosion in the available damages.
As awful as the era of efficient infringement has been, the sad reality for the U.S. patent system is the worst may still be in front of us. We may be moving from the efficient infringement era and into the “infringe at will” era. With the eBay decision now over 10 years old and virtually no one getting injunctions in the United States anymore, it seems that any management team or board of directors would be utterly insane to settle and pay for patents.
While the well-known business judgment rule insulates executives and officers from liability for the reasonable business judgments they make, one could make a compelling case that any executives or officers from publicly traded companies that actually license patents or pay to settle a patent infringement case are grossly abusing their discretion and should be liable to shareholders.
Why pay for patents when you know that you won’t be stopped with an injunction? Why pay for patents when there are myriad of challenges that can be brought to cripple any portfolio no matter how big or how strong? The U.S. patent system has so eroded over the last decade thanks to the handy work of several dozen giant tech and bank companies – lead by Google – that one has to seriously wonder whether executives from those companies haven’t already opened themselves up to shareholder liability.
At a time when these companies are each individually spending millions of dollars every quarter lobbying to weaken the patent system they are spending many billions of dollars acquiring patents (here and here), which by all accounts are an increasingly worthless asset to own. Google, for example, has lead the charge to weaken patent rights and yet they have spent many billions acquiring patent portfolios, and they still acquire 2,500+ patents a year on their own innovations, and they pay thousands extra per application to expedite patent review by the United States Patent and Trademark Office.
To put this into some perspective, according to data available through IFI Claims Patent Services, Google obtained 2,835 patents in each of 2015 and 2016. Although not a perfect apples to apples comparison because fees change over time, the basic filing fee for a large entity like Google is currently $1,600, and the issue fee that must be paid to the USPTO for each patent is currently $960. So without taking into consideration the multitude of other fees that Google would have paid in each and every application filed, they paid a minimum of $2,500 in fees to the USPTO. Add even an extremely modest $10,000 in attorneys’ fees  on top of that and each patent cost Google an absolute minimum of $12,500. That brings Google’s yearly spend to acquire patents to a minimum $35,437,500. Given that Google files more applications than patents received, given that we know that Google has a fondness for prioritized examination (at a cost of $4,000 per prioritized application), and given that they operate in many Art Units with allowance rates under 5%, it would hardly be shocking to find that figure doubled. Even if that conservative estimate is just 50% higher that would bring the total to $53,156,250 a year spent on protecting Google innovations. This yearly total is before they acquire any licenses, buy any patents, or pay to maintain their enormous patent portfolio. Maintenance fees for a portfolio like Google’s would be extraordinary. Maintenance fees are due at 3.5, 7.5 and 11.5 years after the issuance of a patent and start at $1,600, move up to $3,600 and cap out at $7,400 for a large entity. Maintaining a portfolio of Google’s size would add another $35,721,000 to their yearly patent budget, and that is just for their own home grown patents. That brings our cumulative total $88,877,250. In all likelihood their yearly patent budget is at or over $100 million.
Putting this in a light most favorable to Google, spending billions to acquire patents and many tens of millions (if not $100 million) per year to acquire patents, it certainly seems Google is schizophrenic when it comes to patents. One could also say that Google has not acted in the best interests of shareholders as they have grossly overpaid for patent assets, continue to collect patent assets in large numbers, and still continue to fight to weaken those very same assets they are spending a fortune to acquire. A truly curious strategy.
Even if Google lobbying was correct on the merits as for what is right for the US patent system, shouldn’t Google be writing down the value of their patent portfolio? Last year they fired their patent monetization team, loudly exiting a licensing business, declining to try to make money from their patents. If they are giving up on their patents why do they continue to collect them as one of the top patenting companies in the world? Some will mistakenly believe, as Elon Musk has suggested, that patents are needed to prevent others from obtaining them. That is simply not true! Given the U.S. is a first to file country (thanks in part to Google lobbying) it is simple to defeat the ability of another to get a patent by publishing innovation information. There seems to be no justifiable excuse for Google’s truly strange behavior and rather careless disregard of shareholder money.
Perhaps when the Senate Banking Committee convenes to consider the nomination of Wall Street attorney Jay Clayton as the new head of the Securities and Exchange Commission they should ask about efficient infringement and the infringe at will culture.
What is your position, Mr. Clayton, on the legal obligation of a public company to shareholders? Should publicly traded companies inform shareholders that patent assets are worthless, or at least worth less, given the legal and regulatory climate in America? Should publicly traded companies systematically infringe and ignore all patent rights? Should publicly traded companies be using billions in shareholder monies to aggressively collect patent assets while they are simultaneously using millions to lobby against the viability of those same patents? What exactly do shareholders have a right to know?
I’d love to hear the answers to those questions, wouldn’t you?
 $10,000 is an extremely low estimate for attorneys fees for preparation and filing of a patent application through years, sometimes a decade or more, of prosecution. Given the highly skilled and experienced attorneys Google hires, the complexity of the legal issues (made more complex thanks to Google’s lobbying both in the Judiciary and on Capitol Hill), and the complexity of the underlying technology it would not be surprising to learn that the lifetime average paid to attorneys per application is substantially higher.