Infringe at Will Culture Takes Hold as America’s Patent System Erodes

By Gene Quinn & Peter Harter
January 17, 2017

Stealing idea from inventorThe 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 [1] 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?

_______________

[1] $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.

The Author

Gene Quinn

Gene Quinn is a Patent Attorney and Editor and President & CEO ofIPWatchdog, Inc.. Gene founded IPWatchdog.com in 1999. Gene is also a principal lecturer in the PLI Patent Bar Review Course and Of Counsel to the law firm of Berenato & White, LLC. Gene’s specialty is in the area of strategic patent consulting, patent application drafting and patent prosecution. He consults with attorneys facing peculiar procedural issues at the Patent Office, advises investors and executives on patent law changes and pending litigation matters, and works with start-up businesses throughout the United States and around the world, primarily dealing with software and computer related innovations. is admitted to practice law in New Hampshire, is a Registered Patent Attorney and is also admitted to practice before the United States Court of Appeals for the Federal Circuit. CLICK HERE to send Gene a message.

Gene Quinn

Peter Harter has over 20 years of experience bridging the ecosystems of technology, business, law, venture finance and politics by providing advice to management, boards and investors on legislation, regulation, court cases, media, standards, treaties, political campaigns, capital, property and labor. As the founder of The Farrington Group, Peter advises public and private companies, investors, startups and nonprofits on risks from legislation, regulation, court cases, standards, politics, and more. He also helps identify relationships for sales, finance and and executive recruitment. Peter’s career began in 1993 as an Internet lawyer. He broadened in Silicon Valley as head of global government affairs for Netscape and EMusic.com and in business development and sales for Securify. He deepened his experience in policy in Washington, DC, lobbying on patent reform for Intellectual Ventures. Peter has expertise in the areas of patents, copyrights, open source, cybersecurity, export controls, voting, antitrust, nuclear energy, big data, and medical research reform.

To contact Peter please connect with him via LinkedIn.

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 as of the time of publication and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 29 Comments comments.

  1. David January 17, 2017 12:04 pm

    Efficient infringement is a one way street, i.e. big guy v little guy. When the big guy has the portfolio, and the new and promising Palo Alto start up arguably infringes, those large Google portfolios now have real value in terms of forcing equity transfers and the like.

    HBO’s Silicon Valley depicted this well.

  2. Charles Barton January 17, 2017 1:21 pm

    Driving down the price of property, a commodity, or and equity, working to corner the market, and attempting to raise the value of acquisitions as much as possible is an ages old investment strategy.

  3. Gene Quinn January 17, 2017 1:32 pm

    Charles-

    Yes, that is an age old strategy, but is that really what is happening here? They are not driving down the cost of acquisition with respect to their own innovation. If anything they have dramatically increased the cost of acquisition thanks to the many games played by patent examiners and now the PTAB. Getting applications for inventions in Google’s space can easily take upwards of a decade or more.

    Further, the age old strategy would at some point require purchasing assets at fire sale prices. Google has done the opposite. They were buyers of patents at extraordinary highs that even then were grossly overpriced (and overpaid). Still further, this strategy would at some point require the assets purchased at fire sale prices to become much more valuable. I don’t see any bulk acquisitions at fire sale prices, their own innovations are more expensive to protect, and they have been so good at turning public sentiment, the views of the judiciary and of Members of Congress that it would be difficult to see a path forward where in any relevant period of time (i.e., relevant in terms of patent term) they could turn this wreck around.

    -Gene

  4. Night Writer January 17, 2017 2:40 pm

    Consider that if there are no patents, then maybe it is corporate waste to invest in innovation. Why do it?

  5. angry dude January 17, 2017 3:23 pm

    David @1

    I love HBO’s Silicon Valley candid description of the atrocities happening in SV (all aspects of those like 50M startup founders sharing bedrooms and bathrooms in a stinky incubator, worthless dudes being promoted to top corporate posts, CEOs not giving sh1t about their most valuable R&D folks etc etc)

    BUT, for whatever reason the show creators chose to abstain from patent topic altogether …

    In all of the show episodes patents are not mentioned even once !

    IP stealing by large corps (through reverse-engineering or outright fraud) – yes, but no patents

    I think this is because patents are badmouthed even by SV startup founders forced to live in garages with their smelly coworkers
    so much google propaganda managed to brainwash the culture of SV –
    everything should be open source, patents are evil, google is not evil etc etc
    i’m so sick and tired of this

  6. Gene Quinn January 17, 2017 3:42 pm

    Angry Dude-

    It is quite contradictory to be against patents and to also be against stealing innovations. The schizophrenia in Silicon Valley runs deep.

    -Gene

  7. concerned January 17, 2017 4:37 pm

    Perhaps craziest, former “third-world” countries are starting to lead us in innovation, due in no small part to the radical U.S. patent implosion of the last decade. China, for example, has strengthened their patent system. Their courts move faster now, and more predictably, with clearer IP rights. Innovators can protect breakthrough R&D by barring imports AND EXPORTS now in China. That goes beyond our barring imports only, and often now, not even then, at the USITC. Since China does much of our high tech. manufacturing already, exports there matter for us. Now, they’ll take over design and innovation, not just our manufacturing, thanks to those much better incentives. Watch out: China is gaining. They have set themselves up to lead in innovation the way we once had.

  8. step back January 17, 2017 8:13 pm

    Guys, Is there any validity to what the below linked website claims? That the VCs have a program for stealing inventions?

    (Personally, I have no known facts that support the allegations.)

    https://ultralightvehicles.wordpress.com/2016/12/28/how-the-silicon-valley-tech-cartel-rapes-american-innovation/

  9. Night Writer January 17, 2017 8:56 pm

    @8 step back: this is probably true. VCs have traditionally done things like arbitrage across countries. I knew one guy who would go to Europe and look for good inventions that weren’t in the US and then set-up companies here. He was worth like $100 million.

  10. Night Writer January 17, 2017 8:59 pm

    I have other personal knowledge of a large corporation negotiating with a start-up and at the same time forming a team of engineers to copy the tech.

    I was a product manager at a large corporation. We would take anything we wanted that wasn’t locked down with IP. You had to in order to compete.

  11. Benny January 18, 2017 5:30 am

    Maths.
    “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 stands to reason that there will always be a point where this statement becomes true. It has been pointed out on these pages before that currently infringement becomes efficient when the cost of the honest alternative crosses 300K$, approximately. Changing the value of this figure doesn’t eradicate efficient infringement, it only moves the set-point.
    By the way, Night at 10 is correct in his second paragraph. We do it. Our competitors do it. If someones IP is claimed to a different field, there is no legal impediment to copying into our field, with whatever modifications are required.

  12. Curious January 18, 2017 9:59 am

    There is an interesting article in the NY Times today. Apparently, Occulus (owned by Facebook) was accused of stealing technology from ZeniMax as to virtual reality headsets and Zuckerberg had to testify.

    I pulled up the complaint and it looks like no patents were involved and ZeniMax relied upon NDAs to protect their technology with potential partners (e.g., Occulus). What ZeniMax is claiming is that Occulus improperly took trade secrets and copyrighted material.

    This case is instructive on a couple of fronts. First, as a general matter, it is illustrative of the culture in high tech where copying without paying (I wonder if there is a better term for this?) is pretty wide-spread. Why take a license for technology when you can take the technology for free.

    The second point is that trade secrets are pretty lousy protection. Once the secret is out, there is no putting that genie back into the bottle. You can no longer have a trade secret on something that is now public knowledge. ZeniMax is going after Facebook, but they are going to have a hard time going after any company that is aware of ZeniMax’s technology because it is now in the public domain.

    I’m looking at the list of of different things that ZeniMax claimed improvements on, and my guess is that they could have had a hundred patents on that technology.

    Imagine you are someone considering innovating in a new technology, how does stories like these make you feel about your chances of succeeding? The USPTO will gladly take your money and perhaps issue you a patent. But then again, the USPTO will gladly take your competitor’s money and invalidate your patent? In talking to innovators today, most wouldn’t have gone down the path they did because they’ve realized that there is no return for their investment and efforts because of the anti-patent environment at both the USPTO and Federal Courts. Large companies have little interest in licensing the technology of small players anymore.

    The nature of high technology today is that it is so complex and there are so many components involved that no one can do anything on their own. As such, you need to be able to interact with partners on aspects of the technology. However, doing so really makes having a trade secret very difficult. All it takes is one person to “spill the beans” and all your hard work is available to your competitors.

    The high-tech innovators of yesteryear have know become entrenched oligopolies if not near monopolies. They don’t want competition anymore, and the easiest way to eliminate competition is by weakening the tools (i.e., intellectual property) by which smaller companies can successfully compete against larger companies.

    These high-tech oligopolies believe that they are “too big to fail” and too big to face serious competition. However, by advocating for the neutering of the US patent system, they have opened the door for the largest competitor in the world, China, to dominate whatever markets they choose. China doesn’t have a problem giving its own businesses preferential treatment and strong-arming other countries to do the same.

    These high-tech companies are sacrificing their long-term future (and the future of US competitiveness) by advocating for policies that will make them more money in the short term.

  13. Ken January 18, 2017 10:09 am

    “…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.”

    This is the only part I think overreaches a bit. For one thing, there’s still *some* risk with infringement (e.g. treble damages for willful; occasional injunctions), albeit not what it should be.

    Secondly, executives are allowed to have ethics – e.g. to decide not to steal even if they could “get away” with it.

  14. angry dude January 18, 2017 10:30 am

    Curious @12

    In today’s environment it makes sense to apply only for bs non-enabled patents on mechanical/optical/electrical structures/circuits – the ones that can be easily reverse-engineered once the product is out
    Trade secrets is the way to go to protect algorithmic codes driving those devices.

    E.g., in case of VR, the inside-out tracking code using data from depth cameras is worth protecting with trade secrets, while filing patent bs with pictures of headsets and sensors on them – but no algos.
    (that’s what invalid Mark Cuban’s patent discussed here some time ago did – obvious mechanical contraption and no codes to drive it)
    Proprietary silicon chip is the way to go – that’s precisely what Qualcom is doing incorporating inside-out tracking into their Snapdragon processors.
    On top of that you can also apply for a bunch of bs patents without any real enabling description – those will have only legal harassment value at the most (until cancelled for indefiniteness or lack of enabling disclosure)
    Such is the world we live in today..

    No wonder China is already ahead of US in VR and many other areas

    Sad…

    http://www.forbes.com/sites/jordyndahl/2016/05/03/chinese-government-luring-sea-turtles-home-to-launch-startups/#543b73ba478a

  15. angry dude January 18, 2017 10:40 am

    Ken @13

    “…executives are allowed to have ethics”

    ROFLMAO

    :):):):):):)

  16. step back January 18, 2017 1:13 pm

    angry @14

    … and yet Curious’s curious note about the ZeniMax experience seems to say that trade secrets may not work …

    http://www.theverge.com/2017/1/17/14298676/oculus-trade-secrets-trial-mark-zuckerberg-palmer-luckey

  17. angry dude January 18, 2017 1:33 pm

    step back @16

    Not in this situation, of course, when top 3D software coder (Carmack) left plaintiff company to become defendant’s CTO – that’s a recipe for lawsuit absent VERY detailed IP clause in his employment contract with plaintiff company (what is included and what is excluded)
    Stuff like this happens all the time when key technical people leave one company to work for another or start their own company – not necessarily a direct competitor

    But if all key tech people and ideas stay in one company and not shared trade secrets rule

  18. Greg Aharonian January 18, 2017 11:33 pm

    There is a very effective tool – Patent Enforcement Insurance, that at a very cost effective price, allows anyone of any size to effectively defend their patents, even against the big guys (if they patent is of high quality). It is so sad, so sad!, that the role of insurance – a standard business tool – is so ignored in the patent world. Yet patent insurance is quite effective – what most don’t know is that Octane Fitness went to the Supreme Court, and won, with the full support of an insurance policy. I’d be glad to write an article about patent insurance for the IP Watchdog. If someone has a high quality patent, and doesn’t have the money, have them call me – I will hook them up to get them into court.

  19. angry dude January 19, 2017 10:08 am

    “Patent Enforcement Insurance” against the likes of googles and apples ???

    In this day and age ???

    Dude, with all due respect, this is just nonsense

    With top contingency litigators out of this business what is the business model here ?
    (UNLESS they can re-insure their policies with government-backed agency to cover their losses – standard business practice too 🙂

  20. Geoff January 19, 2017 11:49 am

    “a permanent injunction is virtually impossible to obtain in the United States…”

    Research has shown that eBay (somewhat counterintuitively) had little impact on injunction rates. See http://patentlyo.com/patent/2015/07/impact-injunctive-patent.html. In fact, 2016 had more injunctions (permanent and preliminary) ordered than in any previous year (using DocketNavigator Analytics).

    Do you have measures for instances and magnitudes of “efficient infringement”? Is the problem really getting worse? I understand the logic but have not seen any actual analysis of how big a problem it is.

  21. Gene Quinn January 19, 2017 11:59 am

    Geoff-

    If you look at the link you provide you will notice that the authors of the study cited came to the conclusion that there has been a significant drop in the number of injunctions post eBay v. MercExchange. To the extent the rate may or may not have changed it reflects the reality that far fewer patent owners even ask for an injunction post eBay because they know there is little to know chance.

    The problem with measuring the magnitude of efficient infringement is you are trying to measure something that does not exist (i.e., licensing deals and payments for infringement). What is known, however, is that attorneys for infringers have for years gleefully spoken at CLE events all over the country saying that they simply throw away (i.e., circular file) or simply ignore any and all licensing inquiries or claims of infringement.

    -Gene

  22. Geoff January 19, 2017 12:07 pm

    Gene: But that hypothesis is disproven by the fact that awarded injunctions are at an all-time high. I just don’t agree that “it’s virtually impossible to get an injunction” is a fair assessment of the state of the world.

    As to measures, I’m not arguing that there isn’t plentiful anecdotal evidence. But without measures, how are we to know whether the problem is getting worse or better? For example, I’m certain that there’s also a degree of false accusations of infringement. What proportion of infringement accusations that are thrown away/ignored are false, and what proportion are true but not pursued? It’s an important question for setting policy appropriately.

  23. angry dude January 19, 2017 12:37 pm

    Geoff @20

    Perhaps you should know that PatentlyO is an anti-patent and anti-inventor shill site paid for by corp $$$
    its same as Mark Lemley – completely dishonest

  24. Kip Azzoni January 19, 2017 1:19 pm

    So if it is said that “counterfeiting is the highest form of flattery”, then stealing by way of infringing must just be the latest fashion statement. Strike a pose.

  25. Anon January 20, 2017 7:35 am

    Geoff, do you have the cite for the claim of “the fact that awarded injunctions are at an all-time high.

    I would be very interested in that – thanks!

  26. Geoff January 20, 2017 9:19 am

    It’s a result of a search in DocketNavigator, which I believe requires a subscription. The numbers for 2016 were 746 permanent injunctions and 92 preliminary injunctions. The previous high was 2011 (667 + 71), but had been declining since. We’ll have to wait to see whether 2016 was a blip or an actual reversal in the trend. FWIW, January 2017 has started strong, with 50 permanent and 12 preliminary injunctions awarded by courts.

    This is my larger point: it’s easy to make arguments about the sky falling, either pro-patent or anti. The legal system (not to mention business and economic conditions) is large and complex and a lot of contradictory things happen at the same time. Without metrics and analysis, we can’t know where the real problems are, what their magnitudes are, or where best to intervene.

  27. angry dude January 20, 2017 10:17 am

    Geoff @26

    I sense a paid shill

  28. Anon January 21, 2017 11:12 am

    angry dude,

    I don’t – yes a paid link is provided – but the rest of the reply was polite and even professional – possibly admitting that his first opinion is (currently) based on a blip rather than a real trend.

    Thanks Geoff – I will have to look into DocketNavigator

  29. Megan March 1, 2017 3:46 am

    Thanks Gene for your contributions in support of smaller entities.
    In fact lobbying activities of some tech giants in the IP world cause me a gooseflesh. I ask how far they can go? Why and how far some companies can go with their IP lobbying activities beyond their own business?
    In 2013 GE’s chief IP lobbyist spent months to derail Marakesh Treaty (to facilitate access to published works by blind). I wonder why such industrial player as GE put their fingers into that. Their efforts have been supported by other industrial players such as Caterpillar. Apart of that they obviously team up with other industries, I can hardy understand their involvement as being the key opponent of the treaty, I ask why they do it and how far they can go. If the guy spent months on derailing the treaty it looks like it was on the GE’s IP policy priority list. And the famous quote of this guy is: “its not about truth, its about power.” Gosh! Hope it’s the opposite. Some information is available here:
    http://keionline.org/node/1822
    http://keionline.org/opposingblind-privatesector
    http://keionline.org/node/2254
    Apparently they also team up with pharma as „ adjacent industry player”.
    http://www.pharmexec.com/knowledge-value-navigating-biopharma-s-new-ip-terrain
    Perhaps it’s something you could investigate and write about.
    Megan