On Wednesday, August 2nd, news and opinion site HuffPost published a piece authored by Massachusetts State Senator Eric P. Lesser (D), which is titled Patent Trolls Are Trolling Startups In Massachusetts – And We Need To Change That. The piece attempts to engage readers by taking a situation from the HBO sitcom Silicon Valley and apply it to real world business activities currently ongoing within the state of Massachusetts. However, critical analysis of Lesser’s article indicates glaring flaws with his logic in a way that makes it look like Lesser is more interested in following a false narrative in service to patent infringing interests than he is in supporting Constitutionally-protected property rights.
In the article, Lesser’s narrative is already off the rails before he can conclude his first paragraph:
“In a recent episode of the HBO series ‘Silicon Valley,’ Richard Hendricks is getting his tech startup off the ground when he comes face to face with a patent troll: an unscrupulous lawyer who claims Richard’s new company is committing copyright infringement.”
When did claims of copyright infringement ever qualify someone as a “patent troll”? Doesn’t one have to assert a patent claim to qualify as a “patent troll”?
Unfortunately, this is exactly the kind of poor reasoning which runs rampant today in U.S. politics on either side of the aisle. Lesser is a Democrat Party stalwart who served in the White House as a special assistant to the Obama administration. In Congress, Republican Party leadership like Rep. Darrell Issa (R-CA) hold hearing after hearing on “patent trolls” and patent system reforms without ever once recognizing that Issa’s own definition of “patent troll” makes him one himself. Clearly, the efficient infringer lobby has cast a wide net across the U.S. political spectrum.
It doesn’t take long to come across the next bombshell blunder in Lesser’s HuffPost article. Indeed, by the fourth paragraph, he brings up information which has been thoroughly debunked in the past:
“With an average lawsuit costing $1.6 million, the deceptive actions of patent trolls add up quickly. In 2015 alone, trolls robbed companies of $7.4 billion. One study puts the number much higher, costing companies $29 billion per year.”
Unfortunately for Lesser, that $29 billion figure comes from a study on non-practicing entities (NPEs), which is widely known to be highly flawed due in part to conflicting definitions of “patent trolls” which have been proffered by the study’s authors, a pair of professors from Boston University. At least one study analyzing the NPE study from the Boston University professors found that the methodology of the NPE study was “deficient in several respects, which limits the usefulness of the data that can be drawn from them.” Somehow, Lesser still finds this information useful and worth sharing.
“In 2015 alone, trolls robbed companies of $7.4 billion.” Patent licensing operations which represent less than 1 percent of annual U.S. tech sector spending is robbery? Analysis of data on IT spending across North America leads to the reasonable conclusion that $920 billion of tech spending through 2017 will come from the United States. It’s true that the figures aren’t from the same year but, unless there’s been some massive inflation in that $7.4 billion figure within two years, that’s only 0.8 percent of total U.S. tech spending. Surely, $7.4 billion seems like an unreasonable sum to the average Massachusetts voter but anyone who understands the U.S. tech sector realizes that it’s really just a drop in the bucket, more like having a couple of dimes roll out of someone’s pocket rather than the highway robbery Lesser would have us think is going on.
“[T]oo many of our small businesses and young entrepreneurs are falling prey to patent trolls. One such company is Carbonite, a startup based in Boston that offers data backup and storage on the cloud. As the CEO, Mohamad Ali, told the state Senate in testimony on July 20, Carbonite spent well over $5 million fighting a troll that falsely claimed the company was infringing certain patents.”
According to legal data statistics available through legal analytics firm Lex Machina, Carbonite has been a party to 13 patent infringement suits filed in U.S. district courts since January 1st, 2000. In 12 cases, Carbonite was a defendant, and in one case it was a third party. It’s not readily apparent from the case listing which of these cases are being cited by Lesser’s article. There are some usual suspects such as Uniloc, which has filed a few hundred cases in U.S. district court, and Realtime Data LLC, which has filed more than 100 cases in district court. A complaint filed by Realtime against Carbonite this February notes that Realtime has invested into research and development into data compression technologies since the 1990s to improve the speed of data storage and access. Realtime’s allegations of infringement surround Carbonite’s January 2016 acquisition of backup and disaster recovery firm EVault from Seagate Technology. Realtime alleged that the EVault products infringed upon four of its patents. That may be truly unfortunate from Carbonite’s point of view but it’s worth mentioning that it may be that Carbonite did not perform the proper amount of due diligence to determine the patent infringement risks posed by the EVault acquisition.
“In the vacuum, more than 30 states have stepped in to protect intellectual property and defend their startup businesses. It’s time for Massachusetts to act.”
Whose intellectual property is Lesser proposing to protect by proposing that Massachusetts’ state legislature pass S.153, An Act Relative to Bad Faith Assertions of Patent Infringement? (Similar legislation has also been proposed in the Massachusetts House of Representatives.) As is typical of bills supported by the efficient infringer lobby, S.153 would greatly increase the burden on parties sending demand letters to assert patent claims against potential infringers. If passed, S.153 would allow a court to decide a bad faith assertion if the letter doesn’t include the patent number, name and addresses of both patent owners and assignees as well as factual allegations concerning the specific areas in which the target’s products, services, and technology infringe the patent or are covered by claims in the patent. Under the terms of the bill, “bad faith assertions” could include situations where a licensing offer isn’t “based on a reasonable estimate of the value of the license” or when a demand letter seeks royalty or licensing payments “within an unreasonably short period of time.” The court could also consider any other factor it deems relevant in determining whether an assertion was made in bad faith. Further, the language of the bill indicates that a court cannot find a bad faith assertion if the patent claim is made by a party making “significant investments” into research & development, manufacturing, and/or provisioning of goods and services. A party can’t make a bad faith assertion simply because it’s manufacturing a product? At the same time, this continues a tilt in the patent playing field away from many licensing operations which lawfully acquired patents for licensing purposes. How would a single patent be clear of any potential bad faith assertions simply because it’s owned by a manufacturing company if that same patent could be the target of a bad faith assertion finding if it was sold to a licensing operation?
What’s should be truly maddening to intellectual property owners is the fact that the efficient infringer lobby is now making significant inroads at the state level, having already financed at least one major ally in Congress. Now it seems that there could be similar patent reform efforts at the state level in more than half of the United States. The future of American innovation continues to look bleak in the face of a massive campaign to devein property rights on both sides of the political aisle.