The Impact of Bad Patents on American Businesses

By Josh Malone
November 6, 2017

What is a bad patent? Congress has established the requirements for obtaining a patent. The patent office grants a patent to applicants when they meet those requirements. It is simple. No trolls involved. If there are bad patents, then either the law is bad, or the patent office is not following the law when they grant the patents.

Is the patent office issuing patents that do not meet the requirements set forth by Congress in the Patent Act?

Or is the Patent Act too generous in setting forth the conditions for granting a patent?

It must be one or the other. This subcommittee should focus there, not on the inventors and their licensors who are following the law.

I followed the law with all of my inventions. I have received 6 patents for my Bunch O Balloons invention. They were diligently and thoroughly examined by the patent office, signed by Michelle Lee and Joe Matal. They met the demanding standard for a preliminary injunction – no substantial question of validity – 4 times in district court, including an affirmance at the Federal Circuit. Are these bad patents? The infringer’s attorney’s certainly think so.

Roman Chistyakov, David Furry, Alex Severinsky, Gene Dolgoff, Tom Lanni, Alfonso Cioffi – these inventors and their licensors followed the law and the patent office followed the law when they granted their patents. Of course attorneys for infringers like Ford, FLIR, Fujitsu, Toshiba, Gillette, Epson, Sony, and Apple think they are “bad patents”. Thousands of other legitimate inventors are labeled “trolls” by big infringers and their supporters, and suffer the harsh laws and policies targeted to fend off the imaginary creatures.

Naturally, infringers believe every asserted patent is a “bad patent”.

Tom Lee of Mapbox presumably believes that Martin Jones’ patent for his logistics notification invention is a “bad patent”. But Martin followed the law – he did not lie, cheat, or steal to get his patent. In fact the docket shows that Mapbox resolved the dispute over Martin’s patent in only a matter of weeks without filing a single brief. Either it was not a “bad patent”, or it was so bad it was no problem at all. Perhaps Tom Lee can enlighten the subcommittee as to which case it is.

The infringer of my patents was not so easy to deal with – as I have incurred over 1300 docket entries, spanning 2 and half years, and $17M in expenses.

Sean Reilly thinks that the patents asserted against The Clearing House were “bad patents”. But no one knows. Was Leon Stambler’s patent for his 1992 invention for encrypted payments a “bad patent”? Seems like a pretty amazing idea considering it was only months earlier that Tim Berners-Lee had created the worldwide web. That litigation was cleared up after a mere 48 docket entries, a fraction of the cost occurred in any single one of my patent disputes.

Or perhaps Mr. Reilly is referring to Claudio Ballard’s 1997 check imaging invention. He and his licensor Data Treasury Services followed the law at all times. His patent turned out to be prescient and valuable to the global financial system, pretty much the opposite of a “bad patent”. There is a recurring theme that “bad patents” are the ones for inventions that a big corporation wants to use without consent of the owner.

I urge the subcommittee to dig deeper into the statistics and anecdotes that allege bad patents are harming businesses. In the vast majority of cases, the complaints don’t hold up under scrutiny. The fact is that the current environment for patent owners is so hostile that no one dares to enforce a genuinely bad patent. The vanishingly few – single digit – patent owners that attempt to enforce facially bad patents are not a problem for business. Their cases are quickly terminated on summary judgment with award of attorney’s fees to the defendant.

More importantly, if the problem is misdiagnosed, there are serious unintended consequences – namely further weakening and erosion of confidence in the entire patent system such has occurred with the Patent Trial and Appeal Board. Rather than rooting out the undefined “bad patents” the PTAB has placed a cloud over the title of every patent, the good and the bad. With the PTAB holding over 90% of issued patents invalid, inventors and investors cannot predict whether any patent is good or bad. In many cases the PTAB disagrees with the examining division and/or the district court, so even after a final decision no one knows which patents are good and which are bad. The question is whether the patent complies with the statute. The parties don’t agree on the answer, and neither do the officials! So no one knows whether a patent is good or bad anymore.

Should the subcommittee determine that there are indeed bad patents that are negatively affecting American business, then it must proceed to identify the source of the bad patents. If there are bad patents then either the law allows “bad patents” to be granted, or the patent office is not following the law.

I submit that this is not the case, but that inventors 10 and 20 years ago had some really good inventions, and Congress should not rush to the aid of the users of inventions that don’t like the patent law. We are working through the vestiges of the internet revolution, but our patent system has transcended many technology revolutions. A generation from now there will be complaints that speed-of-sound commuting and diabetes cures were obvious. This is the forgotten purpose of the patent system – to stimulate creative risky visionary individuals to discover new solutions to problems. Congress must work to maintain the integrity of duly issued patents. Any alleged problems must be correctly diagnosed and any legislation must target the cause. Inventors and their licensors that follow the law are not the problem.

The Author

Josh Malone

Josh Malone quit his corporate job in 2006 to take his shot at the American (Inventor’s) Dream. Eight years later, savings depleted and orthodontics and college unfunded, he took one last swing before trudging back to the corporate world. And hit the homerun with Bunch O Balloons. His solution to the 63 year old problem of filling and tying water balloons instantly became the number one selling spring/summer toy. It was just as quickly knocked off resulting in a patent litigation now totaling 6 patents, 5 patent suits, 5 PTAB petitions/trials, 4 preliminary injunctions, and 8 appeals at the Federal Circuit. He is currently a Fellow with US Inventor working to restore the patent system.

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 10 Comments comments. Join the discussion.

  1. angry dude November 6, 2017 11:10 am

    Josh,

    “Bad patent” is a hi-tech patent on fundamental invention granted to individual inventor or small startup, not to member of R&D labs of Google or Apple
    that ‘s all about it

    Examples (other than mine) ?:

    In late 90s when internet was rapidly developing and access was through regular phone lines some guy named Townshend figured out how to increase download speeds to 56kbs which essentially boiled down to demodulation algorithm
    That was a “bad” “illegitimate” patent followed by litigation campaign against entire industry which shamelessly copied invention without taking a license

    so those crooks in DC made sure it never happens again

  2. Paul Morinville November 6, 2017 1:11 pm

    If there is such a thing as a bad patent, the implication is that it can harm someone. Which in the context of patents means it can be used in litigation. But that does not happen.

    If you assert a patent, the first stop is the PTAB, which has a 92% rate of invalidating or neutering all patents. If you survive, then you deal with Alice. That rate of destruction is 67%. You risk millions of dollars and burn other resources for many years just to have a patent invalidated. When you are done, you have to deal with fee shifting now at the discretion of the courts.

    Nobody puts millions of dollars at risk on litigating a patent with even a slight chance of invalidity. In fact, they don’t engage on that level of risk even with a good patent (if that exists). So if how can a bad patent harm anyone? It just doesn’t happen.

    It’s another lie brought to you by the do no evil folks over at Google.

  3. Joachim Martillo November 6, 2017 2:27 pm

    Bad patents — if the exist — have no detrimental effect on the economy unless a massive proportion of the patents are bad.

    The capitalist system is fundamentally unstable and evolves to larger and larger concentration of wealth. This wealth concentration leads either to economic collapse or to rebellion.

    The granting of patents, a small percentage of which are fundamental, creates opportunity for small economic resets, which lead to small decrease in wealth concentration and which at the right frequency stabilize the economy.

    It makes no difference whether the right person receives the right patent or what the patent claims are as long as large corporations are forced to pay out enough money.

    If large incumbent corporations are not ranting about invalid patents, the USPTO is not granting enough patents.

  4. Anon November 6, 2017 5:57 pm

    That’s an interesting way to “re-spin” what a “bad patent” is, Joachim.

    For my part, the word “bad” must necessarily be accompanied with the question: bad for whom?

    Given that it was Big Corp that coined the term “Patent Tr011” (and did so NOT for the benefit of your average citizen, but rather, very much for their own benefit, the answer to that question will – quite often (albeit not always) – align with your views Joachim.

  5. Benny November 7, 2017 5:31 am

    “Is the patent office issuing patents that do not meet the requirements set forth by Congress in the Patent Act?”
    Yes. That is the problem, and when examiners spend just 3 hours searching prior art which they don’t fully understand, that is the expected outcome.
    Does this harm businesses? My guess is that for the most part, a business is going to use a dodgy patent to threaten litigation and force a cross-license or royalty agreement rather than do battle in court. I would say that is harmful.
    Is this a big problem? Given that the vast majority of patents have no monetizing potential regardless of their “quality”, I’d say this is not a big problem in terms of numbers or percentages, but if your business is targeted, it is a big problem for you.

  6. Edward Heller November 7, 2017 6:18 am

    A bad patent almost by definition must take from the public domain subject matter already public or in use, or cover not only the invention disclosed, but the independent inventions of others that may accomplish the same results but in substantially different way.

    The first category, prior art, is a mainly a problem of patent office resources. The second problem has been a problem in patent law from time immemorial because inventors and patent attorneys both like to claim invention is broadly as the idea itself. I am fairly sure that the patent office does not have a consistent, if any, way of examining under breadth issues, and the courts over the years waver between invalidation and narrow construction to handle the problem.

    Regardless, Congress should call for a study of whether the patent offices issuing “bad” patents and whether there is a potential fix if it is. One of the things that seems obvious is that the amount of resources necessary to conduct a very good search should be used without actually driving up fees. Public funding is in the public interest.

  7. Joachim Martillo November 7, 2017 9:15 am

    Edward Heller@6, the issue of taking from public domain is mostly non-existent.

    A good engineer should be able to reverse engineer an existing product, and if the product is patent-protected, should be able to create a non-infringing equivalent, which performs the same functions (and maybe more) at lower cost.

    I worked for a company called Clearpoint in the late 80s and early 90s. Its business followed the model of the preceding paragraph. It’s one of the reasons that I consider Telebrands Corp. so despicable. A good engineering & product company should be able to compete and neither trample nor poach other people’s intellectual property.

    As for the 2nd problem, the USPTO should not allow claims whose metes and bounds encompass more than the inventor possessed at the time of invention or filing.

    That problem exists because the USPTO and the Judicial System don’t have an effective framework for understanding what combinations of knowledge are encompassed within the metes and bounds of a claim.

    Bad decisions of the District Court of the District Court of Massachusetts (and not bad patents) destroyed Clearpoint in 1992 by granting an injunction in favor of Wang on finding that Wang had a substantial likelihood of prevailing under the Doctrine of Equivalents. (As I remember, the District Court Judge was related by marriage to a top executive at Wang.)

    Here are the two independent Wang claims from US 4656605 and US 4727513 patents respectively. They are completely valid even if the author of the written description had little understanding of English grammar or punctuation. (They are old patents from before electronic filing. I cannot say whose fault the bad spelling is.)

    US 4656605
    1. A memory module for installation on a printed circuit motherboard comprising:

    eight data memory chips for storing digital data, each having a data input and output, a control input, and an address input, and each being packaged in a plastic leaded chip carrier;

    a ninth memory chip for storing error detection and correction information associated with the eight data memory chips, said ninth memory chip having a data input and output, a control input and an address input interconnected with those of the eight memory chips, and a control input to provide writing in or reading out of the ninth memory chip at times other than when said bytes of digital information are written into or read out of the eight data memory chips to thereby facilitate said error detection and correction operation;

    an epoxy-glass printed circuit board substrate having a length and width adequate for mounting thereon only in a single row said nine memory chips and for interconnecting the control inputs and the address inputs of the memory chips so that bytes of digital information may be input to or output from the memory chips one at a time; the substrate including thirty terminals for providing access to the data inputs and outputs, control inputs, and address inputs of the nine memory chips to enable reading and writing of bytes of digital information into and out of the eight memory chips and to enable reading and writing of error detection and correction information into and out of the eight memory chips;

    support means for supporting the memory module at an angle with respect to the printed circuit motherboard when the memory module is installed thereon; and

    eight decoupling capacitors, mounted on said substrate and connected between the nine memory chips, for supressing transient voltage spikes between said memory chips.

    US 4727513
    1. A memory module for installation on a printed circuit motherboard comprising

    nine data memory chips for storing digital data, each having a data input and output, control input, and an address input, and each being packaged in a plastic leaded chip carrier, wherein said ninth memory chip is for storing detection and correction information associated with the eight data memory chips,

    an expoxy-glass printed circuit board substrate having a length and width adequate for mounting thereon only in a single row said nine memory chips and for interconnecting the control inputs and the address inputs of the memory chips so that bytes of digital information may be input to or output from the memory chips, the substrate including thirty terminals for providing access to the data inputs and outputs, control inputs, and address inputs of the nine memory chips and to enable reading and writing of information into and out of the nine chips,

    support means for supporting the memory module at an angle with respect to a motherboard and

    decoupling capacitors mounted on said substrate and coupled to the memory chips for suppressing transient voltages.

    The Clearpoint SIMM had no decoupling capacitor and was not within the metes and bounds of the claims.

    The District Court Judge intended to use the Doctrine of Equivalents substantially to broaden the Wang claims by equating the parasitic capacitance of the substrate to a capacitor of the Wang claims. The Judge totally ignored the low inductance of the Clearpoint substrate.

    The Clearpoint SIMM and the Wang SIMM had the same functionality, but there is no was to derive the design of the Clearpoint SIMM via a minor analytic derivation from the posterior and prior knowledge encompassed by the metes and bounds of the Wang claims.

    To put it in non-epistemological IP law terminology, the Clearpoint SIMM did achieve the same functionality but not in substantially the same way as the Wang SIMM.

    In fact, the Clearpoint SIMM represented substantial new synthetic knowledge outside of the metes and bounds of the Wang claims. At the time in the art of board design, it was recommended not to do precisely what Clearpoint was doing because either it would not work or there would be fabrication problems.

    The CAFC took the same position in Wang v. Clearpoint, U.S. Court of Appeals for the Federal Circuit – 5 F.3d 1504 (Fed. Cir. 1993).

    I discuss an epistemological approach to understanding patent claims in Undermining the patent system and dismantling the healthcare system are two steps in an ongoing effort to harden class and racial divisions.

  8. Edward Heller November 7, 2017 2:00 pm

    Joachim Martillo@7, very good post is good to see that you get it.

    In Graver Tank, the Supreme Court identified Westinghouse v. Boyden Power Brake as a reverse doctrine of equivalents case. Essentially, the Supreme Court interpreted that case not as a claim construction case where functionally defined structure was construed to cover the corresponding structure recited in the specification of equivalents thereof, but as a way of determining noninfringement by comparing the accused structure with the disclosed structure and determining whether they are equivalent or not. I think there is much to be said about the reversed doctrine of equivalents, but has not gained traction or favor in patent litigation, for what reason I don’t know. But the doctrine exists unless the Supreme Court overturns it, and defense counsel should be aware of it.

  9. Joachim Martillo November 7, 2017 2:49 pm

    Edward Heller@8.

    The defense against the complaint of infringement was actually stronger than the reverse doctrine of equivalents. As I understand, the reverse doctrine of equivalents is normally applied in cases where there is literal infringement, but the accused device operates on a different principle.

    Here is a quote from the CAFC decision.

    “Wang concedes there is no literal infringement.”

    Here is the complete decision.

    Wang Laboratories, Inc., Plaintiff-appellee, v. Clearpoint Research Corporation, Defendant-appellant, 5 F.3d 1504 (Fed. Cir. 1993)

    Wikipedia provides the following interesting comment.

    Samuel F. Ernst argues that many proposals are urged to combat the plague of “trolls” now troubling industry, but “the solution lies not in legislation, but in a common law doctrine lying right under our noses—the reverse doctrine of equivalents. Properly applied, the reverse doctrine of equivalents can serve to protect true innovation from patent thickets by excusing infringement when the defendant’s product is substantially superior to the plaintiffs embodiment of the patented invention, both technologically and commercially.”

    It seems a better approach than IPR because the construction of the patent claims is narrowed without invalidation.

    Or as I would say, during Philips construction of a claim the Court identifies exactly the combination of knowledge that is encompassed by the metes and bounds of the claim.

  10. Edward Heller November 7, 2017 2:54 pm

    Joachim, excellent, there for the Wikipedia. There is no troll problem because accused infringers have adequate defenses. If the claim reads on the prior art, it is invalid and can be disposed of on summary judgment. If the claim literally reads on an accused device but the accused device accomplishes the result in a substantially different way, the law provides the defense of the reverse doctrine of equivalents.

    No troll problem whatsoever. It is invented to solve a problem that does not exist in order to stomp out the small inventor, the startup and the University by creating post grant revocation procedures that unfairly use a lower standard of proof and broadest reasonable interpretation.

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