Chief Judge Randall Rader: Don’t Be Seduced by the Patent Hold-Up Misnomer

By Eileen McDermott
September 10, 2019

“What has ever been held up? What product not issued or slow-down in manufacturing due to patent hold-up? We would all know about it because it would be the primary evidence in every SEP case, but it hasn’t been found.”- Randall Rader, Former Chief Judge, CAFC

Former CAFC Chief Judge Randall Rader

Former CAFC Chief Judge Randall Rader

In his luncheon keynote address to attendees of IPWatchdog’s Patent Master’s Symposium: “Standard Essential Patents: Striking a Balance Between Competition and Innovation” on Tuesday, former Federal Circuit Chief Judge Randall Rader drove home a point made by multiple speakers during the event that the concept of “patent hold-up”—in which innovator companies use SEPs to hold up implementer companies from getting products to market via anti-competitive practices—is “one of the largest misnomers in our discipline.”

Rader recounted his experience representing a small inventor who was attempting to get big tech companies to answer his letters alerting them to the fact that his patent had been adopted into a standard for 4G technology, only to be largely ignored. In his research for the case, Rader attempted to find evidence of the oft-touted practice of “patent hold-up”, which has been cited by sources including the 2013 joint Department of Justice – U.S. Patent and Trademark Office “Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments” as a potential threat to healthy competition in the context of collaborative standards setting. That statement—from which the current Assistant Attorney General for the Antitrust Division of the U.S. Department of Justice, Makan Delrahim, withdrew in December 2018—said in part:

“The owner of [a] patented technology may gain market power and potentially take advantage of it by engaging in patent hold-up, which entails asserting the patent to exclude a competitor from a market or obtain a higher price for its use than would have been possible before the standard was set, when alternative technologies could have been chosen. This type of patent hold-up can cause other problems as well. For example, it may induce prospective implementers to postpone or avoid making commitments to a standardized technology or to make inefficient investments in developing and implementing a standard in an effort to protect themselves. Consumers of products implementing the standard could also be harmed to the extent that the hold-up generates unwarranted higher royalties and those royalties are passed on to consumers in the form of higher prices.”

Right to left: Gene Quinn moderated a panel with David Kappos, F. Scott Kieff and Timothy Syrett

The problem with that analysis, said Rader, is that he could find no evidence of its existence. “What has ever been held up?” Rader asked. “What product not issued or slow-down in manufacturing [due to patent hold-up]? We would all know about it because it would be the primary evidence in every SEP case, but it hasn’t been found. Yet it’s been used as a very significant weapon.”

Earlier in the day, David Kappos, former Director of the USPTO, explained that— although he signed off on the Joint Policy Statement, that it was thoughtfully and heavily negotiated and edited, and that he felt at the time that it was a good document and a compromised agreement—he stepped back after Delrahim’s announcement last year and has now reconsidered his view. “I was defending the IP system given everything we knew at the time,” Kappos said. “I didn’t think the guidelines were anti-innovation; I thought they were balanced. But in stepping back, I realized—between 2013 and 2019 we’ve learned a lot. Multiple empirical studies have shown us that the phenomena on which we based the guidelines — hold-up and royalty stacking — aren’t occurring. There is no evidence of our predictions.”

On the other hand, there are many examples of the “hold-out” phenomenon, said Rader, turning back to his example of the small inventor. The inventor understood immediately when Rader asked what he would do if he were general counsel for Google or Apple instead in this situation. “They don’t have to do anything. The clock is running out on the patent. The strategy has to be to prolong, and that is well-documented,” Rader said.

He concluded:

“Don’t be seduced into thinking hold up has anything to do with this process—it’s a misnomer. Don’t be seduced by terminology that has never been empirically proven and can be disruptive of an orderly process that tends to work. We should be looking at the quality of the IP. The valuation of the technology should be the focus.”

 

The Author

Eileen McDermott

Eileen McDermott is the Editor-in-Chief of IPWatchdog.com. Eileen is a veteran IP and legal journalist, and no stranger to the intellectual property world, having held editorial and managerial positions at several publications and industry organizations. She has acted as editorial consultant for the International Trademark Association (INTA), chiefly overseeing the editorial process for the Association’s twice-monthly newsletter, the INTA Bulletin. Eileen has also served as a freelance editor for the World Intellectual Property Organization (WIPO); as senior consulting editor for the Intellectual Property Owners Association (IPO) from 2015 to 2017; as Managing Editor and Editor-in-Chief at INTA from 2013 to 2016; and was Americas Editor for Managing Intellectual Property magazine from 2007 to 2013.

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 18 Comments comments. Join the discussion.

  1. Pro Say September 10, 2019 7:02 pm

    Judge Rader’s steady hand at the CAFC is greatly missed.

    Greatly.

    Were he still there, this innovation-starving, job-killing 101 / eligibility morass wouldn’t be nearly as bad as it is.

    Not nearly.

  2. Anon September 10, 2019 11:18 pm

    Sorry Pro Say, but I have to wonder what version of history are you remembering (because it is not the reality that we have — see the CAFC en banc Alice fiasco to see how out of hand the CAFC was — even under Rader’s watch).

  3. Night Writer September 11, 2019 6:16 am

    Look, everyone knew when the AIA passed that it meant the end of patents as we knew it. I did an internal CLE on the AIA at the firm I was at and the managing partner tried to talk me into switching out of patent law. I should have taken his advice. Everyone knew that IPRs were the end of it. Those of us practicing patent law at the time were in disbelief regarding the propaganda machine that was selling the AIA. (And probably we were like a lot of large law firms where other attorneys at the firm were being paid to lobby Congress to burn the patent system down and to help write the AIA.)

    As to Rader, he was definitely pro-patent and believed in not making up ridiculous things about technology. He pushed Alappat, which of course is the central case that illustrates why Alice and so many of its progeny from the CAFC are not in accord with science. Of course, Alappat represents the science of information processing.

    Plus, the big thing that Rader did that sunk the patent system is his opinion in the pre-Alice case (the name escapes me) where Rader said that the abstract exception should be used. Alice largely adopted Rader’s suggestions.

    But Rader tried to be honest and adhere to reality. Judges like Taranto, Hughes, Reyna, etc., (the Obama SV appointments) are activist judges and many have no science or patent law background. The problem is one of ethics and morality. These Obama judges are not people that respect science and the law.

    With Rader you knew that he would listen to the science of the case and try his best to figure it out and be fair to the science and patent law. The Obama judges are just a bunch of dishonest unethical dogs. Trump has to dissolve the CAFC.

  4. Fanc Bilburgh September 11, 2019 9:30 am

    Thanks Elieen for this update on the IPWatchdog’s Patent Master’s Symposium. I think we all know what the problem is, special interest groups like Google and Apple have bought up all votes to keep patent holders out while the fleece and make Billions off of inventors IP’s. Its sickening to read that it has taken us 8 years since AIA Act was introduces to finally figure out how PTAB-CAFC-SCOTUS-Ebay-Alice-Mayo-TC Hearland-Oil case have all helped killed off patent holders rights to in getting paid for their patents. I think we have enough information and have done enough meetings to be able to solve the problem. FAANG stocks have quadrupled and some stocks have quintupled all because money that should of been paid to patent holders has been with held and horded to the top tech companies. THIS NEEDS TO END!! The STONGER PATENT Act must be passed and what ever bill Sen Tillis and Sen Coons can come up with to help inventors get paid again. We will see what is said in today’s hearings for “Innovation in America: How Congress can make our patent system STRONGER” Here is the link for those that are interested in listening; https://www.judiciary.senate.gov/hearingsat

    If they can not get it fixed inventors will be moving over seas and America will be left high and dry as other nations grow their IP. The monopolies must be dissolved!!

  5. Smell that coffee September 11, 2019 10:57 am

    Let’s be realistic. A patent is actually worthless unless an inventor has millions to enforce it. For the small company or inventor the White Knights coming to the rescue have been labeled, “trolls”. Who would promote that label ? Who doesn’t want a level playing field ? How many “bites at the apple” do the efficient infringers want ? Why does USPTO allow this hopeless situation ? This isn’t the American Dream.

  6. Ternary September 11, 2019 12:03 pm

    There is this ingrained conviction in society (largely accepted but seldom expressed) that innovation is a linear process and that everyone has a well defined role in it. That is research, (by many people assumed to be the ‘abstract’ part of innovation) takes place in academia and research institutions. These institutions (which require a lot of money) only allow the ‘best of the best’ to enter and participate. What comes out of these institutions is ‘abstract’ and is freely published, available to anyone who has access to these publications. Then there are (large, or at least established) companies, also with smart people, who understand research results and translate these into viable and tangible products or services, deserving of a patent. Most people believe that this is the way a Meritocracy works, while it is actually a reflection of a corporate state.

    Independent inventors are the strange factor in the innovation process that have an undefined role. They just do whatever they feel like and upset the ‘flow’ of innovation by frustrating the natural order of things. While there is admiration for successful inventors, the general role of independent inventors to shake up ossified opinions of what innovation is (how many expanded pixel counts in a camera establish innovation?) goes unappreciated by the general public. In fact, negative news about the role of independent inventors is generally positively received by the general public. One reason may be that there are so few independent inventors that most people probably have never met one and have no clue what they do and how they do it and have no idea what it takes to obtain a patent.

    Computers and computer software are a great democratizing force in technology. In theory an independent inventor with a computer can create an entirely new industry. Something that was recognized and achieved by the likes of Google, Amazon, Microsoft and Facebook. They also ruthlessly executed their business plan, achieving a dominance that they know can be brought down by a seemingly innocuous invention by an independent inventor.

    Thus they promote the narrative that when they dominate the market, it reflects “the natural order of things”, but an independent inventor asking for fair treatment and compensation practices “hold-up” trolling.

    For many reasons, the establishment concurs with the demands and interpretation of incumbent companies. Only after leaving office, do ‘authorities’ acknowledge their short-sighted and prejudiced opinions. Probably better late than never.

    Still very disappointing that what many people warned about (including on IPWatchdog) long ago went unrecognized for so long. I find little consolation in ‘we told you so.’

  7. Anon September 11, 2019 12:12 pm

    @Night Writer Well said.

  8. PTO-Indentured September 11, 2019 1:17 pm

    A doube-standard patent system was intended. A double-standard patent system was implemented.

    Pockets continually / transparently stuffed with cash made the successful implementation — impossible to reverse. Lots of dirty money has made many recipients think they are happier, better off. Elite tech co.s dishing out the dough (we all know who they are) are laughing all the way to the bank off-shore tax haven. The weal of the United States, nowhere near their radar screens. Their money, not hampered by any loyalty due.

  9. angry dude September 11, 2019 3:31 pm

    Ternary @6

    I “told you so” 12 years ago, right after EBay…

    Right here, on this board…

    And people called me pessimistic loser with no grasp of reality

    I also told you guys that your entire profession will be wiped out if patent rights are not respected in the US

    The guillotine is coming…

  10. angry dude September 11, 2019 3:44 pm

    Fanc Bilburgh @4

    Dude,

    Inventors will not move overseas… They’ll just stop inventing and patenting (already did) or keep everything under trade secrets if possible

    And it’s waaaay too late to radically solve the problem by going to pre-EBay injunctions….
    Not gonna happen under any Congress or President — Obama, Trump… does not matter
    Because restoring patent injunctions will drop the Dow Jones and Nasdaq significantly, by at least 50% (Nasdaq for sure)
    The lemmings with 401K will scream
    Forget about it
    The doc said “to the morgue” – to the morgue it is

  11. B September 11, 2019 5:47 pm

    @ Anon “Sorry Pro Say, but I have to wonder what version of history are you remembering (because it is not the reality that we have — see the CAFC en banc Alice fiasco to see how out of hand the CAFC was — even under Rader’s watch).”

    There was a three-way split which Rader was not responsible for. However, Rader’s opinion was the most sane of all. That is, Rader had the opinion that “something more” was anything more than what was inherently necessary to perform abstract idea.

    You can’t blame the vast stupidity of Judges Lourie, Dyk, Prost, Reyna, and Wallach – who apparently never learned to read a statute – on Rader. It’s like blaming a homeowner when the neighbor’s dog defecates on the porch.

  12. Pro Say September 11, 2019 6:40 pm

    “They’ll just stop inventing and patenting (already did) …”

    You got that right angry dude @10.

    Though I’ve come up with a material accuracy / relevancy improvement to current search technologies, after the unconstitutional 101 / eligibility wringer that the Patent Office, Board / PTAB, and the Courts have and continue to put inventors like me through since Alice / Mayo, there’s no way I’m filing for a patent on it.

    Why would I? So Google and the other search engines can steal it … incorrectly claiming that it’s abstract (while at the same time hypocritically shouting to all who will listen that THEIR search technologies ARE NOT abstract).

    No; I don’t think so.

    And since the U.S.-based Google could still steal it; filing in — or moving to — Europe or China is no answer.

    So either Congress ends this Alice / Mayo eligibility morass, or my search improvement dies with me.

    Oh, well.

  13. Anon September 11, 2019 7:29 pm

    B,

    I am not blaming Rader for the opinions of others — I am distinguishing the fact that there was NO sense of historical control or oversight during Rader’s tenure that prevented the very type of asinine judicial ‘reasoning’ that you speak of.

    The contrast is needed based on the apparent imaginings of “Rader-Nirvana”

  14. Night Writer September 12, 2019 6:21 am

    The fact is that any person with an IQ over 100 could write opinions to cabin Alice/Mayo. The problem is the CAFC judges (Obama appointees and the couple of nuts that were there before Obama) have no interest in doing that. Newman had an opinion where said that an interface was new and therefore couldn’t be an abstract idea Etc.

    The problem is the judges on the CAFC were selected by SV to burn the patent system to the ground. Just look at who was appointed. Chen was virulently against all software patents at the USPTO. He has since mellowed and SV is probably not happy about the money it took to get his appointment. Stoll was a person with a known personality disorder. Everyone in DC talked about her having serious personality problems. Reyna knew nothing about patent law or science. Taranto was also virulently against patents at the DOJ. He also had no science background and was a strong believer in Benson. Etc.

    Plus I’d bet that during a vetting process that each of the judges was asked if they would get patents under control if appointed and that they all promised to get patents under control in exchange for their appointment. We know that SV was in the WH everyday. Obama has a long history of doing what WS or SV tells him to do in exchange for huge campaign money and it appears favors when he and his appointments leave office.

    That is the problem. Rader/Newman could easily cabin Alice/Mayo.

  15. Night Writer September 12, 2019 6:30 am

    So, get what happened. SV (after O’Malley, who I don’t believe was part of this process) went around and found the CAFC judges for Obama. And then Obama appointed the judge.

    I know there are some defenders of some of the judges Obama appointed (O’Malley, Reyna, Chen, Stoll, Hughes, Taranto, Wallach).

    These judges dominate the CAFC. I find it unbelievable offensive that judges were appointed with no science background and some with no patent law background. Even if you take out their biases (some were virulently against patents irrationally so as they were ignorant.)

    This is the problem.

  16. Smell that Coffee September 12, 2019 7:38 am

    Pro Say – like you I’ve an innovation that would significantly improve costs and efficacy in an important US technology. Most likely it will die with me also. Getting shafted by USPTO, multiple times, isn’t my idea of a way to proceed. Surely our fellow innovators have come to this conclusion also.

    At some point I think we need to entertain the idea that the USPTO is now a vehicle to prevent innovation. By small entities.

  17. concerned September 12, 2019 9:05 am

    Smell that Coffee @16: At some point I think we need to entertain the idea that the USPTO is now a vehicle to prevent innovation. By small entities.

    I’m already at that belief. The USPTO had everything to grant my patent and instead the USPTO is digging in. In our PTAB brief, we argued that the examiner gave no reasoning about abstract and practical application in our prosecution.

    His response: Not one word on our inventive step (never used in commerce in my field or any field) and a complete dodge on why the concept is not a practical application. His response was a thesis on why generic computer parts are abstract and cannot save the claims.

    I am not patenting generic computer parts. I am claiming the (non-abstract) “first ever” use of a process that tracks a parent of an adult (inventive step) to improve the technology of SSDI eligibility oversights, a problem of 63 years beyond hundreds of thousands of experts and working professionals’ ability to solve to date (practical application).

    angry dude @10: Because restoring patent injunctions will drop the Dow Jones and Nasdaq significantly, by at least 50% (Nasdaq for sure). The lemmings with 401K will scream.

    Perhaps, possibly a 50% drop more immediate. And consider how many giant companies today started out as a 1 or 2 person operation, perhaps a drip, drip drip of wealth erosion as the 1 or 2 person start-up in today’s patent environment looks to have slim or none chance to get off the ground without being ripped off/not securing investment capital.

  18. B September 12, 2019 3:41 pm

    @ Night Writer “Newman had an opinion where said that an interface was new and therefore couldn’t be an abstract idea Etc.”

    Yes, but the knuckleheaded idea that something man-made and is completely novel and non-obvious could still be abstract has already passed. That’s what happened in EPG, Villena, Investpic, Guldenaar, etc.

    Newman and others could have opined on such stupidity on rehearing en banc, but chose to say nothing even as her fellow judges blatantly lied.

    Congress is the only hope at this point

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