There’s a gentleman who I “internet know” and we’ll call him Paul Morinville, mostly on account of that’s his name. Paul is an inventor and holds at least one patent. I do not have permission to share the exchanges we’ve had by email, and therefore I don’t feel comfortable getting into his whole story here. I’ll leave that to you in the comments, Paul!
I can tell you that his concerns about patent trolls, which I’m fairly certain he believes do not even exist which is why there’s no formal definition that he will accept, stem from having his inventions used by big players in the market without regard to his actually having invented them. From his perspective, Big Companies steal from inventors on a regular basis and therefore inventors need a way to go after them without being called patent trolls. Even though no such thing exists. According to him.
I get that, wrote about it, and didn’t bother printing t-shirts because is that even a thing anymore? No one is arguing logically that small inventors need a way in the door to larger companies, or at least no one should be. The Backgrounder has been a link on this blog since it began over three years ago, this is not news. But you cannot say that because there is are legitimate businesses out there set up to help the little guy that some of those business aren’t started to help, oh, I dunno, themselves. That’s what patent trolls are, and that’s part of what I would call an “official definition”.
Let’s not confuse “official definition” with “litmus test”. I’ve talked with Lenny Kravets via twitter and we both agree that a single test does not exist to determine who is and is not a troll. It would be super convenient if there were, but alas life is not that simple. But I think that we can get pretty close to a definition of a patent troll that is acceptable to everyone, even Paul.
I’m going to give it a shot here, because that’s how I roll:
Patent Troll, n –
1/ A company or individual who, using patents that either never should have been issued or are broadly constructed (intentionally for the purpose of misuse, or as a result of poor USPTO patent examination practices), sends letters to various and sundry companies and/or individuals that simultaneously request license fees and threaten legal action if the recipient fails to respond correctly by paying up and who will, in the face of inaction by a demand letter recipient, actually file suit in Federal District Court, the District of East Texas being the most popular venue.
2/ A company set up to act as a cover for large corporations who try to breathe new life into older patents which they would ordinarily let expire but, as a result of greed and/or pressure from Wall Street, have decided are ripe for assertion or litigation.
What do we think?
I believe the reason that inventors are all up in arms about patent reform is that they think it will hurt their ability to go after larger corporations that steal their stuff. Pulling out my broken record here, I’ll say that I once again agree that any reform out of Congress is going to have it’s butt handed to it by the Law of Unintended Consequences faster than a Thanksgiving turkey disappears. Capital Hill is not the place to solve this problem, the market is.
There’s a recent thread over on TechDirt about how the trial lawyers are the ones who got to Harry Reid and killed patent reform in the Senate last session. If you don’t read the comments on sites like TechDirt and Huffington Post and Ars Technica, then you’re literally only getting 1/3 of the story. That’s where I found these gems:
Ideas can be stolen?! What next, someone will steal my feelings?! I’ll never feel again! – by Bengie
and
1) Coming up with your own idea independently is not stealing. (Even if you were not the first to ever think of it.)
2) Ideas are a dime-a-dozen, as any VC will be happy to explain, and de minimis non curat lex. (The law does not concern itself with trifles.)
Implementation and execution are what have value. – by OldMugwump
Right and right.
Though I think my attempt above is rather valiant, probably the best definition of a patent troll is similar, as I’ve previously pointed out, to the definition of obscenity:
I’ll know it when I see it.
Maybe by using the definition above or parts of it, we can come to some agreement? Because as much as Paul would like to assert that they don’t exist, covering your ears and closing your eyes doesn’t make it all go away, my friend. Trolls are out there, most assuredly.
Even so, having said all that, the point I made in my previous post on a definition of patent troll is still my favorite:
The way you determine whether a company is a patent troll is not by a single definition, it’s by a pattern of behavior over time, by looking at the results of that behavior and ascertaining “Is this behavior that is good for American businesses or is this behavior that gets in the way of progress?” In a lawsuit it’s the stage where you “prove up” your case.
So how do we do that with trolls? I’ll tell you how: we enter demand letter data and over time, the question of what is a troll, never mind who is a troll, will all but answer itself. We build a community around how these guys behave…what they ask for in settlements, what they demand in their initial leaflet drop from their G-5′s, how they handle their claims construction when things get to litigation, the list goes on. By looking at behavior over time we will be able to tell which companies are the real villains, and which are just victims of circumstance.
IPTT
{Cool red-headed ear plug image found here.}
IP Troll Tracker 
“Is this behavior that is good for American businesses or is this behavior that gets in the way of progress?”
I would argue that operating a market for patent rights and giving small inventors who couldn’t fund a suit the chance to make some money on their inventions and enforce their IP provides a valuable function that progresses the arts and commerce generally.
I would argue that too… if Patent Attorney hadn’t already said it. I’d also throw in some personal examples of how it works.
“1/ A company or individual who, using patents that either never should have been issued or are broadly constructed (intentionally for the purpose of misuse, or as a result of poor USPTO patent examination practices), sends letters to various and sundry companies and/or individuals that simultaneously request license fees and threaten legal action if the recipient fails to respond correctly by paying up and who will, in the face of inaction by a demand letter recipient, actually file suit in Federal District Court, the District of East Texas being the most popular venue..”
Removing “using patents that either never should have been issued or are broadly constructed (intentionally for the purpose of misuse, or as a result of poor USPTO patent examination practices),”
leaves “1/ A company or individual who […] sends letters to various and sundry companies and/or individuals that simultaneously request license fees and threaten legal action if the recipient fails to respond correctly by paying up and who will, in the face of inaction by a demand letter recipient, actually file suit in Federal District Court, the District of East Texas being the most popular venue..”
This, of course, describes a legitimate patent holder asserting legitimate patent rights against infringers. Sending demand letters is not only legal, but sensible because both parties can avoid litigation and settle things out of court.
So that leaves the part removed as our key discussion point. “using patents that either never should have been issued or are broadly constructed (intentionally for the purpose of misuse, or as a result of poor USPTO patent examination practices),” The USPTO is in the business of granting property rights. That’s a big responsibility and one rightly granted to the government. If a patent issues that should not have issued or issues at a broader scope than it should have, the USPTO is at fault. Because it is the primary job of the USPTO to issue valid patents, these problems must be addressed in the USPTO.
I think that what your definition really says is that the USPTO is the root of the problem. I agree. It is also the root of mine. I have patents still pending after more than 12 years. This is a problem that we could work together to fix. If we did, I suspect we could end this fairy tale and all live happily ever after.
As for the patent troll definition, let’s step back a bit at the real core problem. It is civil litigation abuse in general. So what is “litigation abuse”? While there are many different ways to abuse the legal system (which both Plaintiffs and Defendants can do) including increasing litigation costs through delays or hiding or not properly disclosing information during discovery, let’s focus specifically on THE PURSUIT OF CASES WITH LITTLE OR NO MERIT FOR THE PURPOSE OF OBTAINING SETTLEMENTS WITH MONETARY VALUE. It is essentially “legal extortion”.
Specifically for patent litigation abuse, a case with little or no merit primarily falls into two categories. One is what you mentioned which is a patent that is invalid (though not yet proven as such in court). However, the second category is even more common and that is initiating or continuing to pursue a case in spite of non-infringement. If you look at actual statistics from the outcome of cases (say from patstats.org), you will find that findings of non-infringement are far more common than findings of invalidity. There is also the common practice of over-broadening scope, but this usually comes down to poorly written patents that should be more clearly defined (bounded).
Though clearly the USPTO is part of the problem with issuing weak patents, it is not all their fault since they were essentially forced to do so by the courts. Though the following video is long, it gives a good history of the problem with broadening patent scope and the role of the courts:
http://patentabsurdity.com/watch.html
Obviously the pendulum is more recently swinging back from CAFC rulings on 35 U.S.C. §285 fee shifting and Rule 11 sanctions in Eon-Net in 2011 and Marctec, Highmark, and Raylon in 2012 and with the Supreme Court rulings in Octane Fitness, Highmark (again), Nautilus, Alice, etc. in 2014 that is forcing the CAFC (and therefore the USPTO) to narrow patent scope and to be more diligent at punishing abusive behavior.
As for pursuing cases where there is non-infringement, this is primarily from the “volume licensing” model using lawyers paid on contingency. I describe this history of abuse across civil litigation generally in a comment I recently wrote in another article on this site:
Basically, the potential infringers are not sought out on the basis of actual infringement but rather that they are simply “in the ballpark” so that the case is not deemed frivolous. In some cases there are some Defendants actually infringing, but others who are not. This does not matter to the Plaintiff or Plaintiff’s attorneys. Since there has been very little punishment for this pursuit and since litigation costs are so high (especially including appeal), cases are pursued regardless of their merit in order to obtain settlements. Most companies settle because it is less expensive (in the short run) to do so.
You also brought up another issue which is the East District of Texas. If you crunch the numbers from actual court statistics:
Click to access C04Sep13.pdf
Click to access C04ASep13.pdf
you will find that EDTX has the lowest percentage of case terminations in the category “during or after pretrial” which is when most summary judgments occur and that it has the highest percentage of cases going to a jury trial at 42.4% (the percentage is calculated excluding No Court Action and Before Pretrial when most settlements occur) compared to an all courts average of 7.4% (for all cases; 9.0% for patent cases). The stats on summary judgments underestimate the problem in EDTX because one has to file a motion for leave to file summary judgment so most summary judgment requests aren’t even in the court statistics:
https://www.eff.org/deeplinks/2014/07/why-do-patent-trolls-go-texas-its-not-bbq
There is so much more I could write about this problem, but let’s stop here and note that THERE IS ABSOLUTELY NOTHING WRONG WITH THE TYPE OF PLAINTIFF, namely Patent Assertion Entities (PAEs) whose primary business is to sue or threaten to sue to obtain money for alleged patent infringement and to pay inventors or others for such patents in the marketplace. Some large companies for many years have abused the system by ignoring inventors patents even when good faith negotiations were attempted (though to be frank, most inventors think their invention is worth more than it actually is). There was an asymmetry of power between larger corporations and smaller inventors. The asymmetry has now shifted in the other direction, at least with regard to PAEs and small to medium-sized businesses. If there were no litigation abuse, we would not be having this discussion so the focus should be on the BEHAVIOR NOT THE TYPE OF ENTITY.
One particular point that keeps coming up gets under my skin. It is that asserting a non-valid patent is a bad thing. A patent once issued is valid. That is black letter law. It can be invalidated and once it is invalidated, it is no longer a legal instrument. It is not therefore possible to assert a non-valid patent. It is also not possible to assert a patent that is “overly” broad. It is an issued patent and therefore is not “overly” broad on the day it is asserted.
It is possible, as Richard points out, to assert a patent beyond its scope. It is possible to assert a patent against a non-infringing product.
I was once sued by an investor who claimed that I entered a partnership with him based on one phone call. It took over three years to get the suit dismissed despite that he had no evidence other than his sworn testimony and all of the written record showed that he was making the whole thing up. It cost me hundreds of thousands of dollars and left a damaging scar on my reputation which hurt my ability to fund my company while it was pending. I was not his first rodeo, but as far as I can tell, I was the only one who fought him. I believe that his prior victims all settled thus feeding the beast by encouraging more unjust suits. Despite the damage done to me, the court would not award my costs to him. So Richard has a good point. We need litigation reform on a larger scale.
The patent reforms completed and those that almost passed last year do NOTHING to correct any patent related litigation problems. Instead they kill little guys like me and that is disgraceful, dishonorable and damaging to our economy overall.
Turning the conversation on some magical “patent troll” using a definition that describes nothing is an unethical attempt to disparage something that cannot be defended becasue it is not defined. Then loudly use that to avoid any real discussion so you can rush through a law that helps your side – who cares what it does to the other. Pathetic. Especially becasue for the most part the other side has no money and therefore no voice.
Indeed, Richard, a major part of the problem lies in the PTO. My inventions are the core enabling technology of several large markets in enterprise software. Once made public by the PTO, these markets exploded. I am still waiting after more than 12 years on one of my applications and others 7 plus years for allowances. I get ridiculous rejections and nonsensical responses. I appeal and the examiner throws in more idiotic rejections forcing it out of appeal and back into examination where we simply repeat the same Kafkaesque routine.
In the mean time, I have no asset to leverage to fund a company so that I can build products based on my inventions. Instead, I watch as major players simply upgrade their systems, leverage their massive customer bases and saturate the market. Once saturated, a patent that cannot earn injunctive relief is incapable of attracting investment to start a product company.
My alternatives are limited. I have contacted many infringing companies. I have written to them. Called them on the phone. Went to them personally. Hired an attorney to contact them. None would engage in any kind of discussion. They simply challenge me to sue them…. there is no incentive to talk to me and they have no interest in licensing a damn thing form anyone unless and until they are sued. That’s a fact. That’s life on the street.
Suing them takes a lot of money. I’m broke so I need investors. In our new found age of endarkenment, rapidly changing laws are making that nearly impossible, which in turn is making investors head for the hills. States are creating laws that make it impossible to send demand letters, so we will soon have a sue first and ask questions later system. The FTC uses consumer law intended for collection agencies to attack them even though they do not use that same law to attack collection agencies. (I think this is proof of political motivation) Newly minted PTAB procedures assume a patent invalid despite black letter law establishing a presumption of validity – and then at rates of 80% or more, they declare them invalid. There is not much hope that a patent will remain a patent once asserted, hence no inventors and a 40% decline in litigation by NPE’s. All that adds up to more companies destroyed in the US than created for the first time in our history.
I can’t be alone here. There have to be thousands of folks like me screwed by the PTO and the legal framework that seeks to protect infringers at my expense.
Cornyn wants another round of patent reform. My my, we elect intelligent people.
Yes, patents are presumed valid, but cases are also presumed to have merit until proven otherwise. So even non-infringement is not “proven” until determined in court. I wasn’t referring to final legal determination in my comment. The vast majority of patent infringement cases settle so some people argue that there is no patent litigation problem because no invalidity nor (bulk) non-infringement has been proven in court. The only way to know for certain is to pierce the confidentiality of the work papers, experts, and settlements and that can be achieved through auditing similar to what is done for financial statements of corporations or with individual tax returns. Imagine what would happen if there were no audits in accounting or tax. Do you think there might be some cooked books or falsified returns? Well that’s what is happening now with some civil litigation.
Though an issued patent is legally presumed valid, that does not make it right to assert it if OBJECTIVELY one finds or reasonably knows (there is never absolute certainty) of prior art or reasonably knows that current court precedent would no longer find the patent valid (i.e. post-Alice). Though obviously there is a lot of grey area, patents are sometimes being used as weaponized assets independent of their strength or the strength of the specific case regarding infringement. I’ve been involved on the receiving end twice for absolutely ridiculous cases from a major PAE’s subsidiaries where the patents were clearly invalid (with two prior art patents in the first case, with the asserted patent even rejected by European PCT and none of this disclosed to the USPTO; Section 101 abstract rejection for the other case and affirmed as invalid by CAFC) and where there was also clear non-infringement (though not proven in court).
I’m sorry you have had such a difficult time with the USPTO. I have a few patents myself so understand the frustration of the process. And it is true that many companies do not negotiate regarding patents unless the entity is large enough to be truly threatening.
I don’t find the statistics from PTAB or PAE suits to be as problematic as you imply. There are a lot of crap patents out there and the main ones going to PTAB are mostly going to be the worst so a high rejection rate is not unexpected, at least until the backlog of poor patents is cleaned up. As for PAE suits, they dropped and then rose again but regardless, a good deal of these suits were weak cases that are now not as potentially economically viable so the drop is again not unexpected.
With regard to pending legislation, it’s a very mixed bag and I agree with you that some provisions such as up-front bonds and such would hurt small inventors. What is really needed is to go after the core problem of litigation abuse which at its core is with attorneys. As the CAFC stated in Eon-Net v. Flagstar Bancorp, “But an attorney, in addition to his obligation to his client, also has an obligation to the court and should not blindly follow the client’s interests if not supported by law and facts.” There needs to be a doctrine of cumulative, repetitive harm. The day that an attorney is disbarred for pursuing a business model of settling cases with little or no merit is the day that litigation abuse will come to a screeching halt.
“The only way to know for certain is to pierce the confidentiality of the work papers, experts, and settlements” No. If you are accused of infringement and you do not infringe, or if you believe that the patent should be invalidated, you can fight it out in court. If you’re right, you’ll win. With the new loosening of Rule 11, you’ll also be paid back your costs. However, if you settle and even if you explicitly disavow that you did anything wrong, you have at least implied that you are not certain that you can win. While there is a possibility that some folks have settled who really don’t infringe or really do believe that the patent should be invalidated, you have no basis to say that the patent is invalid or the defendant did not infringe. That is nothing more than gut feeling. The decision by the defendant to settle is the only thing that is certain, and with that decision is the likelihood that the defendant felt they could not win, which is a much stronger indicator than gut feeling.
Your point that a patent holder should not assert a patent if he knows it is not valid is correct especially when invalidating prior art becomes known to the patent holder. I believe that if you are sued, this information can be made available through discovery and the remedy is Rule 11. However, determining that any patent is now invalid due to the current state of case law cannot be done. The current state of case law is not possible to rationally understand. Any definition of an abstract idea is abstract in itself. Because an abstract idea cannot be defined, it can only be defined by the Federal Circuit. There is no other authority under today’s psychotic legal system.
That brings my other pet peave. Patents going into PTAB procedures are largely patents being asserted. There surprisingly are a couple that are not being asserted – I have no idea why. Only about 3% or less of all patents are ever asserted, so the bottom 97% are never asserted. NPE’s seldom assert patents they think are going to be invalidated. First they generally use contingency law firms, who only get paid if the patent generates money. These firms only take patents that they think will actually win. To do otherwise can kill the firm quickly. Second NPE’s spend a lot of money in out-of-pocket expenses and litigation burns a lot of the NPE’s time. They too will not remain in business long if they select poorly. All this means that highest quality patents are self-selected for quality and only the highest quality are asserted.
With all that, people still claim that PTAB procedures are simply weeding out the bottom patents. That makes no sense at all. It is irrational and I believe, a politically motivated talking point intended to promote a massive wipe out of property rights – perhaps the most massive on our history – for the benefit of large corporate infringers.
With the loosening of Rule 11, patent battles have become wildly imbalanced. Both sides now have the risk of paying the other side’s legal expenses. The courts have wisely reversed in both directions. However, this is not what it seems. I stand the risk of total financial destruction including the loss of my patents if I lose. For most of my defendants, they risk a rounding error in the greater scheme of their financials. Balance must be brought back. My patents standing on their own should earn injunctive relief. That way we both have real skin in the game.
With regard to settlement, I was referring to those already made. Spending millions of dollars to prove one is right is simply not going to be done when there is little hope of recovering fees. Most defendants will settle for less than the cost of litigation so audits are the only way to make sure abuse is not occurring though fee shifting and sanctions would help. Your point about having no proof about settlements is PRECISELY why audits are required. I can tell you with absolute certainty that in the first case I was involved with that there was clear invalidity and non-infringement yet the company I worked for settled (in spite of my begging them not to) because pursuing the case to simply prove a point would have cost well over a million dollars (probably more including appeals) with virtually no hope at recovering any money and they had already spent a lot since they were through discovery and a couple of months prior to a Markman hearing. I can also tell you that this happens A LOT though no one will go on the record due to the confidentiality agreements.
I’m surprised that you question that many settlements could be extortionate since you personally experienced that kind of litigation abuse yourself, albeit not with patents. Why did an attorney take that case when it so clearly was without merit?
You need to read my other comment I linked to in my first comment in this thread (I will repeat the link to it here).
Fee shifting and sanctions are completely useless against shell-company subsidiaries that have no revenue nor assets except for the patent-in-suit. Only holding the Plaintiff attorneys jointly and severally liable would have real teeth, but that is normally not done and none of the recent cases ensure that. Even if pending legislation requires identification of the real party-in-interest, that will be worked around via foreign shells owning the domestic ones creating a jurisdictional corporate veil. That is one reason why up-front bonds are one proposal, but that will hurt small inventors.
Furthermore, if you read what I wrote in my other comment about Kaspersky Labs, the Plaintiff simply dropped the case right before it could be decided, but after Kaspersky spent millions getting to that point — and this happened to them TWICE. So even if you wanted to prove your case in court, you may not be able to as the other side can simply walk away (when the going gets tough, the tough get going 🙂
Regarding Rule 11, again in my other thread I linked to a very typical case with Diagnostics Systems in 2009 where, after nearly a year, the plaintiff could not produce a Preliminary Infringement Chart that identified “how each accused product’s functionality contributes to infringement” and yet sanctions were denied though “it is a close call”. As I pointed out, things have improved since then, but again Rule 11 simply won’t work unless the attorneys themselves are held liable and that is unlikely to get done anytime soon. The following is a speech by a CAFC judge a little over a year ago:
Click to access ipo-annual-meeting-keynote-speech-09-17-13.pdf
“With respect to the Rule 11 proposals and the asserted desire for more sanctions, I believe what you really want is not more sanctions, but more fee shifting. Having been a district judge, I know that, while sometimes you must do it, it is difficult to sanction lawyers. Most of us that have been on the district bench were also practicing lawyers, and we know that people make mistakes, we know that lawyers can be pushed in certain directions by their clients, and we know that they do not usually intend to step over the line. And we know that a sanction can destroy a lawyer’s career.”
Poor, poor attorneys, they know not what they do…
You wrote: “These firms only take patents that they think will actually win. To do otherwise can kill the firm quickly.” This is not how the system works. YOU DON’T HAVE TO WIN. You only need to threaten with legal costs higher than what you are willing to settle. You personally experienced this, albeit not with a patent, so I don’t understand why you think the attorney for the investor that sued you is an exception and not much, much more common. Again, Kaspersky Labs did the due diligence that was about to invalidate patents — TWICE in separate cases — and the Plaintiffs simply walked away, but those Plaintiffs settled with 90 companies between the two cases. What you wrote is really only true for EARLY invalidation of patents under Section 101, but for invalidity due to prior art that will be a long dragged-out (read: costly) process as it is of course for demonstrating non-infringement. And if one files in EDTX, one very infrequently gets summary judgment and it is most likely to go to a jury trial that is very expensive and frequently a crap shoot when you have dueling experts that can be deceptive.
So why do contingency law firms and NPEs pursue weak cases? Because of the money from settlements and because not every patent or case is weak. As an example, look at the 10-Q from Acacia Research (a PAE) for 9/30/2012:
Click to access ACTG-10Q-Q3-2012.pdf
where they state “three licensees individually accounted for 30%, 20% and 16% of revenues recognized during the nine months ended September 30, 2011”. That’s 66% of their 9 month revenue of $151,461,000. They clearly have some very strong and legitimate cases because at that level no one settles if the case has little or no merit. However, if you do the math for the remainder of the cases (Acacia did an average of 20 per year with typically 5-15 defendants or more in each case) and divide by the number of defendants you get down to the less than $500,000 range where it makes more sense to settle than to fight and case merit becomes largely irrelevant. That is the basis of “volume licensing”. They have since moved away from this model, but older cases are still winding their way through the system.
As for PTAB, have you actually reviewed the proceedings? Use the following to do so (I have) before you pass judgment on the quality of the patents (you can use “2014” in case number to search for cases this year, for example).
https://ptabtrials.uspto.gov/prweb/PRWebLDAP2/HcI5xOSeX_yQRYZAnTXXCg%5B%5B*/!STANDARD?UserIdentifier=searchuser
The bottom line is that two wrongs do not make a right. Individual inventors getting screwed by companies is wrong and PAEs or companies initiating or continuing to pursue cases with little or no merit is wrong.
The premise of your argument is a presumption based on your experience – it’s called anecdotal evidence at best. You then conclude that your presumption has a wide effect because you say it applies broadly. None of it can be proven, so you argue from your conclusion creating a false emotional sense of a wrong being done and a great harm befalling our economy. And then, of course, as anti-patent folks do, you insist on passing yet more reform laws because you say it is true.
I don’t disagree that there are some out there gaming the system. In fact the NY AG and the FTC both did extensive investigations related to nefarious demand letters. They each found six examples – the same six examples. Think about that. Two major government investigations both independent of each other and all they could collectively come up with is 6 examples. Yet the anti-patent folks scream of abuse with their one or two demand letters in hand demanding major changes to patnt law that only harm inventors.
The consistent theme through all of this patent reform over the last 10 years is that the effect of the changes is to harm little guys. It makes me wonder why.
I can argue just as strongly using my anecdotal evidence in the opposite direction – that big companies are killing inventors and that is damaging the economy greatly. Your argument must be run at a large scale to show major economic damage. In other words, you must apply it to millions of companies to show even a small nudge in the economic needle (hard to do with only 6 nefarious demand letters). My argument needs to show only a few hundred companies stealing inventions from thousands of inventors to show similar economic damage.
You suggested that I should be on your side given my experience being sued for nothing. I’m with you on reform of the civil tort system at a larger scale. My suggestions would be very small and incremental, and not limited to patent law. I see your suggestions as directed only to the patent system and your changes appear sweeping. What has happened so far is not a shifting in patent law, it is an earthquake.
Getting back to your discussion about fee reversal… There are already multiple remedies that would allow you to punish attorneys. They can be sanctioned under Rule 11. You can sue them for malicious prosecution in federal court. I suppose given the millions of state a federal laws on the books, there are more actions that could be taken. If you are mistreated the law is already there, yet you want more. I can’t figure out where this kind of thinking is rooted.
I fought that guy becasue he sued me unjustly. My wallet did not make the decision even though it was not fat enough to pay. What is right and wrong made that decision. That brings me back to the original point. You argue that companies will all just pay up whether or not they really infringe. That is certainly true in some cases. It is not true in all cases. If I consider what the anti-patent folks are saying about the prevalence of nefarious demand letters juxtaposing that against the fact that there are only 6 in existence, I have wonder if there is something else driving the loud anti-patent noise. If you are sued and settle, you have in effect agreed that your case could not be won. I find it difficult to believe anything but that when the defendant settles they do so because they infringe. I don’t buy your anecdotal evidence as going any further than a very small percentage of cases.
Prior to the AIA, the only path to invalidate an issued patent was through an Article III court by showing clear and convincing evidence of a failure to meet statutory requirements of patentability with the burden of proof placed on the party seeking to invalidate the patent.
Even though a patent is presumed valid, a post-issuance procedure (PIP) (PGR, IPR and CBM collectively are a PIP) presumes a patent invalid. This is because in a PIP, an Administrative Law Judge, under the Executive Branch of the government rather than an independent judge appointed under Article III of the Constitution, presides over a process designed to re-validate the patent with the burden of proof placed on the inventor.
A PIP can be initiated by showing the lowest level of evidence recognized in the law – more likely than not. Once a PIP has been initiated, the challenged patent is tested based on the “broadest reasonable interpretation” of the claims, in other words, a construction of the claims that would never be applied to a patent asserted in an Article III court where the claims are construed following an adversarial process.
This is a standard that has been established with the clear purpose of increasing the probability that a patent will be found invalid. A non-party can petition for a PIP. In fact, several new companies have been funded by large multinational multi-national corporations to do just that.
All this means that a patent standing on its own will not likely be accepted as an investment grade asset by an investor because, well, there is no way of knowing if it is valid or not. I think I mentioned earlier that I am not a rich person (most of us inventors are pretty broke) and I need investors to fund my company. One of the few assets I own are my patents. If I cannot leverage them in some way to fund a company, I am not likely to be able to compete with the likes of Oracle, Microsoft and other rich corporations. While these folks and the large VC’s will tell you that it is not about the idea, it is about speed and execution, money is required for both.
When competing in the enterprise software space against very large entrenched companies with existing customer bases and lots of money, it takes even more than speed and execution. It takes an injunctive threat.
Your view is so skewed to the slight possibility that someone is gaming the system that you have lost sight of the purpose of the patent system. It is not to be nice and pretty and sit in the corner so large corporations can do whatever they want. It is to spur innovation. It does this when inventors throw new inventions into the ring and build companies that threaten large interests. It’s the inventors who disrupt the whole system with new innovation. That disruption forces large companies to dance on their toes and get faster and better at inventing. It creates a race to the next big thing.
In your world, inventors should be destroyed.
Why are you attributing everything you don’t like about the patent system (e.g. AIA with new PIP process) to me when I didn’t even comment on such areas? Let’s be clear here. I was responding to the initial article’s definition of a patent troll and noted that there should be a distinction between the behavior of initiating or pursuing cases with little or no merit vs. the actors/parties involved. I also noted that there are also most definitely cases with merit and how corporations have not dealt well with small inventors so that PAEs have a positive roll to play in balancing power. However, power can be abused and it has been on both sides over time.
I have provided links to actual statistics (regarding case outcomes and venues) and specific examples while you have provided none. Whether it be data from patstats, Lex Machina, RPX, papers from academics that you can readily find, they all consistently show Plaintiffs losing the majority of patent cases in court where NON-INFRINGEMENT IS THE MOST LIKELY OUTCOME (literal direct infringement upheld only 30% of the time; doctrine of equivalents direct infringement upheld only 15% of the time), but where patent validity is questioned it is upheld 70% of the time (so asserted patent claims are found invalid 30% of the time where obviousness was the most common invalidity determination). The ONLY hidden piece is what is going on with settlements and you make the same presumption you are complaining about — that is, assuming what is going on (i.e. you assume people will mostly settle only if they are infringing). However, you ignore human nature, specifically greed — why in the world would an attorney NOT pursue a case with little or no merit if most companies would settle for significantly less than the cost of litigation and where there was virtually no penalty in doing so? Even 83% of trial lawyers agreed that “Litigation costs drive some cases to settle that should not settle on the merits” and they are hardly a group that can be considered to be unbiased.
Public companies have a fiduciary responsibility to their shareholders and Wall Street puts a strong emphasis on making the numbers each and every quarter and also not having litigation show up in their financial statements (for small to medium sized firms that may not have much pending litigation). There are very few companies willing to pay to win with little or no hope of fee recovery. Why in the world would they spend $2 million or more to prove their case and not get their money back when they could simply settle for half a million or less? A few companies, such as Newegg, Kaspersky Labs, FindTheBest, Rackspace, etc. take the moral stand and usually do fight back (in some cases when they shouldn’t) but the vast majority of companies settle and it is largely driven by economics.
You wrote “If you are sued and settle, you have in effect agreed that your case could not be won.” That is absolutely not true. What you effectively agree to is that your case could not be won at a lower cost than settlement. Most companies are driven by economics, not morality.
You also ignore that when a company does fight back and gets a finding of invalidity (if the Plaintiff doesn’t simply drop the case before such ruling) that all of the settlements prior to that are supporting the supposition that most cases are settled regardless of merit. For patent cases reaching a decision in court, that is 30% of the time on average with all settlements prior to that effectively being without merit. Even cases ruled on non-infringement can show this if the accused instrumentality is common to all defendants as is the case in the following:
Click to access gov.uscourts.txed.136225.192.0.pdf
There were 139 defendants that settled for $45 million prior to this finding (that’s an average of $324K per defendant). You and I should correspond offline about this case if you are interested as it is typical of trying to broaden or misinterpret claims inappropriately. The argument of non-infringement of RC4 with SSL for this patent is much stronger than the technicality found in the above ruling, but is too much to describe here and it’s off-topic.
I’ve looked at hundreds (if not thousands) of cases (my pacer bill reflects this) including those that settled early and I’ve talked to many attorneys on both sides about what goes on. What I personally experienced was not an anomaly. Most patent cases are settled on economics, not merit.
My suggestions for civil litigation tort reform are NOT patent specific at all and they would not harm small inventors in any way. A random 1% audit rate for settlements has nothing to do with patents and is applicable to all civil litigation abuse since they all operate the same way — settling at a lower cost than fighting in court with little chance of recovery. Similarly, a point system for attorney conduct abuses similar to how traffic law works so that it measures the cumulative repetitive harm over a specific timeframe (i.e. older points are removed from the record) has nothing specific to do with patent law (though I didn’t write about this in my comments here, but it’s part of what I propose). A point system would break through the fear judges have of being too harsh since a single point would not be in the public record, but repetitive behavior would lead to reprimands, suspension, and disbarment.
As for Rule 11 or fee shifting, such rules mean nothing if they are not actually applied and that has largely been the case. I gave you a specific example (Diagnostic Systems) you ignored where after nearly a year the Plaintiff couldn’t even put together an infringement chart explaining the infringement yet Rule 11 sanctions were NOT imposed which is why Rule 11 is rarely requested (< 2% of all cases and it also pisses off Judges especially in EDTX). It's even worse than that because after Microstrategy settled that case they were sued again by the same PAE (though with a different patent via a different subsidiary) in spite of a very typical clause in the settlement agreement of a "covenant not to sue" with the current portfolio of patents owned by the PAE. See the first paragraph of section “(b) Litigation” in the following section of the Microstrategy 10-K:
http://www.sec.gov/Archives/edgar/data/1050446/000119312512067605/R15.htm
Again, I gave you a sense for the feeling on the CAFC that Rule 11 should be applied sparingly where I quoted a CAFC judge. Generally speaking, Rule 11 was only applied with litigation misconduct, not just pursuit of weak cases though that started to change some in 2012, but even there sanctions against shell-company subsidiaries are toothless. As for fee shifting, prior to Octane Fitness, there were NONE from 2005 to 2011 while since Octane there were 8 in just 4 months since the ruling (I haven't tracked it since). So if the drop in PAE suits is related to this shift in economics, then doesn't that show that some of their suits were weak enough not to risk getting fees shifted?
I would think that you would be in agreement with me that any changes should focus on litigation abuse and not harm small inventors. This is why I'm against the bond provisions being proposed and would prefer to see the focus be on attorney conduct.
I forgot to respond to your description of a post-issuance procedure (PIP). While it is true that a PIP can be initiated with a low level of a preponderance of evidence (i.e. more likely than not), the actual review is done using the “broadest reasonable interpretation” primarily because of two reasons. First and foremost is that the patentee is allowed to amend their claims to properly narrow them in light of prior art — something they are not allowed to do in court. Second is that the review is similar to re-examination in that it is to determine patentability, not validity. Also it is obvious from reading numerous PTAB decisions (as I have) that there is still some adversarial process of claim construction due to participation from both the petitioner and the patentee. The standard may be different than in court, but both sides still get to argue their case in light of the new prior art that is presented (there are other reasons for review, but prior art not originally disclosed is the most common).
Nevertheless, there are those who think this standard is not the right one to use and a few of these opinion papers are below where the last two are basically the same point being applied to re-examination which has the same “broadest reasonable interpretation” standard as PGR from AIA:
Click to access ThePTOsUseOfBRIIsInappropriate6-19-2013.pdf
http://www.sughrue.com/Broadest-Reasonable-Interpretation-vs-Ordinary-and-Customary-Meaning-8211-Challenges-Introduced-by-Applying-Different-Claim-Construction-Standards-at-the-PTAB-and-District-Courts-09-11-2014/
Click to access stahl%20%20heckenberg.pdf
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1434918
You will note from the second paper that even corporations such as 3M, General Electric, Procter & Gamble, Caterpillar, Eli Lilly, BP, Pfizer, Qualcomm, etc. want the BRI standard changed.
Click to access AmicusbriefreuseofBRIinVersatavSAPCBMappeal.pdf
The main hardship on the inventor with PGR is that they only get one shot at canceling a claim and adding a reasonable number of substitute claims. This is in contrast to re-examination where amendment is iterative and can be more generally applied. To some degree, the PGR process seems to be one of “we’re pissed off that you didn’t disclose this prior art when you initially filed the patent so you’ve got one shot at getting this right.”
If the BRI standard is changed to ordinary and plain meaning (per Phillips), then the question becomes whether claim amendment should be allowed since now the focus would be on validity rather than on patentability. One could then question why a parallel process to the courts is then necessary. Why not just fix the courts if there is a problem there? If EDTX is the main problem, then venue selection should become more random and distributed especially if travel cost burdens were not demonstrated or were compensated.
I also neglected to comment about what you wrote about demand letters: “Two major government investigations both independent of each other and all they could collectively come up with is 6 examples. Yet the anti-patent folks scream of abuse with their one or two demand letters in hand demanding major changes to patnt law that only harm inventors.”
No one is saying that there are many entities doing broad demand letters. However, just one entity, MPHJ, sent out 16,465 demand letters to small businesses. So it is very misleading to imply that “6 examples” means there is hardly an issue here since “examples” did not mean affected defendants but rather plaintiffs. Now on the plus side is that nearly all of these businesses simply ignored the demand letter. The requested amount of $1000 per worker was of course ridiculous given whatever portion of a company’s scanner actually infringed upon the patent claims (if there indeed was any infringement at all).
People complain as a function of the pain received and that is not a function of the number or plaintiffs but rather the number of defendants hit with weak cases (or fraudulent demand letters — saying things like “many companies” had paid for a license even before a single person had paid). In pretty much every historical civil litigation abuse area, there were a handful of players abusing the system, but their volume was huge. We’re talking dozens, not hundreds, of plaintiff entities and law firms (probably into the hundreds if one looks at individual lawyers). It’s really a shame that some PAEs and their contingency lawyers got greedy and truly ruined what would have been a great marketplace for balancing power against corporations on behalf of inventors such as yourself. Very similar to how unions balanced labor power against corporations.
“So it is very misleading to imply that “6 examples” means there is hardly an issue here since “examples” did not mean affected defendants but rather plaintiffs.” – Not sure where you come to the conclusion that I’m misleading anyone. If you change law so that it forces litigation over out-of-court discussion because six people screwed up, you are harming many more than just those six and many more than 16,000 who received demand letters. Instead, you are harming tens of thousands of inventors and potentially millions more than those 16,000 because law suits become the only way to negotiate a settlement. Seems to me someone in this conversation is guilty of misleading argument, but that person is not me.
I thought about arguing facts in this continuation of our discussion, but I am beginning to think it unnecessary and unproductive. Instead, lets talk about the meat of the issue in this string of posts.
You grab onto small and inconsequential facts like “many people had licensed” as key to your position. “Fraud” you screech. You could also bring up that the demands were made without intending to file suit, which is the second of the two charges made by the FTC. Neither of these two actions raise anywhere near high enough to warrant changing law. Your arguments are absurdly petty compared to the magnitude of damage the changes you propose will have.
You leverage your chosen villains (NPE’s, lawyers, trolls, etc.) , by discussing them in conclusory terms. Then you support the conclusion with innuendo and false facts to further vilify them.
You don’t dissect argument into its elements, isolate the elements and then come to a conclusion based on analysis of underlying facts. Not surprisingly, you state a conclusion and argue that your facts support it. That’s backwards and I think you know that. Facts that detract from your narrative are discarded or ridiculed.
You attempt to position yourself as a higher authority than me by dropping in your job history, links to research and other miscellaneous non-related stuff designed to shore up your credibility, and then you imply that I haven”t read enough and I just don’t understand the issues.
I do read. I do understand. And I know what you are. You are a lobbyist. An expert in deception paid to obtain a result. You have no interest in the facts or the harm that the positions you support cause to others. You don’t seek knowledge or justice. You seek money and unfortunately, perhaps you will earn it.
You assume that any change will hurt small inventors, but that simply is not true. Increasing pleading standards to be specific about the accused instrumentality (among other things) does not hurt legitimate cases, but does increase the time and cost needed for each demand letter and complaint so mostly makes it less cost effective to do blanket accusations or suits and also gives more information to defendants to figure out exactly what it is being asserted.
As I noted earlier, some items of pending legislation such as bond requirements would be harmful to small inventors and I disagree with such provisions. You seem to assume that I agree with currently proposed legislation when I do not. In fact, I think it would be best if the legal system were to deal with this problem itself via bar associations and courts, but in the absence of significant action there then legislation is the second choice for dealing with this (I won’t even discuss the third choice since it would totally destroy public trust and confidence in the legal system).
I am not a lobbyist, but a S/W engineer. I did not use a pseudonym and in some replies used my Google account so you see my picture (for some reason use of Google+ doesn’t work consistently for replies). My LinkedIn account is here:
https://www.linkedin.com/pub/richard-falk/0/735/b25
I was personally affected by a lawsuit from a PAE, to the point where I wrote a long letter in 2011 (on my own as an individual) to all of the parties involved — the PAE, the attorneys (multiple law firms), inventor and assignee, bar associations, and expert witness. I was shaken to my core at how such behavior could be allowed in spite of the evidence. I begged the company I work for not to settle, but economics ruled and they showed me the case landscape at that time for why there was virtually no chance of fee recovery. I was not naïve enough to believe that what I experienced was common even though I was told it was, so I began researching for myself spending a lot of time and money researching cases, talking to lawyers and others on both sides (including PAE executives, corporate counsel, and inventors), attending legal ethics conferences, talking to Judges, and generally trying to find out how prevalent the behavior was and most importantly trying to figure out what could be done about it — all of this on my own time and at my own expense.
I’m really sorry you are having such difficulty with the USPTO getting your patents approved and I’m sorry that corporations have not dealt with you fairly regarding your inventions.
OK. I retract that comment and apologize. I use my real name too. My linkedIn profile is https://www.linkedin.com/pub/paul-morinville/0/481/422.
Let’s take an issue in the proposed patent legislation and relate that to how it may help and who it will harm. I propose this issue as the first to discuss. If you would like to use another, please let me know which one and we can start there.
HR 3309 and other bills would eliminate any patent term adjustment for a delay created by the USPTO (a request for continued examination (RCE) or an appeal).
My position is that this does nothing to help companies sued for nefariously for patent infringement. Instead is damages inventors because it would unfairly reduce the patent term of a large number of issued and pending patents – some by a decade or more, and a few would be eliminated altogether.
Reducing the term of patents generally hurts pharmaceutical companies more than anyone else because they already have a shorter time when patents can protect their drug products due to the relatively long time between the filing of a patent and getting through safety and efficacy trials to get a drug to market to begin earning money to recoup investment costs.
While all patentees would be affected by any shortening of patent terms, it’s not a provision that is uniquely harmful to small inventors. It is also not a provision that would reduce patent litigation abuse.
I agree with you. I’ve been thinking about your point on enhanced pleadings. There are a couple of issues that I think would harm inventors.
Most of the proposed enhanced pleading requirements would require that a full claim chart against the accused product be included in the pleading. When you draw a claim chart, you first have to imply definitions to the terms. In effect, you are saying this term in the claim means this definition, and that definition equates to this term in the accused product. It’s not hard to do when all of the information is available.
The problem arises when not all of the information is available. In many software cases technical manuals are not available publicly. There is often enough marketing information available to make a reasonable claim of infringement, however there may not be enough to make a reasonable claim chart. If you make a claim chart, you will be forced to make assumptions on the infringing product. This could lead to a court defining the claims adversely (an unjustly) later.
It also raises the cost of filing a suit by tens of thousands of dollars – perhaps more. Making a claim chart with limited information will require much more careful examination than it would with the technical documents available. Technical experts and lawyers will analyze each word in great detail as to how it could be misinterpreted by a court or a future potential infringer. This raises the cost for everyone becasue the plaintiff will not be able to accept a settlement unless this cost is covered. It also will cause the inventor to pass over infringing companies that should be sued.
Certainly there will far fewer cases filed. That’s a good thing for cases that should not be filed, but no doubt there will be a substantial number of cases that can’t be filed where there is actual infringement but not enough public information to file them.
I understand the problem of suits filed against companies who don’t infringe just to extort a settlement. I wonder if the cure of awarding fees and punitive damages for frivolous suits is a better solution. It does drag an innocent defendant through the courts, which inconveniences them. In the end, the innocent defendant can be made whole. It also doesn’t harm an innocent inventor who is trying to protect their patents. Conversely, it may not possible to make the innocent inventor whole with enhanced pleadings.
The devil is in the details. The requirement for pleadings should be based on what information is available publicly including documentation, marketing literature, and anything gleaned from the accused instrumentality itself. Obviously, greater certainty of infringement can only be determined in many cases after discovery, but because discovery is so expensive one wants to be sure proper due diligence is made right from the start. This often requires hiring of experts and that does increase the cost, but for a legitimate lawsuit one would have to go through that anyway. Lawsuits should not be a fishing expedition.
The first time the PAE approached the company I work for, they accused a product that had a completely different technology than what was described in the patent and they knew the technology in the accused product because they quoted it correctly. This was essentially in a demand letter, not a pleading, but it was very clear that these guys hadn’t even consulted an expert at that point (or they did, but either the expert was incompetent or they ignored the advice). When we pointed out this disconnect, they went away (or so we thought), but then came back later suing companies we sold to and due to indemnification clauses we entered into that lawsuit against 6 companies.
At least the pleadings to the lawsuit did correctly identify different products and features that superficially related to the patent and there was not an easy way for the plaintiff to know the specifics of the technology to determine infringement without going through discovery. I didn’t fault them for that, but when such discovery occurred (and when prior art and the PCT report were found) then there was no excuse, but it didn’t matter. That is when it became crystal clear that the lawsuit was not about stopping infringement or getting compensation from infringers, but about getting money from settlements regardless of case merit. There were 6 different law firms involved in the case for the plaintiff so it’s not like there was only one rogue attorney out there.
My objections to enhanced pleadings are not as strong as my objections to other provisions. They could be OK depending on the specific language. At least enhanced pleadings is directed to the result of stopping frivolous suits.
I don’t believe that any of the other provisions as they were presented in any other proposed law last year were actually intended to control frivolous suits. At least the effect of the provisions were not intended to accomplish that. The intent was to neuter patent enforcement overall regardless of the merit of the suit.
I’m not harshly opposed to fee shifting either. However, even the proposed fee shifting provisions were harmful to inventors. They included a pass through to investors, which opened them to risk of losing personal assets if the case was lost. The effect of that provision is to make it impossible to find an investor for a patent lawsuit – no investor will invest if they can lose personal assets. This is a base reason for why we have corporations in the first place. If the cost of a lawsuit were reasonable, it would not be a problem. However, the cost could be in the millions in out of pocket expenses alone and the vast majority of inventors do not have that kind of money. Killing investors kills inventors.
If patent reform starts back up next year as Cornyn and Goodlatte propose, it needs to be measured and targeted at the root of the problems. It also needs to fix those problems common to both sides.
For example, the PTO puts out bad patents. Stuff that should be found obvious – like putting an auction online. They also put out patents with ill-defined claim terms and claims that incorporate more than what is invented. I think we both agree on that.
They also send out idiotic rejections and take more than a decade to allow a patent. They do not grant back most of the time lost in prosecution, so it just vaporizes. So for an inventor, the patent’s value is mostly gone when it is allowed. First, it is widely infringed (if the invention has any value) and second, there are often not enough time left to build a licensing program. The inventor has also spent way more than needed in attorney responses to nonsensical rejections.
Fixing the patent system must first fix the PTO. All other fixes will fail unless patents are valid when issued and issued timely.
The whole category of abstract idea must be eliminated or tightly defined. Elimination is preferred. Today, it is impossible to know what is patentable because there is no known definition of an abstract idea. That leaves many valuable inventions unenforceable. To enforce a patent under the current definition is foolish as there is no way to project if it is valid or not. It’s also unfair for both sides. If a patent truly should not be valid, it should not be enforced. Since there is no way to make that determination, many will still be enforced.
A patent should earn injunctive relief in every case won. Forced licenses just promote infringement as the infringer can play catch me if you can and will still own the market no matter if they win or lose. No court can determine the value of an invention in the market. It can only be determined by the market itself and injunctive relief is the only way for that to happen once it is infringed. The thing that gets me the most though is that a patent is nothing but a Constitutional right to exclude others. How the courts came to eBay is stretching their authority beyond the very document that creates the courts in the first place.
There are several topics in your comment that I will address separately.
OTHER PROVISIONS IN PROPOSED LEGISLATION (mostly H.R. 3309)
1) Pleading Requirements — we discussed that already.
2) Fee Shifting for loss when assertion not reasonably based on law or fact. This again depends on how this is done for whether it will be successful, but it clearly deters weak cases. Unfortunately, it is worked around by having subsidiary shell companies with no revenue and only the patent-in-suit as the sole asset. Holding the Plaintiff’s attorneys jointly and severally liable would have the most teeth for this provision but that’s a 3rd rail in politics for trial lawyers.
3) Joinder of Interested Parties. Great in theory, but again worked around through setting up foreign subsidiaries to own the domestic shell companies thereby creating a jurisdictional corporate veil.
4) Discovery in Patent Infringement Action. Improvements in this area have already largely come from the courts, though it took them nearly a decade before they did something about this (i.e. separating core discovery such as examination of source code from non-core discovery such as E-mails).
5) Demand Letters. This increases due diligence and costs so deters widely distributed letters, but this isn’t the biggest problem in spite of the bad press — one could just publicize that such letters should be treated the way spam from Nigeria is treated — ignore them. The trick is in how legitimate cases can be negotiated without filing a lawsuit. Unfortunately, corporations receiving letters sued first to secure venue so now plaintiffs mostly sue first as well instead of first negotiating.
6) Transparency of Patent Ownership. Doesn’t reduce abuse per se, but does help expedite a defense thereby reducing defense costs. Transparency in general is usually a good thing.
7) Customer-Suit Exception. This is somewhat similar to an injunction in that it is primarily a leverage item, but it can also be abused since generally suits should be against the manufacturers directly (even though legally one is allowed to sue on “use”, not just manufacture).
8) Judicial Conference Recommendations. These are mostly regarding discovery, but much of this has been improved by the courts already. These do/have improved abuses by reducing litigation cost prior to possible summary judgment (at least outside of EDTX).
9) Small Business Education. This can help shore up defense to prevent people from paying nuisance settlements where there may be no infringement or where the patent would otherwise be found invalid.
10) Studies on Patent Transactions, Quality, and Examination. Depending on actions taken, this could be a good thing. As you point out, preventing poor patents from getting issued in the first place is important, but I really do not blame the USPTO for this completely because the courts pretty much forced them to open the door too widely to software and business method patents (see the Patent Absurdity video for more info on this).
Other) Different bills had other provisions such as bond requirements (in the SHIELD Act H.R. 845 and S. 1612), but those could hurt small inventors and any items in bills trying to identify entity type are prejudiced. Again, holding the Plaintiff’s attorneys jointly and severally liable would hugely stop abusive behavior because if their client won’t pay then they would be on the hook themselves if their case is lost AND shown not to have reasonable merit.
FIX THE PTO
Ending fee diversion from the USPTO (in S. 1246 and H.R. 3349) would help the USPTO with funding. Clearly, strengthening the USPTO to require strong and clearly understood and well-bounded patents is very important. And the problems with the USPTO cut both ways as you point out. Ron Katznelson has written a lot about this — the varying quality of different patent units.
WHAT IS MISSING
What is missing from proposed legislation is that which is at the core of civil litigation abuse generally, not just with patent litigation, but I’ve written about that earlier. What is also missing is dealing with EDTX where the simplest approach would be randomized venue selection or paid-for alternative venues while the most radical approach would be to re-district to eliminate EDTX entirely (that’ll teach ’em 🙂 More direct approaches would be not allowing the EDTX requirement for a motion to leave for filing a summary judgment motion (someone should appeal that, but lawyers who must practice in EDTX are afraid to do so).
ABSTRACT IDEA (SECTION 101)
As for the abstract idea, I think the Supreme Court missed a big opportunity when they could/should have ruled in Alice using obviousness (Section 103) or novelty (Section 102) rather than the court’s definition of what constitutes a patentable process (Section 101). IBM argued this in an amicus curiae brief and was the only one doing so out of many such briefs in that case:
Click to access 13-298_np_amcu_ibm.authcheckdam.pdf
Though Sections 103 and 102 are nominally a question of law, unfortunately courts seem reluctant to decide it pre-trial or pre-discovery so the Section 101 approach reduces litigation costs much more significantly. It would have been better to rule that “putting it on a computer” patents should be decided early in cases even if using 103 or 102 to do so. And of course, the USPTO should not have issued such patents in the first place (but were more or less forced to do so earlier by courts).
FORCED INJUNCTIVE RELIEF
The problem with injunctions is that many patents today are but a small part of the value of large complex products. An injunction doesn’t make sense in those situations where the invention is not a hugely critical part of a product nor comprising a significant portion of its value. Nevertheless, Courts can and have threatened an injunction in these situations giving time for a company to remove/disable the infringing portion. Microsoft did that with removal of custom XML, for example.
One thing I forgot to mention is that fee shifting should be a two-way street. So if a defendant stalls in discovery or hides something or generally behaves badly (excessive motions for delay, weak arguments, etc.), then they too should be subject to fee shifting if they lose, though really improper conduct from either side should be dealt with by sanctions (again, with attorneys held jointly and severally liable if their clients do not pay). Fee shifting is being treated as an easier way to get sanctions since no one wants to address the core issue of attorney conduct. A point system and auditing would help alleviate the concern courts have of sanctions “ruining a layer’s career” (as if!)
“The problem with injunctions is that many patents today are but a small part of the value of large complex products.” Yes. that is true. And it has been true for centuries. In the early 1800’s farm implements were the booming industry like software is now, and most of the inventions were small parts of a plow or rake or whatever. The leading farm implement companies went out and actively purchased these smaller inventions from the mostly farmers who invented them. The plows and rakes were much more complex machines, so the same argument could be made that the inventions were a small part of the complex value. Injunctive relief drove their decision to buy rather than infringe.
Today the argument is made (and unfortunately won) by large moneyed companies who would rather infringe than buy. This thinking only increases litigation.
What’s more is almost all of the products that implemented a smaller invention existed before they implemented the invention and sold just fine. They may sell better now that they infringe, but the infringing part can be removed and they still would have a marketable product.
A good example of this is the pop up calendar on Microsoft Office applications. Office applications existed before they implemented the pop up calendar and would still sell without it.
Regarding patents issued too broad… “I really do not blame the USPTO for this completely because the courts pretty much forced them to open the door too widely to software and business method patents”. The courts don’t control the door – or at least they should not. The legislature does and had already spoken. 101 says “any” process. Software is a process and falls under “any”. So do business methods. They all pass the bar of “any” process.
The problem here is that the Supreme Court pioneered a new way of writing patent law. They took power that they do not have and should not have and screwed up the law. Almost all of the representative cases invalidating a patent under 101 abstract idea (Bilski, Alice, etc) should have and could have been found invalid under 102, 103 or 112.
Now we have total confusion and chaos because there is no longer any meaning to the statute.
As long as there are anti-patent venues such as the NDCA, there needs to be patent friendly venues such as EDTX. The system needs balance. I don’t know why venues start to tilt one way or the other, but whatever that driver is should be addressed.
If we were to break up the EDTX, we’d have to break up all the patent venues to ensure fairness.
Customer-Suit Exception. This is particularly harmful to inventors. On the surface it sounds like a good idea, but who is the customer and how far back up the chain does it go?
Take a PC. In it is a graphics card. On the graphics card is a chip. If I sue the purchaser of the computer, he calls himself a customer and I have to sue the PC maker. The PC maker calls himself a customer and I have to sue the graphics card maker. The graphics card maker calls himself a customer and i have to sue the chip maker. Where does it end?
Also the value created by the invention is greatest at the end customer. Why should an inventor lose the lions share of the revenue generated to be used as a baseline for a forced license? Again, I come back to injunctive relief.
“Nevertheless, Courts can and have threatened an injunction” I don’t think that’s true at least not since eBay and at least not for an inventor or other patent owner without a product. I know of no cases anyway.
Well I suppose it comes down to what the value of the infringed patent claim actually is within the product. Microsoft had to pay i4i $240 million in damages ($200 million in royalties at $98 per Microsoft Word copy — think about that given Word retail pricing at the time) which I suspect was worth a lot more than having custom XML removed from Microsoft Word. Note that I do not disagree with this particular injunction, but rather doing a blanket injunctive relief rather than using the eBay factors. Interestingly, this same case appealed to the Supreme Court that affirmed the strong presumption of patent validity (Microsoft wanted a preponderance standard instead of clear and convincing). This case also demonstrates that the USPTO had better get it right the first time because of the deference given to presumed validity (though the relevant claims of the i4i patent did survive re-examination).
My comment on injunctions was more with regard to the many thousands of patents that make up a product such as a smartphone. One has to start wondering whether this number of patents is really the kind of discovery or invention that patents were designed to protect or whether it’s just carving out monopolistic exclusion zones for what might be considered to be regular run-of-the-mill engineering development in a competitive environment. Just because no one did something before does not mean it is non-obvious to those skilled in the art. The USPTO really did try and rein in these types of patent applications until the courts forced them to open the floodgates. So now perhaps the pendulum with Alice will swing too far in the other direction which is too bad. We’ll see.
On demand letters: “The trick is in how legitimate cases can be negotiated without filing a lawsuit” On this much we agree. It is foolish to send a demand letter. The problem with that is that the only patent that can go backwards in time without notification is a process patent and that is only for 6 years. That whole laches estopal should be removed unless and until there is a way to negotiate a settlement. Right now you can’t so much as notify a company of infringement without a DJ or a PTAB. It is also impossible to sue everyone in one shot thanks to the AIA. It can take years to move through a bunch of venue related cases in one court and then move on to the next venue with another bunch of venue related cases. By the time you’re done with your first few venues, the already shortened life of the patent may have run out… unless of course you just settle them out for peanut. The alternative is to manage multiple cases in multiple venues hiring multiple law firms which by the way is very expensive and very hard to manage. You of course risk invalid patents in some courts under 101 and valid patents in other courts under the same law even though they are the same patents. It’s really a pretty big problem and very harmful for inventors.
“Note that I do not disagree with this particular injunction, but rather doing a blanket injunctive relief rather than using the eBay factors.” I’m assuming that your point is that you agree with using the eBay factors.
I take issue with that for multiple reasons. The first and primary reason is how Article 1, Section 8 Clause 8 is written. It seems to me that Congress (and the courts) has much latitude around how a patent is litigated, but they have no latitude around what the effect of losing a patent infringement case does. It is the right to exclude others and nothing else. Once the case is won, the inventor has the right to exclude and could decide to license if he wants to. A patent is not the right to force a license.
The second reason is just as strong. A patent that cannot earn injunctive relief is not an investment grade asset. That is core to the success of a patent system overall. An inventor armed with nothing but an exclusive right to a particular market can generate investment to build a company to capitalize on that market. That is the history of the patent system at least since the patent act of 1836, which put the examination process into place and created a presumed valid asset. The list of companies started solely based on patents makes up most of the fortune 500 you see today. GE, Westinghouse, ATT are just a few. They represent American industrial greatness. All of that was becasue of a patents ability to earn injunctive relief.
Don’t believe me – lets look at the other way. Under eBay an inventor cannot earn an injunction without a product. The inventor files the patent and waits. 18 months later the PTO publishes the application, which is the purpose of the patent system Make it public so others can build upon it. Then the inventor waits. Often for years. I waited for 7 years and am still waiting for a few of the for 12. If the invention is significant, the market will not wait. Whether that is because someone else invented the same thing independently or becasue they just peeled the invention off the PTO site is up for discussion. In either case it is out there while the inventor waits with no asset to leverage to fund his company based on his invention.
Eventually the inventor gets his patent. However, now the market is saturated with large competitors who have simply upgraded their existing products and upsold their existing customer base. The inventor tries to get funding to start the company and finds out that a patent that cannot enjoin those massive competitors cannot earn investment. Why would the invest in an invention that is already mainstream if there is no way to stop the competition?
We now live in a world where there will be few new fortune 500 companies. Those already here will stay because they can just steal inventions without ever worrying about losing the market they steal. They may have to someday pay a license, but it will be determined by a court – a political entity.
Regarding “process” where you wrote “The legislature does and had already spoken.” One must consider context at the time of the legislation when software hardly existed. Again, I refer to the Patent Absurdity video that lays out quite clearly the history of case rulings that transpired (one has to ignore the more biased portions of the video and focus on the sequence of rulings). There was no clear legislative mandate with regard to software and business method patents — that expansion came from the courts.
As for NDCA, I’ve looked at rulings there and though they are less patent-friendly, they are no where near as biased as EDTX where I’ve seen many rulings that are simply ridiculous — claim construction that was flawed and most importantly forcing jury trials where there really should be summary judgments based on legal issues (i.e. no facts that a jury needs to decide). EDTX is truly set apart from the rest.
As for injunctions, the Microsoft / i4i case is a huge example of an injunction post eBay. This was not at all an exception. In over 75 decisions applying eBay from May 15, 2006 through June 15, 2009, permanent injunctions against further infringement were granted roughly 70% of the time. Cumulatively as of 2012, the rate is granted 75% of the time (165 out of 221 since eBay). Most denials for an injunction are due to not proving irreparable harm. The following document is one that describes this:
Click to access Fiacco-May%2016%20eBay%20v%20MercExchange.pdf
So it is true that if you are a PAE/NPE or inventor without a product/business, then you are far less likely to get an injunction, but there are some examples where that is still the case. However, damages are not determined based on whether or not you would get an injunction. Also, if one doesn’t have a business an injunction wouldn’t prevent future harm in terms of competition. You get damages or a settlement with royalties. The main downside is having to sue again if there is continued infringement (without negotiated payment).
“One must consider context at the time of the legislation when software hardly existed” I think that’s wrong. Patent law is not intended for those things already invented. It is intended for those thing not yet invented. It is intended to encompass new technologies. I think it is hard to argue that since the 1952 patent act, software is not a new technology. It is also part of virtually every industry now including your refrigerator and your watch. It is even part of the shoes you are wearing.
It is a process and falls squarely within the definition of a process. A process was allowed in the patent act.
“However, damages are not determined based on whether or not you would get an injunction.” That’s right. A court cannot substitute an arbitrary value for a market value. A market value can only be arrived at by a willing seller and a willing buyer, which in the context of this discussion can only be found with injunctive relief.
“As for injunctions, the Microsoft / i4i case is a huge example of an injunction post eBay” Yes. But it is one example and there were other considerations. Microsoft worked with i4i when they had a product and then took the technology, embedded it into Word and upgraded the customer base (sound familiar) leaving i4i in the dust. Had it not been for that nefarious conduct, there probably would not have been an injunction.
Regarding customer suit exception, the damages model against a manufacturer who infringes (say the chip maker) isn’t going to be much different than a REALISTIC damages model for end-users because the dilution of value to the end product should end up with a similar number except for markup that has nothing to do with value add from the invention (i.e. markups of distribution pay for the value of such distribution). If you were a business that sold all the way to end users, then you could argue lost profits as part of damages and that would capture some of this markup, but as an inventor without your own business you would sell your invention to the chip maker, not to the end-user. Though the law allows otherwise, the primary defendant should be the one primarily infringing. One could always move downstream if there are problems with the primary infringer. It’s starting with the end-user that’s the problem due to the asymmetry and potential abuse of power due to litigation costs and sophistication.
I see your point regarding the lack of an injunction causing problems regarding future infringement since as you point out you are not required to license the patent. So frequently suing to extract damages is painful and costly. Normally you’d try and get a future royalties agreement in court, but if you just wanted to spite and prevent the invention being used at all or if you wanted to go into business later or sell it, etc. then it’s true that not having an injunctive option is less leverage. On the flip side, most companies aren’t going to want a roller coaster of frequent suing from continued infringement. As for young companies getting funded on new patents and having competitors infringing, one does have to wonder if the patent claims are truly that non-obvious if such competitors sprang up so rapidly — unless they truly just copied from the patent application disclosure. Usually companies intentionally do not look at new patens and applications because they don’t want to be seen as willful infringers.
See the following:
Click to access smalin.pdf
Note the “Harm to Patentee’s Reputation” and “Nascent/Developing Market” were important factors and I would bet that you could rather easily demonstrate the point you are making regarding not getting investors to fund the business without an injunction to ensure preventing future infringement (i.e. to ensure a carve-out to allow your business to have an exclusive right).
I agree that your situation sucks, mostly because of the USPTO delay. Without that long delay, the timing issues would be more moot.
“markup that has nothing to do with value add from the invention (i.e. markups of distribution pay for the value of such distribution)” In the end the customer pays a price for it becasue the customer feels the value of it is worth the price. It doesn’t matter how it is distributed or how its other costs are generated. It is the price at the end that is its value.
This is among the many problems with attempting to assign an arbitrary value to a market value.
“but if you just wanted to spite and prevent the invention being used at all”. I’ve heard this brought up before but never has there been an example of it. People don’t spend the time and money necessary to patent something just to hang it in their office. They do it to return the investment.
I classify this sort of thinking as anti-patent propaganda without any basis in fact.
“As for young companies getting funded on new patents and having competitors infringing, one does have to wonder if the patent claims are truly that non-obvious if such competitors sprang up so rapidly” This was the argument used since Eli Whitney. He sued over 80 infringers in Georgia before a judge finally said that it was not obvious because the market had so rapidly adopted it shortly after he disclosed the invention. After all, if it was obvious, it would have already been adopted.
I that is the stronger argument.
“Usually companies intentionally do not look at new patens and applications because they don’t want to be seen as willful infringers.” Yep. They tell their engineers to go to trade shows, examine competitive products and find out about what others are doing BUT NEVER search the PTO. It is exactly for the reason you say… to avoid willfulness.
You can see it in action by reading the post it notes that Google forgot when they returned technical documentation to a company they stole patents from.
http://valleywag.gawker.com/lawsuit-claims-google-wrote-down-plan-to-steal-idea-on-1621674163
“I agree that your situation sucks, mostly because of the USPTO delay.” Yes PTO delay played a role. But so does a patent that cannot exclude. If it did, someone would have purchased the portfolio from me and then productized it.
“unless they truly just copied from the patent application disclosure.” I know exactly how it hit the market. It was not the PT website in the case of one of my inventions.
Software can be part of a process, but Congress was thinking about manufacturing processes, chemical engineering processes, and the like. Remember that “process” was added in the Patent Act amendment on July 19, 1952. That’s the year after UNIVAC (used by the Census Bureau), the year Grace Hopper created the first compiler (A-0), a year before IBM had a computer product for sale, and two years before FORTRAN. The trick with software is where to draw the boundaries and it is the courts that have defined that, not Congress. Nevertheless, if the issued patents had clearer claims (were not so indefinite) and were more clearly non-obvious, we’d likely be in closer agreement over what was left.
We’ll agree to disagree on the market value proposition. The value to an inventor is not the same as the value to a company selling product. Not all value flows to the inventor and there is definite value to a company, to distribution, to retail outlets or online stores, etc. I do, however, understand your argument in that if the product was unique enough to add to total possible sales (not just sales from a competitor), then the downstream value chain could be incrementally benefiting due to the invention. It’s a “value to society” argument.
I didn’t use the spite example as real, but in response to what you brought up with the fact that a license is not required to be given. In fact, if licenses are given to others, then such rates are used as part of the future damages or required license for infringement.
As for competitors springing up rapidly, I meant in the context of no other product using the patent existing yet. Obviously, copying patented products does not make the technology non-obvious. My point was with regard to separate invention which is fairly common and why there is a lot of prior art found (30% of contested patent claims in court). This is again where a stricter non-obvious rule would help.
I looked for stats on injunctions since the acceptance rates were still fairly high and found in the following:
Click to access Chien-Lemley.pdf
In Figure 1 note that the injunction rate for individuals was 90% (9 out of 10), even higher than practicing entities at 79% (126 out of 159). It is patent assertion entities who were most affected by the shift imposed by eBay. So I don’t know why you believe that you would not have been able to get an injunction. The stats don’t bear that out.
I think we see each others points even if we are not in complete agreement.
Those stats on injunctions are new to me. Thanks for the link.
The stats brings up a core problem.
I’m an inventor and all I have is a patent to leverage for investment. You’re an investor. You invest in my company and like 90% of new companies, I fail. Now you own my patent. Did you invest in my company for the value that the patent can bring to me or the residual value that it would bring to you in the event you ended up owning it? I would posit that you chose the later.
The problem is that investors don’t base their investment decisions on the value of a patent to the inventor owns it; they value to patent as it will be if they have to take ownership of it.
That means that many investors look at a patent asset as a low value asset. You commented early that inventors often think the value of their patent is far greater than it is. When considering how it loses substantial value to anyone but the inventor, I think you may be right. They overvalue it becasue they assume it has the same value to them as it would to someone else, and they are unfortunately mistaken.
This nationwide attack on investors is not free. It has an economic cost that we all feel. Today we have more companies going out of business than we have startups.
I totally disagree with your definitions. You can be a “patent troll” with a perfectly good patent. It has nothing to do with the quality of the patent. It has a lot more to do with the quality of the alleged infringement.
I would define patent troll as a business that attempts to extort “nuisance settlements” using patents without making any effort to determine whether an alleged infringer is actually infringing a patent or not. Or who uses a patent that is known to be invalid. In other words, patent troll = scam artist, and should be stopped by the FTC, not changes in patent laws.
You can’t fault a patent owner for legitimate enforcement of a “patent that never should have been issued.” Who’s to say it never should have been issued? That’s for the PTAB and/or the courts to decide. AIA made it very easy to challenge such patents, at much lower cost. Took away a lot of the asymmetry in patent litigation.
You might not like IV’s business model, but it is not a patent troll.
Barry, I don’t think its possible to be a patent troll. It’s a fictional character. It doesn’t exist, but is conjured up and splashed out there in the paid media by the anti-patent crowd (Google, Facebook, Amazon, etc.) to disparage inventors so they can steal their patents without any consequences. It’s a brilliant piece of fiction and a great read for those wishing to separate from reality.
The so-called patent trolls that are accused of nefariously suing little companies are so rare they can be considered nonexistent. They can also be considered litigation abusers, if in fact there are any real examples.
It’s all a great big lie, but damn they have good PR people and lobbyists. My hat’s off to them.
Paul, we’ve been through this before in this long thread and all of that has apparently been for nought. Civil litigation abuse is very real and has reared its ugly head in patent litigation abuse. It isn’t just the MPHJs of the world sending out demand letters to small businesses. It is some of the largest PAEs who used lawyers paid on contingency to do “volume licensing” where multiple defendants were sued simultaneously with the goal of maximizing money received from settlements usually at a cost lower than litigation. Until 2011 with Eon-Net and especially 2012 with Marctec, Highmark, and Raylon, the Courts generally did not apply FRCP Rule 11 sanctions for pursuit of cases with little merit and until 2014 with Octane Fitness did not generally apply 35 U.S.C. §285 fee shifting. And Bar Associations still generally do not sanction using Rule 3.1 (3.01 in Texas) Meritorious Claims & Contentions unless there is other more severe litigation misconduct. There was no reason for lawyers NOT to pursue cases even where a patent may have weaknesses that could lead to its being declared invalid and most certainly no reason not to pursue cases even where there was no infringement since proof of non-infringement almost always requires going through costly discovery and use of experts.
It’s also not little companies that were being sued, but mostly medium to large companies because they generally had more money so would pay $100,000 to $500,000 even when there was no infringement (even demonstrated after discovery) just as a nuisance payment since fighting through the courts would be $2 million or more including appeals.
I personally went through this not once, but twice, from the same PAE — a large public one, not some fly-by-night. I could not believe that attorneys would continue to pursue a case that had no merit (both demonstrable patent invalidity and non-infringement), but they do. I’ve spent years researching cases and talking to many on all sides to know that this was not just some weird exception, but was the rule for some PAEs as it was their implicit business model. It’s not that these PAEs didn’t also have some strong patents and sue actual infringers — it’s that this wasn’t a limiting criteria for them and they had no policies or incentives in place to rein in contingency fee lawyers to not just get money any way they could, regardless of case merit. That’s why they called it “volume licensing”. It was about quantity, not quality.
I agree with Barry and it’s pretty much the same definition I was proposing. It’s the business of pursuing at least a significant number of cases with little merit for the purpose of obtaining nuisance settlements. I disagree with him regarding this getting stopped by the FTC since the most economic harm wasn’t from sending demand letters to end users who generally ignored such letters. The most harm was done to medium-to-large sized businesses and to some startups through lawsuits (not demand letters) where the FTC does not have jurisdiction. This is a problem of attorney conduct — something that should be dealt with by the Bar Associations and the Courts. After nearly 10 years of this abusive behavior, the Courts finally started to turn the tide but there is still a long way to go to curb such despicable behavior. I want to be proud of our legal system, not ashamed of it.
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