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A Corplaw Commentary
Patent Trolling
Patently Obvious and Patently Clear
Or
Patently False and Patently Wrong?
by Barry J. Lipson
It is Patently Clear, as we will see, that to turn a blind eye to Patent Trolls and
Patent Trolling would permit Patently False and Patently Wrong claims of
Patent Rights to continue to fester and would not only be Patently Deplorable,
but would patently fail to promote the Progress of Science and useful Arts.
At exactly 11:42 AM, September 16, 2011 President Barak Obama signed the
America Invents Act into law, a Bill he advised that reforms the outdated patent
process. While aiming towards returning to a patent process enjoyed by Thomas
Edison [where when he]filed his patent for the phonograph, his application was
approved in just 7 weeks," Patent Trolls, called therein non-practicing entities,
or ... patent assertion entities, were not affirmatively dealt with, but were
relegated to a GAO Study under Section 34, which provides that: The
Comptroller General of the United States shall conduct a study of the
consequences of litigation by non-practicing entities, or by patent assertion
entities, related to patent claims made under title 35, United States Code, and
regulations authorized by that title.
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Section 34, containing the details of this
Study, is attached hereto as Appendix A.
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Except that new 299. Joinder of parties, limiting joinder of defendants, may somewhat strategically inhibit
Patent Trollers who have filed suit.
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We are, however, getting ahead of ourselves, we are
putting the Grant before the Application!
Once upon a time, in the sleepy village of Santa
Clara, there lived a very wealthy but very frightened
giant named Intel. Intel was plagued by a fearsome
band of evil trolls patent trolls to be exact who
wanted a glittering pot of gold in exchange for doing
absolutely nothing. They were very powerful because
they said they owned the patent on some of the magic Intel used to become rich.
So Brenda Sandburg tells us in her July 30, 2001 The Recorder expos, Trolling
for Dollars.
Perhaps, her Trolls are like the Troll living under Aurora Bridge in the Fremont
area of Seattle, Washington, as pictured on the cover page, proprietarily clutching a
real Volkswagen Beetle. Or perhaps like the enterprising Toll Troll extorting a
pound of flesh or Troll Toll from those trying to cross a public bridge.
She was drawing on the old Norwegian
folktale, The Three Billy Goats Gruff,
where under the bridge lived a great ugly
Troll, with eyes as big as saucers, and a
nose as long as a poker, who waited for
travelers and threatened them: Now, I'm
coming to gobble you up. In this tale the
first two travelers, who happened to be
Billy Goats, offered the Troll his following
caprine traveling companion with the
inducement: Hes much bigger. When
the final largest and well endowed Billy
Goat Gruff finally arrived and was
threatened, instead of offering the Troll
any bribe, he in an ugly hoarse voice of his own challenged: Well, come
along! I've got two spears, and I'll poke your eyeballs out of your ears; and
without waiting for the troll to act further, he did! Snip, snap, snout. This tale's
told out.
By 2007 Forbes was defining Trolling for Dollars or Patent Trolling, [as] a
much-vilified practice in which contingency lawyers or small companies with no
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operations sue businesses to extort money (Nathan Vardi, Patent Pirates, Forbes
(May 7, 2007)).
Trolling, as originally used, is a method of
fishing whereby one or more fishing lines, more
often than not baited with fake or simulated
food, known as lures, are drawn through the
water to lure schools of sucker fish to snap at
this bogus bait and be impaled on hidden multi-
hooks.
The term Patent Troll has been traced back to a March 29, 1993 Forbes article,
"When Intel Doesn't Sue," which reported the Japanese as now depicted as the
new patent trolls, implying, of course, that there were patent trolls even before
the Japanese. The next year an educational video was produced for the business
community, academia and governmental agencies, "The Patents Video," wherein
the Patent Troll sets up an unsuspecting dupe in order to obtain unearned patent
licensing compensation. Then, in 2001 the Assistant General Counsel of Intel,
Peter Detkin, after Intel had been sued for libel for the use of the term patent
extortionist, substituted the term patent trolls, explaining that a patent troll is
somebody who tries to make a lot of money from a patent that they are not
practicing, have no intention of practicing and in most cases never practiced
(Timothy J Haller & Sally Wiggins, The Patent Troll Myth, Niro Scavone Haller
& Niro, Esqs.), such as non-practicing entities (NPE), non-manufacturing
patentees and patent assertion entities [FTC nomenclature].
Indeed, Henry Ford may have been an early victim of Patent Trolling, or so asserts
Kal Raustiala & Chris Sprigman, in How Patent Trolling Taxes Innovation,
Freakonomics (July 11, 2011). According to this Freakonomics analysis, in 1895
a Patent was issued to George Selden for a gasoline engine for use in a four-
wheeled horseless carriage which Patent lacked the spark of genius, or as we
would say nowadays lacked the non-obviousness, necessary for patentability.
The patent clearly should never have been granted, this Freakonomics analysis
asserts, the idea was so obvious that many people worldwide thought of it
independently as soon as the first workable gasoline engines became available.
Nevertheless, Selden brandished his [car] patent, threatened nascent carmakers
with suit, and collected hundreds of thousands of dollars in royalties. Selden didn't
contribute anything meaningful to the development of the automobile, but his
patent abuse made cars more expensive for years, until Henry Ford, who refused to
license from Selden, finally busted the patent in court in 1911.
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Article I, Section 8, Clause 8 of the United States Constitution, known as the
Patent and Copyright Clause, empowers the United States Congress: "To promote
the Progress of Science and useful Arts, by securing for limited Times to Authors
and Inventors the exclusive Right to their respective Writings and Discoveries."
The key words here for this examination are to promote the Progress of Science
and useful Arts.
Does Patent Trolling so promote the Progress of Science and useful Arts or does it,
in fact, inhibit it? It is hard to see how not practicing the patent, having no
intention of practicing and/or having never practiced the patent could in anyway
promote the Progress of Science and useful Arts. Indeed, the opposite would
appear true, and this conclusion appears to be supported by the U.S. Supreme
Courts decision in eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006).
The Supreme Court in eBay Inc moved somewhat towards leveling the playing
field. As noted in the Oklahoma Law Review, the balance between an inventors
exclusive rights and the promoting of science and the useful arts is destabilized by
patent holders who exploit their patent rights, such as the right to exclude, to
protect questionable patents or stifle competition, including by a species of patent
holders, commonly known as "patent trolls" or "Non-Producing Entities"
(NPEs). Patent trolls "produce no products or services and have the sole purpose of
obtaining money by licensing patents they own and winning infringement lawsuits
against others," and they thrive by accusing others of infringing their right to
exclude and then threatening to pursue costly litigation to enforce this right, often
resulting in intimidated alleged infringers licensing patents of questionable
validity. (Jean Carlos Lopez, Weapon of Mass Coercion: How eBay Inc. v.
MercExchange, L.L.C. Eliminated the Threat of Coercive Automatic Permanent
Injunctive Relief and Restored Balance to the American Patent System, 60 Okla.
L. Rev. 605 (Fall, 2007))
Then too, The Federal Trade Commission (FTC) on March 7, 2011 issued a 300
page report on the patent system highlighting the problem of patent trolls, calling
them "patent assertion entities" to exclude "good guys" such as research
universities and the like who are actually engaged in the "developing and
transferring technology." The FTC saw the vagueness of permitted patent claims as
encouraging patent trolling and saw wisdom in limiting royalty damages to the
amount a willing licensee would pay, which may be determined by the value of the
invention over alternative technologies.
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And, as previously noted, Congress in the recently enacted America Invents Act
ordered a GAO Study of Patent Trolling litigation. The problem with this study,
however, is that the successful Patent Troll does not need to litigate. The solution,
therefore, needs to include measures that will discourage such litigation and the
threats of such litigation.
In eBay the Supreme Court eliminated an apparent unfair advantage patent holders,
including Patent Trolls, asserted; that of being granted Automatic Permanent
Injunctive Relief without showing they were entitled to same. The Court
eliminated the Threat of Coercive Automatic Permanent Injunctive Relief and
Restored Balance to the American Patent System" by requiring that the four-factor
permanent injunction equity test generally applied to obtain such relief must be
satisfied here too.
This test requires a showing that: "(1) that it [plaintiff] has suffered an irreparable
injury; (2) that remedies available at law, such as monetary damages, are
inadequate to compensate for that injury; (3) that, considering the balance of
hardships between the plaintiff and defendant, a remedy in equity is warranted; and
(4) that the public interest would not be disserved by a permanent injunction"
(eBay, supra.).
For example, the Supreme Court noted, some patent holders, such as university
researchers or self-made inventors, might reasonably prefer to license their patents,
rather than undertake efforts to secure the financing necessary to bring their works
to market themselves. Such patent holders may be able to satisfy the traditional
four-factor test, and we see no basis for categorically denying them the opportunity
to do so (Ibid). And if so, they clearly would not be Patent Trolls. The Court,
though, also noted its 1908 ruling in "Continental Paper Bag Co. v. Eastern
Paper Bag Co., 210 U. S. 405, 422-430 (1908), which rejected the contention that
a court of equity has no jurisdiction to grant injunctive relief to a patent holder who
has unreasonably declined to use the patent" (Ibid.).
Thus, in context, in light of eBay, the rule now appears to be that a patent holder
who has unreasonably declined to use the patent my seek such relief, but may only
obtain it if the four-factor test is met. Not an easy task, especially as suppressing
unreasonably invention would not promote the Progress of Science and useful
Arts, and therefore, the public interest would be disserved by a permanent
injunction.
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Then too, it is normally unethical for attorneys to threaten laws suits when they do
not intend to actually file such suits, and State Lawyer Disciplinary Board ethics
charges can be brought against attorneys appearing to be doing so. Moreover,
Federal Rule 11 is available to sanction a Patent Trolling Attorney when he/she
signs court papers without first doing the necessary investigation to ascertain that
the litigation being instituted is non-frivolous. But these may not only be hard to
prove, but sanctioning and the level thereof may be discretionary and State Boards
and Judges may be slow to exercise such discretion.
A very current example was recently reported on by dotTech: "VirnetX, which
calls itself a 'Patent Holding Company' (aka Patent Troll), sued a bunch of major
corporations back in 2010 over infringement on VirnetX's VPN-related patents.
Microsoft settled with VirnetX in 2010 for $200 million. The fight between
VirnetX and Cisco, Avaya, and Siemens, is still ongoing with trials schedule for
later this year. And Apple has been slapped with a judgement to pay $368.2
million in damages."
So it seems Patently Obvious and Patently Clear that something needs to be
done. We now have or should have a handle on the range of non self-utilizers, with
university researchers at the positive or upper end; and Patent Trolls and NPEs
(Non-Producing Entities) at the negative or lower end. How then can we as a
Society completely level the playing field?
Perhaps one or more of the following recommendation will significantly help to
curb patent trolling:
a) Four-Factor Test. The Four-Factor Test can and should be adapted to be
applied across the board to all remedies sought, modified as follows, to
require that plaintiff patent holder establishes all of the following:
(1) Irreparable injury has been suffered by plaintiff patent holder who is
itself demonstratably practicing, implementing and using a validly
granted currently effective patent owned by it, or if not holds a
demonstratably validly granted, currently effective and workable patent
owned by it; that such plaintiff patent holder is being denied the fruits
from this patent by the demonstratably adverse and unlawful actions of
defendant; and that where the plaintiff patent holder is not itself actually
actively practicing, implementing and/or using such patent, it is actually
actively in the business of licensing or seeking to license this
demonstratably validly granted, currently effective and workable patent
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to one or more entities who would actually practice, implement and/or
use it.
(2) The plaintiff patent holder itself does not have dirty hands in that it
can demonstrate lawful and non-predatory title to and marketing of the
patent; that defendant was demonstratably unlawfully practicing,
implementing and/or using it; and that, if plaintiff was not itself actively
practicing, implementing and/or using it or likely to be able to license it
to one or more entities who would actually practice, implement and/or
use it, plaintiff patent holder has offered the defendant a license to said
demonstratably validly granted, currently effective and workable
patented technology of plaintiff at a fair market price.
(3) That, considering the balance of equities and hardships between the
plaintiff and defendant, an award in favor of plaintiff is warranted.
(4) That the public interest would not be disserved by an award in favor
of plaintiff, and that the granting of such relief would promote the
Progress of Science and useful Arts.
Moreover, if injunctive relief is sought, it must also be shown that other
remedies available at law, such as monetary damages, are inadequate to
compensate plaintiff patent holder for defendants demonstratably adverse
and unlawful practice, implement and/or use of a validly granted currently
effective patent owned by plaintiff patent holder that plaintiff patent holder
is itself demonstratably practicing, implementing and using it, or if not this
patent owned by plaintiff patent holder is demonstratably validly granted,
currently effective and workable.
b) Use It Or Lose It. Lose It legal criteria and sanctions should be
considered for adoption for the negative or lower part of the range, to wit,
Patent Trolls. Use I t should be defined to include actually being in the
business of implementing a demonstratably validly granted, currently
effective and workable patent or actually actively working to license it to
one or more entities who would actually practice, implement and/or use it.
c) Treble Attorneys Fees. Even beyond Federal Rule 11, punitive damages
and/or even treble attorneys fees should be available to be awarded to
defendants by the jury in frivolous and/or in the most egregious cases
brought by Patent Trolls; or in cases brought by their victims, in Third Billy
Goat Gruff pre-emptive strikes, where frivolous suits have been threatened.
Indeed, the prospect of the award of treble attorneys fees may encourage those
being intimidated to react more like the Third Billy Goat Gruff (though in a lawful
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manner), and could not only possibly encourage contingent-fee attorneys to defend
or represent those being sued or threatened by Patent Trolls and their contingent-
fee lawyers, but even discourage Patent Trolls from bringing or even threatening
such frivolous and/or egregious suits in the first place.
Thus, as stated earlier, it is Patently Clear that to turn a blind eye to Patent Trolls
and Patent Trolling would permit Patently False and Patently Wrong claims of
Patent Rights to continue to fester and would not only be Patently Deplorable,
but would fail to promote the Progress of Science and useful Arts. Indeed, here
the Biggie may not always be the baddie!
Copyright 2011-13 by Barry J. Lipson
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Appendix A
America Invents Act
Enacted September 16, 2011
SEC. 34. STUDY OF PATENT LITIGATION.
(a) GAO STUDY. - The Comptroller General of the United States shall conduct a study of the
consequences of litigation by non-practicing entities, or by patent assertion entities, related to
patent claims made under title 35, United States Code, and regulations authorized by that title.
(b) CONTENTS OF STUDY. - The study conducted under this section shall include the
following:
(1) The annual volume of litigation described in subsection (a) over the 20-year period ending
on the date of the enactment of this Act.
(2) The volume of cases comprising such litigation that are found to be without merit after
judicial review.
(3) The impacts of such litigation on the time required to resolve patent claims.
(4) The estimated costs, including the estimated cost of defense, associated with such litigation
for patent holders, patent licensors, patent licensees, and inventors, and for users of alternate or
competing innovations.
(5) The economic impact of such litigation on the economy of the United States, including the
impact on inventors, job creation, employers, employees, and consumers.
(6) The benefit to commerce, if any, supplied by non-practicing entities or patent assertion
entities that prosecute such litigation.
(c) REPORT TO CONGRESS. - The Comptroller General shall, not later than the date that is 1
year after the date of the enactment of this Act, submit to the Committee on the Judiciary of the
House of Representatives and the Committee on the Judiciary of the Senate a report on the
results of the study required under this section, including recommendations for any changes to
laws and regulations that will minimize any negative impact of patent litigation that was the
subject of such study.