FTC Releases Big Report On Patent Trolls, Says The Patent System Needs To Change

from the but-will-it? dept

For quite some time now the FTC has been making lots of noises about the problems of the patent system and patent trolls in particular. While the US Patent Office itself has done little to address the problem, the FTC has recognized the harm patent trolling is doing to innovation and consumers. More than five years ago, the FTC released a big report on patent trolling and the problems it causes -- suggesting that the Patent Office should start getting rid of vague patents with "indefinite" claims. That has happened a little bit, but much more because of the Supreme Court forcing the issue, rather than the USPTO listening to the FTC.

However, since then, it's appeared that the FTC has only grown more concerned. Basically every year we report that the FTC is investigating patent trolls in some form or another. In 2012 (a year after that first report), the FTC began exploring patent trolling more thoroughly. In 2013, it announced an official investigation that would make use of subpoenas to find out how patent trolls were actually operating. Later that year it was revealed that it would subpoena 25 patent trolling operations. Since then, though, it's been mostly crickets. There was one famous troll, MPHJ, who sued the FTC in a case that was dismissed.

And now, finally, after all these years, the FTC has released its big report. It appears that 22 patent trolling operations responded to the subpoenas, though many had "affiliates and other related entities" allowing the FTC to study many more patent trolling operations overall. The study lumps patent trolls (they prefer the euphemistic "Patent Assertion Entities" or PAEs) into two categories: litigation trolls and portfolio trolls. In short, litigation trolls are the smaller guys with just a small number of patents, who would threaten and sue companies (and quickly reach settlements) over those few patents. It's more of a "mom & pop" shakedown kind of business. Portfolio trolls are the bigger, well funded operations, that have a massive portfolio of patents and play a more comprehensive shakedown game, going to lots of big companies and basically saying "you infringe on some of our patents, so give us a bunch of money to not figure out which ones." Think: Intellectual Ventures or Acacia.

The differences here matter, because the businesses are quite different. Lots of the actual lawsuits come from the litigation trolls as a sort of negotiation tactic. The portfolio trolls don't actually have to go to court that often -- they have "sales people" who are a bit more effective. But the amount of dead-weight loss to the economy from the portfolio trolls is much larger. When big companies agree to a portfolio troll shakedown it's often for a tremendous amount of money. The FTC study found 80% of the revenue went to portfolios, and only 20% to litigation trolls -- even though litigation trolls filed 96% of the lawsuits and 91% of the reported licenses.

One interesting -- and potentially surprising -- finding of the study was that the FTC did not see evidence of much pure demand letter shakedown. That is, it's been said that many of the smaller trolls just send letters, but never expect to go to court, since many may just settle based on the demand letter. But the FTC didn't find much evidence to support that -- saying that most of the revenue for litigation trolls came from actually going to court (and then rapidly settling). In short, it appears that the leverage of a federal lawsuit (in eastern Texas, probably) is much stronger than just a threat of a lawsuit. But a key takeaway from this is that attempts to reform demand letters (which has been regularly proposed -- such as requiring them to outline what the infringement is) won't actually help much.

The study also looked at wireless chipset manufacturers (i.e., companies that actually implement products) to compare them to patent trolling operations. The key question here: do the actual implementers use patents in the same way to "protect" their business. As you might expect, they don't act very similar at all:

We observed that Wireless Manufacturers sent demand letters before executing licenses, while Litigation PAEs sued before licensing their patents. Wireless Manufacturers and NPEs also sent nearly three times as many demand letters as all of the Study PAEs combined. Litigation PAEs brought nearly two-and-a-half times as many patent infringement cases involving wireless patents as Wireless Manufacturers (which collectively accounted for approximately 90% of worldwide chipset sales), NPEs, and Portfolio PAEs combined.

Wireless Manufacturer and Litigation PAE license characteristics also differed markedly. Wireless Manufacturer licenses frequently included field-of-use restrictions, cross-licenses, and complicated payment terms, whereas Litigation PAE licenses involved simple lump-sum payments with few restrictions, if any.

In short, the trolls' activity is inconsistent with the activity of actual innovators.

In the Wireless Case Study, the FTC found that Study PAEs were more likely to assert their patents through litigation than were Wireless Manufacturers. For example, 30% of Portfolio PAE wireless patent licenses and nearly 90% of Litigation PAE wireless patent licenses resulted from litigation, while only 1% of Wireless Manufacturer wireless patent licenses resulted from litigation.

In other words, all of the people who insist actual innovators need patents to protect their business, and that patent trolling is just a form of the same thing are full of it.

There are a few other items in the report, but these seem to be the big ones. The report also comes with some recommendations (which hopefully won't be ignored this time). First up is to somehow deal with the high costs of being sued by a troll, starting with the costs of discovery. This has been a known problem for years, where the trolls basically ask for everything in discovery, knowing that the discovery process alone is so time consuming and expensive that many companies will simply give in and pay.

Because defendants frequently paid less than the estimated value of discovery costs to settle litigation with Study PAEs, and because there is asymmetry in discovery burden between PAE plaintiffs and defendants, Congress, the Judicial Conference of the United States, and individual courts should promote case management practices that take these costs and asymmetries into account. One step toward achieving this goal would be to amend Federal Rule of Civil Procedure 26, which addresses discovery in civil actions, in a way that helps balance these relative burdens. Rule 26 requires parties to meet and confer to discuss, among other things, a plan for discovery. Early disclosure of asserted claims and infringement and invalidity contentions in PAE litigation would help to balance the asymmetries of plaintiff and defendant-side discovery costs. Likewise, measures that would limit discovery before preliminary motions together with provisions to ensure that such motions are decided in a timely manner would help alleviate the asymmetry problem. Furthermore, early disclosure of damages theories would flag potential legal issues for summary judgment motions and provide more information for settlement discussions. In general, any measures that reduce discovery burden and costs while ensuring discovery of information appropriate to the case should be considered.

They sort of bury it in the middle, but limiting discovery before preliminary motions would be a huge help.

A second recommendation is basically forcing troll shell companies to reveal who they're affiliated with. We've discussed how trolls often hide behind shells and how Intellectual Ventures has thousands of shells. Congress has proposed a true disclosure rule so that lines up somewhat with the FTC's recommendation.

The third recommendation has also popped up in proposed patent reform: encouraging courts to put patent troll lawsuits on hold when they're suing both manufacturers and end users. Basically the idea is to put the lawsuits against end users on hold until the issue with the manufacturer has gone through the judicial system.

The final recommendation is to require patent trolls filing a lawsuit to actually show how the defendant infringed upon filing the lawsuit, rather than just making vague statements accusing the defendant of infringement at the initial pleading stage, as happens today.

Every single one of these suggestions has been included in the patent reform bill that has been floating around Congress basically this entire session. Unfortunately, the coalition behind it fell apart under really strong pressure from pharmaceutical companies and giant patent licensing firms like Qualcomm.

One hopes that this data-driven report from the FTC will give a renewed push to Congress to actually push through the very reform that the FTC says would solve many problems, but Congress doesn't often seem to care about fact-driven policy, preferring to stick with faith-based, emotion-driven bullshit from patent holders about how any such reform would destroy innovation in America.

Filed Under: ftc, litigation, patent assertion entities, patent reform, patent trolling, patent trolls, patents

Newegg Sues Over Copied Legal Filing; Judge Rules That It's Not Fair Use

from the potentially-problematic dept

We've talked about online electronics retailer Newegg quite a few times here on Techdirt, usually in the context of its noble fight against patent trolls. I, personally, have a lot of respect for Newegg's Chief Legal Officer, Lee Cheng. So it surprised me a bit to see that Newegg is suing another lawyer for copyright infringement on one of its briefs. And, so far Newegg is winning, as the judge has ruled that using the brief is not fair use.

The details here do matter. The defendant, lawyer Ezra Sutton, had worked alongside Newegg in one of the many patent troll lawsuits. Sutton was representing another company sued in the same lawsuit as Newegg by a patent troll, Adjustacam. They had won the case against the troll, and both Newegg and the company Sutton represented, Sakar International, filed motions seeking attorneys' fees. Here's where things get iffy on Sutton's part, as described by Alison Frankel via the Reuters link above:

As Newegg general counsel Lee Cheng recounts the story, he told Sutton early on that Newegg would be willing to file a joint brief with Sakar if Sakar paid a share of the legal fees. Sutton said no thanks, but, as the filing deadline approached, he came back to Newegg. Cheng agreed to show Sutton a draft of the brief Newegg intended to submit to the Federal Circuit to help him write a complementary brief for Sakar.

Instead, the day before Newegg’s brief was due, Sutton filed a brief that was largely copied from Newegg’s draft. When Newegg realized what he’d done and protested the filing, Sutton withdrew the brief and subsequently filed a shorter version focused on Sakar’s argument.

So, first off, what a shitty thing to do by Sutton. I think that's pretty clear. At the very least it potentially would have made a mess for Newegg who would have looked bad filing a nearly identical brief to Sutton's after he did. But, then there's the question of what to do about it. Newegg decided to sue Sutton for copyright infringement -- and this is where I'm a lot less comfortable with Newegg's decision. I think it's the wrong move.

We've actually discussed the question of whether or not legal briefs should be subject to copyright before. A few years ago, some lawyers sued the big legal publishing companies, Westlaw and LexisNexis, for republishing briefs when they published compendiums of cases. That was ridiculous, and thankfully the court tossed out the lawsuit, finding that the republishing in this case was easily fair use.

Admittedly the facts in Newegg's case against Sutton are very different. This isn't republishing dockets for lawyers and scholars to access and review. The situation here seemed more like plagiarism, with Sutton more or less trying to take credit for Newegg's work (which had the knock on effect of potentially making Newegg look bad). And I get all of that, but it still troubles me that copyright was the tool here. It feels inappropriate. Copyright is supposed to be about the incentives to create. And no one needs a copyright incentive to create a legal brief -- something that Newegg's Cheng agreed about when I reached out to him about this case. He more or less admits that they're just using copyright here for a clearly non-copyright purpose. As he told me:

"We didn't file this case for profit or money. It's for principle and justice (corny but those values truly motivate me). However, we do believe that Sutton's action did cause us monetary harm and that we are entitled to remedies, but it clearly wasn't the focus of this suit. This suit was to send a message, strictly directed at unethical and lazy lawyers, to do what they learned in the first year of law school in terms of properly crediting others' work, and to do what anyone with common decency would do. Lawyers should be held to, and should hold themselves to, higher rather than lower standards."

I don't disagree with any of that -- but it's still troubling to me that copyright is the tool here, because that's a decidedly non-copyright thing that it's being used for. In fact, this seems to be one of those situations where the complaint is really about plagiarism rather than copyright, but where there's enough overlap that the legal mechanism of copyright is enabled to come into play. I fear that this will then be used by others in even more abusive ways -- though Cheng seems confident that the specific facts of this case would likely limit such a potential result.

I'm even bothered a bit by the fair use analysis here where the judge denied Sutton's fair use claims. I would think that the question of whether or not a legal brief should be covered by copyright would be a pretty big factor here. And the judge does agree that this point weighs somewhat in Sutton's favor (and points to that earlier case). The judge also finds, correctly, that the 4th factor -- the impact on the market -- weighs in favor of Sutton since Newegg doesn't have a market for selling its legal briefs. But while many courts often point to that 4th factor as a key one, this court basically just decides that it doesn't matter as much:

Upon consideration of all four factors, with more weight given to the first and third factors based on the facts, circumstances and particular nature of this case, Sutton did not meet his burden of establishing a prima facie case that his copying of Newegg’s draft brief was fair use.

So, yes, he's saying because of the specific facts in this case, but it does feel like -- as is all too often the case in fair use cases -- the judge has basically determined what result he wants, and then weighs the four factors accordingly. Admittedly, this might not be a huge deal. The facts are pretty specific, and plagiarizing is sleazy. But, I'm still troubled with the use of copyright to punish even sleazy behavior if it's not related to the reasons for copyright existing.

Filed Under: copying, copyright, ezra sutton, fair use, lawyers, legal filings, patent trolls, plagiarism
Companies: adjustacam, newegg, sakar international

Chinese State Patent Troll Absorbed By Smartphone Maker Xiaomi, Adding To Its Patent Hoard

from the but-will-it-come-in-peace? dept

A couple of years ago, we wrote about Ruichuan IPR Funds, which seemed to be a rather odd kind of patent troll -- one that was essentially backed by the Chinese government. Since then, Ruichuan has dropped off the radar in the West, but there have been some important changes in its home country, as reported on the IAM blog:

China's first patent fund is now being run as part of the Xiaomi IP function, IAM can exclusively reveal. When last we reported on the Ruichuan IPR Funds its status was somewhat unclear. The fund's operator, an IP services firm called Zhigu, had apparently been merged with the smartphone company's in-house IP department, but there had been no official word on the move.

Techdirt wrote about Xiaomi -- sometimes called "China's Apple" -- last year. Although it has lost some of its initial shine, it's still a top Chinese company, and one that has global ambitions. As Techdirt readers know only too well, to stand a chance in the West's patent-saturated tech markets, new entrants need a patent portfolio to use as a bargaining counter, and Xiaomi has been busy acquiring one. In June of this year, Bloomberg reported the following:

Xiaomi Corp. bought nearly 1,500 technology patents from Microsoft Corp. in a deal that may smooth potential legal tangles over intellectual property as it pushes beyond China.

The patents cover a range of wireless communications, video, cloud and multimedia technologies, spokeswoman Kaylene Hong said. The acquisition came as part of a broader agreement announced Wednesday with the U.S. software giant, under which Microsoft Office and Skype will come pre-installed on the Chinese smartphone maker devices.

The absorption of Ruichuan IPR Funds by Xiaomi -- which must have taken place with the Chinese government's approval -- is clearly part of the same strategy of bulking up in the patent department as it prepares to expand abroad. The big question is whether Xiaomi is planning to use its new portfolio purely defensively, so that it can sign cross-licensing deals, or whether it will start going on the offense and sue Western companies in their home markets too.

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Filed Under: china, patent trolls, patents, protectionism, smartphones
Companies: ruichuan ipr funds, xiaomi

Government Accountability Office Study Confirms: Patent Office Encouraged Examiners To Approve Crappy Patents

from the so-that's-just-great dept

This shouldn't be a surprise. All the way back in 2004, in Adam Jaffe's and Josh Lerner's excellent book about our dysfunctional patent system, Innovation and Its Discontents, one of the key problems they outlined with the system was the fact that there was strong incentives for patent examiners at the US Patent Office to approve shit patents. That's because they were rewarded for how "productive" they were in terms of how many patent applications they completed processing. Now, you might think that shouldn't encourage approvals -- except that there's no such thing as a true "final rejection" from the patent office (they have something called a final rejection, but it's not -- applicants can just make some changes and try again... forever). So rejecting a patent, inevitably, harms your productivity rates as an examiner. Approving a patent gets it off your plate and is considered "done." Rejecting it means having to spend many more hours on that same patent when the inventor comes back to get another chance.

After Jaffe and Lerner made that criticism clear, it seemed like the Patent Office started to take the issue to heart and they actually started changing some of how examiners were rated. And, for a few years, it seemed like things were heading in the right direction. But then, once David Kappos took over, he noticed that a lot of patent holders were complaining that it took too long to get patents approved. Apparently ignoring all of the evidence that pushing examiners to review patents quickly ends up in disaster, Kappos put back in place an incentive structure to encourage examiners to approve more patents. He kept focusing on the need to get through the backlog and speed up the application process, rather than recognizing what a disaster it would be. Of course, some of us predicted it and were mocked in the comments by patent lawyers who insisted we were crazy to suggest that the USPTO would lower its standards.

Of course, an academic study a few years ago found that was absolutely happening and now, to make the point even clearer, the Government Accountability Office, which tends to do really fantastic work, has written a report that agrees. It blames the Patent Office's focus on rapidly approving patents for the flood of low quality patents and the resulting patent trolling epidemic:

Examiners are rated largely on their production, auditors said, and they are given different times to complete reviews based on the experience of the examiner and the technical level of the field. For example, someone working on an artificial intelligence review gets an average of about 31 hours to complete it, while an application for exercise devices takes an average of 17 hours.

Timeliness and production produce bonuses: From fiscal 2009 to fiscal 2013, examiners who met these goals got an extra $6,000 a year, GAO said, citing the inspector general's office.

But they are not rated for quality work. Examiners work fast, creating “an environment where patents may be granted that do not fully meet patentability standards,” GAO found.

The GAO says that even in the last few years (after Kappos left), when the USPTO said it was focusing more on quality, there's little evidence that's actually happening:

But GAO noted that patent officials, to improve quality, still are focusing too much on the timeliness of reviews, customer service and “process or production goals” rather than quality. And they have not tied bonuses and performance reviews to quality, which needs definition. Is a good patent broad, or clearly defined? How does it prove that the invention is novel, useful, not obvious and clearly described?

The amazing thing is that, in approving crappy patents, the Patent Office actually makes its own job harder, because more crappy patents will lead to more and more people applying for crappy patents, knowing they might get through. Want to crack down on the massive backlog of patent applications? STOP APPROVING BAD PATENTS. That will wake patent lawyers up to the fact that they shouldn't be submitting so many crappy patents, as it'll be a total waste of time and money.

Filed Under: gao, patent quality, patent trolls, patents, uspto

Supreme Court Just Made It Easier For Patent Trolls

from the wrong-direction,-guys dept

As we've noted over the past decade or so, the Supreme Court has been smacking down the Court of Appeals of the Federal Circuit (CAFC) over and over and over again on issues related to patent law. And on Monday, the Supreme Court did it once again -- but this time in a way that actually might not be good.

The key issue in the case (which is actually a combination of two separate cases that the Supreme Court put together) -- Halo v. Pulse and Stryker v. Zimmer -- concerns when it is and when it's not appropriate to triple damages in patent infringement cases. Basically, for centuries, the patent system has allowed for treble damages, but basically made it optional and a tool only for egregious violations of clear copying for most of that time. In 2007, CAFC created a specific two part test for awarding treble damages. First, an "objective recklessness" standard defined as "the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent...." Second, it must be shown that the risk of such infringement "was either known or so obvious that it should have been known to the accused infringer."

The unanimous ruling does state that it shouldn't be easy to get treble damages, and that it is fitting that it only applies in the most extreme cases -- but then says that the test above, called the Seagate test since it was first articulated in a case involving Seagate -- is "unduly rigid." And the Justices' main concern is that such a rigid test might leave out other kinds of egregious behavior that deserve punitive damages awards:

The principal problem with Seagate’s two-part test is that it requires a finding of objective recklessness in every case before district courts may award enhanced damages. Such a threshold requirement excludes from discretionary punishment many of the most culpable offenders, such as the “wanton and malicious pirate” who intentionally infringes another’s patent—with no doubts about its validity or any notion of a defense—for no purpose other than to steal the patentee’s business...., a district court may not even consider enhanced damages for such a pirate, unless the court first determines that his infringement was “objectively” reckless. In the context of such deliberate wrongdoing, how- ever, it is not clear why an independent showing of objective recklessness—by clear and convincing evidence, no less—should be a prerequisite to enhanced damages.

Conceptually, this argument makes sense. The court points to the important Octane Fitness ruling from a couple years ago that tossed out a similarly "rigid" standard, but that one was over the question of when to award attorneys' fees for egregious behavior by patent holders. The court notes that this is a similar issue, though one more likely to negatively impact defendants, rather than plaintiffs in patent cases.

And I certainly see the logical consistency there, especially in allowing flexibility to the courts in deciding what's truly egregious behavior. But, of course, this somewhat ignores the reality of the patent landscape today, where so much activity is really in the shakedown process, where the final outcome is unlikely to be via a court ruling. Instead, it's all about the shakedown threats -- and this ruling can be seen as giving trolls even greater leeway in insisting that someone they're threatening has much greater liability on the line. I can almost guarantee that we'll start hearing of threat letters from patent trolls that point to this ruling in Halo as providing support for massive punitive damages.

So, in the end, I don't necessarily think this is the wrong decision. There's certainly a legal consistency there (especially one that says "damn, CAFC gets everything wrong..."). But that doesn't mean we should be concerned about the overall impact. Perhaps it won't matter that much -- as any competent patent attorney will let many people facing a shakedown know that the treble damages argument is unlikely to meet any reasonable standard used by any court. But lots of people are scared into just settling when they see the potential losses they face, and it seems like this might embolden patent trolls some more.

At least some of the Justices seem to understand this. Even though they signed onto the unanimous opinion, Justices Breyer, Kennedy and Alito added a concurrence (written by Breyer, who is usually quite good on patent issues) that at least raises the issue of patent trolling behavior. Breyer uses the concurrence to basically try to prevent the case from being misused (something that it might not succeed at, as it holds no weight at all as case law). He reiterates that treble damages should only be used in the most extreme cases, and nothing in this ruling changes that. He also notes that not checking with a patent lawyer before creating a product is not evidence of willful infringement. And, finally, he notes that such "enhanced" damages should have a "limited" role, as they have a high likelihood of impeding, rather than enabling, innovation.

To say this is to point to a risk: The more that businesses, laboratories, hospitals, and individuals adopt thisapproach, the more often a patent will reach beyond itslawful scope to discourage lawful activity, and the moreoften patent-related demands will frustrate, rather than “promote,” the “Progress of Science and useful Arts.”

One hopes that this concurrence helps stop the ruling from being abused, but that may be too optimistic.

At the very least, this seems like an argument for Congress to finally stop sitting around and doing something to fix the patent troll problem.

Filed Under: cafc, damages, extraordinary damages, patent trolls, patents, rigid rules, supreme court, treble damages

Australian Gov't Commission Also Wants To Fix Patent Laws Down Under

from the another-wow dept

So we already wrote about the Australian government's Productivity Commission's Draft Report on Intellectual Property Arrangements, talking about what was said about copyright law, but the report also goes into other areas of intellectual property as well, with some pretty good ideas on patent law as well (on this one I think they could go even further, but most of the recommendations in the report are a good start).

Once again, they offer up a nice infographic demonstrating the key points, which focuses on the serious problems of allowing patents on obvious ideas: The Productivity Commission clearly recognizes that too many patents stifle innovation. In fact, they note that the only time patents really should be issued are in cases where those inventions would not occur without that incentive. And thus, since so much public policy around innovation always seems to focus on figuring out ways to increase patent numbers, the authors of the report recognize that patent policy is probably harming, not helping innovation:

Indeed, it appears to have become accepted wisdom that because patenting plays some role in promoting innovation, more and stronger patents are always better. But research reveals that greater patenting activity is not always associated with more innovation and that a non-trivial number of patented inventions have low social value, or would have occurred anyway.

Low-value patents impede innovation by frustrating the efforts of follow-on innovators and researchers. In some cases, low-value patents can be used as a strategic tool for stalling or excluding market entry, and can contribute to ‘patent thickets’, which potential market entrants must ‘hack’ their way through in order to compete in a particular technology space.

And thus, they suggest that Australia's entire patent system should be rethought and refocused towards trying to encourage things that are socially beneficial. That is, the system should be set up not with the inventors as the sole focus, but rather what will lead to the greatest possible public benefit. And the failure to do so is creating "substantial costs" on the public.

While the incidence of some low–value patents does not come as a surprise, a multitude of such patents imposes substantial costs on the community. Low-value patents impede innovation by frustrating the efforts of follow–on innovators and researchers.

To fix this, they have a few suggestions -- all of which seem worthwhile. First, they say the bar is way too low for granting patents, so Australia should raise the bar for what's considered "inventive." They suggest the standard should be changed to if the invention or solution "would have been obvious for a person skilled in the art to try with a reasonable expectation of success." They even consider going beyond that, but recognize that some patent holders outside of Australia may freak out at such a suggestion and avoid the Australian market.

The second suggestion is giving an "overarching objective" to patent law, which examiners can use as a sort of guiding light or touchstone. Basically, allow Australia to reject patents by arguing that granting such patents would go against the public interest.

The objects clause should describe the purposes of the legislation as being to enhance the wellbeing of Australians by providing patent protection to socially valuable innovations that would not have otherwise occurred and by promoting the dissemination of technology. In doing so, the patent system should balance the interests of patent applicants and patent owners, the users of technology — including follow–on innovators and researchers — and Australian society as a whole.

The Australian Government should amend the Patents Act such that, when making a decision in relation to a patent application or an existing patent, the Commissioner of Patents and the Courts must have regard to the objects of the Patents Act.

That would be a big and wonderful change to the patent system.

Next up, they suggest increasing the fees associated with patents (both for applying and for renewals -- which would escalate), which acts as a mechanism to better ensure that a patent is valuable (i.e., making it less worthwhile if the patent holder isn't actually going to do something with it). It also encourages patent holders to stop renewing the patent and push the info into the public domain sooner if the patent itself is no longer making an economic return.

The report doesn't spend much time on patent trolls, noting that they're not a big problem down under, and suggests that the existing "loser pays" litigation structure probably helps keep patent trolling at a lower level there. At the very least, that seems like an important data point for folks here in the US looking to add a "loser pays" provision in patent reform.

How about business method and software (BM&S) patents -- which make up many of the most abused patents in the US? The Commission is not impressed by the arguments in favor of such patents and suggests making those things unpatentable. They point out that there's little evidence that such patents encourage innovation, and that most innovation associated with them almost certainly would have happened without the patents, because the focus was on building products (and that there would be first mover advantages for those who got there first, so the copycat issue isn't that big a deal). Furthermore, they point out that BM&S patents can often hold back important follow-on innovations. Quoting Nobel prize winning economist Eric Maskin, the report notes:

Specifically, in the software industry, progress is highly sequential: progress is typically made through a large number of small steps, each building on the previous ones. If one of those steps is patentable, then the patent holder can effectively block (or at least slow down) subsequent progress by setting high license fees. … Thus, in an industry with highly sequential innovation, it may be better for society to scrap patents altogether than try to tighten them.

And they conclude:

On balance, the Commission considers it unlikely that granting patents in the area of BM&S increases the welfare of the community. BM&S patents likely compensate activity that would have occurred in any event (are nonadditional) and reward low– (or even no–) value innovations. BM&S patents can also frustrate would–be competitors and follow–on innovators. While broader changes to patents, particularly around the inventive step and dispensing with innovation patents (chapters 6 and 7), may ‘knock out’ a large share of BM&S patents, the Commission still considers that there is value in making clear that BM&S should not be considered patentable subject matter.

There's a separate section on pharmaceutical patents, recognizing that the market factors there are somewhat different. Obviously, the pharma industry relies more heavily on patents. But they also note that Australia has a public policy need to "improve the health of all Australians." They suggest that the government shouldn't be as willing to hand over "extensions of terms" on phama patents, and should only do so in specific cases.

On the related question around data protection and biologics (a key sticking point in the TPP negotiations), the report finds that the policy should be designed to encourage much more openness and information sharing, rather than locking up information and biologics for too long.

There should be no extension of the period of data protection, including that applicable to biologics.

Further, in the context of international negotiations, the Australian Government should work with other nations towards a system of eventual publication of clinical trial data in exchange for statutory data protection.

These all seem like decent suggestions, though I still think they could go further. For years I've pushed for an independent inventor defense and for independent invention being a sign of obviousness (such that it might invalidate a related patent from someone else). That concept doesn't seem to make it into the report.

Still, as with copyright, the report's authors do seem to understand the key problems of the patent system in working against innovation.

And, once again, this is fairly amazing. The stunning thing about this report is that it pushes back on a lot of the accepted -- but bogus -- wisdom around copyright and patents that just gets repeated without question in most government reports. Kudos to the authors of the report.

Filed Under: australia, business method patents, innovation, inventiveness, obviousness, patent trolls, patents, public benefit, software patents

Newegg Inserts Itself Into The Global Archery, LARPing.org Patent Tiff

from the good-guys dept

We've covered in the past how Newegg and its Chief Legal Officer, Lee Cheng, have been both vocal and active in the fight against patent trolls. Far from a lightweight in this arena, Newegg has gone on the offensive against the trolls, with Cheng even going as far as to state that he would never settle a case with a patent troll. Settlements are often times what these patent trolls are primarily interested in, milking money from legitimate businesses that simply don't want to bother with a lawsuit. Like most bullies, a little pushback is all that's required to get them to turn tail and run.

We also recently discussed a rather silly patent and trademark lawsuit initiated by Global Archery against an individual who helps run LARPing.org. That site sells foam arrows used for live-action role-playing, buying them from a German manufacturer and reselling them to hobbyists. Global Archery believes that the arrows infringe on a patent it has for foam arrows and decided to sue LARPing.org for infringement, rather than the German manufacturer. The trademark portion of the suit revolves around Google keywords LARPing.org bought, which include references to Global Archery, for advertising purposes. Those suits rarely go anywhere, making the patent aspect of the suit more key.

Well, Newegg has decided to lend a troll-busting hand to LARPing.org, now stating that it will be donating the profits from its anti-patent troll t-shirts to be used by LARPing.org to defend itself against Global Archery.

“After reviewing the facts and circumstances of Mr. Gwyther’s case, Newegg believes Global’s suit against him is an abusive overreach of intellectual property rights,” said Lee Cheng, Newegg’s Chief Legal Officer. “As a result, we intend to provide assistance to Mr. Gwyther, including the donation of profits from the sale of our anti-patent troll t-shirts to support his legal defense fund. We are also releasing three new t-shirt designs, including a limited edition design created in collaboration with Mr. Gwyther, to raise additional funds for his defense.”

Cheng added, “This case represents the same type of abuse of intellectual property rights Newegg has stood up to for years. Global Archery’s patents would likely not withstand an invalidity challenge, but they are leveraging them to demand settlement terms that would effectively force this enthusiast and entrepreneur out of business.”

What entirely too many of these patent trolls rely on in order to get monetary settlements is the size of their targets. If a business is small enough, say a tiny site used primarily by roleplaying enthusiasts, that site may not have the resources necessary to fend off a legal claim from a patent troll. Instead, that business will typically accept whatever settlement demands the troll has requested.

But suddenly the legal warchest for LARPing.org may be many times what it had originally been, with a company like Newegg getting behind it and lending its support. People occasionally ask what it will take to end abusive patent trolling. There are many possible answers, but one of those answers must include large and small entities banding together to collectively fend off a practice everyone knows is abusive. It's good to see a company like Newegg getting behind that kind of effort.

Filed Under: arrows, jordan gwyther, larp, larping, lee cheng, patent trolls, patents
Companies: global archery, newegg

If Venue Restrictions Are Reinstated, Where Would All The East Texas Patent Lawsuits Go?

from the would-they-even-be-filed-at-all? dept

Patent reform is a constant legislative topic, even though what passes for reform generally tends to be heavily-watered down by the time it moves out of the House or Senate. One of the most abused areas of patent litigation is venue selection. Small towns in East Texas have become hosts to parasitic lifeforms known as "Non-Practicing Entities" -- shell companies whose only product/service is litigation.

Colleen Chien and Michael Risch, guest posting at PatentlyO, suggest eliminating venue shopping might be a compromise parties involved in patent reform might be able to unite behind. Presumably, this means legislators, rather than patent trolls, who aren't going to be willing to give up the "home field" advantage that easily. The problems with the current venue-shopping system are laid out by Chien and Risch in this sentence.

Although the reasons that plaintiffs flock to Eastern Texas and a few other districts are contested, we believe that a system that incentivizes skating rinks outside of courthouses to curry favor with local juries is far less defensible.

Forcing litigants to base their venue on something more than a dusty, unoccupied East Texas office with their name on the door can likely be achieved by rolling back changes the federal court system made in 1988 in response to Congress' alterations to the general venue law.

Petitioners now argue under a variety of theories that the restrictions in 28 U.S.C. § 1400(b) in effect be reinstated, and given greater effect. Other than our concerns about the end result, we take no position at this time on the legal merits of any particular argument. In any event, it’s not our opinion that matters. If the Federal Circuit agrees, patent venue would revert to either (1) defendant’s residency (place of incorporation) or (2) a combination of infringing acts plus a regular-place-of-business.

If this were to occur, how much would it change the face of patent trolling? Chien and Risch run the numbers and finds that a great many cases would be exiting the favorable East Texas court system.

[W]e find that though approximately 30% of “cases” would have been able to be filed as they were, 70% of them would not have able to be filed as is. While 8% could have been filed where the plaintiff had filed before, in 62% of cases, plaintiffs would have to file in a jurisdiction they had never filed before, though 41% of the time, a jurisdiction preferred by other plaintiffs of the same time was available.

As is to be expected, the narrowing of site selection would hit non-practicing entities the hardest.

[We] find that the rule change would have a greater impact on NPE plaintiffs (26% would have been able to file in the same district vs. 40% of OpCos) than OpCo plaintiffs, but that many OpCos – about 50% – would also have had to file outside of their past venues.'

Some trolls would be able to continue to use East Texas courts simply because some defendants actually operate in that area -- mostly retailers. But -- all else being equal -- the East Texas district would no longer be host to a large percentage of patent lawsuits.

Chien and Risch then looks into where these cases would end up. As is to be expected, most of the action would head to Delaware or California's Northern District, simply because of the number of companies incorporated in these two areas. Delaware has for years offered both low corporate taxes and a streamlined court system specifically for handling corporate law disputes. Northern California is, of course, the home to many tech companies -- frequent targets of trolls wielding vague software patents.

Even if reinstating the special rule would still leave 11% of cases in the East Texas system, this would be a great improvement over the current state of affairs. If the first half of 2015, 44.4% of patent lawsuits were filed in this district, almost all of them by plaintiffs who produce nothing more than paychecks to patent lawyers.

While there have been some encouraging signs recently that indicate East Texas judges are perhaps tiring of being patsies for aggressive trolls, the district continues to host more than its fair share of patent litigation. Seeking to get out ahead of changes in filing procedures that would require greater specificity in claims made by patent plaintiffs, entities (most them non-practicing) filed 851 lawsuits in a single month (November 2015) -- more than half of which landed in the East Texas court system.

Filed Under: east texas, jurisdiction shopping, patent trolls, patents, venue restrictions

Court Has An Opportunity To Finally End The East Texas Patent Troll Docket

from the shut-it-down dept

It's been nearly ten years since we first wrote about the East Texas district court, based in Marshall, Texas, (and Tyler, Texas) and the fact that patent trolls have been flooding that court with cases. The trolls claimed they liked East Texas because the judges worked quickly and because they "understood" patent issues. The reality, of course, is that East Texas became notorious for a few judges who were insanely pro-patent troll, and ran their cases in a manner that helped out trolls immensely. It's become a cottage industry, leading to some weird situations, such as the time that Tivo (involved in a patent lawsuit at the time) literally bought a bull right in Marshall, Texas. Perhaps no company has "invested" more in winning over folks in Marshall than Samsung, which not only sponsored the local ice rink, but also gives scholarships to high schoolers there, donates to local schools and takes kids on semiconductor factory tours -- all out of the kindness of its corporate heart, no doubt.

The top judge for patent cases in East Texas used to be John Ward, until he "retired" to join his son in a local law practice representing patent trolls. Then the crown went to Judge Rodney Gilstrap, who is handling a ridiculous number of patent cases. In 2014, he was given 968 patent cases -- or 20% of all patent cases filed in the country. Given that, perhaps it's not surprising that he sometimes appears to completely forget about some cases he's handling. This is the same Judge Gilstrap who has never (not once) granted attorneys' fees to a defendant, despite all of the cases he's heard.

If you haven't figured it out by now, something is totally screwed up with the patent system. It's pretty clear that what we've been witnessing for over a decade is what's known as "forum shopping" in which plaintiffs seek out specific courts known to favor them, but with patent trolls and East Texas it's been taken to a new level. And, notably, a few other courts have been trying to get into the business as well, with Delaware leading the charge over the past few years. Normally, forum shopping is frowned upon, but it's been allowed in patent cases for way too long... and there's actually a chance to stop it. In 1990, a ruling by the Court of Appeals for the Federal Circuit (CAFC, the "patent appeals court") in VE Holding v. Johnson Gas basically opened the floodgates for forum shopping in patent cases.

But there's a new case that has the potential to put an end to this forum shopping. In Re: TC Heartland is another patent forum shopping case, in which an Indiana-based company is looking to get a patent case tossed out of a Delaware court over jurisdiction. EFF, together with Public Knowledge and Engine, have asked the court if it can weigh in with an amicus brief, flat out asking the court to overturn the VE Holding case, and to end forum shopping in patent cases.

Congress did not intend for patent owners to be able to sue in any district in the country, no matter how tenuous the links the purported infringer has to the district. Amici ask that this Court restore balance in patent litigation. Amici support Petitioner in asking this Court to grant the petition for mandamus and recognize that VE Holding is no longer good law.

One hopes that CAFC will listen -- or, barring that, that the Supreme Court might weigh in and fix this aspect of patent law, as it's fixed a number of other problems with patent law over the past few years.

Filed Under: cafc, east texas, forum shopping, jurisdiction, patent trolls, patents, rodney gilstrap
Companies: tc heartland

Apple's Patent Loss To University Of Wisconsin A Reminder That Universities Are Often The Worst Patent Trolls

from the shameful-attack-on-their-educational-mission dept

You may have heard the news this week that Apple lost a patent lawsuit filed by the University of Wisconsin, and may be on the hook for up to $862.4 million in damages. This news should serve as a reminder that universities are some of the nation's worst patent trolls, actively ignoring their own stated missions to widely spread academic research and knowledge. For example, the University of Wisconsin's stated mission is:

The mission of the University of Wisconsin System is to develop human resources, to discover and disseminate knowledge, to extend knowledge and its application beyond the boundaries of its campuses, and to serve and stimulate society by developing in students heightened intellectual, cultural, and humane sensitivities, scientific, professional and technological expertise, and a sense of purpose. Inherent in this broad mission are methods of instruction, research, extended training, and public service designed to educate people and improve the human condition. Basic to every purpose of the UW System is the search for truth.

Notice how much of that is about sharing knowledge and improving the world. But, of course, when UW had a chance to say "pay me!" it didn't skip a beat. And many universities are doing the same thing. It's a massive problem and it's one caused almost entirely by Congress. We've discussed this a few times before, but in 1980, Congress passed the Bayh-Dole Act, which was supposed to incentivize more research at universities by allowing those universities to patent that research. The people who supported this idea were working off the myth that patents are the main way to incentivize innovation and research. This is wrong, and from this initial mistake, lots of serious problems have flowed. The Bayh-Dole Act has been a dismal failure in many, many ways, leading to a world now where many universities have resorted to patent trolling.

What really happened in the wake of the Bayh-Dole Act, was that many universities thought that they'd (1) patent all their professors' research (2) license it and (3) profit like crazy. The reality was that they did the first part -- and then many universities set up "tech transfer offices" to try to license it. And then they ran smack dab into reality, which is that most of their patents sucked and no one wanted to license them. Making matters worse, even when they had a legitimate or interesting patent, the universities massively overvalued those patents, demanding licensing fees that were ridiculous.

The end result was a near total disaster for most universities. Rather than make money, most universities lost a ton of money between all the patent filing and the expensive tech transfer offices that were supposed to be a revenue generator, but turned out to be massive losses for the vast majority of universities that set them up (there are very few exceptions). On top of that, this rush to patent and license resulted in a secondary problem: it actually decreased research and information sharing. Historically, professors would often share research with colleagues and work together on projects. But universities started pushing them not to do that as much, because of the patents. And on top of that, it became riskier to do follow on research over fears around the patents. So the entire intent of the bill backfired drastically.

As a result, many university tech transfer offices followed one of two paths to try to justify their existence: they sold off patent portfolios to patent trolls directly (Intellectual Ventures' big initial portfolio of patents was mostly them buying junk patent portfolios from desperate universities, who needed to show some sort of return), or they started patent trolling themselves. The University of California at Berkeley became a major patent troll. As did the University of Southern California. And Carnegie Mellon. And, apparently, the University of Wisconsin as well.

This recent ruling is just the latest example of how far we've come and just how much damage the Bayh-Dole Act has done. It's not only diminished university research and important information sharing, it's now leading these universities to actively attack actual innovators and shake them down for money. If Congress really wants to fix patent trolling, it really needs to roll back the Bayh-Dole Act.

Filed Under: bayh-dole act, chips, patent trolls, patents, universities
Companies: apple, university of wisconsin