Stanford Professor Insists Consumers Are Helped By Patent Trolls

from the why-does-stanford-hire-these-people dept

Bloomberg has a weird story about Unwired Planet's patent trolling. As we've discussed, Unwired Planet is a company that's gone through many forms over the years, from Phone.com to Openwave and then Unwired Planet. It's true that the company was something of a pioneer in early WAP browsers, but WAP browsers were a joke that never caught on. The mobile internet didn't really catch on until the rise of smartphones and higher bandwidth wireless data connections -- which Unwired Planet had nothing to do with. So like many failed tech companies, it decided to go full on patent troll. A few years ago, we wrote about it buying more than 2,000 patents from Ericsson that it was then using to shake down companies that didn't fail in the same space that Unwired Planet did fail in.

The Bloomberg article is mostly unremarkable, other than calling the company the "inventor" of the mobile internet. That's misleading. It was one hyped up company that helped push a failed vision of a mobile internet, that eventually went nowhere. And now it's patent trolling. But the other bizarre part of the article is that it quotes Stanford professor Stephen Haber as claiming that consumers benefit from patent trolls:

“The losers from a world without patent litigation would, in the end, be consumers,” said Haber. Inventors won’t innovate unless they can ensure they are paid for their invention, he argued.

He may argue that, but he's wrong. Like, really wrong. Actual research shows that the leading reasons for innovating have absolutely nothing to do with patents. Rather, people and companies tend to innovate because (1) they need something themselves or (2) they see a need in the market. And the "ensure they are paid for their invention" makes no sense. If they have an invention people want, then they can sell that product and make money that way. You don't need patents for that. Yes, some others may enter the market as well, but that's called competition, and that's a good thing.

Amazingly, if you look at Stephen Haber's official bio, you'd think he'd know this. After all, it says:

Haber has spent his academic life investigating the political institutions and economic policies that delay innovation and improvements in living standards. Much of that work has focused on how regulatory and supervisory agencies are often used by incumbent firms to stifle competition, thereby curtailing economic opportunities and slowing technological progress.

Regulatory agencies used by incumbent firms to stifle competition is basically the definition of the patent system. Yet, instead, Haber has been spending the last few years preaching the wonders of patent trolling, insisting that lots of litigation is just fine and that there's no evidence that it's harming consumers. That's ridiculous. Tons of studies have shown the massive costs of patent trolling on innovation.

Having a Stanford professor spout such nonsense reflects incredibly poorly on Stanford.

Filed Under: innovation, mobile internet, patent trolling, patent trolls, patents, stephen haber
Companies: unwired planet

Why Patent Trolls Love East Texas... And Why Congress Needs To Fix It

from the is-there-a-patent-on-jurisdiction-shopping? dept

Back in 2011, This American Life toured an office building in Marshall, Texas, and found eerie hallways of empty offices that serve as the 'headquarters' of patent trolls. For many, that was the first introduction to the strange world of the Eastern District of Texas, its outsized role in patent litigation and, especially, its effective support of the patent troll business model. Trolls love the Eastern District for its plaintiff-friendly rules, so they set up paper corporations in the district as an excuse to file suit there. Meanwhile, defendants find themselves dragged to a distant, inconvenient, and expensive forum that often has little or no connection to the dispute.

The remote district's role has only increased since 2011. The latest data reveals that the Eastern District of Texas is headed to a record year. An astonishing 1,387 patent cases were filed there in the first half of 2015. This was 44.4% of all patent cases nationwide. And almost all of this growth is fueled by patent trolls.

Happily, lawmakers have finally moved to restore some balance. The latest version of the Innovation Act in the House includes language that would make it much harder for trolls to file in the Eastern District of Texas. The proposal goes under the decidedly mundane name of "venue reform" but it could actually be crucial to the effort fix our broken patent system.

The Luckiest Court in the Universe

The Eastern District of Texas is a federal court district running along the Texas-Louisiana border. The district covers a largely rural area without much of a technology industry. It is just one of 94 federal district courts. (Some states, like Vermont, have a single federal district, while others, like Texas and California, have as many as four.) If patent cases were distributed evenly among the federal district courts, each one would have received about 33 cases so far this year – a far cry from the 1,387 filings in the Eastern District of Texas.

Accident? We don't think so. In fact, we ran a calculation to see how likely it is that at least 1,387 of 3,122 patent cases might end up there by chance. This was the result:

This probability is so vanishingly small that you'd be more likely to win the Powerball jackpot 200 times in a row. Obviously, something other than chance is attracting trolls to this remote district.

Now that folks are taking notice, some Eastern District of Texas jurists are feeling a bit defensive. Former Judge Leonard Davis, for example, recently said: "To say the Eastern District is responsible [for the patent troll problem] is to say that the Southern District of Texas is responsible for immigration problems." This is nonsense. The Southern District of Texas gets immigration cases because it sits on the U.S.-Mexico border. There is no equivalent reason for the Eastern District of Texas to be a hotbed of patent litigation. To understand why the district sees so much patent trolling, we need to look deeper.

How We Got Here

The Eastern District of Texas was not always so popular. In 1999, only fourteen patent cases were filed there. By 2003, the number of filings had grown to fifty-five. Ten years later, in 2013, it was 1,495.

This massive rise in litigation followed the appointment of Judge T. John Ward in 1999, and his drive to create local patent rules. Judge Ward's rules, while similar to patent rules in other federal districts, had some additional plaintiff-friendly features such as a compressed discovery schedule and a short timeline to trial. This so-called "rocket docket" attracted patent plaintiffs eager to use the compressed schedule to pressure defendants to settle. For those cases that went to trial, the district got a reputation for huge patent verdicts. As one commentator explained, the Eastern District's "speed, large damage awards, outstanding win-rates, likelihood of getting to trial, and plaintiff-friendly local rules suddenly made [it] the venue of choice for patent plaintiffs."

The explosion in patent litigation promptly led to a burst of new economic activity in East Texas. As the BBC wrote, Marshall is a "sleepy town kept busy with patent cases." The patent litigation boom creates business for hotels, restaurants, trial graphics services, copying, expert witnesses, jury consultants, court-appointed technical advisers, and, of course, lawyers. In other words, patent litigation has become important to the economic health of the communities surrounding the courthouse. But the federal courts don't exist to generate business for a particular region.

Tipping The Scales on Both Procedure and Substance

So why are these plaintiff-friendly rules so important? First, the rules impose particular burdens on defendants. If a patent case proceeds to discovery—the process whereby parties hand over information potentially relevant to the case—it will usually be more expensive in the Eastern District of Texas. This is because the local discovery order in patent cases requires parties to automatically begin producing documents before the other side even requests them. In patent troll cases, this imposes a much higher burden on defendants. Operating companies might be forced to review and disclose millions of documents while shell-company patent trolls tend to have very few documents. Trolls can exploit this imbalance to pressure defendants to settle.

Second, the rules make it harder to eliminate cases early. The Supreme Court's decision in Alice v CLS Bank invalidated many of the low-quality software patents favored by patent trolls. But this only helps defendants if they are able to get a ruling to that effect from the judge overseeing their case. Judges Rodney Gilstrap and Robert Schroeder recently indicated that they would require patent defendants to ask permission before they can file a motion to dismiss raising Alice. This means that defendants in the Eastern District of Texas will more often be forced to go through expensive discovery.

When judges in the Eastern District do issue rulings on challenges raising Alice, their decisions are very different from jurists in other parts of the country. Recent data from Docket Navigator analyzed all challenges under 35 USC § 101 so far this year:

• Nationwide: 71% granted or partially granted; 29% denied (76 decisions)
• Northern District of California: 82% granted or partially granted; 18% denied (11 decisions)
• District of Delaware: 90% granted or partially granted; 10% denied (10 decision)
• Eastern District of Texas: 27% granted; 73% denied (11 decisions)

While each challenged patent claim is different, the overall trend suggests judges in the Eastern District of Texas are applying Alice in a way that is far more favorable to patent owners.

The Alice decision, and its companion, Octane Fitness v. Icon Health & Fitness gave judges additional tools for quickly dismissing meritless patent cases and holding unscrupulous plaintiffs to account. This means that patent trolls—particularly those that bring weak cases hoping to use the cost of defense to extort a settlement—now need a favorable forum more than ever. Small wonder we've seen a spike in EDTX filings.

We have also written about unfair rules that make it harder for patent defendants to file for summary judgment in the Eastern District of Texas. These rules have a real impact. A recent study found that judges in the Eastern District granted only 18% of motions for summary judgment of invalidity while the national grant rate is 31%. And that statistic, of course, does not include all the summary judgment motions that would have been filed had the defendant been given permission.

Judges in the Eastern District of Texas have also harmed defendants by delaying rulings on motions to transfer (these are motions where the defendant asks for the case to be moved to a more sensible location). Delay prejudices defendants because they are stuck litigating an expensive case in a remote forum while the judge sits on the motion. (The judges' rules make clear that a pending motion to transfer or a motion to dismiss is not grounds to stay discovery in a case). The Federal Circuit recently issued a stern order (PDF) finding that an Eastern District magistrate judge had "arbitrarily refused to consider the merits" of a transfer motion. When that transfer motion was finally considered, it was granted (PDF), but not until after extensive litigation had already occurred, and requiring the parties to pay for a court-appointed technical advisor (PDF). More generally, studies have also found the Eastern District of Texas is reversed by the Federal Circuit at a higher rate compared to other districts.

Venue Reform Can Fix the Mess

It's time for Congress to act. Although the Federal Circuit has overruled some of the Eastern District of Texas' most egregious venue decisions, it has failed to bring basic fairness to where patent cases are litigated. We need new legislation to clarify that patent cases belong in forums with a real connection to the dispute.

Fortunately, Congress is looking at the problem. Representative Darrell Issa recently offered an amendment (PDF) to the Innovation Act that would tighten venue standards in patent cases. On June 11, the House Judiciary Committee approved the amendment. If this bill becomes law, shell company patent trolls will no longer be able to drag out of state operating companies all the way to Eastern Texas.

It's long past time for Congress to bring fairness to where, and how, patent cases are litigated. Contact your representative and tell them to pass the Innovation Act and to ensure that any final bill includes meaningful venue reform.

Republished from the Electronic Frontier Foundation Deeplinks blog

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

Google Giving Away Some Of Its Patents To Startups To Help Protect Startups From Trolls

from the good-move dept

A year ago, we wrote about the launch of a new program from a bunch of bigger tech companies who were sick of patent trolls: the "License On Transfer" network (LOT). The program, set up by Google, NewEgg, Dropbox, SAP, Asana and Canon was pretty simple in concept. It's a royalty-free patent cross-licensing program. If any patent held by a member of LOT is transferred to another company, a license is automatically granted to every member of LOT. This serves to avoid patents eventually falling into the hands of trolls and being used against members. A bunch of other companies have joined since it launched, including Redhat, GitHub, Ford, JPMorganChase, Mazda, Khan Academy, Pandora and more. It certainly doesn't solve all the patent trolling problems, but it is a nice way to make sure that patents from these organizations are less likely to be used for trolling and has a really nice incentive structure in that to protect yourself from patent trolling you basically have to make sure your patents are less likely to be used by trolls as well.

LOT is still trying to expand, and it appears that Google is taking a step to make it even more attractive, especially for startups: the company is going to start giving away some of its patents to startups, for free, if they meet a few conditions -- including joining LOT (though the membership fees for the first two years will be waived). The program is only available to the first 50 eligible participants who sign up -- and to be eligible, you need to have 2014 revenue between $500k and $20 million. Then Google will offer specific "patent families" from which the startups can choose to take. These patents will not be ones developed by Google itself, but rather ones that it has bought from others. And, of course, the startups agree to issue a license back to Google. And, most importantly, they must agree to only use the patents defensively. If used offensively, the patents go back to Google.

In other words, it's another win-win setup. Startups can get some decent patents for free that they can use for defensive purposes, and LOT gets more members from the startup community. The only ones who "lose" are the trolls and their lawyers, but I can't fathom any reason to be upset about that.

Of course, if we just fixed the damn patent system so that low quality patents and patent trolling were stopped, none of this would be needed. So, in some sense, it's a bit depressing that all of this is really an economic dead weight loss on society created by a broken patent system. But, at the very least, it's nice to see companies proactively looking for non-regulatory/non-legislative ways to minimize the damage created by a broken system.

Filed Under: license on transfer, patent trolls, patents, startups
Companies: google, lot network

Foursquare COO Says Small Businesses 'Take It On the Chin' When It Comes to Patent Trolling

from the trolls-and-tolls dept

Call them patent assertion entities, non-practicing entities, or, in the words of John Oliver, raccoons, but whatever you do, don’t call them small inventors. Patent trolls do not create jobs or products, and their profits certainly are not small. In an effort to clear the air of all the misinformation going around by the patent troll lobby, we spent the day with Jeff Glueck, COO of tech startup Foursquare, as he and other Consumer Electronics Association (CEA) and Engine Advocacy startup members met with members of Congress and their staff to describe his many encounters with patent trolls. A frontrunner in the industry, Glueck has worked in leadership positions at various tech companies, such as mobile software startup Skyfire and now Foursquare. So it should come as no surprise that he needs two hands to count all of his encounters with frivolous patent lawsuits. As he describes it:

The typical troll process is to shake down small companies or startups with the expectation that business owners will settle rather than endure the cost of fighting frivolous claims in court. It's sad when you work hard to create real inventions and a group of lawyers with a vague patent — that never should have been granted in the first place — is able to derail your business with a groundless claim. ... Small businesses take it on the chin. Last year, patent trolls targeted small businesses and tech companies about 80 percent of the time. Now, that number is approaching 90 percent. You may as well call it an all-out assault on the innovation economy.

In fact, 2015 is on track to be a record-breaking year for the patent troll lobby. Comparatively speaking, patent trolls have filled over 11 percent more lawsuits this year than at this point of 2014. Even worse, they are attacking tech startups more than ever before. Patent trolls traditionally have targeted small businesses that are least equipped to defend themselves.

For those select small businesses courageous enough to fight back, the costs are steep financially and the reward is purely ideological. It can take over a million dollars and three years to defend your company going all the way to trial against a troll. Few small businesses or startups have that luxury. And that’s only counting legal fees and legal costs. For small business, a bigger cost can be the time and distraction, or the way that customers and partners may shy away from doing business with you while under a patent assault. As CEO at Skyfire, Jeff saw a baseless patent troll suit against his first major telco customer delay launch of Skyfire’s mobile network software by 15 months. With a deployment on hold, Skyfire couldn’t get paid, and had to keep the company alive at a cost of $15 million dollars until ultimately the troll was defeated in court. Now, in his role at Foursquare, he sees the company dealing with five trolls at any one time, and roughly a million dollars annually in costs dealing with trolls:

That’s nearly ten engineers we would hire tomorrow, but instead that money is going to lawyers. As a country, our leadership in software is a huge potential job growth engine. We can have companies focus on improving their products to grow users and revenues globally, or we can have an economy derailed by everyone suing everyone.

The current climate is daunting for tech entrepreneurs, and Glueck is focused on a solution. In this case, it’s legislative — the U.S. House of Representatives Innovation Act, which is slated for a floor vote this month:

We’re fans of H.R. 9. We need to put a stop to the corrupt process of venue shopping – it’s un-American. Overly burdensome upfront discovery is being used as a weapon and fishing expedition to force companies into settling regardless of the merits of the case.  Narrowing early discovery will take away a weapon for trolls. An automatic stay for innocent users will also help to protect innocent small businesses – from restaurants to tech startups – who just simply use a product. They don’t make it.

Ahead of the upcoming crucial vote for the tech community, contact your member of Congress and urge him or her to support innovative startups like Foursquare by reforming America’s patent litigation system. The patent troll lobby is big and its pockets are deep; don’t let these extortionists get away with another cent.

               

Filed Under: innovation act, jeff glueck, patent trolls, sponsored post
Companies: foursquare

East Texas Court Finally Issues Newegg Order Two Years Late; Judge Upset About How Newegg Handled Things

from the might-want-to-look-in-the-mirror dept

Last week we wrote about an incredible situation in East Texas, where Judge Rodney Gilstrap had not issued a ruling in 20 months on a filing by Newegg concerning a ridiculous jury decision. As we had noted, everything about the case was fairly ridiculous. The patent in question, 5,412,730, was ridiculous and never should have been issued in the first place. The troll who owned it, TQP, should never have been allowed to shake down hundreds of companies by claiming that anyone encrypting web traffic infringed. TQP was able to bring in $45 million in settlements from this one bogus patent alone. Newegg brought out the biggest names in encryption to point out that the patent was bogus, and also pointed out that even if the patent was valid, it clearly did not infringe. No matter, the East Texas jury still sided with the troll, because that's East Texas.

Newegg, in response, asked Judge Gilstrap to basically overrule the jury, and issue a "Judgment as a Matter of Law" (JMOL) which is basically the judge saying that the jury got the law wrong in determining its verdict. And then... nothing. As new things happened in related cases, Newegg filed updates with the court, as kind of a nudge. Newegg had vowed to appeal the case, but was procedurally unable to do so until Gilstrap ruled one way or the other on the JMOL. So, eventually, last week it took the somewhat extreme step of filing a Writ of Mandamus with the appeals court, basically asking it to order Judge Gilstrap to do his job and issue an order.

TQP quickly filed a weak and silly opposition to the writ, not addressing the actual issues raised (because what are they going to argue -- that the judge should never rule on the case?). And before Newegg could reply, it appears that someone in Judge Gilstrap's office finally woke up and issued an order, siding with Newegg in the JMOL. In short, after doing nothing for 20 months, leaving everyone hanging on a jury verdict over this bogus patent, and ordering Newegg to pay $2.3 million, the court said, "Oh yeah, jury wrong, no infringement":

The Court concludes that under either Newegg's or TQP's interpretation there was not a showing of substantial evidence that the claim limitation is infringed.

In other words, no infringement, the jury was just wrong, everyone get on with their lives. Seems like this could have happened quite a long time ago, no? At the end of the filing, Judge Gilstrap finally addresses this issue and rather than being apologetic, he appears to be pretty angry at Newegg. As for why this happened? Well, that gets buried in a footnote:

After Newegg’s Petition for Mandamus was docketed in this case, the Court, among other actions, immediately asked the District Clerk to investigate why its systems had failed in this case, both to understand the issue and to, hopefully, determine a way to prevent such an occurrence in future. District Clerk David Maland forwarded his findings to the Court:

I am responding to your inquiry of July 8th as to why defendant Newegg's posttrial motions have not been appearing on the 6 month CJRA pending motion report. Upon inquiry, it was discovered that an order staying Case No. 2:11-cv- 428, a case with a similar number, was inadvertently docketed in the instant case on June 7, 2013 (docket entry #242 - see attached screen shot; erroneous order also attached). A note was made by the docket clerk at that time that the stay order was filed in error, but she neglected to lift the stay flag in the database. The bottom line is that a stay was created when the erroneous order was entered in this case and the stay flag remained in place until it was discovered and removed on July 8, 2015. This prevented any pending motions in this case from showing on your pending CJRA motions report during that time period.

Please accept my deepest apology for this situation. We have advised the deputy clerk in question of her error and have taken curative actions designed to avoid repetition of this kind of error. Please contact me if you have any questions.

So, yes, there's an apology there from the court clerk, but you'd think that the judge might want to issue one as well. But, no, he goes... the other way, scolding Newegg.

The Court is aware that more time has passed since the briefing has been complete on Newegg’s Motion than is optimal. However, although approximately 20 months have passed since the trial in this case, the time at which Newegg’s Motion for JMOL was fully briefed and Newegg’s Supplements were before the Court—the point in time where these matters typically would have been decided—was approximately 12 months ago. While Newegg did file an electronic notice with the Clerk’s office during this time (approximately 8 months ago), this is the sole action that Newegg has taken. Never once in this time has counsel for Newegg directly contacted the Court’s staff inquiring about this matter. How this situation could simultaneously be so prejudicial that a resort to mandamus might be considered while, at the same time, Newegg could not be troubled to pick up a phone and call the Court’s staff is baffling.

Finally, the Court intends to address, by written opinions, the issues that it has carried within a reasonable time. The Court, like most courts, has a busy docket, which periodically may cause more time to pass in a particular case than is optimal. In the future, the Court suggests that the parties themselves would be better served (and costs reduced) if they elected not to shoot first and ask questions later.

This is both misleading and ridiculous. First of all, Newegg repeatedly (four times) had filed additional information with the court, which you'd think should be sufficient to remind the court that it has a pending issue to attend to. And while it is true that Newegg's lawyers did not call the court clerk to find out what's up, Newegg's chief legal officer, Lee Cheng, says that's because basically everyone warned them that the East District Court does not look kindly on parties reaching out to the court in such a manner. Cheng tells me:

I asked my counsel to do everything possible to expedite judgment. Since pretty much the verdict was delivered. I’d specifically inquired whether we could/should call and/or write and/or file a notice on a monthly basis politely reminding the Court that we were awaiting judgment, if for nothing else but to build a record. I was specifically advised by counsel and local counsel (based on his knowledge of local practice) that the Court would likely not look kindly on repeated reminders to issue a judgment. We reminded the Court as frequently as we dared—4 times.

We asked. We asked. We asked. We asked. We were advised strongly to avoid ex parte and/or repetitive (after 4 attempts) requests. Then we filed a very respectful Mandamus petition, almost 15 months after the final briefing on a renewed JMOL motion. Newegg did not attribute any ill intent or will as the cause of delay. Hardly a “shoot(ing)” and not even remotely, under any objective standard, premature.

Separately, Cheng responded to Gilstrap's closing whine that his docket is so busy that this one slipped through the cracks, by noting that there are ways to deal with that:

I would continue to suggest, with utmost respect, that his incredibly busy docket could be lightened if he were to grant venue transfer motions more frequently that are almost certainly supported under binding Supreme Court precedent, and if he and his clerks didn’t have to deal with extra motions seeking permission to file Section 101 challenges to patent validity permitted under Alice.

In other words, maybe it's time for East Texas to give up its reputation as welcoming patent troll lawsuits at every opportunity and send those lawsuits, that are clearly about jurisdiction shopping, to other courts where they can be handled more efficiently.

Filed Under: east texas, encryption, patent trolls, patents, rodney gilstrap, writ of mandamus
Companies: newegg, tqp

Patent Trolls Strike Back: Trolling Rebounds After Brief Supreme Court-Enabled Dip

from the someone-found-the-loopholes dept

Following last year's pretty good Supreme Court ruling in the Alice v. CLS Bank case, which effectively wiped out the basis of many software and business method patents by saying you couldn't get a patent on "generic" functions, there was a pretty immediate impact on patent trolling. Courts were invalidating patents based on the ruling, the US Patent and Trademark seemed more willing to reject patents based on the Alice ruling, and even trolls seemed to be admitting defeat. Uber troll Intellectual Ventures laid off a bunch of people and OG patent troll Ray Niro indicated he was moving on to more lucrative trolling opportunities, such as in trade secrets.

But, never fear, the Patent Troll Strikes back sequel is fast becoming reality. The good folks over at Unified Patent have a report out on the latest numbers, which suggest the decline in patent troll activities last year was merely a brief disturbance and that patent trolling has bounced back significantly. While 2014 definitely showed a dip, 2015 has showed that patent lawsuits have gone right back up again: And, it's notable that a growing number appear to be patent trolls (or "non practicing entities" as some prefer to call them). The gold color are troll suits: And this is all particularly pronounced in the high tech field, where nearly 90% of all lawsuits were filed by trolls: And thus, despite the Alice ruling there seems to be tremendous evidence that we need patent reform as part of the solution. While another recent analysis shows that courts are still tossing out patent claims as invalid in a post-Alice world, it doesn't seem to be stopping the lawsuits. And that's likely because many trolls are realizing that even if their patents are invalid, it's still much easier for many to just settle and pay up than go through with the whole trial process.

Filed Under: alice, cls bank, lawsuits, patent reform, patent trolls, patents, upsto
Companies: alice, cls bank

Venture Capital Trade Association Hires Patent Troll Lawyers, Fights Against Patent Reform... Even As Most VCs Want Patent Reform

from the this-is-just-strange dept

The venture capitalists who are members of the National Venture Capital Association (NVCA) may want to reconsider why they support an organization that is actively working against the interests of venture capitalists and innovation. It has long been known that most venture investors in the tech world know damn well that patents get in the way of innovation, rather than help it. For years, we've written about some of the most high-profile venture capitalists -- the ones that entrepreneurs would die to have invest in them -- arguing about the need for patent reform and how patents often act as a tax on innovation, rather than an incentive for innovation.

So... it seemed really, really odd earlier this year, when a guy hired by the NVCA to appear at a Congressional hearing on patent reform argued against patent reform and suggested, if anything, that patent protections needed to be ratcheted up. The guy in question, Robert Taylor, seemed like an odd choice. He was not a venture capitalist, but rather a consultant who focused on patent strategies for startups -- in other words, someone who would directly profit from a bigger patent mess.

But, his view is clearly not in the mainstream among venture capitalists. This can be evidenced from a few different places. First, a little over a year ago, a study was conducted by Robin Feldman on venture capitalist views towards patents, and it put to rest the myth that VCs love patents. That study was actually conducted in coordination with the NVCA. The survey was distributed by the NVCA to its members. And those members did not like patents or what they did to innovation. Some quotes from the results:

When asked whether they see patent assertion as positive for startups and the startup community, 72% of venture capitalists disagree....

74% of the venture capitalists reported that patent demands had either a highly significant or a moderately significant impact on companies that received them, including distracting management, expending resources, or altering business plans....

When companies spend money trying to protect their intellectual property position, they are not expanding; and when companies spend time thinking about patent demands, they are not inventing....

... the venture capitalists were in general agreement that patent demands are increasing against venture-backed companies. 79% responded that the number of patent demands have increased over the last five years for their portfolio companies overall....

For 59% of the venture capitalists, the patent demands came either all or mostly from those whose core activity is licensing or litigating patents....

In other words, the vast majority of NVCA VCs recognize that patent trolling is a massive problem. And, yes, the majority of the problem comes from the trolls: The report includes a ton of heart-wrenching anecdotal stories about startups that were basically destroyed by patent trolls -- which were mostly relayed by these VCs.

And, if you needed any more evidence that venture capitalists realize the patent system today is broken and reform is needed, you can just look at this letter a ton of venture capitalists sent to Congress earlier this year, demanding reform, and highlighting how patent trolls are a massive tax on innovation. The signatories to the letter (and there are a lot of them) basically represent a who's who of venture capitalists that any Silicon Valley startup would love to have invest in them -- including Andreessen Horowitz, Union Square Ventures, YCombinator, Greylock, Benchmark, Kleiner Perkins, Foundation Capital, Softech VC, SV Angels, Canaan Partners, First Round Capital, Lowercase Capital, Spark Capital and many more. It's hard to think of a top VC firm that isn't listed.

These are the companies and individuals who funded nearly all of the top internet companies today: Google, Twitter, Tumblr, Facebook, Amazon, eBay, Airbnb, Github, Pinterest, Slack, StackExchange, Kickstarter, Etsy, Cloudflare, Lending Club and many, many more.

Given all of this, many people were left scratching their heads and wondering why the NVCA was coming out against the rather clear wishes of its own members, and the rather detailed literature and studies highlighting how problematic today's patent system is for innovation and startups. Even some of the Congressional Reps at that hearing wondered about it, leading NVCA to issue a rather bizarre clarification that Taylor's testimony was not on behalf of NVCA members, but some amorphous "broader industry."

To be clear, Mr. Taylor was present at the hearing to testify as NVCA's outside counsel on behalf of the broader industry, not as a representative of individual NVCA member firms.

Huh? What "broader industry"? And if he wasn't representing the interests of the NVCA's members, why was he there as the NVCA's representative at the hearing?

The same clarification also sought to totally reinterpret the Feldman study (which, again, had been done in cooperation with the NVCA), arguing that even though the vast, vast majority of NVCA members had real problems with patent trolls and saw them as damaging, the fact that a few did not, somehow made it okay for the NVCA to side with the few and to argue for stronger patents, even though the VCs and startups in the survey clearly indicated that such a solution would be a problem.

... the survey findings do not indicate a difference of opinion between NVCA's position on patent litigation reform and the issue of patent assertions....

Hell yes it does.

From there, the NVCA blatantly lies and says that it actually supports reforms that deal with "abuses with patent assertions"... but immediately caveats that by claiming "we also believe that any attempt to reform the system must maintain strong patent enforcement mechanisms..."

This whole story got stranger still last month, when it was revealed that the NVCA hired lawyers closely connected to some big patent trolls to pressure Congress into weakening or killing patent reform.

A review of the leaked document also reveals another surprise: the names of the lawyers that the trade group has assigned to examine the law. One of them is Michael Spillner, who is general counsel for Tessera, which has been widely described as a patent troll. Another is William Nelson, a partner at the law firm Tensegrity, which was founded in 2012 by several elite lawyers seeking to cash in on the popularity of patent trolling.

All of this should raise serious concerns among actual venture capitalists about just what their trade organization is doing in their name. It appears to have handed the keys to those in bed with the patent trolls, and against the interests of its actual members and the most well-known, successful and sought-after venture capitalists in the world.

Filed Under: innovation, investment, patent reform, patent trolls, patents, startups, venture capital
Companies: nvca

Patent Reform Is Falling Apart

from the because-of-course-it-is dept

Last year a decent, but not great, patent reform bill looked poised to pass... until it was killed off at the last minute, thanks mainly to trial lawyers afraid of fee shifting provisions. The common wisdom was that this year a similar reform bill would likely sail through Congress, since the Senate had shifted and the Democrats (who are more closely aligned with the trial lawyers) were no longer in power. The eventual bill was just so-so, but had a few good and useful provisions, taking people a step in the right direction.

After that, I had assumed that things would go along the usual course, and eventually this weak, but still marginally useful, patent reform bill would go through. However, a few weeks ago, someone involved in negotiations on the bill told me that the whole thing was potentially falling apart, as a concerted lobbying effort by those against patent reform -- combined with less than active support from those in favor of patent reform -- threatened to destroy the bill. And, now, it appears that's exactly what's happening. Judiciary Committee boss Rep. Bob Goodlatte has apparently caved on a few key issues, such that the bill has basically been watered down to nothing, and even those in favor of patent reform may just bail on it altogether.

The committee had been expected to approve the bill easily when it was introduced earlier this year by Rep. Bob Goodlatte (R-Va.), the House Judiciary chairman. But under pressure from House leadership and opponents of the bill, new language was added last week that guts key parts of the legislation, according to its proponents.

Advocates of aggressive legislation are threatening to walk away from the bill if the old language isn't restored. For instance, one aspect of the bill would've made it harder for trolls to file suit in courts that have historically granted favorable decisions. Recent changes have weakened that provision too far, said one pro-reform advocate, who declined to be named because the talks are ongoing.

Even that's misleading. The legislation that was on the table was hardly "aggressive," but those who abuse the patent system, especially on the pharma side, are a powerful lobby, and apparently they're now killing the best chance we had at real patent reform. Yes, in the last few years the courts have been useful in chipping away at some of the worst abuses of the patent system, but a real legislative change was necessary as well -- and now that's likely to disappear. Once again, it looks like Congress can't get its act together to fix a major problem for the economy.

Filed Under: bob goodlatte, patent reform, patent trolls, patents

Supreme Court Sides With Patent Trolls

from the bad-news dept

Well, this is unfortunate. Last fall, we wrote about yet another patent case being heard by the Supreme Court. This one (Commil v. Cisco) involved the question of whether or not a company could be found liable for "inducing infringement" when it believed that the patent in question was clearly invalid. The appeals court (CAFC) had overturned a lower court, saying that it was wrong for a judge to instruct a jury that Cisco could be found guilty of inducing patent infringement if it "knew or should have known that its actions would induce actual infringement." The big question was about the "should have known" part. Cisco argued -- and the CAFC agreed -- that the "should have known" statement created a negligence standard, which is not appropriate in such cases. Further, CAFC rightly pointed out that "one cannot infringe an invalid patent."

Unfortunately, the Supreme Court has now mostly sided with the patent holder Commil, and said that believing a patent is invalid is no defense to an inducement claim in a patent infringement case. The reasoning -- in an opinion by Justice Kennedy -- is basically "infringement and validity are two separate issues." True... but... sorta misses the point. The Court, thankfully, didn't go quite as far as it could have gone in saying that you could induce infringement even without knowledge that something is infringing, but it rejected the idea that a belief the patent was invalid is a "defense" to an inducement claim. All because it insists that validity and infringement are two entirely separate issues.

When infringement is the issue, the validity of the patent is not the question to be confronted.

But this presumption of validity is problematic in any real world scenario, and the ruling doesn't seem to care, focusing on the procedural issues of when certain arguments are made and who has the burden at what point:

To say that an invalid patent cannot be infringed, or that someone cannot be induced to infringe an invalid patent, is in one sense a simple truth, both as a matter of logic and semantics. See M. Swift & Sons, Inc. v. W. H. Coe Mfg. Co., 102 F. 2d 391, 396 (CA1 1939). But the questions courts must address when interpreting and implementing the statutory framework require a determination of the procedures and sequences that the parties must follow to prove the act of wrongful inducement and any related issues of patent validity. “Validity and infringement are distinct issues, bearing different burdens,different presumptions, and different evidence.” 720 F. 3d, at 1374 (opinion of Newman, J.). To be sure, if at the end of the day, an act that would have been an infringement or an inducement to infringe pertains to a patent that is shown to be invalid, there is no patent to be infringed. But the allocation of the burden to persuade on these questions, and the timing for the presentations of the relevant arguments, are concerns of central relevance to the orderly administration of the patent system.

Right. But that means that anyone who is aware of what they know to be an invalid patent would first need to have the patent itself rejected before they can go on with their business, and that creates a huge hurdle to innovation.

But what's interesting is that the Supreme Court then delves into a discussion on the fact that this ruling has a big impact on patent trolling situations. First, from the opinion by Kennedy:

The Court is well aware that an “industry has developed in which firms use patents not as a basis for producing and selling goods but, instead, primarily for obtaining licensing fees.”... Some companies may use patents as a sword to go after defendants for money, even when their claims are frivolous. This tactic is often pursued through demand letters, which“may be sent very broadly and without prior investigation,may assert vague claims of infringement, and may be designed to obtain payments that are based more on the costs of defending litigation than on the merit of the patent claims.” ... This behavior can impose a “harmful tax on innovation.”....

No issue of frivolity has been raised by the parties in this case, nor does it arise on the facts presented to this Court. Nonetheless, it is still necessary and proper to stress that district courts have the authority and responsibility to ensure frivolous cases are dissuaded. If frivolous cases are filed in federal court, it is within the power of the court to sanction attorneys for bringing such suits. Fed. Rule Civ. Proc. 11. It is also within the district court’s discretion to award attorney’s fees to prevailing parties in “exceptional cases.”...

But, in the dissent, Justice Scalia rips into the practice, and (for the first time) calls out patent trolling as patent trolling, and notes that the majority ruling gives more power to patent trolls:

I may add, however, that if the desirability of the rule we adopt were a proper consideration, it is by no means clear that the Court’sholding, which increases the in terrorem power of patent trolls, is preferable.

Scalia also rips apart the arguments in the majority opinion:

Because only valid patents can be infringed, anyone with a good-faith belief in a patent’s invalidity necessarily believes the patent cannot be infringed. And it is impossible for anyone who believes that a patent cannot be infringed to induce actions that he knows will infringe it. A good-faith belief that a patent is invalid is therefore a defense to induced infringement of that patent.

As for the fact that validity and infringement are different issues, Scalia simply notes:

That is true. It is also irrelevant. Saying that infringement cannot exist without a valid patent does not “conflate the issues of infringement and validity,” ... any more than saying that water cannot exist without oxygen “conflates” water and oxygen. Recognizing that infringement requires validity is entirely consistent with the “long-accepted truth . . . that infringement and invalidity are separate matters under patent law.”

Scalia also trashes the idea that without this ruling it would undermine the presumption of validity. Not so, says Scalia, as it only would matter in cases where, in fact, the patent is not valid.

This presumption is not weakened by treating a good-faith belief in invalidity as a defense to induced infringement. An alleged inducer who succeeds in this defense does not thereby call a patent’s validity into question. He merely avoids liability for a third party’s infringement of a valid patent, in no way undermining that patent’s presumed validity.

Either way, I think Scalia got this one right, and unfortunately the majority of the court went the other way. The Supreme Court had been making a bunch of good rulings on patent law lately, so I guess it was bound to issue a stinker eventually. The overall impact won't be as big as some of the other cases, and I guess it's nice to see that the Supreme Court absolutely recognizes that patent trolling problem, as that will be handy in future cases.

Filed Under: inducement, patent trolls, patents, presumption of validity, supreme court, validity
Companies: cisco, commil

Here's Why Everyone is Supporting Patent Reform (And You Should, Too)

from the call-to-action dept

We're just shy of the midway point of 2015, but already this year both the U.S. House and Senate have taken huge steps to end legalized extortion in America. This could be the year we finally drive patent trolls back under the bridge.

Last week, a bi-partisan group of senators introduced S. 1137, the Protecting American Talent and Entrepreneurship (PATENT) Act, to hold these bad actors accountable for their frivolous lawsuits and baseless threats. Patent trolling has become such a problem that this diverse group of Republicans and Democrats — Judiciary Chairman Chuck Grassley, Ranking Member Patrick Leahy, and Sens. John Cornyn, Charles Schumer, Orrin Hatch, Amy Klobuchar and Mike Lee — joined together under the umbrella of a fair, common sense patent reform bill.

So far, the legislation has been publically supported by companies across most sectors of the economy, The New York Times editorial board and President Obama. Even comedy host John Oliver joined the fight against patent trolls, dedicating an entire segment to this critical issue.

According to Julie Samuels, executive director and president of the board for Engine Advocacy:

It's no surprise that patent trolling continues to be a huge problem, and one that disproportionally affects startups, inventors, creators, and the public interest. A very high percentage of startups who have received a demand letter reported 'significant operational impact' in the form of deferred hiring, change in strategy, cost ­cutting, reductions in personnel, decreased valuation or total shutdown. This is not how the patent system is supposed to work.

Today, the Senate Judiciary Committee will hold a hearing on the PATENT Act, with testimonies from Samuels and Mark Chandler of Cisco Systems, Kevin Rhodes of 3M Company, Diane K. Lettelleir of JCPenny Corporation and Henry Hadad of Bristol-Myers Squibb.

The Senate bill comes on the heels of H.R. 9, The Innovation Act, re-introduced in February by House Judiciary Committee Chairman Bob Goodlatte (R-VA), which currently has a bi-partisan group of more than 20 co-sponsors. Both pieces of legislation will close legal loopholes used by those who abuse the patent system. The only difference this time around is that the Senate is joining the fight against patent trolls. During the last congress in 2013 the same legislation passed in the House by an overwhelming bipartisan majority, but was not taken up by the Senate.

Remember, politics is a "squeaky wheel" process and policymakers will only club the trolls if they hear from voters like you. Join the Innovation Movement — the Consumer Electronics Association's grassroots campaign advocating for public policies spurring the innovation and startup economy — in urging Congress to pass these patent litigation reform bills. By filling out the action box below or by texting the word “trolls” to 52886 you can tell your members of Congress to shut down the patent abuse racket!

Filed Under: patent act, patent reform, patent trolls, sponsored post