Patent Reform Bill A Good Step, But Still Falls Way Short Of Fixing A Broken System

from the it's-a-start dept

As was widely expected, earlier this week, a bunch of high-profile Senators introduced a big patent reform bill, known as the Protecting American Talent and Entrepreneurship (PATENT) Act. It's backed by Senators Chuck Grassley, Patrick Leahy, Chuck Schumer and John Cornyn, and has a decent chance of becoming law. From a quick look at the bill itself, it looks an awful lot like what we expected to show up last year, right before Senator Harry Reid stepped in and killed the bill. With the Republicans taking over in Congress, however, Reid no longer has the power to do that. Meanwhile, Schumer, who has long been supportive of patent reform and is basically taking over Reid's leadership position as Reid prepares to retire, has declared that this time the bill is getting done.

That's all good. The bill is a good start. But, unfortunately, it's not nearly enough. It does target some of the symptoms of the problems of the patent system, but does little to fix the underlying causes. The bill targets the worst of the worst: the patent trolls who thrive on shaking down companies. Specifically, the bill aims to do a few key things:

1. Fee shifting on ridiculous lawsuits: It would allow for attorneys' fees to be awarded if the patent holder was not "objectively reasonable" in filing the lawsuit. The Supreme Court has already made it easier for courts to award attorneys' fees, but this would slide the scale over a bit in a helpful way. This certainly increases the risk for patent trolls who have no real case.
2. Limiting discovery: Defending a patent lawsuit is crazy expensive. We often hear stories of it costing like a million dollars just to get to trial. And one big expense is "discovery," in which the patent holder gets to ask for all sorts of information from the company its suing -- emails, plans, source code, etc. This process is super expensive and there's not much you can do about it. It often starts pretty quickly after a lawsuit is filed as well. This new bill would put limits on early discovery, allowing those sued to seek motions to dismiss the case altogether or to transfer venues. That could decrease the early cost, taking away some of the pressure on defendants to just settle, and giving them more ability to fight back against bogus claims.
3. Limits vague demand letters: The patent troll's weapon of choice is often to send totally vague demand letters, insisting companies infringe without telling them how. It also makes it easier for the FTC to go after those who send such bogus threat letters.
4. Protecting some end users: We've highlighted plenty of cases where patent holders sue those who make devices or software, and then sue a variety of end-users as well. This bill, in a fairly limited way, would put those kinds of lawsuits on hold until the manufacturer can fight the infringement in court. But this only counts if the troll also has sued the manufacturer. So it's a bit limited.
5. Transparency: The bill would make it harder for trolls to hide behind shell companies. This is a fairly big deal, as many patent trolls have a series of shell companies, and often you have no idea who really owns the patent. The bill will also require actual lawsuits to be a lot more clear in terms of what they're actually suing over and why the defendant infringes (and what it infringes).

These are all good things, but it's unlikely to truly be enough. Missing, unfortunately, is the expansion of a program that would allow the patent office to do a faster review of crappy patents, known as the covered business method (CBM) process. This is too bad -- as this was an idea that Schumer had been a strong champion for, but which Microsoft and IBM pushed back very hard on, as they HATE the idea that the USPTO might start invalidating their crappy patents with a quick review.

Yet, as Schumer knows well, this CBM tool has proven tremendously effective in dumping a bunch of crappy financial services patents. Hell, just this week, DataTreasury, a massive trolling operation that has received over $350 million in settlements had its key patents invalidated via a CBM review. It's too bad that program couldn't have been expanded. Blame Microsoft and IBM.

But there are a lot of other problems that the new bill doesn't touch at all. Yes, it may shut down the worst of the worst in trolling, but will still allow plenty of bad situations to flourish. Bad patents will still get through and be used to hinder innovation. The new bill does absolutely nothing to address the situation with independent invention either, and that's a major problem in the patent space.

Either way, even with this incremental fix, it's likely we'll see a bunch of ridiculous claims that the above changes in patent law will somehow harm inventors, though, I can't see how that's true. As long as you're transparent and upfront with how the infringement happens, and don't file "objectively unreasonable" lawsuits, it seems like patents are still a powerful tool to demand money from companies.

Filed Under: cbm, chuck grassley, chuck schumer, covered business method, fee shifting, john cornyn, patent act, patent reform, patent trolls, patents, patrick leahy, transparency
Companies: datatreasury

Once Again, John Oliver Covers A Techdirt Topic: This Time, It's Patent Trolls

from the advance-research-team? dept

Yes, it's become something of a cliche to post John Oliver's weekly videos, but he keeps doing ones that feel like they're ripped straight from Techdirt's headlines that we just can't help ourselves (also, if the team over there working for Oliver wants some help -- let us know!). This time, he took on patent trolling and the need for patent reform in the US: To be honest, if you regularly read our patent coverage there's very little in there that you won't already know -- though our coverage doesn't (generally) involve a dorky dancing guy who will draw you a cat, though if we get enough requests, perhaps we could add that to one of the Tims' job responsibilities. Still, it's nice to see more mainstream attention on patent trolls and the need for patent reform. The latest move for patent reform really kicked off in earnest when the issue got attention via a wonderful episode of This American Life. Perhaps John Oliver can help keep the momentum going so we can at least get something through Congress this year. It won't be enough, but it will help.

Filed Under: john oliver, patent reform, patent trolls, patents

Does Patent Licensing by Patent Trolls - Or Anyone - Serve A Useful Purpose?

from the nope,-not-really dept

Patent trolls -- sometimes known more politely as "Non-Practising Entities" (NPEs) -- probably have few fans among Techdirt readers, but there are some who try to justify their activities. Here's how the argument usually goes:

Defenders of patent trolls ... argue that they serve as business intermediaries between inventors and commercializers. While the traditional theory of the patent system is that patents encourage innovation by allowing inventors to exclude competitors from the market and therefore earn supracompetitive returns, a number of scholars have argued that the patent system can encourage commercialization of inventions once they are made by allowing the inventor to control who can develop the technology.

That comes from an interesting new paper from Robin Feldman and Mark A. Lemley, which explores whether patent trolls really do fulfill this theoretical function in practice. It's long and detailed, but its results are pretty clear-cut:

Based on our preliminary evidence, the theory that NPEs facilitate innovation either through the creation of new products or by delivering actual technical know-how from inventors to implementers doesn’t hold water. NPEs almost never actually provide any valuable information to their licensees, and they rarely, if ever, prompt the development of any new products. Licensees are paying for freedom to operate -- the right not to be sued for implementing technology they developed on their own but which someone has asserted will fit within their patent rights. Thus, the study does not support the efficient middleman hypothesis for characterizing the role of NPEs.

That's a valuable contribution to the debate about patent trolls, but the paper offers other insights. For example, it finds that not only do patent trolls not bring about much technology transfer with their patent licensing, neither does anyone else, either:

That doesn’t mean technology transfer doesn’t happen; it does. But it may mean that technology transfer happens early in the life of a technology, and that secrets, collaborations, and informal know-how, not patents, are the primary focus of real technology licensing agreements.

That's an important point. The paper also provides yet more evidence that the 1980 Bayh-Dole Act, designed to encourage the commercialization of research results through licensing, actually turns universities into patent trolls -- something that Techdirt has discussed before. Although the authors suggest that further research is needed to confirm their results, it already seems pretty clear that both patent trolls and Bayh-Dole need to go.

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Filed Under: innovation, licensing, patent licensing, patent trolls, patents, tech transfer

532,900,000 Reasons Why We Need Patent Reform Now

from the what-a-joke dept

Over the last year, there's been plenty of good news in the fight against the abuse of patents to stifle innovation. A bunch of court rulings have gone the right way, with the biggest being the Supreme Court's ruling in the Alice v. CLS Bank case, that has resulted in many courts invalidating patents, the US Patent Office suddenly rejecting more patents and a rapid decline in patent lawsuits.

Based on that, you might think that we no longer need patent reform. But you'd be wrong. Patent trolls are regrouping and fighting back. Despite the big drop in patent lawsuits following the Alice ruling, patent trolls have come up with some new ideas, and have recently ramped up the filing of new trolling lawsuits at a rapid pace. And there have even been a few victories. While the dollar amounts were relatively low (especially compared to what was asked for), a troll who claimed to have a patent over Bluetooth 2.0 (despite "inventing" it years after Bluetooth 2.0 was on the market) was awarded $15.7 million, and the world's biggest patent troll, Intellectual Ventures actually won a case against Symantec (but got "only" $17 million).

But, earlier this week, there was the big one. A pure patent troll, Smartflash, with a collection of vague and broad patents (US 7,334,720, US 8,118,221 and 8,336,772 -- all for "data storage and access systems") has been awarded $532,900,000 from Apple, despite everyone happily admitting that Apple came up with the idea on its own. Here's the East Texas (of course) court jury form: And, yes, Apple could probably pay that off with the spare change falling off the edge of Tim Cook's desk, but that's not really the point. Rulings like this don't seem to create any value towards actual innovation. Smartflash once had a product, but it failed in the marketplace over a decade ago. Apple built a product that people actually wanted. Shouldn't we be rewarding the people who actually make the things people want, rather than subsidizing failure by the successful?

Smartflash's lawyer told Ars Technica's Joe Mullin that this ruling is actually a "great example of why the patent system exists." Actually, it's a great example of how screwed up the patent system is. The lawyer also spewed this load of bullshit:

The thing about a patent is—let's say you have a university professor who spent two years researching something. It's irrelevant the effort that [an infringing company] spent to build it. It's the person who came up with it first. That's the way the Constitution, and the patent laws, are written. It's designed to cause people to spend money and time innovating. The patent office publishes it, so that advances the state of the art. In exchange for that, you get a property right.

That's also not how the Constitution is written, though it is (unfortunately) how patent laws are written. But that's not a way to get people to spend "money and time innovating" because the actual innovators here -- Apple -- had to pay out to the guy who failed in innovating. Being "first" isn't innovating. Building the product someone wants is.

Either way, Apple will appeal this ruling (and those other rulings are likely to be appealed as well). And in the last few months, CAFC has actually been shown to have gotten the message about problems with its previous interpretation of patent law. But, in the meantime, we still need serious patent reform.

Filed Under: patent reform, patent trolls, patents
Companies: alice, apple, cls bank, intellectual ventures, samsung, smartflash, symantec

Once More With Feeling: Patent Reform Introduced, And This Time The Trial Lawyers May Not Be Able To Kill It

from the will-it-make-a-difference dept

This was widely expected, but Rep. Goodlatte has now officially re-introduced his patent reform bill, which largely mirrors the one that sailed through the House with ease a little over a year ago (in part because they took out some of the key parts). The Senate bill was a bit stronger and was on the verge of passing until the trial lawyers called up Senator Harry Reid, and had him flat out kill the bill, despite widespread bipartisan support. As we noted at the time, it seemed like the trial lawyers may have miscalculated, because it was already clear that the Republicans were likely to gain control over the Senate in the 2014 elections (as they did), and they were not interested in bowing down to the trial lawyers.

Hopefully that means that a decent patent reform bill will actually make it through Congress this time around, but it still seems likely that, while it may help around the edges, the final bill probably won't be strong enough to fully solve the problems. Still, it's a good step forward, and at the very least, in clearing out some of the problems with the current system (often highlighted via trollish behavior) it will shine the light on remaining problems in the system.

Filed Under: congress, patent reform, patent trolls, patents

Supreme Court Smacks Down CAFC Yet Again: But This Time It May Help The Patent Trolls

from the not-necessarily-good-news dept

Another Supreme Court ruling... and another smackdown of CAFC, the Appeals Court for the Federal Circuit that handles all patent appeals. This regular smackdown of CAFC by the Supreme Court has become such a recurring story that it would almost be surprising if the Supreme Court took a patent case to do anything but smackdown CAFC. The key issue here is that the Supreme Court basically has taken away CAFC's powers to review a patent directly to determine if the patent itself is valid or not. Instead, it can only review the district court's findings, to determine if there was an obvious error by those district courts in handling claim construction. While this takes away power from CAFC, it actually is seen as beneficial to patent trolls, since (especially lately), the now-chastened CAFC has suddenly been rejecting patents left and right. But that might stop now as the CAFC's ability to do that is now greatly limited.

The specific case is Teva Pharmaceuticals v. Sandoz, and the 7-2 ruling argues that appeals courts are only supposed to set aside "clearly erroneous" findings of fact by the district court, and that means that the CAFC should not do "de novo" review of a patent (i.e., from scratch):

Federal Rule of Civil Procedure 52(a)(6) states that a court of appeals “must not . . . set aside” a district court’s “[f]indings of fact” unless they are “clearly erroneous.” In our view, this rule and the standard it sets forth must apply when a court of appeals reviews a district court’s resolution of subsidiary factual matters made in the course of its construction of a patent claim....

Even if exceptions to the Rule were permissible, we cannot find any convincing ground for creating an exception to that Rule here. The Rules Advisory Committee pointed out that, in general, exceptions “would tend to undermine the legitimacy of the district courts . . . , multiply appeals . . . , and needlessly reallocate judicial authority.”

The ruling further notes that the CAFC can still do "de novo review" of the lower court's "ultimate interpretation of the patent claims," but just not the fact finding portion. Still, where this is concerning is that, for all the problems with CAFC judges generally loving patents, district court judges are unlikely to have much understanding of the underlying issues that go into a patent. And thus, the fact finding part of the process will just involve piling on experts, and the side willing to spend more on experts who will claim its interpretation of the claims is right will win, and the CAFC can no longer do much to challenge that.

Unlike recent CAFC smackdowns that were of the 9-0 variety, this one had two dissenting Justices: Thomas and Alito. Their dissent is a worthwhile read also. And it focuses on the somewhat fuzzy area in between what is a finding of fact and one of law. And it notes that patents are not that different from laws, and as such the claim construction aspect shouldn't be seen so much as a finding of fact as a finding of law. Specifically, a patent is effectively a law against others being able to use a certain invention. And thus, according to the dissent, it should be treated like a law, subject to specific interpretations that can be reviewed by the appeals court:

Because they are governmental dispositions and provide rules that bind the public at large, patent claims resemble statutes. The scope of a patent holder’s monopoly right is defined by claims legally actualized through the procedures established by Congress pursuant to its patent power. Thus, a patent holder’s actual intentions have effect only to the extent that they are expressed in the public record....

Moreover, because the ultimate meaning of a patent claim, like the ultimate meaning of a statute, binds thepublic at large, it should not depend on the specific evidence presented in a particular infringement case. Although the party presentations shape even statutory construction, de novo review on appeal helps to ensure that the construction is not skewed by the specific evidence presented in a given case.

Furthermore, the dissent reasonably worries that this will now open up a huge opportunity for patent trolls to argue where the line is between fact and law, creating quite a bit of new litigation:

Perhaps the majority is correct that “subsidiary factfinding is unlikely to loom large in the universe of litigated claim construction.” .... But I doubt it. If this case proves anything, it is that the line between fact and law is an uncertain one—made all the more uncertain by the majority’s failure to identify sound principles for the lines it draws. The majority’s rule provides litigants who prevail in district court a significant opportunity and incentive to take advantage of this uncertainty by arguing on appeal that the district court’s claim construction involved subsidiary findings of fact. At best, today’s holding will spawn costly—and, if the majority is correct about the frequency with which these evidentiary determinations make a difference, meritless—collateral litigation over the line between law and fact. We generally avoid any rule of judicial administration that “results in a substantial expenditure of scarce judicial resources on difficult questions that have no effect on the outcome of the case,” ..., and there is no reason to embrace one here.

So while it's not surprising that CAFC received another Supreme Court smackdown, it seems like perhaps this time, it may create more problems, rather than cleaning up a mess.

Filed Under: cafc, clearly erroneous, de novo, fact finding, patent trolls, patents, supreme court
Companies: teva pharmaceuticals

Have The Courts Done Enough To Stop Patent Trolling?

from the not-yet dept

As we've noted recently, a series of Supreme Court decisions over the past decade, culminating in the big Alice v. CLS Bank ruling in July, has clearly put a serious crimp on the patent trolling business. Vague, broad, dangerous patents are falling like flies, new patent trolling lawsuits are on the decline and the US Patent Office is rejecting a lot more questionable software and business method patent applications. All good news. But is it enough?

There are some who are claiming that the courts have effectively "solved" the problem -- so no new legislation is needed. Of course, it seems interesting to me that these same individuals often appear to be those who insisted there never was a problem in the first place -- and who are also arguing that the courts have gone too far. Economist James Bessen -- who has done tremendous work in detailing the problems of patent trolls -- has an article in the Atlantic where he notes that, for all the positive advancements thanks to the Supreme Court, there's still much more to be done, as plenty of patent trolling lives on:

But don't shed too many tears for the patent trolls just yet. While these changes are a real positive step, they are also limited. While it's true that the Patent Office is granting several hundred fewer business method patents each month, it is still granting record numbers of software patents overall. Most of the litigation is over software patents, not business method patents: One study estimates that business method patents constitute only 10 percent of the patents used in lawsuits by “non-practicing entities” including patent trolls. And while the number of lawsuits has decreased, there are still over four times as many as in 1990, before the surge in software patenting began following court decisions in the mid-1990s. Furthermore, Matt Levy of the Computer and Communications Industry Association told me that in only one case has a victorious defendant recovered legal costs—thanks specifically to the April Supreme Court decisions.

It’s possible that the Supreme Court decisions will eventually have a greater impact on patent trolls than they have so far. For example, the Alice decision pertains to abstract software patents generally, not just to business method patents. It all depends on how the lower courts, particularly the Court of Appeals for the Federal Circuit, interpret and apply these decisions. But that is the very court which has allowed so many broad and vague software patents starting from the 1990s.

Indeed, the efforts by the Supreme Court have been helpful in moving things in the right direction, but so far it's only been a slight course shift, rather than really fixing the underlying problems of the patent system. Trolls are still able to get away with shaking down companies over questionable patents, because it's still ridiculously expensive to fight back -- even if there's a marginally better chance of recovering fees in truly egregious cases. Too many questionable patents are still getting through, and even if courts may finally be more willing to reject questionable "on a computer" patents, it's still a risky and expensive proposition to go to court.

Patent trolling is still a serious problem that many actual innovators face. The Supreme Court may have opened the door to fixing some of the very worst problems, but that doesn't mean all of the problems have gone away. In fact, nearly all of the problems are still there in some form.

Filed Under: courts, james bessen, patent trolls, patents, supreme court

As Expected: Trial Lawyers Made A Huge Miscalculation In Killing Recent Patent Reform

from the have-fun-guys dept

Back in May, we wrote about how, despite pretty much everyone agreeing on a (decent, if not amazing) patent reform bill in the Senate, the whole thing got shot down at the last minute. That was when the trial lawyers called Senator Harry Reid, asking him to kill the whole thing, which he did by telling Senator Patrick Leahy that he wouldn't allow the bill to go to the floor for a vote. This came after months of detailed negotiations, getting nearly everyone into agreement on the bill, which would have made life at least somewhat more difficult for patent trolls. About a week after that, we pointed out that it seemed likely that the patent trolls had miscalculated badly, because it was widely expected that the Republicans would take control of the Senate in the fall (as they did), and they were more gungho on real patent reform and (obviously) not concerned with what trial lawyers think (mocking trial lawyers being a hobby of Republican politicians).

And, indeed, that prediction appears to have been quite accurate. Senator Orrin Hatch -- who is seen as something of a copyright maximalist though apparently doesn't feel that way about patents -- went on the attack against patent trolls in a floor speech. Hatch doesn't mince words and flat out calls out the trial lawyers for killing the recent patent reform attempt. Furthermore, as Vox reports, other Republicans in the Senate appear eager to take on patent trolls, going even further than the legislation that was almost agreed to earlier this year. In fact, Hatch made it clear that he wants stronger fee-shifting in patent reform than what was in the last bill -- and that was the issue that most worried the trial lawyers. It was pretty obvious this was going to happen back in May. It's fairly incredible the trial lawyers (and Harry Reid) didn't recognize this at the time.

Hatch's speech touched on a few other issues -- some good, some bad. He's pushing new federalized trade secret laws. This is a really bad idea, which we'll be discussing in more detail later. However, he also supports ECPA reform -- something that we've supported for years and has never gone anywhere in Congress. He brought up some other important issues, including immigration for high skilled workers. So the speech was definitely a mixed bag, but it had a lot of good points (unless you're a patent troll or a trial lawyer).

Filed Under: orrin hatch, patent reform, patent trolls, patents, trial lawyers

Scanner Patent Troll Slapped On The Wrist By FTC; Told To Stop Misleading Behavior.

from the it's-something dept

For a few years now, the FTC has talked about taking on patent trolls. In 2011, 2012 and 2013, we heard stories about the FTC putting patent trolls "on notice" and getting ready to crack down on them for deceptive practices. Last year, it finally "launched an investigation" into certain patent trolls, starting with notoriously crazy patent troll MPHJ, famous for its rather aggressive form of trolling, using a questionable patent on "scan-to-email" technology, sending out thousands of demand letters from a range of shell companies, telling lots of small businesses that they had to pay between $900 to $1200 per employee if they had a scanner with the "scan-to-email" function (most modern scanners).

Sensing it was in trouble, MPHJ tried suing the FTC (along with each of the five commissioners personally), arguing that the investigation violated its constitutional rights. Yeah, right. A few weeks ago, the courts rejected that plan, and now the FTC has reached something of a "settlement" with both MPHJ and the law firm it used, Farney Daniels, P.C., which allowed MPHJ to send out its demand letters on its own stationary.

Unfortunately, the "settlement" seems fairly weak. There's no money being paid. There's no admission of guilt. There's just a promise that MPHJ won't use certain deceptive tactics, such as claiming that others had already paid thousands of dollars for licenses, or threaten lawsuits unless the company is actually going to sue. It seems like a pretty minor slap on the wrist, getting at some of the worst behavior by MPHJ, but hardly doing much to stop lots of other egregious trolling actions. It's something, but a very minor something.

Filed Under: ftc, jay mac rust, patent trolls, patents, scanners
Companies: farney daniels, mphj

Judges Want To Make Life Harder On Patent Trolls: Want Them To Actually Have To Explain What Infringement Happened

from the twiqbal dept

I'd missed this one, but Cory Doctorow over at BoingBoing points our attention to the fact that, last month, the Judicial Conference voted to make a little-noticed change in patent lawsuits that should serve to make life more difficult for patent trolls. The details here are more complex than necessary, but the short version is that, under current rules, to file a patent infringement case, the initial complaint can be almost entirely bare bones: basically naming the plaintiff, defendant, patent and saying there's infringement, but providing no real details on the infringement. That aids patent trolls, who often will file questionable lawsuits without even telling the defendant where the infringement occurs -- leading defendants to have to go into the case a bit blind, and making it more appealing to just settle.

A key part of the patent reform proposal that everyone thought was going to happen earlier this year was to change those rules to require the patent holder to have to actually explain where the infringement occurred -- basically inching up the bar to filing a patent lawsuit. Then the trial lawyers came in and killed patent reform dead with a call to Senator Harry Reid. However, it looks like the courts may want to take this matter into their own hands. The Judicial Conference sets the rules by which the courts work under, and it appears that it's basically decided to implement this change in rules (bringing patent lawsuits more in line with most regular lawsuits) anyway, no matter what happens with Congress, though the Supreme Court needs to approve first. Given the way the Supreme Court has handled patent cases lately, it would be surprising if they had a problem with this particular change.

Slowly, but surely, it looks like the courts themselves are chipping away at the setup that makes patent trolling so profitable.

Filed Under: claims, judicial conference, patent reform, patent trolls, patents