Oct 282011

Everyone seems to have an opinion on patent trolls or NPEs. Me? I’m ambivalent. Having gone through law school and having worked at a small software company, I see both sides of the argument. Yes, having entities whose sole purpose is to sue and license to small companies seems to go against the purpose of patents, which is to promote the progress of science and useful arts. But on the other hand, a patent is a piece of property that can be transferred like any other piece of property with the same characteristics and privileges that the original owner had. According to the USPTO website, a patent is a property right granted by the Government of the United States of America to an inventor “to exclude others from making, using, offering for sale, or selling the invention throughout the United States or importing the invention into the United States” for a limited time in exchange for public disclosure of the invention when the patent is granted. If you restrict rights of certain transferees, you undoubtedly diminish the strength of the patent as a whole.

The mainstream media has recently covered patents quite a bit especially with regards to reforming patent trolls. The America Invents Act changed the way that accused infringers are joined in federal court, for instance. But with all the talk of patent reform, and some people even calling for patents to be done away with, I think that an important conversation on damages is being passed over. Specifically, what is the damage sustained to an entity that just sits on its technology?And that only wants to license the technology?

In general, the code for damages is assessed first from the perspective of the patentee’s damage and then from the perspective of the infringer’s use:

Upon finding for the claimant the court shall award the claimant damages adequate to compensate for the infringement but in no event less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court. 35 U.S.C. 284.

The first part of damages of this section, “adequate to compensate for the infringement,” would not seem to support lucrative compensation for non-practicing entities. After all, in order to be compensated one must be hurt and if one is not practicing his invention even very late into the tenure of the patent, where is the pain and suffering? The next part of §284 is the godsend for non-practicing entities: “in no event less than a reasonable royalty for the use made of the invention by the infringer.” In other words, the code takes a look at what the infringer is doing with the invention and uses that to calculate the damages that should be awarded. The section in the code further refers to an increase of the damages “up to three times the amount found or assessed.” Section 285 holds that in exceptional cases, reasonable attorneys’ fees can be awarded to the prevailing party.

I recently read a Hospital Systems complaint which rattled off against all listed defendants the same aggressive, boilerplate lingo. The plaintiff “has been and will continue to suffer damages as a result of Defendant’s infringing acts unless and until enjoined.”

What struck me further was in the request for relief.

WHEREFORE, Plaintiff Hospital Systems respectfully requests that the Court:
A.Permanently enjoin each Defendant, its agents, servants and employees, and all those in privity with each Defendant or in active concert and participation with any of the Defendants, from engaging in acts of infringement of the Patents;
B.Award Plaintiff Hospital Systems past and future damages together with interest to compensate for the infringement by Defendants of the Patents in accordance with 35 U.S.C. §284, and increase such award by up to three times the amount found or assessed in accordance with 35 U.S.C. §284;
C.Declare this case exceptional pursuant to 35 U.S.C. §285; and
D. Award Plaintiff Hospital Systems its costs, disbursements, attorneys’ fees, pre and post-judgment interest and such further and additional relief as is deemed appropriate by this Court.

These non-practicing entities don’t want to initially offer a license because of Sandisk v. MICRoelectric, which held that the offer of a license is threat of a lawsuit giving the offered party standing for a declaratory judgment. This means that the initiator of the lawsuit would get to choose their own favorable forum, like the Eastern District of Texas. However, a lot of these non-practicing entities really only want to license, so shortly thereafter a settlement letter is mailed: “we really want to resolve this outside of the courtroom, but we just did it because of that decision.”

How can an entity that claims in their complaint that they need an injunction, deserve treble damages and that the case is exceptional and attorneys’ fees are in order when they aren’t practicing their invention?? Even more interesting, how can they make such claims when the patent is about ready to expire? And if their only aspiration is to license? What is the plaintiff really suffering to see someone else make, use, or sell their invention after so many years of sitting on it? I’m not doubting that they are suffering, I think that what we are seeing with a lot of these complaints is the plaintiff trying to display a little more bark than they are capable of biting in hopes that a more favorable license can be negotiated.

 Posted by at 5:28 am