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
Jul 232011

I love “This American Life” by Ira Glass. Yesterday’s program featured a story on “patent trolls.” First, some captivating and tug-at-the-heartstrings stories, making you feel sorry for people who are being manipulated by the patent system. Next, a story about the notorious Intellectual Ventures. A virtually unknown company, Oasis, was enforcing its patent rights without practicing the invention. Then after a series of riveting and suspenseful sequences, you find out that IV actually gets paid a royalty from Oasis. Connection! They then interviewed a guy from IV and he seemed caught and contradicted. You then feel good to yourself because the bad guy was unearthed in the end.

But just as the program was wrapping up, it started discussing the Nortel auction. I knew where they were going. Google wanted to buy these patents “purely” to defend itself against lawsuits, but then the Apple consortium snatched it up for an unprecedented amount. Then Alex Blumberg started his conclusion.

Think of that. $4.5 billion on patents that these companies almost certainly don’t want for their technical secrets. That $4.5 billion won’t build anything new, won’t bring new products to the shelves, won’t open up new factories that can hire people who need jobs. That’s 4.5 that adds to the price that adds to the price of every product that these companies sell you. 4.5 billion dollars essentially wasted. Buying arms for an ongoing patent war. (Emphasis mine)

I don’t even know where to start with this segment. I guess I could say a lot. Most importantly, I don’t understand how because Google said that they wanted this portfolio purely to defend itself (a claim I am skeptical on), does that mean that all members of the winning consortium also had such plans? So the 6000 patents are junk? I’ve heard the argument before that patents are worthless. I recently ran into a statistic in the blogosphere that I found interesting:

90 percent of all patents are worthless. And of the remaining 10%, most are worth very little. Then only 1% are very worthwhile.

I think I know what this statistic is trying to get at, but recent patent acquisitions have made me question this proposition. True, a patent by itself and taken out of context of what the business does will rarely monopolize an area and prevent others from making work-arounds. Very rarely will a company be able to leverage an invention solely on the language of a patent. But does that mean that the patent is worthless if it is not one of these blockbuster patents?

The ability to raise venture capital shows that a patent brings non-intuitive value. My experience is that having a patent portfolio increases your credibility as a business. This is not only referring to the quality of patent portfolio, but the quantity of patents in the portfolio. Whether you are in a competitive area or more of a niche area, if you’re a small business and you want to go out and raise money, one factor that will come up is your patent portfolio. Otherwise, what is preventing the goliath corporations from snatching up your idea and making it their own?

The next value of a patent is the certain peace of mind that comes when your invention is patented. Not only do you have to worry less about getting sued, you don’t have to worry about as many license offers from those who might sue you.

Finally, patents give you additional muscles to flex. Taking a look at the recent Nortel auction, if 90% of those patents were junk, why did the winners of the auction not fragment the patents into those that they deemed were worthwhile? Either Nortel was the exception to the rule of obtaining junky patents, or there is some value in flexing your patent muscles (especially to NPEs).

Oh yeah, then there’s the value of the actual patent itself–allowing the owner to exclude others using the technology. But apparently, that has become just an afterthought!

 Posted by at 7:55 am