Anti-Troll LOT Network Expands to 500 members

The Anti-Troll (or Troll protection) LOT Network has expanded to 500 members.  I first wrote about the Google started LOT Network in 2015, and I believe it had about 47 members then.  Around four years later and we are at a significant increase.  For more on the LOT Network, please see these two prior posts, here and here.  Also, here is a blurb from a release by the LOT Network: 

"When you’re caught up in the day-to-day business of moving things forward, it’s easy to lose sight of accomplishments. It was in this way that a significant milestone — LOT Network’s membership reaching 500 members — caught us nearly by surprise. We are very proud of our community, which now counts Disney, Meituan Dianping, Centerpoint Energy, Synchrony, Yamaha,  VISA, Juniper Networks, 7-Eleven and Netgear as some of its newest members.

Our growth now spans industries — including automotive, finance, entertainment, cloud computing, retail, manufacturing, and emerging industries like blockchain — as well as continents. You can find LOT members in more than 35 different countries and counting; some of the biggest tech companies in Asia are among our strongest supporters.

Further, we’ve seen an uptick in startup membership, confirming that LOT is a solution for all companies regardless of their size or industry. Our momentum toward becoming a standard business practice grows stronger every day — more and more, we see members joining us based on information they’ve found online — often joining without contact from a LOT Network team member.  And that is because of you — the collective reputation of our membership makes joining LOT an easy decision."

USPTO Director Iancu Calls for Change of Focus in so-called "Patent Troll" Debate

USPTO Director Iancu recently gave a speech in Texas concerning the debate involving innovation and patent enforcement by so-called "patent trolls" in the United States.  Notably, he lauds risk takers and innovators, and states that the patent troll narrative is designed to stifle innovation by essentially creating fear about participating in innovation.  He wants to focus on the positive stories of innovation.  He doesn’t appear to take the position that patent trolls (or patent assertion entities) do not abuse the patent system; just that we should focus on the positive by keeping in mind how far we’ve come from an innovation perspective.  He gets pretty close though.  Here’s a relevant portion of his speech:

Anyone could invent in America and everyone was incentivized by our constitutional patent system to do so. And incentivized they were. And invent they did. And the results have been remarkable.

Our constitutional patent system has given rise to a spark of ingenuity and development the magnitude of which humanity has never before known. Electricity and the telephone; the automobile and the airplane; recombinant DNA and DNA synthesis; the microprocessor, genetics and cancer treatments. And so much more. And all of it done with American patents.

Edison, Bell, and the Wright Brothers; Boyer and Cohen and Caruthers; Ted Hoff and Frances Arnold. These are inventors whose work we should celebrate. And theirs are the stories we should tell. Not scary monster stories.

Repeatedly telling “patent troll” stories is indeed odd, especially when they’re being told to the people who have been responsible for the greatest advances in human history.

The narrative must change. And, at least as far as the USPTO is concerned, it has now changed.

We are now focusing on the brilliance of inventors, the excitement of invention, and the incredible benefits they bring to all Americans and to the world.

Take, for example, Bob Metcalfe, currently a professor of innovation and Murchison Fellow of Free Enterprise at the University of Texas in Austin.

By the age of 10, Bob knew he wanted to become an electrical engineer and attend MIT. He did. And followed that up with a master’s and Ph.D. from Harvard. In 1972, Bob began working at Xerox’s Palo Alto Research Center, where he met electrical and radio engineer D.R. Boggs.

With Boggs, Bob invented what came to be known as the Ethernet, the local area networking (LAN) technology that turns PCs into communication tools by linking them together. Today, more than a billion Ethernet-based devices are shipped every year. And then, in 1979, at the height of his career, Bob took a huge risk and left the comfort of Xerox and founded 3Com Corporation.

An inventor on many U.S. patents, Bob was awarded the National Medal of Technology by President George W. Bush in 2003 for his leadership in the invention, standardization, and commercialization of Ethernet. And in 2007, he was inducted into the National Inventors Hall of Fame.

Bob told us recently: “Rapid execution and patents are probably the two major defense mechanisms against the vicious status quo, which is out to crush you.”

Innovation and IP protection have indeed always been America’s mechanisms for progress in the face of the “vicious status quo.”

Take as another example Susann Keohane, IBM Global Research Leader for the Aging Initiative, another Texas-based inventor. Her inventions combine cognitive technology, the Internet of Things, and other emerging technologies to improve quality of life for people with disabilities and the aging population.

Susann is an IBM Master Inventor who holds 114 U.S. patents. And, importantly, she told me she is working on more!

This is the American patent system. These are the heroes who have taken risks to make something new and to change the world. Theirs are the stories that must drive our patent policies.

Because in this country, we want people to take risks. Like Susann and Bob, we want folks to leave their comfort zones and step into the forests of discovery and innovation. We want folks to step out of their lanes and try big, bold, new things. And scaring them with ugly monster stories does precisely the opposite; it drives towards policies that inhibit innovation.

Remarkably, in what I believe amounts to Orwellian “doublespeak," those who’ve been advancing the patent troll narrative argue that they do so because they are actually pro-innovation. That by their highlighting, relentlessly, the dangers in the patent system, they actually encourage innovation. Right!

After hearing about the Big Bad Wolf eating Little Red Riding Hood and her Grandma, would kids be more eager to go into the woods and more eager to take risks? Come on! What encourages more innovation? Susann Keohane, Bob Metcalfe, Thomas Edison, the Wright Brothers, Frances Arnold—or scary monster stories?

What encourages more folks to take risks and become entrepreneurs and inventors? Is it stories highlighting the success of risk-taking and the personal and public gratification of invention, or is it stories highlighting green monsters under bridges and the faults in the patent system?

Look, people are free to express any point of view, and they can certainly advocate for weakening our patent system. But they should be up front about it. Those who spend their time and money relentlessly preaching the dangers of monsters lurking under the innovation ecosystem, and who work exclusively to identify only faults in the system, are unconvincing when they argue that they are doing so for purposes of increasing innovation.

Certainly, innovation and entrepreneurship are risky. And certainly every system has faults, and we must be vigilant about identifying and eliminating abuses when they arise. I am personally committed to doing so. But for any system to be successful, it cannot focus exclusively on its faults. Successful systems must focus on their goals, successes, and aspirations.

Focusing exclusively on selected, known problems has damaging consequences.

Professor Nguyen on Sovereign Patent Funds

Professor Xuan-Thao Nguyen explores government created and funded patent funds in Sovereign Patent Funds recently published in the UC Davis Law Review.  In part, Professor Nguyen reviews and analyzes the sovereign patent funds of numerous countries and investigates their role in patent enforcement.  The following is a part of her introduction of her article:

What are SPFs? How are they created and structured? What purposes do SPFs serve? Are SPFs effective initiatives for foreign governments to encourage innovation and foster competition or are they merely state-sponsored patent trolls? Are they violating international trade law, specifically the World Trade Organization (“WTO”) Agreement on Subsidies and Countervailing Measures?

This Article is the first to address the above questions. The Article proceeds as follows. Part I traces the creation of SPFs in Japan, South Korea, Taiwan, China, and France. Part I also explains when, why, and how each country provides public funding to SPFs. There are many different types of SPFs in different technology and life sciences areas, and with specific goals and mandates, although several share the same goal of aggregating patents. Open innovation and patent licensing are two common themes among the different goals and approaches employed by SPFs. Part II investigates whether SPFs have engaged in patent assertions — attempts to use acquired patents “to generate revenue by asserting them against alleged infringers.” Part II focuses on the simultaneous litigations filed by the French SPF against LG Electronics Corporation and HTC Germany GmbH in Germany and the United States. Likewise, the Asian SPFs have filed lawsuits against multinational companies. The investigation reveals surprises, including that litigation is typically an SPF’s last resort. SPFs are reluctant to embrace litigation. Part II also examines SPFs’ licensing strategies. French and Korean SPFs seem to have success in licensing out. They direct more efforts to selecting quality patents for licensing. In addition, Korean and Japanese SPFs are engaging in licensing for open innovation.

SPFs have been condemned as global patent trolls and state sponsored patent trolls. Part III addresses whether the pejorative label is warranted. Exploring the popular narrative of patent trolls and the evolving landscape of the patent market where former manufacturing companies and research institutions, along with other non-practicing enterprises (“NPEs”), are participants, Part III reveals that the SPF label does not fit SPFs’ characteristics. SPFs are both diverse and complex. Some have collaborated with universities to engage in specific research and development projects. Some share their profits with original inventors. Some facilitate open innovation. Some are doing all of the above. Condemning SPFs as patent trolls amounts to dismissing the true innovations, research, and development that have been the hallmarks of many industries and sectors in Japan, South Korea, China, and France.

SPFs have also been condemned as a trade protectionist measure in violation of international trade law. Part IV examines the heavy charges that SPFs discourage international technology transfers, depress innovation, force foreign companies to accept unfavorable license terms akin to discriminatory tax, support domestic industries at the expense of foreign firms, resurrect ailing national companies, and cause a race to the bottom. Part IV found no evidence to support these condemnations. On the contrary, what SPFs have done since their existence refutes these charges.

If SPFs are illegal subsidies in violation of international trade law, there is an appropriate mechanism to remedy the harm. Part V turns to the WTO solution, analyzing relevant provisions of the WTO Agreement on Subsidies and Countervailing Measures. Part V discusses WTO Tribunal decisions, as they illuminate and interpret legal requirements in subsidy cases. Part V further suggests that the international framework is suited to eliminate SPFs if evidence exists that a particular subsidy is causing injury to a domestic industry. Certainly, using the appropriate channel to address SPFs is preferable to dismissive and pejorative labeling.

Part VI, however, posits that an international trade solution might be unnecessary because SPFs may soon be relics of the past. SPFs can easily alter their structure to remove the government-sponsored characteristic to quiet critics and restless nation litigants in the WTO Tribunal. Moreover, the global innovation and patent market is dynamic and complex; SPFs will not be able to survive and flourish if they are under governmental control. Part VI observes that, in fact, some prominent SPFs are planning to privatize in order to compete and adapt.

Overall, by creating and infusing SPFs with public funding to aggregate patents, a government can seem to have ownership and control of the patents while simultaneously wielding authority in dispute proceedings relating to those very same patents. The government can block or rule against others from challenging the validity of patents. The same government may coerce others into accepting unfavorable patent license terms. The same government also may protect domestic firms at the expense of foreign firms. Such an arrangement seems to create many conflicts. Additionally, SPFs may be illegal subsidies under international trade law. Also, the creation of SPFs suggests a new global chaos in patents. The new chaos raises fear that SPFs would cause a race to the bottom. SPFs become sovereign patent trolls with levers more potent than private patent trolls, depressing innovation for short-term gains. The fear about SPFs, however, is exaggerated. These concerns perhaps emanate from the tendency to group all SPFs from different countries into one and characterize them within the convenient patent troll narrative. Fear not, the present and future development of different SPFs should instead prompt us to rethink patents and the very laws creating them.

The article is available, here. 

Federal Circuit Pushes Back on U.S. Supreme Court’s Alice Decision on Procedure

In a pair of interesting software-related cases, the U.S. Court of Appeals for the Federal Circuit appears to push back on one of the supposed goals of the U.S. Supreme Court’s Alice v. CLS Bank International decision.  In Alice, the U.S. Supreme Court clarified and restated the Mayo Collaborative Services v. Prometheus decision’s test concerning patent eligible subject matter.  In doing so, the Supreme Court started a new era of U.S. patent law which made patent eligible subject matter a very important inquiry with respect to the patentability of inventions, particulary those in the software space—although Alice’s impact is felt in other technological areas.  Since Alice issued, the U.S. Court of Appeals for the Federal Circuit has clarified the Alice test and notably provided guidance to patent lawyers on how to “avoid” or “comply” with Alice. 

Importantly, one of the purported benefits of Alice was to allow for the early dismissal of claims based on patent eligible subject matter.  An alleged infringer could conceivably quickly raise patent eligible subject matter and get a claim dismissed on either a 12(b)(6) motion for failure to state a claim or a motion for summary judgment.  In additional push-back to Alice, the Federal Circuit in Berkheimer v. HP (February 8, 2018) has recently held that even after claim construction a motion for summary judgment on patent eligible subject matter may be improper because of genuine issues of material fact.  While this is standard law concerning motions for summary judgment, the case provides a blueprint for how genuine issues of material fact can be created with patent eligible subject matter.  Because of this possibility of creating that genuine issue of material fact, patentees will have additional settlement leverage to realistically threaten a case through trial—a costly endeavor.  What will the effect of this case be on Alice’s attempt to curb so-called patent troll litigation? 

In another recent case, the Federal Circuit in Aatrix Software v. Green Shades Software (February 14, 2018) remanded a case because the district court did not allow the patentee to amend its complaint to survive a 12(b)(6) motion on claim construction.  While the Federal Circuit was careful to note that a complaint can be dismissed on a 12(b)(6) motion to dismiss, this case cautions district court judges to carefully consider motions to amend complaints. 

It will be interesting to see if the Federal Circuit’s decisions about the procedural challenge of patents based on patent eligible subject matter in the courts will have an impact on the analysis in the pending Oil States case before the U.S. Supreme Court. 

Chemical Company Joins the LOT Network Against Trolls

Covestro, a chemical company which uses digital technologies to build better products, has joined the LOT Network.  As previously discussed, the LOT Network was started to thwart patent trolls.  Essentially, each member agrees to provide a license to the other members of the network if their patent is transferred to a patent troll.  Covestro’s press release states:

“With the convergence of the chemical industry and digital technologies, our sector has increased exposure to PAE litigation,” said Gilbert Voortmans, Vice President, Head of Intellectual Property Rights at Covestro. “Innovation is core to our business, and we feel it’s important to take a stance against anything that could interfere with the fair use of intellectual property.”

Interestingly, this is the first chemical company to join the LOT Network, according to the press release.  We’ll have to see whether other companies in industries generally thought not to be subject to troll suits will join the network, particularly as digital technologies influence almost all industries.  Moreover, I count around 170 members listed on the LOT Network website, including companies ranging from Alibaba to Crate and Barrel to Wells Fargo to Uber to Target to Honda. I wonder if universities should create something like the LOT Network to protect themselves from future suits by university based patents.  

USPTO Releases Report on Public Views on Patent Eligibility Rules

The United States Patent and Trademark Office (USPTO) has released a report titled, “PATENT ELIGIBLE SUBJECT MATTER:  REPORT ON VIEWS AND RECOMMENDATIONS FROM THEPUBLIC” (Report) concerning the comments of participants at USPTO sponsored roundtables concerning the patent eligible subject matter requirement, particularly post-Alice/Mayo.  The USPTO summary of the Report states:

Much of the feedback we received highlighted the complexities of determining the appropriate boundaries of patent subject matter eligibility. Commenters confirmed that the recent Supreme Court cases have significantly changed the standards for determining patent subject matter eligibility. Several commenters expressed concern that these decisions have created inconsistency, uncertainty, and unpredictability in the issuance and enforcement of patents, particularly in the life sciences, software, and e-commerce industries.

A diverse group of representatives from academia, industry, law firms, and legal associations proposed legislative changes aimed at reversing the recent trend in the law and restoring, in their view, a more appropriate dividing line between eligible and ineligible subject matter. In contrast, a sizable portion of representatives from the software industry argued that the Court’s two-step test provides an appropriate standard for patent subject matter eligibility. This group cautioned against legislative redress and instead recommended that the common law should be allowed to evolve.

The following is a list of the views against the new rules: “1) Decisions are Legally Flawed; 2) Exceptions are Overbroad; 3) Two Step Test is Unclear and Causes Unpredictability; 4) Preemption Conflates 101 with other Patentability Requirements; 5) Jurisprudence Stifles Innovation and Hurts Business; and 6) Consistency of U.S. Law with International Norms.” Here is a list of the views in favor of the new rules: “1) Common Law Process at Work; 2) Weeds Out Overbroad Patents; 3) Requires Claiming a Specific Way and Not a Result; 4) Litigation Tool Against Patent Assertion Entities; and 5) May Give U.S. Entities an Advantage.” 

On the point in favor of the new rules based on May Give U.S. Entities an Advantage, the Report states:

Even if the Supreme Court’s new eligibility standard differs from standards abroad, a few commentators projected that the difference could actually operate to the benefit of the United States. For example, one commentator argued that because foreign entities have an increasing stake in the U.S. patent system, “[g]eopolitical considerations . . . weigh heavily in favor of” the Supreme Court’s Mayo and Alice decisions.246 In fact, she cautioned that if the U.S. were to adopt an overly expansive patentability standard, then not only would “American inventors, American companies, American investors, and the American public” benefit, but an “equal or greater benefit [would] inure to foreign inventors, foreign companies, and, in some cases foreign governments.”247 Another participant asserted that “if a company is innovating because it can get patents in Germany or Europe but it may not be able to get as much protection in the U.S., that innovation is still happening.” 248 And, she added, “if our consumers can benefit from the additional competition that a lack of patent [protection] provides and pay lower prices here” and “the innovator can still get their investments recouped by getting monopoly profits elsewhere” that may not be a bad deal for our consumers.249

Members of the life sciences community were relatively united in their critique of the new patent eligible subject matter rules.  The computer/related technologies community was apparently less united on whether the patent eligible subject matter rules were a good thing or not. 

There are also several legislative proposals for change, including: Replace the current test with a technological arts or useful arts test; Expressly define exceptions to eligibility; Distinguish eligibility from other patentability requirements; and Establish a research exemption to infringement. 

The text concerning the research exemption states, in relevant part:

Several commentators proposed a legislative amendment to recognize a research exemption from patent infringement for experimentation conducted to better understand or improve a claimed invention.427 According to these commentators, such an amendment would address the Supreme Court’s preemption concerns, i.e., concerns that patents on foundational technological tools may stifle scientific progress by tying up the basic building blocks of human ingenuity.428 One commentator suggested that the exemption could be tailored such that “patents on research tools would be unaffected, but research on a patented invention itself would not be subject to infringement allegations.”429  

The USPTO should be applauded for its hard work in trying to make the patent eligible subject matter rules and their application accessible, and obtaining the public’s viewpoint. 

More Matchmaking: Aqua Licensing Offers Access to More than 60,000 Patents

In another attempt to create an efficient marketplace for patents, Aqua Licensing is offering access to a substantial portfolio of patents—“more than 60,000.”  The patents are part of the portfolios of AT&T, Rambus, Lenovo and Entegris, among others.  According to the Aqua Licensing website:

Startups submit business plans to the pool as they would to a venture capital investor, at which point the team of patent experts at AQUA identify IP assets that will improve the defensive position of the company and contribute to its long-term growth and value potential. When a match is made, the IP is offered to the startup in exchange for equity, rather than cash, as part of their next-round of financing. This structure enables the startup to secure the Strategic IP Investment from the technology leader prior to pricing the financing round, allowing the benefits of the secured IP and strategic investment to be reflected in the valuation of that round. In many cases this allow for an immediately accretive acquisition of assets.

This sounds similar to one of Google’s recent efforts.  At least one study has shown that supposed patent trolls may target new companies near significant events such as IPOs.  This type of portfolio may provide defensive protection against practicing entities—which is a valid concern, of course.  According to Bloomberg BNA, Aqua’s program is closer to a marketplace because it can result in patent ownership. 

TC Heartland: Good for Patent Litigation?

In TC Heartland v. Kraft Food Group Brands, a recent opinion, the US Supreme Court decided to restrict the meaning of the patent venue statute.  This statute essentially provides in which judicial district a defendant may be sued for patent infringement.  The patent specific statute, 13 USC 1400(b), provides: “[a]ny civil action for patent infringement may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business.”  The US Supreme Court had to analyze whether “where the defendant resides” means “where the defendant is in incorporated” per a previous US Supreme Court case analyzing that provision, or according to subsequent amendments by Congress to the general venue statute which has a much broader definition of what “resides” means.  Ultimately, the US Supreme Court in a unanimous Associate Justice Thomas opinion (Associate Justice Gorsuch not participating) decided to adopt the more restrictive definition: “resides” means where the defendant is incorporated. 

Practically, many believe that this decision is another attempt to restrict “abusive” patent litigation or patent troll behavior by directing litigation out of the Eastern District of Texas to other districts—interestingly perhaps to districts that may be more favorable to accused patent infringers.  One concern about patent infringement generally has been the competence of judges and juries to address technical and complicated patent cases.  Notably, the Eastern District of Texas has handled a large number of patent cases for many years and arguably the judges have developed technical and legal competency in patent cases.  Indeed, this could explain why the district handles patent cases relatively quickly.  Arguably, we’ve now made a policy decision pushing cases away from a competent district to those that are not.  However, some cases presumably may now be brought in districts in California or Delaware (where a large number of corporations are incorporated), which may also have developed competency in handling patent cases.  I have been told that juries in some districts in California are quite technically sophisticated—such as in the Northern District of California where Silicon Valley is located.  Perhaps one benefit of TC Heartland may be better juries; although remember how the Apple v. Samsung jury was criticized.  

"Opportunistic" Google and Intertrust Launch "Patent Shield": Protection for Startups

Google and Intertrust have announced the creation of Patent Shield, which is designed to protect startups.  Essentially, the exchange is access to a patent portfolio for an equity stake in the startup.  It seems to put startups in the position of a much more resourced company with a portfolio of patents and presumably freedom to operate.  This appears to be another attempt to get ahead of something like the patent troll problem; however, it seems to be aimed at patent demands from entities that are practicing not absolute non-practicing entities because the portfolio is supposed to provide leverage against the entity asserting infringement initially.  Interestingly, this appears to be a great way for Google and Intertrust to find licensing partners for their patented technology without looking like a “bad guy” by operating through patent demand letters—let them come to us.  Very clever.  It also gives Intertrust the opportunity to offer its IP services to startups, and maybe a chance for additional investment/acquisition opportunities through notice about great new startups that have attracted the attention of established players in the market. Very, very clever. For more details, please see here. 

Preparation for (more) Patent Assertion Entites in Europe: Intellectual Property 2 Innovate

As reported by Florian Mueller on the FOSS Patents Blog on April 5, a relatively new organization has been formed to raise awareness of and presumably lobby against patent assertion entities in Europe.  The organization is called Intellectual Property 2 Innovate and its members include: Adidas, Google, Intel, Bull AtWios Technologies, Proximus, Spotify, Wiko, Daimler, the European Semiconductor Industry Association, and Syndicat De Industrie Des Technologies De L'Information.  Notably, the Intellectual Property 2 Innovate website has references to a list of suits brought by patent assertion entities in Europe, media reports concerning patent assertion activity in Europe and third party studies concerning patent assertion entities in Europe.  The website includes link to a helpful seven page position paper, which states in part:

Patents support innovation by allowing companies to protect their technology from copying, to share and develop new technology, and to obtain the freedom to operate necessary to bring new products to market.  But a patent system that can be manipulated through abusive litigation tactics, including the assertion of low quality patents, will undermine rather than support innovation, disserving consumers and the economy by draining scarce resources from the development of new products.

The dramatic rise in patent litigation involving PAEs is a dangerous trend that merits the attention of EU policy makers. In the United States, lawsuits brought by PAEs have nearly quadrupled over the past decade.1 PAEs now account for a majority of all patent litigation.2  Small and medium-sized entities (SMEs) are frequently the targets of these assertions, facing lawsuits that can disrupt their business and even threaten their survival.3,4

In Europe, PAE lawsuits have begun to follow the same trajectory, growing in number and often targeting SMEs.  PAE activity has long existed in Europe, accounting for roughly 10% of the lawsuits filed in Germany between 2000 and 2008 and in the United Kingdom between 2000 and 2013.5 More recent evidence, however, suggests that PAE activity is accelerating rapidly. An empirical study of the registers for recording patent ownership in Europe demonstrated that PAE purchases of European patents increased ten-fold from 2005 to 2015.6 Most of the transferred patents involved communications or computer technology and were purchased by PAEs based in the United States. Those purchases now form the basis of a growing number of PAE lawsuits in Europe against productive companies. European countries together received 80% of all PAE cases filed outside the US over the past five years.7 Germany receives by far the greatest number, with the large majority of those cases proceeding during 2015 and 2016.8 A recent study provides examples of lawsuits brought by PAEs in Europe.9 According to this study, while PAEs account for 19% of known patent lawsuits filed in Europe accounted for in the study, it is nonetheless a significant fraction which will undoubtedly come to increase in the next years. This rate corresponds roughly to the same level of PAE activity in the US in the early 2000s to mid-2005. Despite the alarming data and active discussions amongst the legal community, US public authorities nevertheless did not seriously tackle this problem which has led patent lawsuits to skyrocket in the US since then.

The position paper further suggests: increasing judicial discretion to minimize abusive patent practices and encourage higher quality patents as well as make better data available concerning patent litigation across Europe.  According to the paper, these measures are necessary in light of the soon-to-be operational European Patent Court. 

The Trump is Coming to Town: AIPLA Provides an IP Wish List

The Trump presidency is looming ahead, but what of intellectual property policy.  Interestingly, BNA reported that a Republican Congressional Representative from California (Issa) called on Trump to keep Michelle K. Lee as head of the United States Patent and Trademark Office.  There also have been grumblings about pushing for legislation to undermine and reverse the U.S. Supreme Court’s Alice decision on patent eligible subject matter.  Recently, the American Intellectual Property Law Association (AIPLA) sent an advice letter to Trump regarding intellectual property.  Notably, the AIPLA letter covers patent, trademark and copyright law in some relative detail, and also gives some advice regarding trade secret law, domain names and other matters. 

The copyright focus of the letter relates mostly to Copyright Office leadership choice and modernization.  The trademark focus is on consistency of decision making concerning section 2(a) on disparagement (if it is upheld by the U.S. Supreme Court), removing “deadwood” from the register, protecting U.S. consumers from confusion from U.S. uses of foreign marks well-known in the U.S., and strengthening the Madrid system. 

The patent focus is the longest part of the letter and seems to generally counsel the exercise of care in passing any more patent reform particularly directed at litigation abuse.  The message appears to be that we need to study the changes that have been made to address abuses of the system before we engage in any more changes to address litigation abuse (or at least be fully aware of the changes that have been made).  Notably, the letter states that the existing changes may not address all abuses of the system, but that we also need to consider lawful (non-abusive?) enforcement.  However, there is room for reform in, at least, two areas: the Patent Trial and Appeal Board and patent eligible subject matter.

The letter addresses the Patent Trial and Appeal Board stating:

In the first few years of the PTAB’s existence, its proceedings have been used more than anticipated, and some are concerned that the proceedings, as currently implemented, are not as fair and balanced as they should be, and that they are stacked in favor of those seeking to invalidate patents.  AIPLA believes that the proper balance can be found through targeted changes, and we look forward to working with your Administration in this effort.

And, as alluded to before, patent eligible subject matter and the Alice decision are a major concern.  The letter nicely lays the groundwork for reforming Alice based on administrative necessity and clarity:

Independent inventors, small and large businesses alike need a strong, balanced and predictable patent system to foster R&D, manufacturing and sales.  Section 101 of Title 35 sets out the categories of patent-eligible subject matter that may be entitled to patent protection.  However, recent Supreme Court decisions have created uncertainty about the kinds of innovations that are patent-eligible in certain industries, such as biotechnology and computer software.  Meanwhile, the USPTO has experienced challenges in applying the Court’s evolving interpretation of patent eligibility into its examination processes.  AIPLA believes that more clarity, whether from the courts or from the Congress, is needed in this area, and we ask that efforts to provide such clarity and predictability be supported by your Administration.

The letter concludes with a request for continued and increased enforcement of U.S. IP in foreign markets, continued strengthening of trade secret protection and enforcement given an asserted increase in hacking, and continued involvement in administering the domain name system. 

U.S. Federal Trade Commission Releases Report on Patent Assertion Entities

On October 6, 2016, the Federal Trade Commission [FTC] released a 269 page report titled, "Patent Assertion Entity Activity: An FTC Study" [Study].  The Study reviews PAE activity from 2009 to 2014.  The press release from the study excerpts some highlights: 

The report found two types of PAEs that use distinctly different business models. One type, referred to in the report as Portfolio PAEs, were strongly capitalized and purchased patents outright. They negotiated broad licenses, covering large patent portfolios, frequently worth more than $1 million. The second, more common, type, referred to in the report as Litigation PAEs, frequently relied on revenue sharing agreements to acquire patents. They overwhelmingly filed infringement lawsuits before securing licenses, which covered a small number of patents and were generally less valuable. 

The report found that, among the PAEs in the study, Litigation PAEs accounted for 96 percent of all patent infringement lawsuits, but generated only about 20 percent of all reported PAE revenues. The report also found that 93 percent of the patent licensing agreements held by Litigation PAEs resulted from litigation, while for Portfolio PAEs that figure was 29 percent. 

The study found that the royalties typically yielded by Litigation PAE licenses were less than the lower bounds of early stage litigation costs. This data is consistent with nuisance litigation, in which defendant companies decide to settle based on the cost of litigation rather than the likelihood of their infringement.

Interestingly, the report relies on the AIPLA economic survey on patent litigation costs to conclude that the majority of Litigation PAE litigation is nuisance litigation.  That merits additional scrutiny, I think.  The Study also includes reforms to address nuisance infringement litigation: 

  

“The FTC recognizes that infringement litigation plays an important role in protecting patent rights, and that a robust judicial system promotes respect for the patent laws. Nuisance infringement litigation, however, can tax judicial resources and divert attention away from productive business behavior,” the report states. With this balance in mind, the FTC proposes reforms to: 

• Address the imbalances between the cost of litigation discovery for PAE plaintiffs and defendants;

• provide the courts and defendants with more information about the plaintiffs that have filed infringement lawsuits;

• streamline multiple cases brought against defendants on the same theories of infringement; and

• provide sufficient notice of these infringement theories as courts continue to develop heightened pleading requirements for patent cases.

Notably, the Study also reviewed " types of patents held by PAEs, and found that 88 percent were in the information and communications technology sectors; more than 75 percent of those patents were software-related patents." Interestingly, some Study PAEs frequently targeted a small number of firms in the "Computer and Electronic Manufacturing" sectors.  Further, the Study "also looked at whether PAEs were able to make money by mass-mailing so-called “demand letters”; however, the FTC observed an “absence of large demand letter campaigns for low-revenue licenses among the Study PAEs.”  This results in the Study stating that reforms concerning demand letters "on its own" would make little difference. 

Notably, the Study includes an review of the wireless chipset sector in particular: 

[T]he report also looked at the wireless chipset sector, examining how reported PAE assertion behavior compared to certain manufacturers and non-practicing entities (NPEs) (who primarily seek to develop and transfer technology ). For this study, the FTC obtained non-public data from eight manufacturers and five NPEs, for the same timeframe using its 6(b) authority. 

The wireless case study found that Litigation PAEs and manufacturers behaved differently. Within the study, Litigation PAEs brought far more infringement lawsuits involving wireless patents—nearly two-and-a-half times as many as manufacturers, NPEs, and Portfolio PAEs combined. Litigation PAE licenses involved simple lump-sum payments with few restrictions, if any, whereas the reported manufacturer licenses frequently included field-of-use restrictions, cross-licenses, and complicated payment terms.

Importantly, the Study does not draw conclusions concerning the merits of PAE activity in monetizing inventions for inventors and innovators: 

Study PAEs had diverse and heterogeneous data-keeping practices. As a result, the FTC does not report how much revenue PAEs shared with others, including independent inventors, or the costs of assertion activity. The FTC sought to evaluate the role of PAE activity in promoting patent monetization for inventors and innovation as part of its study. Towards that end, the FTC requested that Responding PAEs provide detailed data describing how they shared licensing revenue with outside parties and their costs of patent assertion. Responding PAEs used different methods to maintain information describing their revenue sharing and costs, however, which prevented any meaningful comparison of the degree of revenue sharing by PAEs or their assertion costs. For example, some Responding PAEs viewed payments to outside counsel as a cost of patent assertion, but others viewed such payments as revenue sharing (counsel often received a fixed proportion of licensing royalties). Moreover, the majority of Responding PAEs did not maintain information on assertion costs, and only a few Responding PAEs provided such data at either the Affiliate level or assertion campaign level. For these reasons, we did not analyze either the proportion of licensing revenue that they shared with outside parties, or the costs of patent assertion. Due to this limited data, this report does not address the efficiency of PAE business models. [emphasis added].

And, what impact will Alice have?  The Study notes that "it did not collect enough information regarding patent assertion after the Alice decision" to "directly measure" Alice's impact, but: 

In addition, because more than 75% of the patents in the FTC’s sample likely include software-related claims, and because the FTC estimates that Study PAEs held more than 75% of all U.S. patents held by PAEs at the end of 2013, any change in PAE behavior with respect to software patents that results from Alice will likely have a significant impact on both the overall volume of PAE assertion and the types of technologies that PAEs assert.

Study PAEs generated about $4 billion in licensing revenue.  And, the Study noted, "Fewer Than 1% of Study Patents Were Identified as Encumbered by a FRAND Commitment to a SSO."  [Hat tip to Professor Dennis Crouch's Patently Obvious Blog.]

Subsidized IP Litigation Insurance in Japan and Increased Enforcement in China

As reported by Ellie Wilson on the IP Kat blog, the Japanese Patent Office (JPO) has announced a program whereby half of the premiums for IP infringement insurance will be covered.  The program is a partnership between the JPO, the Japan Chamber of Commerce and Industry, The National Federation of Small Business Associations, and three insurance companies.  Specifically, the subsidy is directed at making affordable IP infringement litigation insurance for SMEs that are operating in countries outside of Japan. The announcement appears to cover both the need for the SME to fund IP infringement litigation against alleged infringers and to defend litigation.  Notably, the announcement explicitly mentions China as a market of concern; although my guess is that a concern with so-called patent trolls in the United States is also an issue. 

This announcement comes close in time to reports of increased enforcement of intellectual property rights in China, particularly as China reportedly is attempting to move toward an innovation and services based economy.  Interestingly, the official website for The Supreme People's Court of the People's Republic of China published an article by Ma Si (China Daily) concerning the move of smart phone wars to China titled, "Chances high for more patent cases."  The article discusses the recent stayed injunction against Apple and the prospects for more patent cases given actions in the United States concerning Huawei.  Huawei and Samsung are also embroiled in litigation in China.

Given the importance of SMEs to economic growth and job creation as well as the general high cost of litigation, it will be interesting to see if more countries move to subsidize IP litigation insurance.  Are there any other countries subsidizing IP litigation insurance?  Instead of regulating against so-called patent trolls, is this where government should intervene--helping insurance markets develop and lowering the cost of insurance, particularly for SMEs?  Should government back insurance funds for IP litigation?    

Nothing New in the World of Patents: "Patent Licensing and Secondary Markets in the Nineteenth Century"

In a recent blog post "Nothing New Under the Sun: “Patent Trolls” Have Been Around Forever," I discussed Professor Zorina Khan's review of Nineteenth century patent assertion entities.  In a recent essay, Professor Adam Mossoff of George Mason University Law School provides another supportive account of patent licensing and secondary markets in the Nineteenth century.  Specifically, Professor Mossoff, in a short and readable paper, "calls out" those commentators who assert that the "patent licensing business model" is a new phenomena. Professor Mossoff summarizes and reviews Professor Khan's research as well as the research of other historians that demonstrates there really is nothing new (at least not much) in the world of patents. 

Professor Mossoff provides the example of three inventors who licensed their patents.  He discusses Charles Goodyear (process for vulcanized rubber), Elias Howe, Jr. (lockstitch in sewing machines), and Thomas Alva Edison.  About Goodyear, Mossoff notes, "Some of Goodyear's assignees and exclusive licensees, who were patent licensing companies themselves, filed hundreds of lawsuits in the nineteenth century; they sued firms, individuals, and even many end-users such as dentists, for patent infringement."  He further states that, "Contrary to many claims today, end-user lawsuits even by patent licensing companies are nothing new in America's innovation economy."  

Notably, Mossoff states that Howe used "third-party litigation financing."  Howe also joined "the first patent pool in American history."  "[Howe] made almost the entirety of his fortune on the basis of the royalty stream from his license to this patent pool, which further licensed his rights to other companies."  Mossoff makes an interesting point about Edison.  Interestingly, he notes that Edison was famously a terrible businessman, but a great inventor.  The point here seems to be that specialization matters--licensing for commercialization to those who know how to do it is critical to getting patented inventions to the public. Not all inventors will be good businessmen--experts in manufacturing or finance. Edison's "employ[ment of] the patent licensing business easily meets today's definition of an 'NPE.'"  

Professor Mossoff also provides interesting examples of the secondary market, which include the classified advertisements in the magazine Scientific American. The classified advertisements included numerous "ads for the sale of patents and patent rights."  Moreover, he discusses the research of economists Naomi R. Lamoreaux, Kenneth Sokoloff, and Dhanoos Sutthiphisal: "Their research revealed the fundamental and significant role performed by a group of market intermediaries known at the time as 'patent agents.'"  Professor Mossoff asserts that these "patent agents" are "predecessors of today's patent aggregators." 

Finally, Professor Mossoff states that a historian notes "after detailing the problems for nineteenth-century inventors who usually lacked manufacturing and commercial finance skills, that 'given the risks associated with manufacturing, many nineteenth-century inventors preferred to either sell or license their patents.'"  He concludes that, "In sum, it is simply false to assert that these commercial mechanisms for bringing patented innovation to market are a new phenomenon today." What should be the role of this type of research given the state of the debate on NPEs/PAEs today?  Does it change the analysis concerning the merits of NPEs/PAEs?  

IP3—The Industry Patent Purchase Program: Google and Friends Want to Buy Your Patents (Maybe, Again)

This blog recently covered Google’s Patent Purchase Program, here and here.  Google basically offered to consider purchasing submitted patents.  The Program is back, but this time expanded with a new group of players under the title, “IP3 by Allied Security Trust.”  Here is the announcement:

Calling all patent owners – some of the world’s largest companies including Google, Apple, IBM, Microsoft, Facebook, Adobe, SAP, Ford, Honda, Hyundai, Kia Motors, Verizon, Cisco and Arris want to buy your patents!

IP3 is a marketplace that offers patent owners a quick and easy way to access the secondary market and receive fair value for their patents.

For a two-week period, patent owners with great patents can submit their patents for consideration by leading multinational companies representing more than $2.5 trillion in combined enterprise value.

Starting May 25, 2016, through June 8, 2016, patent owners can submit their patents to the IP3 portal at a price they set. AST will then review the submissions, and if one or more of the participating companies are interested in funding the purchase, submitters will be notified by July 29, 2016.

Participants in IP3 include a wide array of industries including enterprise software, automotive companies, cable providers, networking communications equipment, semiconductor manufacturing, information technology and location-based services.

IP3 builds on the innovative approach taken by Google with their successful 2015 Patent Purchase Promotion (PPP), offering patent owners access to a well-funded buying consortium with no haggling. We created IP3 to try an innovative way to simplify patent owners’ access to the secondary market by eliminating the common hassles associated with it – like the need to prepare claim charts.

In short, patent sellers need to only identify the patent family and price at which they are willing to transact, IP3 does the rest!

There are several buying categories: Computers and Software; Consumer Electronics, Communications; Semiconductors & Components; Healthcare/Medical; Automotives; Lighting; and Financial Services.  The submission form will be available, here.  The terms and conditions sheet is available, here.  The license agreement is available, here.  And, if you miss the deadline, you can always contact Allied Security Trust—“Trust in Us -- Minimizing Threats from Adversarial Patents.” It will be interesting to see how much information is disclosed about the outcomes of the program.  Notably, the license agreement has “Confidential” stamped all over it.  I wonder what valuations may look like post-Enfish.  I am also curious to see IP Draughts Mark Anderson’s analysis of the agreement. (I thought his analysis of the prior license agreement was very helpful.)  [Hat tip to Professor Lucas Osborn of Campbell University Norman Adrian Wiggins School of Law]

Patent Monetization Entities Generally Asserting Ordinary "Meritfull" Claims?

The Recorder has published data and conclusions concerning a study of district court awards of attorney fees post-U.S. Supreme Court decisions Octane Fitness and Highmark.  Both Octane Fitness and Highmark concerned the availability of attorney fees.  In the United States, parties generally bear the cost of their attorney fees absent an exception.  For patent infringement, there is a statute specifically allowing for the award of attorney fees for “exceptional” cases.  The U.S. Court Appeals for the Federal Circuit interpreted that statute to require a very high standard for proving attorney fees.  Some believed that this high standard did not provide a strong enough disincentive to prevent so-called “patent trolls” from bringing weak nuisance suits for licensing fees.  In the Octane Fitness case (2013), the U.S. Supreme Court rejected the Federal Circuit’s high standard and ruled that “exceptional” merely meant a case that was out of the ordinary with respect to substantive litigation strength of position or how the case was litigated.

The study apparently finds that about half of the awards of attorney fees apply to competitor cases and the other half to non-practicing entities.  Interestingly, the awards against non-practicing entities “have often been against small individual inventors, not Intellectual Ventures, Round Rock Research, IP Nav and other 800-pound gorillas that monetized patent litigation.”  The article does discuss how Acacia Research Group, a supposed NPE, is exceptional with four awards against it for a total of around US $1.8 million.  The article appears to speculate that the awards against small individual inventors were cases where the small individual inventors (inexperienced players) apparently perhaps overvalued their case based on the law and facts. There appears to be a difference in awards based on the district in which the case was filed. It does, however, seem to make sense that in the current climate sophisticated monetizers would only bring relatively strong cases (maybe in the E.D. of Texas).  The article also notes that district court judges are mixed in considering the practicing status of the party in awarding fees. Finally, the article discusses a recent US $7.8 million award of fees in the Northern District of California against the Alzheimer's Institute to Eli Lilly and Elan Pharmaceuticals. Unfortunately, the data is behind a paywall; however it is not too expensive to access it. 

Google’s Patent Purchase Program: What Did We Learn?

Recently, this blog discussed Google’s Patent Purchase Program (Program), here.  The Program was designed to help Google get in front of the patent troll problem by purchasing patents that could be acquired by patent trolls and subsequently used to “hold up” practicing entities.  Tam Harbert has published an article in the IEEE Spectrum titled, “Google Tries to Keep Patents Out of the Hands of Trolls.”  The article reports on the results of the Program.  Notably, the article states: “Internet Giant Buys 28% of the Patents Offered During Its Patent Purchase Experiment.”  The median price for a patent was $150,000.  The lowest price Google paid was $3,000 and the highest price was $250,000.  Interestingly, the highest submission offer was $3.5 billion and 47 percent of the submission offers were below $100,000.  The article notes that even though the Program was only available for three weeks “a few thousand” patents were submitted for consideration.  Around 28% of a few thousand patents is a significant number of patents.  It is unclear how many patents were purchased.  The article also notes that the value of the patents in this field are likely significantly less because of the U.S. Supreme Court’s decision in Alice.

As the article hints, a lesson from the experiment may be that we (of course) need a real marketplace for patents (with “less friction”).  Even with the short notice for the program as well as a narrow time frame to submit, there were many willing participants.  Moreover, a substantial number of the submissions were from individual inventors—about 25%.  Interestingly, this may indicate that individual inventors do not have many opportunities to monetize their patents and valuable patents may be “languishing” on the shelf, so to speak.  And worse yet, technology covered by those patents may not be commercialized.  This brings me to a second point.  What does Google plan to do with this patented technology?  The article also hints that Google acquired patents relevant to its business.  Will it actually utilize the technology covered by the patents?  Is it already using technology covered by the patents?  I suppose it could just sit on the technology and not use it.  Will it assert the patents against other operating companies? 

Notably, Google continues to accept submissions to consider patents—although not under the terms of the Program.  Will Google reopen the Program?

Google also has taught us that there are a lot of potentially valuable patents out there that could be successfully asserted against operating companies.  Good to know?  It doesn't seem like Google is widely publishing the results of the Program.  

Google's License on Transfer Network: A Good Way to Avoid Patent Trolls?

Google, along with a number of other companies, started the License On Transfer (LOT) Network on July 9, 2014.  The general purpose of the program is to reduce the risk of being sued by a Patent Assertion Entity (PAE) for network participants.  The danger present for all market participants is that an operating company with patent assets may fall on hard times and have to sell their patents to a PAE or may just choose to do so.  The LOT Network protects its members from suit from patents acquired by PAEs from their members.  Essentially, all parties agree that if one of the patents potentially subject to the license (the network members' patent portfolios) is transferred to a PAE then the license is effective as to that patent.  This means that the members of the LOT Network are basically immune from an infringement suit under that patent from the PAE once the transfer to a PAE occurs.  The agreement is carefully drafted to exclude “triggering events” from including transfers to non-PAE’s. The agreement can be found, here.  According to a presentation concerning the program, the members of the group have been insulated from at least one transfer of a subject patent to a Japanese PAE. 

There are currently 325,000 patent assets, including 99,000 US patents subject to the LOT Network.  The current membership of 47 companies includes: 3D Robotics, Inc., AddShoppers, Inc., Asana, Be Labs, Binatone Electronics, Breezy Print, CAN Telematics, Canon, Cinfo Contenidos Informativos Personalizados SL, Civis Analytics, Cloudability, Corvado, Cyclica, Dropbox, Edyt, Emaldo Techonolgies, Enplug, EPHE Corp., Ford Motor Company, GitHub, Google, Great Wave Tech, HLCA Media, Indri, Inductive Automation, JPMorgan Chase Bank, Kairos AR Inc., Khan Academy, Marine Traffic, Mazda Motor Corp., Naehas, Newegg, Pandora Media, Pure Storage, Red Hat, Ring Partner, Rocket Matter, SAASPASS, Sabai Technology, SAP SE, SAS Institute, SilverEdge, Sipree, SolarCity, Theralytics, Uber Technologies, and the Wikipedia Foundation.  This appears to be a particularly attractive option for companies without a lot of patents that may be sued by PAEs.  To join, you only need to pay a reasonable fee based on your companies’ annual revenue.  I suppose one downside is that the value of your patent may be less given that a potential PAE buyer will have fewer entities to sue.  Are there any other downsides? 

Patent Trolls Have a New Competitor: Google’s Patent Purchase Promotion Program

In an apparent effort to “clear up the secondary market for patents,” Google has launched its Patent Purchase Promotion Program.  Google is offering to purchase your patents.  The details regarding the submission process are here.  The general timeline for the program is as follows:  

April 27, 2015 Patent Purchase Promotion is Announced

May 8 to May 22 Submission Window is Open

May 23 to June 26 Submission Review Period

By June 26 Parties notified either of our intent to move on to the next stage ( e.g ., some further diligence) or our intent to pass on the opportunity.

By July 8 Parties that are notified of Google’s tentative intent to purchase must supply further information to Google regarding encumbrances, litigation, etc. and provide a signed agreement, banking information, and relevant tax related information.

By July 22 Google will further review the additional materials provided. Assuming Google remains interested in completing the transaction upon review of the above material, Google will return a fully executed agreement within about 10 days of receipt (and no later than July 22, 2015) and payment will occur within 30 business days thereafter.

As recently discussed here, patent package sales are up.  However, Google only allows you to submit one patent at a time, but a party can make multiple submissions.  This, perhaps, allows the submitter to focus on the patents of value.  Indeed, the submitter must disclose the sales price up front and is essentially “locked in” to that price (at least, I think, as a ceiling).  If a sale is approved, the submitter retains a non-exclusive, fully paid up, non-transferable, non-assignable, non-sublicensable worldwide license to practice the invention.  The sales agreement is here.  The program currently only applies to U.S. patents.  A good idea?  Google does state that the program is an experiment--perhaps patents from other jurisdictions are next. For more commentary, see Corporate Counsel’s Lisa Shuchman’s article, “Google Wants to Outfox Trolls by Buying Up Patents” (April 28, 2015).