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February 5, 2009

Publicity for Stupid

Trumpeting expressed ignorance is not usually a publicity-seeking modus operandi. But for two patent Paris Hiltons, it seemed just the ticket. Professional patent wrestlers Nathan Myhrvold of Intellectual Ventures and Stanford University Law Professor Mark Lemley are tag-teaming to battle the unknown: who is behind the "flood" of patent litigation in the past decade? Let me save you guys a lot of work. It's simple. Patent holders.

The bodacious bugaboo bothering these boys is to what extent patent litigation plaintiffs don't practice the asserted invention. Lemley has had a keen interest in "non-practicing entities" for quite some time. Law school professors often suffer a sordid reputation for strange obsessions, an inability to see the forest for the trees.

On the other side of the coin, Intellectual Ventures (IV) is a non-practicing patent holder. Although they haven't sued anyone yet. Extortion is a harsh word for a smooth practice of rhetorical persuasion. However IV makes money from patents without litigation is how patent licensing might ought to work. But IV is treating that like it's a trade secret.

These jokers made the Wall Street Journal with this "forthcoming study." Must have been a slow news day.

Lemley said that he's seen estimates on the number of suits filed by non-practicing entities that range wildly, from 2% to 50% of all patent litigation. In addition, many struggle even to define what makes a so-called "patent troll" that acquires patents to use in court, and what makes a legitimate non-practicing entity.

"There is some gray area," Lemley said, "What do you do about an IP-holding subsidiary of a company?"

Intellectual Ventures executive editor Wayt Gibbs said that an impartial study of patent litigation is necessary. "This is very important to innovation policy," Gibbs said.

Gibbs said the study is focused on the years 2000 through 2007, and includes "data on every single patent case filed" in that period. The roughly two-year project is being undertaken by a number of different Intellectual Ventures employees alongside Lemley, and is expected to produce several papers.

"We're pretty close now, and we're starting to write up our results," Gibbs said. "We hope the academic community will take this research and expand on it."

Stupidity is so hard to explain precisely because it's not logical. Not only is there no law requiring patent holders to practice their invention, there's no rational reason to do so. Imagine. You have to prove you are practicing your invention before you can enforce your intellectual property rights. Like you can't sell pony rides unless you ride the pony yourself.

While corporate patent wars are common, companies cross-license patents all the time without resorting to litigation. They have something to trade. Inventors have nothing to offer a corporate infringer. And a corporate infringer, feeling mighty mighty, would rather squash an inventor like a bug than pay a "patent tax."

I know this guy who was a consultant to a big software company. I mean orca fat BIG. The company really liked this guy. He did good work. Then it soured. Real fast. He told them about a patent he had that they were using. Didn't threaten to sue. Didn't even ask for money. Just wanted to keep them as a client. Figured they'd find out anyway, and he just wanted to be up-front. For seeming smart, boy, that guy was naive sometimes. Way too pure for this planet. Anyway, the guy said that, if they wanted to buy or license it, he'd be happy to do so at a "friendly" price. In response, the company told him to give them free licenses to all his patents, and in return, they'd give him nothing. Nada. The big Zipola. They "set forth terms." Infants are like that. Always trying to see what they can get, and get away with. The guy told the company they were making a big mistake. "Empathy and reciprocity are the fabric of the social contract," he said. That guy was always kind of weird with words. Told them that such bad behavior would be rewarded. One day he'd get them. And he did. But I digress.

Whatever these boys' little study comes up with, it'll be another academic victory of numbers telling you nothing. Whether a small percent or the vast majority of patent litigations are by patent owners who don't practice their invention is irrelevant. The problem is that litigation, the most expensive way to figure out patent validity and value, is the only avenue available. The courts have made it worse, because now you can't even offer to license a patent without opening yourself up to be sued.

That's the big problem with the patent system. There is no licensing system. Patent holders have no way to engage infringers in an equitable negotiation. They have to sue. The system encourages litigation. Who's up for a study on why that is so?

Peter Zura at 271 had a more lapdog response: "there is little doubt that the findings of the study will be one of the most anticipated events."

Posted by Patent Hawk at February 5, 2009 7:08 PM | The Patent System

Comments

In the biotech drug area, most biotech companies and universities don't "practice" their invention because they have neither the expertize nor the capital to pay the hundreds of millions to get something through the FDA. They are, by definition, nonpracticing entities. What they do have are patent rights, which they use to negotiate with big pharma. If the Universities and biotech firms lost their rights because they were "nonpracticing" then the entire R&D in medicine would be driven inside big pharma.

How about the guy who invented the intermittent windshield wiper. He was not a car maker, so he should have no rights, right?

Stupid.

Posted by: SJE at February 5, 2009 8:21 PM

Hawk, the following comments are supposed to stimulate further comment on this theme.

1. If the sticks and carrots aren't right, the system will struggle. In the US patent system, the sticks and carrots are wrong.

2. The threat of being enjoined is the key to everything (that last contributer would agree).

3. But, litigation should be a "last resort"

4. which, if you lose, should really hurt.

5. But, will you lose? Who knows. It is legal uncertainty, about the outcome of litigation, that explains why there is so much litigation.

6. Is the level of uncertainty about outcomes already down to an irreducible minimum? Most certainly not. Just ask anybody knowledgeable to give you a tutorial on patent litigation in England versus patent litigation under US patent law.

7. And, anyway, legal uncertainty is a public mischief, whichever way you look at it, because it drives up costs for all those struggling to boost the US economy.

8. With legal certainty comes financial backing, for the little guy with no money but a winning case.

Posted by: MaxDrei at February 6, 2009 12:38 AM

LOL about Lemley attacking "non-practicing entities".
LOL because he is a "teacher".
LOL because of what they say about teachers.

You know ...
Them that can, do;
Them that can't, teach.

ROTFL.

__________________________________
So the English Professor was explaining to the class about how two negatives can make a positive but two positives do not make a negative when from the back of the classroom there came a wry remark, "Yeah, right".

Posted by: step back at February 6, 2009 3:13 AM

We'll place MaxDrei's self serving comment 6 on the side for now, to place a comment on number 5:

The legal uncertainty is only half the point. The other half is purely driven by numbers. Since the big boys have a shot at NOT paying the so-called 'patent tax', and already have litigators' expense built into the business model, it only makes sense to roll the dice in court. Further, if their lobbying efforts pay off with apportionment damages, then the downside risk diminishes greatly and they can take greater strides at ignoring the patent rights of the little guys.

This "by-the-numbers" approach greatly increase the obfuscation in the patent world concerning where the efforts should be expended in fixing the system. MaxDrei's constant Euro-style push simply adds to the cacophony.

Posted by: Noise above Law at February 6, 2009 5:42 AM

"Professional patent wrestlers Nathan Myhrvold of Intellectual Ventures and Stanford University Law Professor Mark Lemley are tag-teaming...."

If two negatives make a positive, this report could be outstanding.

Posted by: NIPRA anonymous at February 6, 2009 6:57 AM

Noise, I don't know what a "Euro-style" push is. Sometimes I champion Germany against England and sometimes the reverse, and sometimes the EPO is better than either, so then I disparage both DE and UK. I like to think that a benchmarking process can bring benefits. You write of factoring in legal fees and then rolling the dice. But that's my point. Even the biggest player isn't going to litigate against a party with a deep enough pocket to stand up to intimidation, if i) the serious likelihood of losing is actually perceivable and quantifiable (ie NOT random dice rolling) and ii) when he loses, the CEO has to get his chequebook out and write a big fat cheque in payment of the fees of the other side's lawyers. That's what I meant by "hurt". In his own cojones, as well as in the pockets of his beloved shareholders. And as for a deep enough pocket, there are investors around, who will buy in, if the prospects of success are perceivable, and quantifiable.

BTW Step-Back. Compliment! Great lawyers' joke.

Posted by: MaxDrei at February 6, 2009 7:02 AM

Considering the fact that each and every modern high-tech product is a combination of hundreds of patented technologies the requirement to practice your own invention would absolutely destroy all R&D in tech, making it only possible for mega multinational monopolies like Mshit or Intel.
Everybody else would be out of luck.
Is that what they want ?

Posted by: angry dude at February 6, 2009 9:00 AM

I agree with MaxDrei that frivilous litigation can be a tax on manufacturing. Of course, the solution to that does not have to be less patents, or less litigation, but perhaps (a) some way to lower the cost of legal remedies, which affects everyone (b) more sanctions for those who make frivilous claims in court.

Of course, the other side of the story is that some of the bleating by big industries is that they do not want to have to pay for other's rights. NTP agreed to settle with RIM over the blackberry patents for a very small amount, compared to the hundreds of millions they were forced to cough up.

Posted by: SJE at February 6, 2009 9:09 AM

This discussion, and this problem, is mostly about legal fees, who pays them, and who is able to pay them. "Little guy" is not synonymous with "troll" it is synonymous with "minimal resources." The problem is less about trolls than about a hugely un-level playing field.

The European penchant for loser pays winner's legal fees is absurd. It means the potential cost of taking on MS is bankruptcy even if your case is strong. Lots of people with valid cases get screwed in courts. Making them then pay the winner's costs stifles any reasonable small-time patent holder from enforcing his patent.

The vague American approach of letting the judge decide the costs issue on motion is not workable either. I once won a jury verdict and the defendant had the gall to file a motion for us to pay his costs. That was not the (only) idiot part -- the idiot part was that the judge actually required briefs and argument instead of instantly sanctioning the defendant's lawyers.

The solution I see is to have the jury ALWAYS decide the issue of costs on every case. If the P's case is entirely wobbly, then the jury is the one to give the D his costs, or some portion thereof. If the D's acts are outrageous, then the jury should decide the costs issue against it, too. Two potential verdicts are not enough. There should be 1) for the plaintiff, 2) for the plaintiff with costs, 3) for the defendant, 4) for the defendant with costs.

It's like the criminal law. There should be 3 possible verdicts - 1) guilty, 2) guilt not proven, 3) innocent. Innocent is when the jury determines that not only did the prosecution not prove the case but that the defendant proved his innocence beyond a reasonable doubt -- then the government is required to compensate the defendant for all legal fees, investigators, loss income, jail time, etc.

Either way, the issue of legal costs needs to be put more in the domain of the jury.

Posted by: Babel Boy at February 6, 2009 9:13 AM

"Innocent is when the jury determines that not only did the prosecution not prove the case but that the defendant proved his innocence beyond a reasonable doubt"

...proved his innocence...

I for one have a hard time with this definition of innocence. Anyone else?

Posted by: breadcrumbs at February 6, 2009 9:36 AM

These comments crystallise a trans-Atlantic difference. Europe thinks that the outcome ought to depend on whether the claim is valid and whether it's infringed (and that the law is clear enough for that to be predictable, in all but a few borderline cases where new law has to be made). By contrast, the USA always thinks in terms of white hats and black hats, and we all think our hat is whiter than the one on the other side, with the consequence that we would all think rationally that litigation is worth a punt. Loser pays is OK (for the reason I state, higher up) in a system in which the outcome doesn't depend on the colour of your hat.

Posted by: MaxDrei at February 6, 2009 10:00 AM

breadcrumbs

Granted. This is not a definition you would find in your Funk and Wagnels. It is a functional definition in the same sense that "not guilty" does not mean absence of guilt, it means there was not sufficient evidence to prove guilt. The definition of "guilt" is "he did it" and one is guilty vel non irrespective of what any jury says. Judicial guilt is different, it's functional. It's about what was proven. By the same token, a jury should be able to determine judicial "innocence" on the basis of what was proven.

Likewise a jury ought to be able to determine whether a claim or a defense is totally bogus and award costs accordingly.

Posted by: Babel Boy at February 6, 2009 11:38 AM

BTW

Is that a pic of Paris Hilton associated with the word "stupid???"

I am shocked. That chick is not as dumb as she acts, you know -- in contrast to an ex-president who recently left the White House.

Posted by: Babel Boy at February 6, 2009 11:42 AM

The picture of Paris Hilton is for her ability to get publicity, as well as her feminine pulchritude. I cast no aspersions on the woman's intelligence.

Posted by: Patent Hawk at February 6, 2009 12:51 PM

"Like you can't sell pony rides unless you ride the pony yourself."

Um no hawk, it would be like you can't sell pony rides unless you actually have a pony and are willing to let other people ride it for money. The "trolls" so to speak are selling pony rides without even having a pony for someone to ride on.

"That's the big problem with the patent system. There is no licensing system. Patent holders have no way to engage infringers in an equitable negotiation. They have to sue. The system encourages litigation. Who's up for a study on why that is so?"

That is a big problem. However, it is far from "the" big problem. And that is a problem without a solution that is readily apparent. Perhaps you can write up what the solution is in your next post. Mandatory licensing for any patent? At 5% of the profit off of the entire item that the patented invention was used in? I don't see any realistic way out of that "problem".

Posted by: 6000 at February 8, 2009 7:55 PM

I should have written that lack of a licensing system is ‘a’ big problem, not ‘the’ big problem.

The single biggest problem of patents in this country is lousy examination of lousy patents. The USPTO may have dropped its allowance rate, but that doesn't mean the quality of patents issued has improved. Until §112 ¶1 and ¶2 are strictly enforced by the patent office, allowed patents are of dubious quality, and the uncertainty of enforceability remains.

The second biggest problem of patents in this country resides in the courts, particularly the Supreme Court and the CAFC. The jerk-around in patent law of the last few years is nothing short of disgusting. The continual dissents indicate lack of consensus on the most basic aspects. The lack of clarity by the courts on so many fronts leave litigation a crap shoot.

But, even if all was hunky-dory on the quality and surety fronts, having to litigate for licensing is an expensive and drawn-out process. Almost no cases settle before Markman, and most settle shortly thereafter. Maybe Markman ought to be one of the first things that trial courts do.

Posted by: Patent Hawk at February 8, 2009 9:05 PM

"The single biggest problem of patents in this country is lousy examination of lousy patents."

I'll let you off with "applications for patents". I agree as to quality, but the fact of the matter is that such limited resources and know how necessarily leads to such quality.

"Until §112 ¶1 and ¶2 are strictly enforced by the patent office, allowed patents are of dubious quality, and the uncertainty of enforceability remains."

I agree with that, but the courts (read board at CAFC prompting) only recently unbound our hands on 2nd. And word hasn't spread to all corners of the office. We're also still waiting to make sure the CAFC backs up the BPAI's CAFC prompted decision.

I think 112 1st has been fairly well enforced, maybe not 100% perfectly, but we do the best we can in the time alloted. Making a 112 1st determination isn't something that just happens in 5 seconds every time you know. I should also mention that there are quite a few situations where the answer to if it is an issue under 112 or not is not readily apparent. Even to old hands.

"The second biggest problem of patents in this country resides in the courts, particularly the Supreme Court and the CAFC."

I agree, the CAFC needs to get themselves in line with the SC. Chief judge has us looking decent for the next little while though I believe, even though you disagree.

"Maybe Markman ought to be one of the first things that trial courts do."

I thought that was one of the first things they do...?

I still didn't see your solution on how to fix the problem about there being no licensing system.

Posted by: 6000 at February 9, 2009 12:01 PM