Viewpoint: Obama’s ‘Patent Troll’ Reform: Why Everyone Should Care

  • Share
  • Read Later
JEWEL SAMAD / AFP / Getty Images

In 2011, Apple and Google spent more money on patent litigation and defensive patent acquisitions than on research and development. That’s not a good sign for the U.S. economy; in fact, it’s a stark indication that our intellectual-property system is broken. Rampant patent litigation is impeding innovation and ultimately increasing the costs of gadgets for consumers, according to legal experts and industry observers. Now President Obama says he wants to reform the system.

This week, Obama introduced a proposal to crack down on so-called patent trolls — firms whose main objective is to extract licensing fees from other companies. The Administration issued five executive actions and seven legislative recommendations “designed to protect innovators from frivolous litigation and ensure the highest-quality patents in our system,” the White House said in a statement.

Patent trolls “don’t actually produce anything themselves,” Obama said in February. “They’re just trying to essentially leverage and hijack somebody else’s idea and see if they can extort some money out of them.” In recent years, companies like Intellectual Ventures, which is run by former Microsoft chief technology officer Nathan Myhrvold, have garnered attention not for what they build but for the patents they own. Just this week, news emerged that Intellectual Ventures, which has amassed a reported 70,000 patents since it was founded in 2000, is now targeting financial firms for infringement.

(MORE: Apple Says It’s Not an E-Book Crook as Price-Fixing Trial Begins)

Critics of the current U.S. intellectual-property system say patent trolls are placing a major drag on the economy. “This is economic terrorism,” says Drew Curtis, founder of popular website Fark.com. Curtis is a Kentucky-based tech entrepreneur who says he was sued by a patent troll over technology supposedly related to online news releases. “Somehow they got a patent on e-mailing news releases to people, and they sued me claiming infringement. I fought back.”

Curtis says the patent troll — whose identity remains a mystery, in part because it shielded itself by using a shell company — demanded money from the online start-up. “They asked me to give them my best settlement offer,” Curtis tells TIME. “I told them: ‘How about [nothing] and go [fly a kite].'” (Curtis actually used more colorful language.) Shining a spotlight on these shell corporations is a major goal of Obama’s proposed reforms.

Curtis is one of the rare entrepreneurs who had the gumption and means to fight back, as he described in a now legendary TED conference talk. “They said they’d sue me — it would have cost $100,000 in legal fees — but if I paid them less, they’d go away,” Curtis said this week. “‘Give us $100,000 or we’ll destroy your business.’ That’s the patent-troll pitch. It’s a complete shakedown.”

It’s not just entrepreneurs who bear the direct costs of the dysfunctional U.S. patent system, but consumers as well. Experts say that rampant intellectual-property litigation impedes innovation by slowing new products to market and making them more expensive. The only winners in the system are the patent lawyers, who reap fees every time one of these lawsuits is issued, or even threatened.

Everyone is ultimately harmed by a patent system that effectively hampers innovation, according to Julie Samuels, an intellectual-property specialist and staff attorney at the Electronic Frontier Foundation, a San Francisco–based digital-advocacy group. “Creation, innovation and invention are the cornerstones of the American experience,” says Samuels. “Patent trolls attack those ideals, harming us all.”

Most of the major tech giants, including Apple, Google, Microsoft, Samsung and HTC, are engaged in litigation and counter-litigation in dozens of jurisdictions worldwide. For the past several years, there’s been an escalating intellectual-property arms race gripping the tech world — and the weapons of choice have been patents.

Perhaps not surprisingly, patent-law reform is one of the major goals of the newly emboldened Silicon Valley lobby. “We’ve reached a tipping point on patents,” says Eric Goldman, director of the High Tech Law Institute at Santa Clara University School of Law. “There is growing consensus that the current patent system is slowing down our economy. Silicon Valley wants reform.”

“We all pay the cost of wrongful patent claims, because the costs to defend and settle patent claims are ultimately passed on to consumers,” says Goldman. “Resolving patent claims drains small businesses of money they could use to hire employees and invest in new goods and services.” He adds: “I think we’re seeing a lot of policymakers who want to get out front on this issue.”

13 comments
cfyke
cfyke

I have a Chinese neighbor named Olaf Jorgensen. I asked him about his name.

He said "Well, I was in line at immigration and they asked the guy ahead of me his name, and he said, Olaf Jorgensen. Then the immigration official asked me my name and I told him Sam Ting."

He went on, "Later, when I presented my papers, my name on my documents and what the bureaucrat wrote down, didn't match." He continued, "I was arrested, for submitting false information."

Eventually in order to avoid incarceration and deportation, he signed a plea agreement. He agreed to legally change his name to Olaf Jorgensen, so the bureaucracy didn't have to admit their part in the problem.

I find it disquieting that I see parallels between Sam and intellectual property companies. When they try to assert their identity, as owners, they become the problem. So change the paper work to make them wrong.

The backyard inventor innovates. He decides to patent his idea and then sells the patent to an IP company rather than try to raise startup capital or sell licenses to interested parties. The inventor deserves a marketplace for his ideas and the buyer is entitled to ownership rights when he buys them.

The characterization of "lost wealth" of defendants above as a loss to the economy is false. The injured party received the money. This is a zero sum situation.

This characterization is similar to someone stealing a car worth $25,000, getting caught, charged with the crime, fined and the car being returned to its rightful owner.

The thief is now claiming he lost $25,000 and legal fees.

Homer Simpson has a three letter word for that, it starts with d and ends with h.

Reminds me of the researcher doing research with a grasshopper. He prodded the grasshopper, ordered it to jump and documented the distance. He then removed a front leg, ordered it to jump, prodded it and measured the jump. Another front leg and the same. After he removed a back leg, ordering it to jump, prodding it and the grasshopper no longer jumped, he concluded his research.

Study conclusion. Grasshoppers without legs are deaf.

So what is the current status of patent protection?

Most industries must use the court system to defend their patents. However, industries don't usually get industry based expertise, judging their patent claims. When expertise is limited to patent expertise, rather than industry expertise, we get "grasshopper" conclusions in court.

Drug companies get expert oversight and therefore don't usually have to incur expensive legal action, to defend their patents. The patent protection of drugs works almost too well. Drug companies are quitting research into antibiotics. Close to $1B to get one approved and resistance makes it obsolete in no time. Natural products cannot be patented. Without patent protection nobody will do clinical trials. No clinical trials, no approval for treatment.

Bacteriophage are natural enemies to bacteria, even Superbugs. They only become ineffective, if the bacteria mutates into a new species. A new bacteriophage for a mutated species takes about two weeks to develop. So people die because of a flawed system that protects drug companies ahead of people.

Patents that try to cast a wide net can backfire. Pfizer lost its patent protection for Viagra, in Canada, for being too general. Now they face "stiff" competition.

In the television show Kung Fu, there is the following exchange

Master Po: Do you hear the grasshopper that is at your feet?

Young Caine: [looking down and seeing the insect] Old man, how is it that you hear these things?

Master Po: Young man, how is it that you do not?

Master Po: What do you hear?

Caine: I hear the grasshopper.

We need master guidance to truly "hear the grasshopper."

When Caine asked a question about defending, the Master said, "The thorn defends the rose. It harms only those who would steal the blossom from the plant."

The thorns have to work for the garden to flourish.

These all point to the Sam Ting, a flawed system.

Remember I trolled you so, grasshopper.

There is an old saying, "If it ain't broke, don't fix it."

I suggest it has a logical corollary, "If it's broke, fix it!"

velowit
velowit

@Bluedog:   

The current patent system is based on an belief that is completely wrong.  The false belief is that creative ideas are scarce, and therefore we need to reward those who have them in an attempt to incentivize creative thinkers.  Whether it has ever been true in the past may be a matter for debate, but it certainly isn't true now.  In fact creative ideas are plentiful.  Just the very fact that these trolls are able to find so many people to sue is evidence that good ideas are  not rare, but rather the fact that the same ideas are simultaneously arising from many different companies and regions.  The mere fact that you have articulated an idea isn't what's special.  What's difficult about the creative process is actually executing a plan that will use that idea to bring a product to the marketplace.  The current troll-ridden patent "system" is making this subsequent process more difficult and more expensive.  In so doing, it is producing the exact opposite of what the original purpose of patents was stated to be.  

If part of the problem is that you don't have a clear idea of what patents were originally intended for, then check your nearest copy of the US Constitution.  It quite obvious that some peoples' use of patents today isn't consistent with that intent.

Bluedog
Bluedog

@velowit A photo of nearby Camelback mountain under a beautiful sunset is not at all rare.  It is also totally copyrightable and that copyright is totally defensible in court.  Ditto that photos of the sky, clouds, smiling children, etc.  In fact, four people may have an idea before you have the idea and patent it.  Or forty.  Or four-hundred.  The patent system exists to incentivize individuals to innovate and to share their innovations.  It does not exist to protect the rights of producers to bring products to market.  I am sorry, you will not find that reading in the constitution.  The "reform" we are discussion here is not reform such as better cataloging innovations and patents, matching them from inventor to producer, and producing arbitage boards for fair system of recompense.  We are discussing this question: precisely how can be unburden producers of the pesky necessity of paying inventors.  I am sorry, I will not be on board with that frame of the problem and I will go down fighting it if I have to.  It is a typical and ugly twist, serving only the interests of the "already got it" at the expense of "those who don't".

craigola2
craigola2

@Bluedog How about: We... Just.. Can't... Endure... Paying.. For... Something... We... Don't... Infringe... On....

Have you considered this?  Or, is it in your view, that ALL patent trolls have legitimate patents and every defendant they are suing is actually infringing on said patents.  If this is your perspective, then I would think you either know little about patent trolls, or you know a LOT about patent trolls (meaning you are one or are an attorney for one.)

For most of us, the justice system is summed up as "Innocent until proven guilty."  In the patent world, it is "Guilty unless you have 1-2 million dollars to prove your innocence."  How is that justice?  

If you can watch the Ted talks video (http://www.ted.com/talks/drew_curtis_how_i_beat_a_patent_troll.html) and tell me that Gooseberry Natural Resources is a legit inventor and Fark was seriously infringing on their news reader patent, then you are in a different place my friend.  If this was true, why in the world would GNR roll over so quickly when Fark simply asked them to show screenshots of where they infringed?  Conversely, I am quite sure that if Fark said, "We can't afford to take this to court, we will pay a settlement fee, Gooseberry would have happily accepted."  

Bottom line.  If there is an inventor out there, and someone has clearly infringed on, or stolen their patented invention, they deserve a "reasonable" recompense based on the level of infringement.  If this infringement is clearly obvious, hopefully the infringer will have the honor to deal with it and pay the reasonable fee, but if not, it is of course fully reasonable for the inventor to take them to court.

Conversely, What if a patent troll purchases a very broad software patent that they can then use to sue several companies that likely do not actually infringe on the patent, but their business model is close enough so that it is reasonable enough to proceed with a lawsuit?  When choosing these defendants, the troll strategically looks for defendants they know have enough money to pay them a reasonable sum, while not having enough to pay for the suit to go to trial.  Thus, putting the defendant in a place where they, again, are guilty unless they are capable of proving their innocence (whether they are innocent or not.)  The only way they can prove their innocence is by paying 1-2 million dollars to be able to take the case to trial.  Again, the troll is betting on them NOT having the money to go to trial.  Do you not know that 97% of these cases do NOT go to trial?!?!   In these cases where the defendant is likely or actually innocent, the troll does NOT want to go to trial anyway.  They simply want cash.  It is pure extortion and frankly it is sick and evil.  

Bluedog
Bluedog

@craigola2 Craigola2 - I appreciate the discussion that restructures this in a way that can take the matter forward.  When we look at the patent system and discover a "guilty until proven innocent" system, or otherwise we are able to find sufficient examples of this strain to warrant our concern, we have at our disposal something that we can work with.  But in doing so, we should make an attempt to be even-handed.  There are inventors.  Real innovators.  People with no resources to bring products or market, or with insufficient resources to prevent being out-hustled by outfits that have resources, but not ideas.  And ... I kind of guess but frankly am not yet convinced, there's this thing called a "patent troll".  I mean - there have always been toll bridges, and we called the toll bridge owners, owners, and the toll collectors, toll collectors.  

It is hard to swallow "patent troll" without a heaping dose of sugar to try to make us forget we are being asked to agree that one side is going to be, in this order: (1) demonized and (2) taken to the cleaners.

What I observe in industry is a dead-pan, dead-set fixation on "we ain't gonna credit you with an idea".  This is a severe attitudinal problem.  On other other hand, to be even-handed, I notice that in the neighborhood next to me, very nice, but very modest houses.  All market data suggests they should sell between $220K and $280K, maybe close for $300K for the better of them.  Doesn't stop every owner entering the market from overpricing their home up front: start at a jaw-dropping $375K ... no takers, then $350K.

Greed and recalcitrance, on both sides, makes for an inefficient, slogging market ... and time is money.  In this way, the author Gustin is correct, "Everyone Should Care".

So let us care.  Let us modernize the USPTO.  Let us create a catalog of patents along the lines of the MLS.  Let's create a market of idea exchange between idea makers and producers.  Let's create agents who are familiar with the rules of the markets and who can assure buyers and sellers they're getting a good price.  Let's institute a layer of arbitration and mediation that's expensive enough to the capital holders to make them think twice about using it, but accessible to the patent holders so that the ground is fairly even and EVERYONE is encouraged to negotiate fairly.

Now we are talking about innovation, efficient markets, fairness, and progress.

"Patent trolls" ... all my life I knew them to be innovators and inventors, small people with big ideas.  Now they are trolls?  I see nothing behind that door other than unintended consequences, all of them bad.

craigola2
craigola2

While there is a lot of focus on Apple and Google here, what is not addressed is how smaller companies that can't afford to defend themselves are affected.  The majority of patent troll cases target companies making less than 10 million dollars.  With the average defense cost being 1-2 million, the trolls, know that even if these companies are innocent, they cannot afford to defend themselves, so they either pay a settlement or go out of business.  The troll's attorneys on the other hand work on contingency, so no problem there.


Bluedog
Bluedog like.author.displayName 1 Like

@craigola2 Again, the odd thing is that we are not as concerned about the right of the inventor to be paid, as we are with the, ahem, "right" of the producer to defend itself in court against the pesky necessity of paying the inventor.  

This is not a hard problem: figure out a fair amount to pay the inventor.  Odds are that will be vastly less than defense in court, but we. just. can't. endure. paying. the. owner. must. fight. in. court.  lawyers!  errrhhhhh!!!!!


Eddie123
Eddie123 like.author.displayName 1 Like

I do not understand why big companies are complaining when they have infringed on someone's patents.  Are you saying that big companies should be allowed to infringe on someone's patents just as long as the patent owner does not build anything?  First of all, how many patent owner has as much cash as Apple and Google?  Are you saying that unless an inventor has as much money as Apple and Google and are building similar things, they cannot enforce their patent ownership to an infringer who is building something?

It does not make sense to me.  I recall when I was an inventor, I visited the VCs for startup capital.  As a normal habit, the VCs will not sign NDAs, claiming that they see too many ideas that they cannot possibly manage the confidentiality of ideas - the only people would buy this argument are VCs themselves.  Ultimately, how many VCs are really ethical?  They would stolen the idea and bring it to a dying company that they have invested.  When the inventor sue, they turn around and say that since you are not building anything, you have no right to sue.

There are always two sides of the story and we always only hear one-side on the news.  Not allowing patent troll to enforce patent ownership will stifle our economy since it would mean unless an inventor is working for Apple and Google, he has no rights to his invention. This is laughable.  C'mon!  Are we in America??

Bluedog
Bluedog

The way that this issue is consistently being framed in the media is some concern to me.  If we talk about a shady "firm" that "doesn't make anything" ... it all sounds very sinister.

But as I understand the patent system, and as I happen to believe in patents and intellectual property in a capitalist economy:

1) If you have an idea - you should be able to patent it and own the intellectual property - there should be NO requirement that you have to build something - there is no relationship between acting and film distribution, between writing and publishing ... these are separate disciplines, you cannot say "because you don't distribute you are not an actor" or "because you don't print books you are not an author".

The INVENTOR of an idea, owns the idea.  Period.

2) For all the discussion of litigation ... how about patent users pay patent owners?  Is this really such a catastrophe?  Seriously: don't fight them in court ... PAY them for the use of their intellectual property.

To the degree this is a USPTO / technocratic issue: solve that issue, but don't conflate BUILDING, which can only be achieved by high-cost -of-entry corporations, with INVENTING ... which is ground-floor, individual, power-to-the-people capitalism.

And ... even in the frame, it's conspicuous.  Ever heard of ARM?  That little micro-computer architecture that competes with Intel?  ARM doesn't manufacturing chips.  They DESIGN them.  Then they SELL the idea to a builder.

It is a completely legitimate business model.

The frame on this issue, and the widespread media buy-in, is deeply troubling.  

Yes - reform the patent system to promote innovation - but protect human INDIVIDUAL's rights to intellectual property, first and foremost, especially if you want to encourage innovation ... and perhaps reform the legal process AND the USPTO to make it easier to match builders to inventors and to equitably pay inventors without being extortionary on producers.  

Cast this way though, "sinister shady patent 'troll' firms" ... seems like the obvious, yet unintended (or is it?) affect, is a power grab by corporations.  That will NOT encourage innovation.

seraphimblade
seraphimblade

@Bluedog The trouble is, most patents that the trolls hold would be invalidated if challenged. And they know that. So they shake down small companies and startups that don't have the money for a protracted legal case, and the smaller companies wind up paying up because it's cheaper than the legal battle.

One way this could at least be helped is to require that if a patent is held invalid, the patent holder must refund all royalties paid under it, and must also pay the legal fees and costs for anyone they sued. This would remove the incentive to troll, while ensuring that patents which are on truly innovative and new items get enforced. We would also need to make sure that only real, tangible things are patentable, not software, music, ideas, etc. (These are instead the types of things copyright is intended for rather than patents.)

But I am for removing the incentive to buy up a patent, sit on it, and then wait for someone to come up with a similar idea so you can slap them with a lawsuit. Use it or lose it. Contracting a third party to build it for you counts, but you don't just get to both not produce it and keep everyone else from doing so.

Bluedog
Bluedog

@seraphimblade @Bluedogseraphimblade - data.  To this point you are making: we need hard data.  Because as long as we are talking anecdote and not data, here's what I see: "most patents that the ORDINARY PEOPLE hold would be invalidated if challenged and automatically will be and are challenged, because we have a dead-set idea in our American corporate culture ... that pay outsiders for their ideas ... that is just something We. Don't. Do. ... instead we pay lawyers, to invalidate them in court".

Anecdotes here.  Anecdotes there.  Data.  And in that data: invalidated because the patent holder did not have $3 million to defend his patent, or because the patent actually lacked intellectual legitimacy.

If the latter ... then why the necessity that we demonize and call such people "trolls"?  If the data speaks we needn't demonize anyone in order to reform the system to make it more fair and efficient.

mfreeny
mfreeny

The NPR program This American Life (TAL) just did a similar story (When Patents Attack) with the same cast of characters. A big thing that I took away was the incompetence of the Patent Office (USPTO). On their page of do's and don'ts the Patent office states what I've always been told; you can't patent an idea, only a way to accomplish it, i.e. you have to invent something. Yet the TAL report focuses on a patent granted many years ago for the mere "idea" of backing up computers over the internet. No device or process was invented, just the idea was patented. After patent trolls purchased this seemingly illegitimate patent they began suing companies (e.g.Carbonite, Mozy, iDrive, etc) for their services unless they paid licensing fees.Drew Curtis noted such in his legal skirmish “Somehow they got a patent on emailing news releases to people..." Not how to do it, but the "idea" of doing it. I think this is the most outrageous government blunder to the story. I'd like to see it developed more in a followup.


Read more: http://business.time.com/2013/06/08/viewpoint-obamas-patent-troll-reform-why-everyone-should-care/#ixzz2VjSi91lF


Thomas_J_Kowalski
Thomas_J_Kowalski

Respectfully submit that the President’s efforts are woefully inadequate as they fail to address a source of the troll problem -- the US Patent & Trademark Office (USPTO), including by the USPTO failing to properly reexamine patents, and especially failing to properly reexamine expired patents and by the USPTO having different standards regarding the reexamination of expired patents: 1. the CORRECT STANDARD THAT THE USPTO FAILS TO FOLLOW, namely, the Broadest Reasonable Interpretation standard (BRI) (see 35 USC 305, Director’s 19 Jun 2012 blog; In re Etter; In re Yamamoto; Ex Parte Peng Tan (BPAI 28 Mar 2007)); 2. the INCORRECT UNLAWFUL standard stated in the USPTO’s Manual of Patent Examining Procedure (MPEP) section 2258 (asserting that the USPTO is to perform claim construction rather than BRI); 3. the INCORRECT UNLAWFUL standard of Ex Parte Peng Tan (BPAI 10 Mar 2008) (USPTO BRI abandoned but held correctly that a narrowing claim construction is an impermissible partial disclaimer under 35 USC 253), and 4 the MOST INCORRECT, EGREGIOUS UNLAWFUL standard of Ex Parte Tractus Medical (BPAI 7 Mar 2012) (USPTO totally disregards BRI and controlling Federal Circuit case law including by asserting that a patent in reexam is entitled to a presumption of validity). This has led to trolls waiting until a patent expires (but during the statute of limitations) before enforcing the patent because the perception is that the patent is shielded from a proper USPTO reexamination. See, e.g., http://theipstone.com/2012/07/13/invalidating-expired-patents-during-ree... Oversight of the USPTO in my view is warranted, and both Congress (Judiciary Committees of House and Senate) and the President are respectfully called upon to exercise Oversight of the USPTO and ensure that the USPTO is indeed following the Statute (35 USC 1 et seq including 305, 253) and properly conducting all examinations, including reexaminations of expired patents, including using the BRI standard.