60879347 Patent Trolling by Barry J Lipson

8/12/2019 60879347 Patent Trolling by Barry J Lipson

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A Corplaw Commentary

Patent TrollingPatently Obvious and Patently Clear

OrPatently False and Patently Wrong?

by Barry J. Lipson

It is Patently Clear, as we will see, that to turn a blind eye to Patent Trolls andPatent Trolling would permit Patently False and Patently Wrong claims ofPatent Rights to continue to fester and would not only be Patently Deplorable,but would patently fail to promote the Progress of Science and useful Arts.

At exactly 11:42 AM, September 16, 2011 President Barak Obama signed theAmerica Invents Act into law, a Bill he advised that reforms the outdated patentprocess. While aiming towards returning to a patent process enjoyed by ThomasEdison [where when he]filed his patent for the phonograph, his application wasapproved in just 7 weeks," Patent Trolls, called therein non-practicing entities,or ... patent assertion entities, were not affirmatively dealt with, but wererelegated to a GAO Study under Section 34, which provides that: TheComptroller General of the United States shall conduct a study of the

consequences of litigation by non-practicing entities, or by patent assertionentities, related to patent claims made under title 35, United States Code, and

regulations authorized by that title.1 Section 34, containing the details of thisStudy, is attached hereto as Appendix A.

1 Except that new 299. Joinder of parties, limiting joinder of defendants, may somewhat strategically inhibit

Patent Trollers who have filed suit.


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We are, however, getting ahead of ourselves, we areputting the Grant before the Application!

Once upon a time, in the sleepy village of SantaClara, there lived a very wealthy but very frightened

giant named Intel. Intel was plagued by a fearsomeband of evil trolls patent trolls to be exact whowanted a glittering pot of gold in exchange for doingabsolutely nothing. They were very powerful becausethey said they owned the patent on some of the magic Intel used to become rich.So Brenda Sandburg tells us in her July 30, 2001 The Recorder expos, Trolling

for Dollars.

Perhaps, her Trolls are like the Troll living under Aurora Bridge in the Fremontarea of Seattle, Washington, as pictured on the cover page, proprietarily clutching a

real Volkswagen Beetle. Or perhaps like the enterprising Toll Trollextorting apound of flesh or Troll Toll from those trying to cross a public bridge.

She was drawing on the old Norwegianfolktale, The Three Billy Goats Gruff,where underthe bridge lived a great uglyTroll, with eyes as big as saucers, and anose as long as a poker, who waited for

travelers and threatened them: Now, I'mcoming to gobble you up. In this tale thefirst two travelers, who happened to beBilly Goats, offered the Troll his followingcaprine traveling companion with theinducement: H es much bigger .Whenthe final largest and well endowed BillyGoat Gruff finally arrived and wasthreatened, instead of offering the Troll

any bribe, he in an ugly hoarse voice of his own challenged: Well, come

along! I've got two spears, and I'll poke your eyeballs out of your ears;and

without waiting for the troll to act further, he did! Snip, snap, snout. This tale'stold out.

By 2007 Forbes was defining Trolling for Dollarsor Patent Trolling, [as] amuch-vilified practice in which contingency lawyers or small companies with no


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operations sue businesses to extort money (Nathan Vardi,Patent Pirates, Forbes(May 7, 2007)).

Trolling, as originally used, is a method offishing whereby one or more fishing lines, more

often than not baited with fake or simulatedfood, known as lures, are drawn through thewater to lure schools ofsucker fish to snap atthis bogus bait and be impaled on hidden multi-hooks.

The term Patent Troll has been traced back to a March 29, 1993 Forbes article,"When Intel Doesn't Sue," which reported the Japanese as now depicted as the

new patent trolls, implying, of course, that there were patent trolls even beforethe Japanese. The next year an educational video was produced for the business

community, academia and governmental agencies, "The Patents Video," whereinthe Patent Trollsets up an unsuspecting dupe in order to obtain unearned patentlicensing compensation. Then, in 2001 the Assistant General Counsel of Intel,Peter Detkin, after Intel had been sued for libel for the use of the term patentextortionist,substituted the term patent troll s,explaining that a patent trollissomebody who tries to make a lot of money from a patent that they are not

practicing, have no intention of practicing and in most cases never practiced(Timothy J Haller & Sally Wiggins, The Patent Troll Myth, Niro Scavone Haller& Niro, Esqs.), such as non-practicing entities (NPE), non-manufacturing

patentees and patent assertion entities [FTC nomenclature].

Indeed, Henry Ford may have been an early victim ofPatent Trolling, or so assertsKal Raustiala & Chris Sprigman, in How Patent Trolling Taxes Innovation,Freakonomics (July 11, 2011). According to thisFreakonomics analysis, in 1895a Patent was issued to George Selden for a gasoline engine for use in a four-wheeled horseless carriage which Patent lacked the spark of genius, or as wewould say nowadays lacked the non-obviousness, necessary for patentability.The patent clearly should never have been granted, this Freakonomics analysisasserts, the idea was so obvious that many people worldwide thought of it

independently as soon as the first workable gasoline engines became available.Nevertheless, Selden brandished his [car] patent, threatened nascent carmakerswith suit, and collected hundreds of thousands of dollars in royalties. Selden didn'tcontribute anything meaningful to the development of the automobile, but hispatent abuse made cars more expensive for years, until Henry Ford, who refused tolicense from Selden, finally busted the patent in court in 1911.


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Article I, Section 8, Clause 8 of the United States Constitution, known as thePatent and Copyright Clause, empowers the United States Congress: "To promotethe Progress of Science and useful Arts, by securing for limited Times to Authorsand Inventors the exclusive Right to their respective Writings and Discoveries."The key words here for this examination are to promote the Progress of Science

and useful Ar ts.

Does Patent Trolling so promote the Progress of Science and useful Arts or does it,in fact, inhibit it? It is hard to see how not practicing the patent, having nointention of practicing and/or having never practiced the patent could in anywaypromote the Progress of Science and useful Ar ts.Indeed, the opposite wouldappear true, and this conclusion appears to be supported by the U.S. SupremeCourts decision in eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006).

The Supreme Court in eBay Inc moved somewhat towards leveling the playing

field. As noted in the Oklahoma Law Review, the balance between an inventorsexclusive rights and the promoting of science and the useful arts is destabilized bypatent holders who exploit their patent rights, such as the right to exclude, toprotect questionable patents or stifle competition, including by a species of patentholders, commonly known as "patent trolls" or "Non-Producing Entities"(NPEs). Patent trolls "produce no products or services and have the sole purpose ofobtaining money by licensing patents they own and winning infringement lawsuitsagainst others," and they thrive by accusing others of infringing their right toexclude and then threatening to pursue costly litigation to enforce this right, often

resulting in intimidated alleged infringers licensing patents of questionablevalidity. (Jean Carlos Lopez, Weapon of Mass Coercion: How eBay Inc. v.MercExchange, L.L.C. Eliminated the Threat of Coercive Automatic PermanentInjunctive Relief and Restored Balance to the American Patent System, 60 Okla.L. Rev. 605 (Fall, 2007))

Then too, The Federal Trade Commission (FTC) on March 7, 2011 issued a 300page report on the patent system highlighting the problem ofpatent trolls, callingthem "patent assertion entities" to exclude "good guys" such as researchuniversities and the like who are actually engaged in the "developing and

transferring technology." The FTC saw the vagueness of permitted patent claims asencouraging patent trolling and saw wisdom in limiting royalty damages to theamount a willing licensee would pay, which may be determined by the value of theinvention over alternative technologies.


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And, as previously noted, Congress in the recently enacted America Invents Actordered a GAO Study of Patent Trolling litigation. The problem with this study,however, is that the successfulPatent Trolldoes not need to litigate. The solution,therefore, needs to include measures that will discourage such litigation and thethreats of such litigation.

In eBay the Supreme Court eliminated an apparent unfair advantage patent holders,including Patent Trolls, asserted; that of being granted Automatic PermanentInjunctive Relief without showing they were entitled to same. The Courteliminated the Threat of Coercive Automatic Permanent Injunctive Relief andRestored Balance to the American Patent System" by requiring that the four-factorpermanent injunction equity test generally applied to obtain such relief must besatisfied here too.

This test requires a showing that: "(1) that it [plaintiff] has suffered an irreparable

injury; (2) that remedies available at law, such as monetary damages, areinadequate to compensate for that injury; (3) that, considering the balance ofhardships between the plaintiff and defendant, a remedy in equity is warranted; and(4) that the public interest would not be disserved by a permanent injunction"(eBay, supra.).

For example, the Supreme Court noted, some patent holders, such as universityresearchers or self-made inventors, might reasonably prefer to license their patents,rather than undertake efforts to secure the financing necessary to bring their worksto market themselves. Such patent holders may be able to satisfy the traditionalfour-factor test, and we see no basis for categorically denying them the opportunityto do so (Ibid). And if so, they clearly would not be Patent Trolls. The Court,though, also noted its 1908 ruling in "Continental Paper Bag Co. v. Eastern

Paper Bag Co., 210 U. S. 405, 422-430 (1908), which rejected the contention thata court of equity has no jurisdiction to grant injunctive relief to a patent holder whohas unreasonably declined to use the patent" (Ibid.).

Thus, in context, in light of eBay, the rule now appears to be that a patent holderwho has unreasonably declined to use the patent my seek such relief, but may only

obtain it if the four-factor test is met. Not an easy task, especially as suppressingunreasonably invention would not promote the Progress of Science and useful

Arts, and therefore, the public interest would be disserved by a permanentinjunction.


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Then too, it is normally unethical for attorneys to threaten laws suits when they donot intend to actually file such suits, and State Lawyer Disciplinary Board ethicscharges can be brought against attorneys appearing to be doing so. Moreover,Federal Rule 11 is available to sanction a Patent Trolling Attorney when he/shesigns court papers without first doing the necessary investigation to ascertain that

the litigation being instituted is non-frivolous. But these may not only be hard toprove, but sanctioning and the level thereof may be discretionary and State Boardsand Judges may be slow to exercise such discretion.

A very current example was recently reported on by dotTech: "VirnetX, whichcalls itself a 'Patent Holding Company' (aka Patent Troll), sued a bunch of majorcorporations back in 2010 over infringement on VirnetX's VPN-related patents.Microsoft settled with VirnetX in 2010 for $200 million. The fight betweenVirnetX and Cisco, Avaya, and Siemens, is still ongoing with trials schedule forlater this year. And Apple has been slapped with a judgement to pay $368.2

million in damages."

So it seems Patently Obvious and Patently Clear that something needs to bedone. We now have or should have a handle on the range of non self-utilizers, withuniversity researchers at the positive or upper end; and Patent Trolls and NPEs(Non-Producing Entities) at the negative or lower end. How then can we as aSociety completely level the playing field?

Perhaps one or more of the following recommendation will significantly help to

curb patent trolling:

a) Four-Factor Test. The Four-Factor Test can and should be adapted to beapplied across the board to all remedies sought, modified as follows, torequire that plaintiff patent holder establishes all of the following:

(1) Irreparable injury has been suffered by plaintiff patent holder who isitself demonstratably practicing, implementing and using a validlygranted currently effective patent owned by it, or if not holds ademonstratably validly granted, currently effective and workable patent

owned by it; that such plaintiff patent holder is being denied the fruitsfrom this patent by the demonstratably adverse and unlawful actions ofdefendant; and that where the plaintiff patent holder is not itself actuallyactively practicing, implementing and/or using such patent, it is actuallyactively in the business of licensing or seeking to license thisdemonstratably validly granted, currently effective and workable patent


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to one or more entities who would actually practice, implement and/oruse it.

(2) The plaintiff patent holder itself does not have dirty hands in that itcan demonstrate lawful and non-predatory title to and marketing of thepatent; that defendant was demonstratably unlawfully practicing,

implementing and/or using it; and that, if plaintiff was not itself activelypracticing, implementing and/or using it or likely to be able to license itto one or more entities who would actually practice, implement and/oruse it, plaintiff patent holder has offered the defendant a license to saiddemonstratably validly granted, currently effective and workablepatented technology of plaintiff at a fair market price.

(3) That, considering the balance of equities and hardships between theplaintiff and defendant, an award in favor of plaintiff is warranted.

(4) That the public interest would not be disserved by an award in favorof plaintiff, and that the granting of such relief would promote theProgress of Science and useful Arts.

Moreover, if injunctive relief is sought, it must also be shown that otherremedies available at law, such as monetary damages, are inadequate tocompensate plaintiff patent holder for defendants demonstratably adverseand unlawful practice, implement and/or use of a validly granted currentlyeffective patent owned by plaintiff patent holder that plaintiff patent holderis itself demonstratably practicing, implementing and using it, or if not thispatent owned by plaintiff patent holder is demonstratably validly granted,currently effective and workable.

b) Use It Or Lose It.Lose It legal criteria and sanctions should beconsidered for adoption for the negative or lower part of the range, to wit,

Patent Trolls. Use I tshould be defined to include actually being in thebusiness of implementing a demonstratably validly granted, currentlyeffective and workable patent or actually actively working to license it toone or more entities who would actually practice, implement and/or use it.

c) Treble Attorneys Fees. Even beyond Federal Rule 11, punitive damages

and/or even treble attorneys fees should be available to be awarded todefendants by the jury in frivolous and/or in the most egregious casesbrought byPatent Trolls; or in cases brought by their victims, in Third BillyGoat Gruff pre-emptive strikes, where frivolous suits have been threatened.

Indeed, the prospect of the award oftreble attorneys fees may encourage thosebeing intimidated to react more like the Third Billy Goat Gruff (though in a lawful


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manner), and could not only possibly encourage contingent-fee attorneys to defendor represent those being sued or threatened byPatent Trolls and their contingent-fee lawyers, but even discourage Patent Trolls from bringing or even threateningsuch frivolous and/or egregious suits in the first place.

Thus, as stated earlier, it is Patently Clear that to turn a blind eye toPatent TrollsandPatent Trolling would permit Patently False and Patently Wrong claims ofPatent Rights to continue to fester and would not only be Patently Deplorable,but would fail to promote the Progress of Science and useful Arts.Indeed, here

the Biggie may not always be the baddie!

Copyright 2011-13 by Barry J. Lipson


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Appendix A

merica Invents ctEnacted September 16, 2011

SEC. 34. STUDY OF PATENT LITIGATION.

(a) GAO STUDY. - The Comptroller General of the United States shall conduct a study of the

consequences of litigation bynon-practicing entities, or bypatent assertion entities, related to

patent claims made under title 35, United States Code, and regulations authorized by that title.

(b) CONTENTS OF STUDY. - The study conducted under this section shall include the

following:

(1) The annual volume of litigation described in subsection (a) over the 20-year period ending

on the date of the enactment of this Act.

(2) The volume of cases comprising such litigation that are found to be without merit after

judicial review.

(3) The impacts of such litigation on the time required to resolve patent claims.

(4) The estimated costs, including the estimated cost of defense, associated with such litigation

for patent holders, patent licensors, patent licensees, and inventors, and for users of alternate orcompeting innovations.

(5) The economic impact of such litigation on the economy of the United States, including the

impact on inventors, job creation, employers, employees, and consumers.

(6) The benefit to commerce, if any, supplied by non-practicing entities or patent assertion

entities that prosecute such litigation.

(c) REPORT TO CONGRESS. - The Comptroller General shall, not later than the date that is 1

year after the date of the enactment of this Act, submit to the Committee on the Judiciary of theHouse of Representatives and the Committee on the Judiciary of the Senate a report on the

results of the study required under this section, including recommendations for any changes to

laws and regulations that will minimize any negative impact of patent litigation that was the

subject of such study.

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60879347 Patent Trolling by Barry J Lipson