Posts Tagged: "non-practicing entities"

Ray Niro is a nationally recognized trial attorney specializing in the enforcement of patent, trade secret and related intellectual property rights. The name Niro, however, is not like any other in the patent industry. It was as a consequence of a lawsuit one of his clients brought against Intel in 2001 that the term “patent troll” was coined. On March 12, 2012, Niro went on the record with me in an exclusive interview. We discussed many things, including the nearly constant attempts to erode patent rights, make it more difficult for patent owners to seek redress for infringement and what the America Invents Act will mean for patent litigation moving forward. We also discussed the undeniable reality that there are bad actors in the industry.

Raymond P. Niro is patent litigator with tremendous experience and a reputation that is larger than life. To some he is a champion of independent inventors and small business community, frequent clients of his. To others he is nearly the definition of evil. It was as a consequence of a lawsuit one of his clients brought against Intel in 2001 that the term “patent troll” was coined. He has been trial counsel in literally hundreds of intellectual property cases, and since 1996, has won verdicts and settlements for his clients totaling more than $1 billion. On March 12, 2012, he went on the record for this exclusive interview.

The avalanche of patent assertion entities (PAE) cases, in the ITC and District Court, exists because the PTO issues hundreds, if not thousands of patents that can be asserted against every minute feature and functionality of tech products and services. The overwhelming majority issued to so-called inventors who played no part in developing these features and functionalities, including to patent mills that specialize in stalking the development of technology standards and obtaining claims they hope will read on those standards. And tech patent applications often pend (through continuations) for 10 years or more, enabling patentees to intentionally draft claims to read on existing products and services. In fact, these euphemistically entitled “early priority date” patents are the grist of tech patent litigation today, including PAE cases in the ITC.

In short, today’s smartphone patent wars are simply “back to the future” when it comes to how disruptive new industries are developed. Every major technological and industrial breakthrough in U.S. history — from the Industrial Revolution to the birth of the automobile and aircraft industries on up to today’s Internet and mobile communications revolutions — has been accompanied by exactly the same surge in patenting, patent trading, and patent litigation that we see today in the smartphone business. This is how the rights to breakthrough new technologies have always been distributed to those best positioned to commercialize them — to the benefit of the whole nation in terms of new jobs, new medical advances, and new products and services.

The types of returns promised to investors and the types of benefits offered to participants are also quite different from garden-variety non-practicing entities, as are some of the tactics used in organizing the entities and in asserting the patents. Finally, the scale itself is simply mind-boggling. Mass aggregators operate on a scale and at a level of sophistication and complexity that would have been unimaginable a decade ago. They have taken the prototype strategies pioneered by a prior generation of non-practicing entities and changed them into some of the cleverest strategies yet seen in the intellectual property rights field.

Acacia has long been considered by many to be the mother of all patent trolls. But are they really a patent troll? The term “patent troll” is one that is nearly impossible to define given the reality that one man’s patent troll is another man’s innovator who just chooses to license. Increasingly, however, the true bad actors in the non-practicing entity community are engaging in what the Federal Circuit has called extortion-like behavior. Is Acacia Research one of those patent trolls that engages in mafioso tactics, or are they a godsend to inventors and small businesses who otherwise couldn’t monetize their patent portfolios?

So here we are, many years later and IV’s philosophy seems to have changed. No longer is litigation a poor way to monetize patents, but rather IV sees itself as having a responsibility to litigate. The self-righteousness of IV’s claims is why they engender such distrust, even bordering on hatred. For so long they came in peace and now that they have the leverage they seem to be playing a different tune, and using patent litigation with greater frequency. They accumulated patents over time, sometimes getting as much as $50 million from companies like Google, eBay, Sony, Intel, Microsoft, Apple, Nokia and others, ostensibly for the purpose of obtaining a defensive patent position. Oh how the tables have turned.

The question may arise – what if the result of crowdsourcing is less than the proverbial “smoking gun,” can it place the App Developers at a disadvantage in court? Case law indicates that the answer is no. Last year, in a patent litigation brought by Personal Audio LLC, the plaintiff attempted to argue that their patent was valid based on crowdsourced research and to seek discovery on this basis. Personal Audio lost on both counts, with federal Judge Miriam Cedarbaum concluding, “eliminating a negative doesn’t show validity” and commenting on the patent owner’s approach with the statement “that’s what I call desperation.” Transcript of Oral Argument and Decision at 12-13 and 14, Personal Audio LLC v. Sirius XM Radio, Inc. et al, No. M8-85 (S.D.N.Y. Nov. 2, 2010).

The economics of mass patent enforcement have changed. A patent owner will no longer be able to casually sue a multitude of parties with a single filing, participate in proceedings in a single action in a single venue likely convenient only for the plaintiff, and thereby expeditiously pursue a recovery against numerous disparate parties. Actions will have to be filed individually against each accused infringer. The patent owner will have to participate in, contend with and address procedural and substantive aspects of each action.

To me a patent troll is not just someone who has acquired a patent for purpose of licensing or bringing a lawsuit, but rather one who is engaging in some kind of unfair business practice. The telltale sign of a patent troll is one who is abusing the patent right in order to shake down a defendant for payment. This type of behavior is typically exhibited by non-practicing entities who are not innovators, but rather acquire patent rights. However, the act of bringing specious claims to provoke a settlement would, in my opinion, be just as bad if brought by an innovator.

Between 1995 and 2009 the overall median patent litigation damage award was $5.2 million, but between 2002-2009 there was a huge discrepancy between the average damage award for practicing entities versus non-practicing entities. The median award for non-practicing entities was $12.9 million, while the median award for practicing entities lagged far behind at $3.9 million. No wonder there is ever increasing activities by those the Federal Trade Commission refers to as “patent assertion entities,” which seems to be yet another sanitized name for patent troll.

Earlier today Apple, Inc. (NASDAQ: AAPL) poked a finger straight in the chest of alleged patent troll Lodsys, LLC, saying in no unmistakable terms — back off Apple App developers! For several weeks Lodsys has been sending threatening letters to Apple App developers and Apple has had enough and isn’t going to take it any more!

Overall there will be few large paydays for small and mid-size companies against the Fortune 1000, and fewer still for those who do not engage an appropriate strategy and simply rush head first into litigation or licensing negotiations. Notwithstanding, cultivating or acquiring a patent portfolio will allow small and mid-size companies to hold assets that are capable of being leveraged in the event a large corporation comes knocking. Additionally, as the business grows and revenues become available having a patent portfolio can enable small and mid-size companies to pursue litigation against Goliaths, but the odds of prevailing and having critical leverage go up if the plaintiff is a practicing entity. Simply stated, without the threat of a permanent injunction the Goliaths of the corporate world are exceptionally likely to just push you around.

I was surprised about how wrong my own intuition was, which is why I focus on the myths about patent trolls. Just about everything we thought we knew – good or bad – does not appear to be true. The article may not change too many minds about patent trolls. Those who believe NPEs are bad for society won’t care much about where they came from. However, I think that NPEs are a reflection of inventive society — their patents come from all sorts of sources, and how we feel about NPEs should depend on how we feel about the people who invested in the research that create the patents and the role patent law played in innovation.

Article One Partners announced yesterday that patents held by NTP Incorporated are the focus of three new requests for research, which Article One Partners refers to as Patent Studies. NTP was made famous for its litigation against BlackBerry maker Research-in-Motion (RIM) that resulted in a settlement north of $600 million. New litigation by NTP has expanded the assertion of patent infringement to other top players in the mobile and smartphone industry, which is prompting Article One Partners to engage their global community of researchers by challenging them to identify evidence predating the patents in question and which can be used to invalidate one or more of the patent claims owned by NTP.