Posts Tagged: "patent troll"

The story of the invention and development of the sewing machine challenges these two assumptions insofar as it is a story of a patent thicket in an extremely old technology, but, more important, it is a story of the successful resolution of this thicket through a private-ordering mechanism. The Sewing Machine War was not brought to an end by new federal laws, lawsuits by public interest organizations, or new regulations at the Patent Office, but rather by the patent owners exercising their rights of use and disposition in their property. In so doing, they created the Sewing Machine Combination, which successfully coordinated their overlapping property claims until its last patent expired in 1877. Moreover, the Sewing Machine War is a salient case study because this mid- nineteenth-century patent thicket also included many related issues that are often intertwined today with concerns about modern patent thickets, such as a non- practicing entity (i.e., a “patent troll”) suing infringers after his demands for royalty payments were rejected, massive litigation between multiple parties and in multiple venues, costly prior art searches, and even a hard-fought priority battle over who was the first inventor of the lockstitch.

Mr. Kessler believes that Mr. Madison did not understand what he was doing or, at best, did not foresee the expense that patent litigation would involve in the 21st century. In fact, the founding fathers knew exactly what they were doing when writing the intellectual property clause into the U.S. Constitution. They were protecting the individual from the overwhelming power of large entities. They were enacting the very principles of American society for which we fought the Revolutionary War. Since 1790 the U.S. patent system has contributed to America becoming the most innovative society in the history of the world. Fundamentally changing the system in the ways suggested by Mr. Kessler would stifle that innovation.

Attendees agreed that it’s critical for companies to gain greater leverage to deter nuisance lawsuits and manage costs by reducing the cost of litigation defense. According to those surveyed this is accomplished, at least in part, through the use of joint defense groups (JDGs), where parties engage in shared co-counsel to reduce defense costs. JDGs have been used in approximately two-thirds of all NPE cases, and three-quarters of those surveyed reported working in some capacity with JDGs.

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 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.

It was also determined that the underlying patent litigation was brought for no other reason than to extract nuisance payments despite the fact that there was no infringement. Specifically, the district court determined that Eon-Net filed the lawsuit against Flagstar had “indicia of extortion” because it was part of Eon-Net’s history of filing nearly identical patent infringement complaints against a plethora of diverse defendants, where Eon-Net followed each filing with a demand for a quick settlement at a price far lower than the cost to defend the litigation.

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.

The mutually assured destruction approach to patenting can explain in part why large companies continue to patent at the rate they do, but the justification completely misses the point that these large tech giants were not always large. They were, at one time, rather small companies that pursued an aggressive agenda of innovation. A big part of that innovation strategy included obtaining protection for said innovation, largely in the form of acquiring patents. That undeniable truth makes it hard not to question whether the tech giants that lament the failings of the patent system and want to limit or abolish it are simply engaging in good old-fashioned protectionism.

On Thursday, July 21, 2011, attorneys for Lodsys LLC, who is rapidly becoming a reviled patent troll, filed an amended complaint in the United States Federal District Court for the Eastern District of Texas. As a result of this amended complaint some big names in the gaming world have been brought into the ongoing patent litigation battles being waged by Lodsys, who has already suing a number of Apple App developers and others such as Best Buy and the New York Times, see here and here. More specifically, as a result of the filing of this latest complaint Lodsys has brought patent infringement charges against Atari Interactive, Inc. and Electronic Arts, Inc. (NASDAQ:ERTS), among others. But in the mind of the general public the highest profile defendant to date is no doubt Rovio Mobile Ltd., the maker of the extraordinarily popular game Angry Birds, which is available for iPhone, iPad and Android, among other platforms.