A $29 Billion US Troll-Tax or Just Another Statistical Smokescreen?

In the past few days, there has been a disproportionate level of attention given to a somewhat academic study of the costs imposed upon the US economy by purported patent ‘trolls’, or 'non-practicing entities' (NPEs).

The study, conducted by Boston University law researchers James Besson and Michael Meurer, is entitled The Direct Costs from NPE Disputes, and a working draft is available from SSRN.

As it has been presented in the technology media (see, e.g., US patent trolling costs $29b: study and Patent trolling cost the US $29 BILLION in 2011), the study shows that patent trolls impose a huge burden on innovation, and that this is further proof of our ‘broken’ patent system.  This is great headline fodder (or click bait), but does it really add up?

Reading the full paper by Besson and Meurer raises, for us at least, a number of issues, concerns and questions which are (unsurprisingly) absent from the bulk of the media coverage.  Here are just a few…

1. If it is indeed true that patent trolls exact a $29 billion ‘tax’ on the US economy, then this is certainly cause for alarm.  But does this figure really pass the ‘smell test’, or is it just too implausible to take seriously?  If it is wrong, then this study is adding to the hysteria around purported problems with the patent system without due cause.  When the figures in the study are stacked up against the total number of technology companies operating in the US, and the total R&D expenditure, it is frankly difficult to believe that the results are a true reflection of reality.
2. The raw data for the study comes from RPX Corporation, a ‘patent aggregator’ which offers ‘defensive buying, acquisition syndication, patent intelligence and advisory services’.  Basically, RPX acquires patents (just like a ‘troll’), but with the stated intent of using them to remove trolls from the market, and to assist the victims of trolls.  Companies pay to become RPX ‘members’ for not-insubstantial fees.  The survey data used in the study is from RPX clients, or other associated firms, and the broader litigation data is from RPX’s own database, selected and compiled according to its own criteria.  While the study’s authors are keen to point out that RPX had no say in how they used the data, or presented their research, they are nonetheless completely dependent on information that is unlikely to be free from selection bias.
3. There is no differentiation in the study (because there is no differentiation in RPX’s data) between different kinds of NPE.  RPX uses the term to encompass patent assertion entities (i.e. organisations whose primary business model is to acquire and assert patents in order to obtain settlement and license fees) as well as individual inventors, universities, and non-competing entities (i.e. operating companies asserting patents well outside the area in which they make products and compete).  Not all of these entities are patent ‘trolls’.  Indeed, it may be that the true ‘trolls’, i.e. those entities which make absolutely no contribution to innovation within the economy, are in a minority.
4. The statistical methods employed in the study are opaque, and lacking in any sensible or meaningful assessment of error or confidence.  For all we can determine from the published data, the number ‘$29 billion’ could mean ‘anywhere between $100 million and $100 billion’.  Or it could mean something else entirely.  People who perform these kinds of analyses need to start to understand a simple fact: if you cannot establish the ‘error bars’ on your results, they are meaningless to a statistically-informed reader, and worse than meaningless to the lay person, who may treat them as accurate and precise.

Undefended Appeal from Opposition Decision a Fait Accompli

Scott v Icon Plastics Pty Ltd [2012] FCA 428 (27 April 2012)

Patent Opposition - Appeal to the Federal Court of Australia - outcome when neither the original opponent nor the Commissioner of Patents appears and no evidence before the court

We reported back in November 2011 on the success of Icon Plastics Pty Ltd in opposing the grant of a patent to Laurence Clifford Scott, on the basis that Scott was not entitled to the patent, because he was neither the inventor nor a legitimate assignee of the inventor. According to Icon, the invention disclosed and claimed in the application was actually devised by Icon General Manager Royston Douglas Bull (‘Bull’), had been misappropriated by Scott, and wrongfully made the subject of the application in Scott’s name.  (See ‘Stolen’ Invention Restored to Rightful Owner.)

Scott appealed the opposition decision to the Federal Court.  However, Icon Plastics declined to participate in the court proceedings, agreeing to submit to the court’s judgement (except with respect to any award of costs).

As in similar previous cases, the court was unable to uphold any ground of opposition in the absence of any relevant evidence having actually been adduced during the proceedings.

Therefore the appeal has been allowed, and the patent has proceeded to grant in Scott’s name.

Who’s Upset With the Patent System?

If you read articles and opinions from various online sources, or take notice of some of the recent coverage of patent-related topics in the mainstream media, you might think that criticism of the patent system is rife in the community.  However, this is almost certainly not the case!

There is a strong selection bias in the main sources of news and commentary about patents.  In part, this is because there will always be a certain level of public curiosity about any kind of legal dispute involving household names such as Apple, Samsung, Microsoft, Google, Motorola and Nokia.  And because these are all ‘tech’ companies, much of that curiosity is served by the technology media, with contributions by individuals and groups with a particular interest in the relevant technologies.  By its very nature, much of this discourse takes place online, where it is channelled via social media and other mechanisms directly to those with similar interests.

On the Internet, it is all too easy for any of us to become so caught up in our own little microcosm of views, interests and opinions that we lose sight of the wider picture.  Nobody should be surprised that, for example, the Whirlpool forums are full of people with opinions about whether or not Apple should be awarded an injunction against Samsung’s products – or vice versa.  But if you were to go out onto the streets and start asking randomly-selected people for their views on the subject, many would not even be aware that it is an ongoing issue.  Very little of the online coverage of the ‘smartphone wars’ is making it into the print or broadcast media, where it might be encountered by people who do not have an existing particular interest.

Imagining a ‘World Without Patents’…

It is actually not that easy to imagine a world without patents.  At least, not if you really try.  If you are the kind of person who is generally opposed to patents, or who thinks that the patent system is fundamentally ‘broken’, you might suppose that you can easily imagine a world without patents.  And you might imagine it as some kind of utopia: no software patents, no ‘business method’ patents, no gene patents, no patent trolls, no ‘FRAND abuse’, no Apple v Samsung v Oracle v Google v Motorola v Microsoft v HTC v …

But this is not really imagining a world without patents.  This is just a world without some of the messier consequences of patents.  If you really want to imagine a world without patents – or, indeed, any other form of intellectual property rights – you have to try to imagine all of the other consequences of this hypothetical scenario.

First you need to ask yourself, what kind of scenario are you actually trying to imagine?  Do you want to visualise what the world might have been like if there never were patents?  Or do you want to imagine what would happen if all patents were to be abolished overnight?  The second scenario is more practical, in the sense that it is at least theoretically possible (although astronomically unlikely).  However, the first is more interesting, in the sense that it encourages one to imagine completely different models for innovation and technological advancement which may have developed in the absence of patents.

Australian Patent Office Discretion in Opposition Proceedings

Alcon Research, Ltd v Sylentis S.A.U. [2012] APO 55 (29 May 2012)
BHP Billiton Worsley Alumina Pty Ltd v Alcoa of Australia Limited [2012] APO 60 (13 June 2012)
Gallus Ferd, Ruesch AG v Strork Prints B.V. [2012] APO 46 (2 May 2012)
Neste Oil Oyj v BP International Limited [2012] APO 20 (1 February 2012)
BP International Limited v Neste Oil Oyj [2012] APO 40 (28 March 2012)

Patent Office practice and procedure – Regulation 5.10 – extensions of time and other conduct of opposition proceedings – exercise of discretion – satisfactory explanations – significance of evidence and public interest in oppositions being considered on merit

Regulation 5.10 of the Australian Patents Regulations 1991 gives wide-ranging discretionary powers to the Patent Office for directing the conduct of opposition proceedings.  In particular, the regulations provide for time limits – such as those applying to the service of evidence – to be extended, and for parties to apply to serve additional evidence in appropriate circumstances.

A number of recent decisions by delegates of the Commissioner or Patents highlight the factors which the Office will currently take into account when deciding whether or not to exercise discretion in favour of a party to an opposition.  The major considerations are:

1. whether the party requesting the exercise of discretion, e.g. to extend a time period, or to allow service of further evidence, has provided an adequate explanation of its reasons for requiring the indulgence; and
2. whether there is a probability that the exercise of the discretion as requested will have a significant impact on the outcome of the opposition.

It is not necessary that the party provide a ‘full and frank’ disclosure of all of the circumstances leading to the requirement for the exercise of discretion.  Nor is it necessary to establish any particular likelihood that the exercise would be determinative of the outcome of the opposition.

Nonetheless, any party seeking a favourable hearing from the Patent Office in an application relating to the conduct of opposition proceedings would be well-advised to make sure they have both of the above points well covered.  This advice is illustrated by the following recent examples.

Generic ABILIFY (Aripiprazole) Ban to be Reviewed

Generic Health Pty Ltd v Otsuka Pharmaceutical Co Ltd [2012] FCA 412 (23 April 2012)

Practice and procedure – interlocutory injunction – whether application for leave to appeal should be referred to a Full Court

Generic Health Pty Ltd will have the opportunity to appeal the decision of a single judge of the Federal Court of Australia granting a preliminary injunction preventing it from launching a generic version of the antipsychotic drug ABILIFY (see Australian Federal Court Blocks Generic ABILIFY (Aripiprazole)).

In general, any decision of a single judge of the Federal Court can be challenged by appeal to the Full Court – a panel of three judges.  In the case of a final ruling, i.e. after a full trial, any party to the proceedings automatically has the right to appeal.  However, a Full Court review of a preliminary judgement requires permission, i.e. ‘leave’ to appeal.

As a result, appealing a preliminary injunction is generally a two-step process – first the appellant must obtain leave to take the matter to a Full Bench of the court and then, if leave is granted, it is still necessary for the appeal proper to be heard.

In this case, Justice Katzmann has granted a request by Generic Health for its application for leave to be heard by a Full Bench of the court, and for the appeal itself to be heard either simultaneously, or immediately following the leave hearing.  Regular readers of this blog may recall that Justice Foster made a similar ruling in favour of Samsung last year (see Samsung Over First Hurdle in Bid To Overturn Apple Injunction).

Samsung Seeks Technical Knock-Out of Apple Patents

Samsung has filed an application with the Federal Court of Australia, under the Administrative Decisions (Judicial Review) Act 1977, for a review of decisions by the Australian Patent Office to grant four of the patents currently being asserted against it by Apple in the ongoing Australian litigation.

The application, and details the patents in question, have been reported in the past days by both iTnews and ZDNet.

If Samsung’s application is successful, it could see the four patents, all of which relate to touch-screen functionality (including the famous ‘slide-to-unlock’ patent), declared null and void by the Federal Court.

In our opinion, however, Samsung’s prospects of success are at best even, and probably somewhat less than that.  There are, as we shall explain, a number of hurdles which Samsung must leap in order to prevail, and should it fall at any one of them then its whole case will fail.

‘Professional’ Provisionals – Now More Important Than Ever

Anybody filing a provisional patent application now, and waiting the full 12 months before filing complete (non-provisional) applications in Australia and/or the United States, may be subject to revised patent laws in both countries.

Most of the substantive provisions of the Australian Raising the Bar Act commence on 15 April 2013, while the new ‘first-inventor-to-file’ provisions on the America Invents Act commence on 13 March 2013.  Both reforms have potentially significant impact on applications filed after these dates, even if these claim the benefit of provisional applications filed prior to commencement of the amendments.

In particular, as a result of the reforms, even though they have not yet fully commenced, it is now effectively imperative that any priority document, including a provisional application, provide full support for the invention as it is ultimately claimed in the complete, non-provisional, application.
‘…any provisional application filed now, and forming the basis for a complete application filed in 12 months time, will be completely worthless for priority purposes in Australia and the US unless it supports the invention across the full scope of the ultimate claims…’
The notion that a provisional application can provide a lower standard of disclosure, without prejudice to the applicant, was never really true.  But is is now more crucial than ever that this myth be dispelled.

There are a number of people ‘out there’ – principally serial inventors, inventor advocates and invention promotion companies – who are keen to tell you (often for a price) that you do not need a patent attorney to assist in the preparation and filing of a provisional patent application.  This, they say, is something any inventor can do for themselves, in order to obtain ‘meaningful’ protection for an invention at a low initial cost.

Sorry, but this is simply not true.  If you do not really know what you are doing, your provisional application may be worthless.  Indeed, it may be worse than worthless, if it provides you with a false sense of security that your invention is protected.

No doubt cynical readers will be thinking that this is exactly what you would expect a self-serving patent attorney to say.  Maybe so.  But after reading this article we hope you will at least be in a position to make an informed decision.

‘Gene Patents’: Lies, Damn Lies, and Statistics

The adage that ‘there are three kinds of lies: lies, damned lies, and statistics’ has been variously attributed, most famously by Mark Twain to 19th-century British Prime Minister Benjamin Disraeli.  However, it is not very important who said it first, or why, more than 100 years ago.  Its continuing currency stems from the underlying truth that any argument, no matter how weak, can be bolstered by an array of suitably impressive numbers. 

Unless you are a statistician, qualified by years of study and experience to assess the validity of the empirical and mathematical processes used to obtain the numbers, it is healthy to take your statistics with a good dose of scepticism.  After all, over 99.9% of statistics are made up on the spot!

However, the level of scepticism not only varies from person-to-person, but also depends upon the topic at hand.  The persuasive power of statistics among non-experts is clearly influenced by confirmation bias – the tendency to favour information that supports a person’s pre-existing beliefs.

It is perhaps no coincidence that the ‘damned lies’ adage is commonly attributed to a politician.  Of all people, politicians are perhaps the most adept at quoting facts and figures to support their positions, while denouncing those of their rivals as unfounded, inaccurate, or based upon dubious research. 

A couple of weeks ago we wrote about a new push by political opponents of so-called ‘gene patents’ to introduce legislation in the Australian parliament to ban the patenting of genetic materials, including human genes (see Gene Patent Opponents Take the Fight Back to Australian Parliament).  An argument in favour of such a ban runs along the following lines:

1. every person is made up of 23,000 genes;
2. they determine everything about you, including your susceptibility to disease;
3. 4,000 of these genes have been patented by organisations hoping to profit through exclusive research on them;
4. this means each gene is effectively owned by the patent holder;
5. if you can just get a patent for just discovering the presence of a gene, then you really block everyone else from being able to work on that gene;
6. corporations can take out patents over human genes and thereby monopolise those genes;
7. if an organisation can monopolise a gene, that means the world's scientists can't collaborate and swap their results; and
8. this could potentially delay a cure for cancer or the invention of a vaccine.

Every one of the above statements is copied directly from either the Lateline report, or the subsequent interview with anti-gene-patent proponents Senator Bill Heffernan and Mellissa Parke MP.  It all seems quite reasonable, except for the fact that most of these statements fall into one of the three categories of lies.

Apple Not ‘The Developer for the World’ Says Hypocritical Cook

As presented in Walter Isaacson’s biography, it seems that Steve Jobs did not require a rational justification to ‘go thermonuclear war’ against Google and Android.  As we wrote back in October last year, Jobs was willing to ‘spend my last dying breath if I need to, and I will spend every penny of Apple's $40 billion in the bank, to right this wrong.’  To him, the battle over smartphone technology was not about business or money.  Isaacson reports Jobs telling former Google CEO Eric Schmidt, ‘I don't want your money. If you offer me $5 billion, I won't want it. I've got plenty of money. I want you to stop using our ideas in Android, that's all I want.’

Jobs had built Apple into the world’s biggest tech company, and so he could really do no wrong in the eye’s of Apple shareholders and aficionados.  But the fact is that starting a global thermonuclear war, or spending every cent of the company’s money in pursuit of a principle, is not good business.  That path leads ultimately to shareholder revolt!

Jobs’ successor, Tim Cook, has therefore inherited a potential ticking time-bomb.  Apple had some early wins in the patent disputes which it started, but as the various court proceedings drag out over months – and those months will become years, unless there is a settlement – the company is finding itself increasingly mired in suits, countersuits, side issues and appeals.

It should therefore some as no surprise that Cook is trying to recast the battle as one which has a rational business foundation, and in which Apple is on the side of goodness and light.  The cost and distraction of all these law suits must now be justified to observers and shareholders as something more than the result of one person’s outrage.

So, when questioned about the ongoing IP disputes, Cook has taken to responding that, while he would prefer to settle, Apple will not be the world’s developer.  At Apple’s quarterly conference call on 24 April 2012 (as reported by CNET) Cook said ‘I would highly prefer to settle than to battle.  But it’s important that Apple not become the developer for the world. We need people to invent their own stuff.’