30 June 2013

A ‘Patent Troll’ Down-Under? Why Vringo Has Sued ZTE Australia

“It is a truth universally acknowledged, that a patent troll in possession of a good portfolio must be in want of a victim.”
– Jane Austen, Pride and Prejudice and Patent Trolls

Troll attacks AustraliaI am on the record, on this blog and elsewhere, as being of the opinion that Australia is not a jurisdiction in which the ‘patent troll’ business model can work effectively.  I have expressed the view, in particular, that the US litigation system, and related patent laws, make that country an almost uniquely happy hunting ground for patent trolls.

So, you might expect that I would have been surprised to learn that US-based non-practising entity (NPE) Vringo Infrastructure Inc has commenced patent infringement proceedings in the Federal Court of Australia against the local subsidiary of Chinese telecommunications equipment manufacturer ZTE Corporation.

I confess I was a little surprised, until I remembered who Vringo is, and where I had seen the company’s name before, and realised that this lawsuit is not typical ‘troll’ activity, but is more likely part of a global patent licensing strategy conducted at least partly for the benefit of the very much practising entity, Nokia.

As I shall explain further, I do not consider Vringo to be a patent troll – at least not when it comes to the patents at issue in the dispute with ZTE.  However, I have to acknowledge that a number of online media outlets have used the ‘t-word’ in relation to Vringo, e.g. smartcompany.com.au and itwire.com (and again, here).

‘Patent Trolls’ – What’s in a Name?

The problem is that there is no established definition of a ‘patent troll’.  We could not even say that we all know one when we see it, because different people look at the same activity and see different things.  For some, any entity which asserts patents, however it came to be in possession of them, but which does not actually compete in the marketplace with its own products and services, qualifies for the epithet ‘troll’.  Thus, for people such as Ars Technica’s Joe Mullin, even a scientific research organisation such as Australia’s CSIRO is not entitled to monetise the results of its investment unless it has an active presence in the market for WiFi-enabled products.

For others, an organisation (such as CSIRO or ARM) which invests in R&D, and then commercialises its outcomes through IP licensing is a legitimate player, while an entity which acquires patents without generating any innovation of its own is merely a ‘troll’.  But even at this level, not all NPEs are created equal. 

In my view, we need to engage in a more nuanced conversation about NPE business models, because at one end of the spectrum the ‘troll problem’ is very real, at least in the US.  However, if we lack the ability to identify the problem with specificity, we will also lack the ability to address it effectively.

I now have personal experience with at least three different NPE models, on both sides of the fence.  One of Watermark’s clients is a well-known international ‘non-practising’ technology developer and IP licensor.  Another client is a licensee dealing with a number of patent pool operating companies.  And, most recently, I have worked with a client which was the target of an honest-to-goodness, American-as-apple-pie, patent troll (by anybody’s definition of the term).  Obviously I cannot provide any specifics of my work with these clients, however you can rest assured that my views on the patent troll issue are significantly informed by my experiences.

All Trolls are NPEs, But Not All NPEs are Trolls…

In 2011, Frauke Rüther gave a presentation at the Intellectual Property Research Institute of Australia (IPRIA) on her doctoral research into the operations of ‘patent aggregating companies’ (another of the many terms used to describe various NPEs).  Her dissertation is now available to purchase as an e-book (although, being an academic document, I imagine that some diligent searching might turn up a free copy somewhere).

Dr Rüther (as she is now) identifies eight different categories of NPE, distinguished by their reasons for aggregating patents, and the manner in which they deploy their portfolios.  Four types acquire patents to generate revenues by exploiting the patents:
  1. Patent acquisition funds, which aggregate patents to generate revenues from every possible type of patent exploitation (e.g. exclusive and non-exclusive licensing, resale, defensive ‘memberships’).  The best-known entity in this category is Intellectual Ventures (IV).
  2. Patent enforcement funds, which aggregate patents to generate revenues from a ‘stick’ licensing approach.  The best-known example of an enforcement fund is Acacia Research Group.  This is the category most likely to be identified with troll-like behaviour.
  3. Patent incubating funds, which aggregate patents to exploit the underlying technology and to generate revenues from a ‘carrot’ licensing approach.  This generally involves conducting or funding additional R&D, and/or partnering with prospective licensees to commercialise new technologies.  IgniteIP is one example of this type of entity.
  4. Patent trading funds, which aggregate patents to generate revenues from acquiring patents, bundling them to new portfolios, and selling (or licensing) these bundles at a higher price.  A 2008 blog post by IAM Magazine’s Joff Wild identified five such funds in Germany alone, although the fact that I cannot now find any information on these suggests that his scepticism about the viability of this business model may have been justified.
A further four types of aggregation company acquire patents to serve their members, their customers or society, and their objective may not be wholly commercial:
  1. Defensive patent funds, which aggregate patents to provide attached producing companies an insurance against patent litigation lawsuits initiated from other NPEs.  One prominent example in this category is RPX Corporation, which (in)famously provided the biased data sample which formed the basis for Bessen and Meurer’s ‘$29 billion troll-tax’ study.
  2. Non-commercial patent funds, which aggregate patents to neutralise licensing issues and make the patents available for a broad range of users.  An example in this category is the Eco-Patent Commons.
  3. Patent pools, which aggregate patent rights which are collectively required to implement particular technologies (often standardised, such as video codecs, mobile communications or optical discs) to avoid problems arising from patent thickets.  The best-known patent pool operator is perhaps MPEG LA.
  4. Patent securitisation funds, which aggregate patents as security for capital which they provide to patent owners.  For example, some investment funds, such as Paul Capital Healthcare, will invest in a company in exchange for all, or part, of the future royalties resulting from its intellectual property.
All of the above are NPEs, but not all are patent trolls.  Indeed, many of these business models do not involve litigation at all.

Furthermore, some of the most prominent trolls of recent times barely qualify for any of the above classifications.  For example, Project Paperless, LLC, which has gained notoriety by demanding royalties of US$1000 per employee from companies using network scanners, appears to be a shell company, owned by another layer of limited liability companies, which exists for the sole purpose of enforcing a handful of patents originally obtained by inventor Laurence C Klein and Imagination Software.  There is no ‘patent aggregation’ here – this is a single-purpose company, and that purpose is shakedown!

Patent Abuse vs Litigation Abuse

It is often said that patent trolls abuse the ‘patent system’.  For the layperson this might seem like a reasonable statement.  However, for those of us intimately involved with the process, there is no such thing as ‘the patent system’.

In fact, there are numerous patent systems.  Each country (or, in some cases, region) has its own patent system.  There is also an international system of treaties and agreements that ties all of these individual national and regional systems together, without actually creating any great level of harmony!  A ‘patent system’, in this sense, is a collection of processes and procedures for filing, examination, registration and maintenance of patents.  It is largely administrative in nature, and it is overseen by organisations such as IP Australia, the US Patent and Trademark Office (USPTO), and the European Patent Office (EPO), among dozens of others.

Patent systems are therefore concerned with how patents are ‘made’.  How they are used once they are registered is as much a matter for the courts and general litigation rules in each country as it is a matter of the substantive patent law.  For the most part, the administrative bodies responsible for granting patents play no part in any subsequent enforcement.

In this sense, then, the ‘patent system’ is exactly the same for inventors, practising corporations, NPEs and trolls.  Patent trolls, in particular, as well as most aggregators, have little to do with the ‘system’, because they rarely acquire the patents until long after they have been granted.

In my view, patent trolls do not abuse patent systems as such.  Rather, they abuse litigation processes.  Patent laws enter the picture insofar as variations in the scope and strength of rights conferred in each country influence the power patent-holders have to use and abuse litigation to achieve their commercial ends.

The commercial objective of a patent troll is simply to make money.  The troll model generally involves demanding a once-off, up-front lump sum licence fee in exchange for a non-exclusive licence to use the patented technology for the life of the patent.  The troll does not care what happens to its victim one the ‘highly-confidential’ licence agreement is signed, and the money paid.  The troll does not care what becomes of the patent once all of the potential licensees have been shaken down.  The troll does not wish to be bothered with ongoing royalty payments, or the continued success (or otherwise) of the licensee’s business – that would only involve more work monitoring and auditing its licensees, which would just be an expense coming straight off the bottom line!

If there are no other certain signs, here is how you can tell you are dealing with a troll:

If the party asserting the patent has no interest in discussing the actual value of the allegedly infringing products or services; if it has no interest in evaluating the contribution actually made by the patented technology to the commercial success of the products or services; if it is not interested in talking about net profits, but only about gross revenues; and (here’s the clincher) if talk rapidly turns to how much the litigation will cost, rather than how much the patent is actually worth, then you are dealing with a troll!

And right there is where the litigation abuse lies.  This is not a licensing negotiation, this is extortion.  The troll is basically saying that the strength of the infringement case is irrelevant, the validity of the patent is irrelevant, and even the profit margin and contribution made to actual product sales is irrelevant.  All that matters is (a) how much you can afford to pay, based on your revenues, and (b) that if you do not pay you will be dragged into expensive litigation that you may not be able to afford.

Australia is not a Troll’s Playground

Legitimate NPEs can, and do, operate successfully in Australia.  There are numerous companies offering products and services based on patent licences acquired from universities, the CSIRO, and aggregators such as patent pools.  Such licences typically generate ongoing revenue streams from royalties paid in relation to actual products or services sold by the licensees. 

The licensors therefore have an ongoing interest in the success of the licensees, and in negotiating licence agreements that are fair, reasonable and workable in all of the circumstances.  Even so, if the licensors needed to use the court system to enforce their rights, they could do so.  There would be costs involved, of course, but these would need to be weighed up on a commercial basis against the future income from a successful licence agreement.

But the Australian system does not support the troll’s business model.  Remember, the troll wants to extract a one-off payment – typically on the order of a few tens of thousands of dollars – and then move on.  In the US, the troll faces very little risk in pursuing this model.  Its US patent is presumed valid, and can only be invalidated by ‘clear and convincing’ evidence.  Furthermore, in the US court system each party to a dispute is normally required to bear its own costs.  Even if the troll loses, it will only be liable for its own legal costs (which may be very low if its lawyers are in-house, or working on a contingency basis).  The victim, on the other hand, is up for the full costs of mounting its defence, against a presumed-valid patent, and in front of an inherently unpredictable jury, whether it wins or loses.

The Australian system is completely different.  Here is what the troll faces:
  1. the competent court for all patent infringement matters is the Federal Court of Australia – a court in which many of the judges have patent law expertise comparable to the judges of the US Court of Appeals for the Federal Circuit, and in which many patent claims have been found invalid over the years;
  2. under section 6 of the Civil Dispute Resolution Act 2011, an applicant to the Federal Court must file a ‘genuine steps’ statement, setting out ‘the steps that have been taken to try to resolve the issues in dispute between the applicant and the respondent in the proceedings’ – noting that the court will take non-compliance into account when exercising its case management powers, and also in exercising its discretion as to costs;
  3. the typical cost for commencing proceedings in the Federal Court, including court and attorney fees, is in the range of A$10,000-A$20,000;
  4. the court will quickly set a date for a first ‘directions hearing’, typically within four to eight weeks of filing of the application, at which both parties will be required to appear, and where the judge will set down a timetable for at least the initial steps in the proceedings;
  5. it is almost invariably the case in Australia that costs (i.e. attorney fees) will be awarded against a losing party – for this reason, a company without a genuine and substantial Australian trading presence will usually be required to post security for costs at an early stage in the proceedings (i.e. pay a bond or obtain a bank guarantee to cover costs in the event of a loss), typically being an amount in the hundreds of thousands of dollars or more for a patent infringement action;
  6. there is absolutely no prospect that an NPE will obtain a preliminary injunction – as the law currently stands, even a trading company (such as Apple) cannot obtain an initial injunction against a direct competitor (such as Samsung) except in extraordinary circumstances;
  7. the Federal Court of Australia is very enthusiastic about alternative dispute resolution, and in particular is likely to strongly encourage the parties in a dispute over patent licensing to resolve their differences through formal mediation;
  8. if the matter proceeds to trial, and the alleged infringer challenges the validity of the patent, there is no ‘presumption of validity’ – the court will review evidence of invalidity afresh, and make a decision on the usual civil standard of ‘balance of probabilities’ without deference to the work done by the patent examiner; and
  9. finally, even if the troll wins it has no realistic prospect of receiving an inflated damages payout – the judge will look at the respondent’s evidence of the real commercial value of the patented technology, and determine a reasonable royalty rate on this basis.
The costs awarded to a winning troll are likely to be only 50-70% of its actual costs of running the litigation, leaving it tens, or even hundreds, of thousands of dollars out of pocket – far more than the typical payout expected from a small-to-medium sized target company under the typical troll business model.  It is unlikely that a troll could or would represent itself in an Australian Federal Court action, and unlikely that any experienced patent litigators in Australia would act for a troll on a contingency basis.  My own experience is that litigation funding agencies in Australia will not touch intellectual property cases, because the risks are too high, and the liability too difficult to quantify.

Thus, whereas a troll faces almost zero risk in pursuing its business model in the US, it faces a comparatively high risk in Australia.  Once projected returns have been discounted to account for the risk, I do not believe that the business model stacks up.  Even if a business case could be built, it would be so much less lucrative, and more risky, than operating in the US that no rational businessperson would bother pursuing a trolling venture in Australia.

So What is Vringo Doing Here?

As I said at the outset, I do not believe that Vringo is a patent troll.  Here is what I know about the background and the dispute with ZTE:
  1. in August 2012, Vringo acquired a portfolio of patents from Nokia for US$22 million dollars up-front, in addition to which Nokia receives a worldwide licence to use the patented technologies in its own products, plus 35% of any royalties received by Vringo above the US$22 million purchase price;
  2. in October 2012, Vringo filed a lawsuit against ZTE in the UK, alleging infringement of three European patents from the portfolio it acquired from Nokia;
  3. in Australia, Vringo owns just seven patents, all of which were acquired from Nokia in last year’s deal (for the record, these are Australian patent nos. 2005268547, 2005212893, 2004309946, 773182, 755890, 716158 and 696034); and
  4. the two Australian patents asserted by Vringo are AU2005212893 ‘Method and computer program for controlling radio resources, user equipment, radio network controller, and base station’ and AU773182 ‘Synchronization method and apparatus’;
While Nokia was once a leading handset manufacturer, it is fair to say that it has not performed well in the smartphone market.  The company has been looking to turn its fortunes around by monetising its considerable IP portfolio, and it appears that ‘patent privateers’ such as Vringo and Sisvel (which acquired 450 patents from Nokia in January 2012) form part of Nokia’s strategy.

In essence, Nokia wants to licence its patents, many of which are essential to the implementation of wireless communications standards, but does not wish to manage extensive licensing programs in-house.  Instead, it is effectively ‘outsourcing’ the licensing programs to companies, like Sisvel and Vringo, which specialise in this area.

And even though Vringo now owns the ex-Nokia patents, under its agreement with Nokia it is not acting solely on its own behalf.  Once it has earned more than US$22 million in global royalty income from the portfolio, Nokia will share in 35 cents of every additional dollar earned.  I dare say, in fact, that the agreement would impose obligations and performance targets on Vringo, possibly with an option for Nokia to re-acquire the patents if those targets are not met.

Conclusion – Still No Australian Patent Trolls

Vringo is not a patent troll.  It is probably best viewed as a ‘patent acquisition fund’ which, in the case of the former Nokia patents it is asserting against ZTE in Australia and the UK, has taken on the role of licensing the patents on behalf of itself and Nokia.

These are not patents of dubious origin or applicability to ZTE’s products.  They are patents relating to mobile communications systems, which were developed by Nokia as an active participant in the market for infrastructure and mobile devices – i.e. the market in which ZTE now competes globally against Nokia and others.

It is clear that Vringo is not looking merely to extract a toll from ZTE and move on.  The litigation, now on foot in two countries, is no doubt part of a global licensing strategy.  In this context, it does not matter whether the Australian proceedings are ‘profitable’ in their own right.  When (or if) ZTE signs on to a licence, it will be on a worldwide basis, not just for Australia.  Such a licence will produce ongoing royalties for the life of the patents in the global portfolio, and/or the life of the products covered by those patents.

Incidentally, the first directions hearing in the proceedings between Vringo and ZTE is set down for 22 July 2013.  It will be interesting to see what orders emerge from that hearing, which will provide a first indication of how the case may pan out.

15 comments:

arachne said...

I see 'patent trolls' as a subset of a bigger phenomenon - asymmetrical patent warfare. The other end of the asymmetrical warfare spectrum is multi-national companies crushing the tiny nascent competitor with patents. Proxy patent warfare is also another variant. The relative stability of symmetrical patent warfare (with its promise of 'mutually assured destruction') is being unsettled by the asymmetrical warfare model.

Our laws seem reasonably fair with respect to the process of patent warfare. However, a bigger problem seems to be the incentive for patent warfare in the first place. Long patent terms create rich spoils and devastating weapons that are disproportionate to and decoupled from the process of invention.

Focusing on whether an infringement action is brought or threatened by a 'patent troll' or a 'genuine patentee' is pointless - it is not, nor should it be, a relevant consideration. The patent trolls and the other asymmetrical warfarers are merely highlighting the deeper problems within the patent system.

Mark Summerfield said...

Of course it matters whether infringement actions are brought (or, more often, threatened) by trolls. As I have endeavoured to explain here, in a post which took me hours to research and write, on top of my direct experience in dealing with different types of actors within the systems of patent procurement and exploitation, the problem with trolls is the way in which they decouple the rents they seek from any justifiable measure of the value of the patents they hold.

To a troll it does not much matter whether the patent is valid, or whether the accused product is actually covered by the claims. It is sufficient that there be doubt because, under the US system at least, the alleged infringer bears almost all of the risk. Under the Australian system (and most, if not all, other national patent litigation systems) the risk is far more evenly apportioned.

Incidentally, I am not a big fan of 'warfare' analogies. I have never experienced an actual war, and I hope that I never have to. However, I am pretty sure that getting involved in an intellectual property dispute does not really compare. Because that I have experienced, and the great thing about it is that, at the end of each day, everybody gets to go home and sleep in their own beds. Oh, and nobody actually dies. There are also plenty of cut-throat commercial practices that have nothing to do with IP, so it is important to keep things in perspective.

Steph Kennedy, IPTT said...

I said the same thing re: "What's in a name?" - http://info.articleonepartners.com/whats-in-a-name-fun-with-synonyms/

"If there are no other certain signs, here is how you can tell you are dealing with a troll:"

That subsequent paragraph should be required memorization for all defenders of the patent system. The problem with trolls by ANY name is that it's behavior-driven. The name isn't the determiner, the action is:http://iptrolltracker2.wordpress.com/2013/06/24/somethings-fishy-here-must-be-the-red-herring/



The loser pays and lack of presumption of validity would help stem the tide in the US, no doubt. We've got a few lawmakers pinging on the first one, not sure about the second though there are those who want all patent cases reviewed by our esteemd (ahem) USPTO first. We have the IPR (inter partes review) going for us in the America Invents Act, but I'm not sure where the presumption lies.


I really do hope y'all down under can keep the "business", and I do use the term loosely, of trolls at bay. We're cleaning up a heck of mess on the other side of the world!


Just sayin',


Steph Kennedy, IPTT
http://iptrolltracker2.wordpress.com

arachne said...

But there will never be a universally accepted definition of a patent troll. For example, Intellectual Ventures will always a patent troll to some. If patent trolls are forced to only seek 'justifiable measures' in licensing they will happily do so, but it will not change their mercenary intent. Putting any weight on the intent of a patentee is peculiar since, in commerce, everyone's intent is the same - to make money. Patent trolls might have a short term focus, whereas other more righteous patentees might have a longer term strategy, but I still can't see much more of a difference.


An alternative definition of 'patent troll' would focus purely on the validity of the patents being used. Under this definition a real and unambiguous patent troll can be easily eliminated - $800 for re-examination should solve the problem.


re: warfare. Its just a useful shorthand. You can replace the word 'warfare' with the word 'litigation' if you want.

Mark Summerfield said...

I am not placing the focus on 'intent', I am placing it on behaviour. I think we all recognise extortion when we see it (although it is not clear that the same can be said for all US Federal District Court judges).


Having said that, however, it is certainly not the case that, in commerce, everyone's intent is to make money by any means available, and without regard to the ethics or morality of their actions.


Most industries in which there is otherwise a strong incentive to engage in questionable tactics are highly regulated. The emergence of a market for IP is probably an inevitable, and not entirely unwelcome, development in knowledge economies. I think that there is a good case to be made for greater regulation of that market.

Mark Summerfield said...

Welcome, Steph. Thanks for your comment, and links.



As I have just commented above, to arachne, I believe that there is a legitimate role for the market in intellectual assets. Modern businesses in developed countries deal largely in the creation and monetisation of IP. Even when they sell physical products (like smartphones) most of the value they create, and revenues they generate, are derived from IP. In the case of a company like Apple, for example, the separation between value-creation and production is explicit -- it does not manufacture its own products, it licenses other companies to do so on its behalf.


The advantage of there being a market for IP is that it decouples the value-creation step from the production step. Good ideas can come from anywhere, but very few people have the capacity to successfully bring a product to market. If you have a great idea to improve smartphones, but you do not work for Apple, Samsung, HTC, Motorola or Sony, it is highly unlikely that you will be able to get your idea into a real product unless you can partner with one or more of the encumbants, or move your IP into an entitiy with the capacity to do so.


I don't think it is a matter of looking at behaviours over time. I would regulate activity in the IP market, just as we do financial markets, or competition generally. It ought to be possible, for example, to define acceptable and/or unacceptable behaviours in IP licensing negotiations, and to establish a regulator with the power to prosecute violations of the 'rules'. Regulations could make certain terms in IP licences illegal, e.g. any term tying a settlement, or a payment amount, to the desire to avoid the cost of litigation, rather than an agreed value of the IP. Attempts to impose such clauses should be exempt from confidentiality and immediately reportable to the regulator.


We need to look beyond patent systems for solutions to the troll problem. Weakening patents is not the solution. Instead, we need to strengthen the ability of victims to fight back before a shakedown attempt can get anywhere near a court.


Of course, regulation might also interfere with the business models of some existing non-troll NPEs. I do not see a problem with that. Any legitimate operator will adapt its business practices so as to be in compliance with the rules. The whole point of regulation is to control behaviours in markets in which participants cannot be relied upon to control their own behaviour.


Mark

ak said...

Perhaps, in the first instance, the courts can ask IP Australia's hearing officer to look into it and take that on board.. That may strengthen the patent system in addition to lower costs for the "victims" , who may then get a fairly good idea on what it might entail if it goes beyond to the actual court system. Even the "troller" may think twice of pursuing in the courts, if he fails at the first hurdle.

Steph Kennedy, IPTT said...

Thank you so much for your thoughtful reply!! I usually take up so much space in comment sections (you may have noticed that brevity is not my thang, lol) so here's my reply: http://iptrolltracker2.wordpress.com/2013/07/01/vringo-tries-to-order-a-vegemite-sandwich-in-australia-mate/


Always love a good conversation!!


Just sayin',


IPTT

Mark Summerfield said...

Well, since there is not, in my view, a troll problem in Australia anyway, we really do not need a new administrative process to address this. There is, however, already a re-examination process available, as there is also in the US.

There has recently been a case (relating to a registered design, rather than a patent, but the principles are the same) which demonstrates the wide-ranging power of the Australian Federal Court to direct how parallel proceedings at IP Australia and in the court should be conducted. I shall write about this case soon, in a separate article.

In the US, there is nothing to stop proceedings at the USPTO and in the courts from progressing completely independently, which is what generally happens if a reexamination request is filed after commencement of litigation. This really doesn't help anybody very much, since it is an added expense for the victim which does not, in the meantime, get it off the hook in court. Reexamination results are also subject to appeal, so the process can become protracted and expensive anyway.

The solution to this may be for victims to 'gang up' on the trolls. Gene Quinn, on his IP Watchdog blog, recently had a conversation with Rachael Lamkin about a program which might assist victims with this.

Mark Summerfield said...

Thanks for your lengthy response! We may just have to agree to diagree on whether it is fair (or productive) to label Vringo as a troll. However, I do want to pick up on your aversion to regulation.


I understand that for some people the word 'regulation' conjours up images of bureaucracy and 'big government' gaining more power to interfere with people's freedoms to go about their lives, and their businesses, as they see fit.


In this case, however, we are talking about regulating something which is already the product of regulation. Patent rights are created by the state. Without patent laws and regulations, everybody would just be free to take the innovations developed by others without providing any compensation. For every inventor whose freedom to exploit the products of their efforts is enhanced by the ability to acquire an enforceable right, there are competitors whose freedom to compete is restricted.


If the unethical and exploitative behaviour of a minority of bad actors is causing harm, then the possibility of further regulation targeting the harmful activities ought to be open for discussion. The troll problem begins with the IP transactions (i.e. sale and assignment of patents) which put the weapons in their hands in the first place, and continues with the use of litigation and threats essentially as leverage to impose terms of a further IP transaction (i.e. a licence) on the victim.


If the problem could be solved by targeting the transactions, why would we not look at that? Sure, it requires regulation, because we would essentially be saying that IP transactions should be subject to oversight, where appropriate, to ensure that they meet specified standards of propriety.


The trick would be to come up with a regulatory approach which imposes minimal burden on legitimate operators, while enabling unethical and extortionate activities to be curbed.

Steph Kennedy, IPTT said...

"We may just have to agree to disagree on whether it is fair (or productive) to label Vringo as a troll."

You've got yourself a deal, lol! That's fair, though I do think it's productive to go back and forth...I think we all learn much more from those with whom we disagree than from the folks who give a wholesale thumbs up, right?

"If the unethical and exploitative behaviour of a minority of bad actors is causing harm, then the possibility of further regulation targeting the harmful activities ought to be open for discussion."

Targeting the harmful activities is awesome, and that's what I want to do by tracking demand letters (SHAMELESS PLUG: http://www.thatpatenttool.com). I just don't like the idea of a the government, any government, getting in on that part of it. As it stands right now in the US, what the trolls are doing is not illegal. I don't think we necessarily ought to make it so, via regulation/legislation. I think good ol' American ingenuity should "regulate" the trolls.

"The trick would be to come up with a regulatory approach which imposes minimal burden on legitimate operators, while enabling unethical and extortionate activities to be curbed."



So all you *really* want then is the Holy Grail, lol! As Liam Neeson said to that scumbag in Taken, "Good luck." =) It will be interesting to see if any of the current US proposals on the block are actually passed into laws, and which ones are effective. For the time being, enjoy the relative peace you have from the fight, living Down Under! (Do Aussies hate the constant references to that, the way Texans oppose being thought of as riding on horses everywhere we go? Just curious!)


Cheers,


Steph, IPTT

Mark Richardson said...

Interesting post Mark. Many thanks

Do you think the relative size of the market in Australia compared to the US (22 million to 300+ million) is a factor? There's been some discussion here in Europe that the EU unitary patent system may encourage more NPEs to try their luck. Currently the largest market is Germany at around 80 million but the unitary patent will potentially get close to 500 million and that size market might make NPEs consider the EU as an interesting option.



Mark Richardson
ipcopy.wordpress.com

Mark Summerfield said...

Obviously the size of the market is a relevant factor in assessing the viability of the troll business model. A larger market means higher potential damages and/or licensing fees.

However, the size of the domestic market is not determinative. It is an infringement of an Australian patent to export a product embodying the patented invention, so an Australian company with a large international customer base could be a lucrative target, if the other elements of the model stack up.

Having said that, if there were profits to be made, someone would exploit the opportunity, even though the returns might be less than in larger jurisdictions. Other industries do not avoid smaller markets just because they are less profitable.

I have read the concerns about the potential for abuse of the Unitary Patent, however I have my doubts that there will be a problem. For one thing, the most commonly-exploited subject-matter of genuine trolls, i.e. software claims of dubious scope and application, is generally excluded under European patent law.


Also, I understand that the Unified Patent Court will have jurisdiction to hear revocation actions centrally, independently of any infringement action. It is worth bearing in mind that, in the US, not only does a patent enjoy a presumption of validity, but a Federal court does not have jurisdiction to hear an invalidity action until a real controversy exists between the parties.



I don't know if all of the details of the Unified Patent Court have been worked out yet, but if the default position is going to be 'loser pays', that will discourage trollish activities also.


However, it is not unlikely that the Unitary Patent will attract other types of NPE. There is no question that a centralised patent right covering a market of 500 million people will provide a better basis for an efficient and effective licensing program that a fragmented system in which the maintenance and enforcement of rights must be conducted on a country-by-country basis.


This is not necessarily a bad thing, if the patents in question represent genuine investment in innovation, are valid, and the terms and rates of the licenses are fair and reasonable. In such circumstances the efficiencies that might be gained through the unitary right should benefit licensees as well as licensors.

AMax said...

The litigation is on foot in at least four countries: Britain, France, Germany and Australia.

Mark Summerfield said...

Thanks AMax.

What is most interesting is that (so far) there has been no legal action in the US, despite this being Vringo's 'home turf', and a generally 'patentee-friendly' jurisdiction for this type of action.

While there has been a lot of comment about the number of handsets ZTE sells around the world (including the US), the patents asserted by Vringo (in Australia, at least) relate to network server and base station operations. Of course, they refer to mobile devices as well, as an end-point of these services, but the technology is principally implemented in the network equipment.



My understanding is that while ZTE has secured some major contracts with carriers in Europe and Australia, it is having more difficulty winning this kind of business in the US, due to concerns about the company's connections to the Chinese government.


Overall, therefore, it appears that Vringo's assertion/licensing program is directed at network equipment manufacturers, rather than mobile device manufacturers. If Vringo were a true patent troll, I dare say it would go after all of the handset makers, and the carriers, as well as the equipment manufacturers!

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