31 October 2013

Congressman Goodlatte Versus the Patent Trolls

There's Nothing Like a Good Latte!I have previously expressed the opinion here that the patent troll problem is primarily one of litigation abuse, rather than patent abuse (see, e.g., earlier articles on why trolls are largely a US phenomenon, and why the Australian system is less conducive to their nefarious business models).  Previous US attempts to curb troll activity, such as the proposed Saving High-Tech Innovators from Egregious Legal Disputes (SHIELD) Act of 2013 [PDF, 248kB], and its predecessor of 2012, have generally made the mistake of focussing on the technology to which the patent applies and/or the nature of the patent holder.

But a troll is defined by its actions, not by its corporate identity, the history of its patents, or the technology to which those patents apply.

Republican Congressman Bob Goodlatte apparently gets it.  On 23 October 2013 he introduced the proposed Innovation Act 2013, which he describes as a patent litigation reform bill.  The bill is technology-neutral and, as the Congressman’s media release explains:

…targets abusive patent litigation behavior and not specific entities with the goal of preventing individuals from taking advantage of gaps in the system to engage in litigation extortion.  It does not attempt to eliminate valid patent litigation.

In the past week I have read numerous responses to the Goodlatte bill.  A few have been relatively neutral, and simply set out the various provisions of the bill.  Others raise a number of the issues which have previously caused me to express some scepticism as to whether the US would be willing to take the action necessary to rein in patent trolls.  Over at the IAM Magazine Blog, Joff Wild rightly points out that the bill is not specifically ‘anti-troll’, but will affect the risks and obligations faced by patent plaintiffs generally.  Andrew Williams, writing on the PatentDocs blog, describes the proposed legislation as a ‘blunt instrument that will impact all patent infringement actions’.  The Innovation Alliance, which largely represents smaller innovators and patent owners, has also been critical of the bill

None of this surprises me.  I have previously expressed my opinion that there is no way to curb trolls without impacting the rights of patent-holders more generally.  The goal must be to strike the right balance, not to try (and fail) to be all things to all people.

The Troll Problem Is Not About ‘Software Patents’

Another response I have read is that of the Electronic Frontier Foundation (EFF).  I have suggested in the past that the EFF is missing the point, and misdirecting resources, with its crusade against ‘software patents’ (alternatively known by the EFF as ‘stupid patents’).  While the EFF (unsurprisingly) supports the Goodlatte proposals, it continues to maintain that the ‘root cause’ of the problem is ‘the flood of low-quality, over-broad software patents.’

So here’s the thing.  Patent trolls are a real problem.  That problem relates to the use of the litigation system as a means to extort ‘licensing fees’ from targets who wish to avoid the costs associated with litigation.  While the actual economic cost of troll activity may be disputed, there is widespread agreement that it would be beneficial to eliminate at least the most egregious examples of extortionate behaviour.  Based on experience in other jurisdictions, there are good prospects that the Goodlatte bill will have a positive effect.

While there is little doubt that trolls exist, there is vastly less evidence (indeed, none that I am aware of) for the claim that there is a ‘flood of low-quality, over-broad software patents’.  My own experience is, indeed, quite to the contrary.  In the many cases in which I have been involved over the past decade, it has actually been quite difficult to get even the most worthy of claims to computer-implemented inventions through the examination process at the USPTO.  It is possible that I have merely happened to encounter the most diligent examiners, though this seems somewhat implausible.  More likely, there are fewer problems with the examination process than the EFF, and other opponents of ‘software patents’, would have us believe.

The patent examination process will never be perfect.  There will always be a proportion of granted patents that are not, in fact, valid.  Once a responsible patent owner becomes aware of a vulnerability in their patent, they should address this, either via a suitable formal process such as re-examination, or by allowing the patent to lapse.

Undermining the Troll Business Model

Unscrupulous patent owners, including patent trolls, can take advantage of the system by asserting patents they know to be invalid or by contending that their patents broader than they actually are.  I know this to be a patent troll strategy, because I have witnessed it first-hand – a perfectly sensible and valid patent, in the hands of a troll, can be distorted such that it appears to cover a wide range of activities which the original applicant (most often not the troll) never had in mind.  If the target were to challenge such excessive claims in court, they might well be successful.  However, the troll never seeks terms for a ‘licence’ that would even come close to the cost of defending an infringement suit in court.  Financially, the target’s best strategy is to settle with the troll.

The Goodlatte bill addresses this problem through three mechanisms.
  1. First, it makes ‘fee shifting’ – whereby the losing party has to pay the winner’s costs of conducting the litigation – the default position, rather than the exception.  This is the situation in most countries (including Australia), and something that I have been advocating for some time.
  2. Second, it requires the patent-holder to provide substantial detail of the infringement allegation when commencing litigation.  Again, this is something that is expected in most jurisdictions, since the respondent is entitled to be provided with sufficient information to fully comprehend the case it is expected to answer.  This would prevent trolls from filing ‘cheap’ generic infringement suits, and force them to plead a plausible case in the first instance.
  3. Third, it delays discovery until after any claim construction (‘Markman’) hearing has been held.  This is a rather technical point, but essentially means that some of the most significant early costs of defending an infringement suit would be postponed until after the court has determined the meaning and scope of the patent claims.  A troll which is asserting an unreasonably broad scope of claims might well see its case fall apart at this point, which would enable the target to get out of the litigation at an early stage, having incurred relatively minimal costs.
To my mind, these are the most important provisions of the bill in terms of undermining the business models employed by patent trolls.  Other provisions, such as the requirements for transparency of ownership and financial interests, and limiting the ability to bring simultaneous law suits against a manufacturer and its customers, may assist, but they do not fundamentally challenge the very structures that make troll business models profitable.  What needs to be done – and what the above three provisions do – is to increase the exposure of trolls to financial risk, and reduce their ability to compel their victims to incur litigation costs vastly exceeding the proposed ‘licence’ fees during the earliest stages of litigation.

Conclusion

In my view, the Goodlatte Innovation Act 2013 would do much to address the patent troll issue in the US.  There is, however, no question that it would also impact other patent-owners.  I do not believe that this is avoidable, and the question must therefore be whether the benefits outweigh the costs of implementation.  I believe that they do.

The Goodlatte bill has bipartisan support, and I understand that insiders within the corridors of power in Washington consider that it has at least a 50% chance of being passed.  I hope that this is right, and that the bill succeeds.

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