Talking About Trolls – Continuing the Conversation

Last week I participated in a story broadcast by ABC Radio National’s Law Report program entitled ‘Feeding the Patent Trolls’.  You can listen to the report, which is about 20 minutes in length, and/or read the transcript on the programme’s web site (if you do not wish to be tied to Windows Media Player or RealAudio, choose the ‘download’ option for a straight MP3 file).

The jumping-off point for the story is the recent commencement of patent infringement litigation by Vringo, in the Federal Court of Australia, against Chinese telecommunications equipment manufacturer ZTE.  I have written about this case previously, end explained why I do not think that Vringo satisfies the criteria to be called a true ‘patent troll’. 

On one level, the ‘Feeding the Patent Trolls’ report seeks an answer to the question of whether patent trolls are coming to Australia.  I have made my own views on this pretty clear – I do not believe that the Australian system will sustain a business model predicated on ‘shaking down’ practising entities using the threat of litigation based on patents of dubious scope or validity.  In other words, there is no reason for trolls to target Australia when there are such lucrative opportunities in the US.

However, other types of non-practising entities (NPEs) – including ‘privateer’ licensing companies, which is now Vringo’s business – can expect to obtain the same benefits from litigation in Australia as any other patent owner.

The other guest on the Law Report programme, expressing a view somewhat different from my own, was Kim Heitman, who is General Counsel at the University of Western Australia (UWA), and current President of the Society of University Lawyers.  I think it fair to say that Kim would draw the line between ‘legitimate’ and ‘trollish’ activities somewhat closer to the ‘practising entity’ end of the spectrum that I would.

A few of Kim’s statements in the report bothered me, although having had a 40-minute interview reduced to a few excerpts myself it did seem likely that at least some of what he was saying may have been isolated from its original context.  I therefore emailed Kim to ask him a few questions about his comments, and he was kind enough to reply to me in some detail.  What follows is thus a form of continuation of the conversation started by the Radio National report.

On the stringency of patent examination…

Mark Summerfield: When you say [in the Radio National report] that ‘the patent office is not a stringent organisation’ and ‘it does not check for prior art, it does not check for whether the invention is novel’, do you mean this literally, or are you commenting on the quality of search and examination?  Certainly the patent offices around the world do conduct searches, and in some fields of technology they are of very good quality – particularly those coming out of the US, European and Japanese patent offices.  I say this as the person who generally has to deliver the bad news to applicants when relevant prior art is uncovered!

Kim Heitman: I appreciate your perspective as a working patent professional, and in the context of your understanding of current patent practices.  While the show didn't distort my bolder comments, I noticed some of the cuts included acknowledgements that I'd made that some-but-not-all cases showed a need for reform; and thus weren't there to temper other remarks.  You're right to assert that in many cases the task of a patent professional is under rigorous scrutiny from, inter alia, the Patent Office and many testing requirements with the scope of claim, evidence of innovation and inventors are carefully documented to a high standard.  As instructing solicitor in UWA v Gray, I joined with my colleagues in commercialisation offices countrywide and overseas to workshop how to cover the gaps following that case and there are certainly minimum standards which must be met.

So, with that understanding I'm interested in perhaps taking the debate further – whether the current degree of Patent Office scrutiny and the largely adversarial processes to subsequently invalidate a registered patent are working to scale with the innovation revolutions typified by software, gene and business process patents.  The EU is working with several economists to provide some evidence-based input into their IP harmonisation and I had the opportunity at a conference in 2011 to receive some interesting perspectives on the perceived economic benefits of high-bars for exclusivity in IP of all sorts, from trade secrets to patents.  The argument is advanced that freewheeling usage of others' IP is a economic boon for jurisdictions (think China) which invites public policy and law reform to impose strict limits on patentability and to take the default position that exclusivity of copyrights and trade secrets is a form of restrictive trade practice or rentseeking.

Naturally that's one end of the spectrum.  Until public debate is exhausted and law reform commences, current norms of registration and subsequent IP assignment are a necessary part of commerce; and some IP will always need to be registered.  The rules and the practitioners need to be observed, but I'd suggest greater public interest in the Public Interest is on the way. Last year I attended several of the IP sessions in the Internet Governance Forum in Canberra, and you'd accept that ARIA [the Australian Recording Industry Association] and the Pirate Party had lots to say without agreement.

Some commentators have suggested a Patent Office needs to be resourced as a scientific Devil's Advocate, particularly as a advocate for the public domain.  This could reduce the incidence of subsequent private patent disputes, and the crushing legal costs which make the game too expensive for most.  Recently patent aggregators like Erich Spangenberg have been so successful as to invite countermeasures just as personal injury ambulance-chasers prompted tort law reform.  I'd be surprised if Project Paperless or Uniloc's assertions against app creators will stay in the  mainstream.  We may disagree as to whether Vringo and their Nokia patents will survive with or without an R&D department.

So, as to my comments on Patent Office stringency, yes it's fairer to say it's as stringent as the current laws require it be in assessing the current criteria for statutory monopolies.  More could be done to stress-test obviousness, clear for prior art and get to the bottom of the inventive step (and rebalance the innovation patent in Australia) with better resources and a beefed-up mission.  Prior art searches are pricey for the applicant, and I'm sure you've had to weigh the significance of a broad patent in a foreign jurisdiction and language in terms of risk management rather than science.

On the adequacy of Patent Office funding…

MS: You also say that the USPTO's ‘only source of income is patent licensing fees.’  Am I right in assuming that you are talking about the official fees they charge for various services, and not what we would normally regard as ‘licensing fees’ (i.e. royalties)?  This is not my understanding of how the USPTO is funded, and I believe that for many years the US Congress has denied the office full access to the fees it generates.  The America Invents Act attempted to fix this, but seems to have failed, from what I have read recently.

KH: The USPTO is a political football, so while I accept your argument that it gets towards cost recovery from fees of all sorts (not royalties) this is clawed back by job freezes, demand spikes or random cuts like the current sequestration.  Like its brother the US Copyright Office (vis-a-vis jailbreaking smartphones), the agency tends to be alert to retaliation by Congress and its sponsors.  Standing back from the practitioner's perspective, the paper wars over smartphones represent to me a broken system even if other applications are fine in every respect.  Big Pharma and Big Data are vexing too.

On whether the USPTO is incentivised to allow or reject…

MS: All this might, of course, support a view that the USPTO is underfunded, but it does not support a claim that it has an incentive to grant patents.  In fact, I believe that filing fees, examination fees, search fees, extension fees, continued examination fees and so forth, considerably exceed issue fees, which suggests that there is, if anything, an incentive for the USPTO to reject applications as many times as possible!

KH: I'd be interested if there's data that declarations of patent invalidity from prior art - which is at least searchable - are much more common than appeals from assertions by the Patent Office that the claims fail for obviousness. Absent the guiding hand of professionals such as yourself, dud patents should outnumber missed searches.

I don't know if there's data on whether the USPTO makes a better ROI on easy passes or mean-spirited refusals.  I'd tend to guess that the bigger the filing fee the bigger the loss, but in any event I certainly apply Hanlon's Razor to the question of the agency's driving economic principles.  Fatigue is no doubt the strongest factor in a cursory examination.

On the US ‘anti-troll’ SHIELD Act…

MS: Finally, you say that the SHIELD Act will ‘criminalise circumstances where the claim has no merit and never could have merit.’  I am not aware of any criminal penalties in the currently-proposed version of the SHIELD Act.  As I understand it, the proposal would provide for ‘loser pays’ costs orders in certain cases, and for the posting of security for costs where appropriate.  Both of these are already standard practice in the Federal Court of Australia, so similar legislation here is unnecessary.  The US appears to be somewhat unique, at least among common law countries, in that the default position is that costs do not normally follow the event.

Genuine patent trolling certainly ought to be criminal, but there are already laws against extortion!

KH: You're right, the SHIELD law does not of itself carry criminal penalties.  James [reporter James Pattison] and I were discussing the Vermont A-G launching prosecutions for the scan-to-email patent trolls under laws of general application such as RICO or under fair trading laws.  I'd speculated whether the Australian Consumer Law would work in the same way, even if the threshold for extortion couldn't be reached and that SHIELD standards could trigger real gaol time for a corporation's officers.  Left alone, it's wrong to say ‘criminalise’ and despite some early rhetoric there's no chance of SHIELD getting federal criminal penalties.

I appreciate your comments, and the opportunity to respond to your well-made points.

Conclusion

There are many points above on which Kim and I will agree to disagree.  I think the exchange was interesting and worthwhile, and I do not intend to use this post to have the last word!

My thanks to Kim for taking the time to continue the conversation.

Image Copyright (c) 123RF Stock Photos

Tags: Law reform, Trolls