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Senators ramp up push for PATENT Act

Senators ramp up push for PATENT Act

The end of trolling for profit?

http://youtu.be/Il9nXHoprsU

Today Senators John Cornyn (R-TX) and Chuck Schumer (D-NY) hosted a Google Hangout with entrepreneurs who have first hand experience dealing with “patent trolls”—firms that come in and sue companies over “patent violations” that don’t actually exist. The Hangout was part of a renewed push in the Senate to achieve meaningful patent reform.

The PATENT Act is the latest in a long history of efforts to prevent patent trolls from shaking down small startups. The bipartisan bill would help protect innovators from the crippling pre-litigation costs (think discovery, which in patent cases takes anywhere from 3 to 5 years) that trolls use as leverage against startups that can more easily afford a payout than they can afford years of legal fees.

Until very recently, patent trolling was an issue that mostly affected the technology and pharmaceutical industries; now, however, patent trolls are going after “main street”—think small business owners, startups, and independent inventors—and end users, meaning that people who simply use allegedly patented technology are being hit with bogus lawsuits.

You can watch the Hangout here:

David Bloom, a New York entrepreneur and founder & CEO of Ordrx (formerly Ordr.in) made it clear during the discussion that, at least in his experience, patent trolls care less about innovation, and more about achieving a quick payday. Bloom was sued over software he developed to help restaurants share their services and accept orders online. The firm insisted that his invention infringed on a patent that extended all the way back into the late 90s—long before the coding techniques he used to write his software had even been invented. When he countered with a memo laying out a laundry list of reasons why his invention wasn’t covered under the patent, Bloom says the firm responded by saying, “Everyone says that, and everyone pays.” By the end of the ordeal, Bloom’s legal bills exceeded his total salary payouts; his customers were concerned, and the the bad publicity from the lawsuit affected business.

Bloom closed up shop a few weeks ago.

Van Lindberg, an attorney and engineer who serves as Vice President of Intellectual Property at cloud hosting firm Rackspace, has seen similar tactics leveraged against Rackspace’s creative development. “It’s as close to legalized theft as you can get,” said Lindberg, as he described what many consider to be the extortion tactics of high-dollar patent trolls. Rackspace’s litigation budget has fluctuated between 3 and 5 million dollars over the past three years; after settling their first few patent disputes, Lindberg and his colleagues discovered that firms that had received a payout were coming back with new entities claiming new, infringed-upon patents.

Lindberg describes these firms as bullies that don’t care about “true invention”; I’m ready to believe him, given the fact that when Rackspace actually jumped through the hoops necessary to challenge the trolls’ claims, Rackspace won on the merits.

Rackspace has been fortunate enough to survive the barrage of claims, but each claim—no matter how vague or frivolous—takes hours and thousands of dollars to even begin to address.

The PATENT Act’s biggest critics claim that if implemented, the new rules will cheapen the value of private property rights. The bill, however, doesn’t actually prevent legitimate lawsuits from moving forward. Normally, patent litigation takes years to make its way through the courts; if passed, the Act will slow down the discovery machine until a judge rules that a claim does or does not have merit. If a claim is deemed frivolous, the Act’s fee shifting provisions will hit the troll with the other side’s legal fees. It only punishes frivolous claims (meaning, claims that aren’t “objectively reasonable.”)

The bill isn’t perfect, and doesn’t fix the problem of low-level patents being awarded to begin with, but it’s a good start in the fight to separate legitimate patents from illegitimate ones. You can read more about the bill’s provisions here, here, and here.

The PATENT Act heads for markup in the Senate tomorrow. We’ll keep you updated on the bill’s progress.

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Comments

Companies such as IBM have huge patent portfolios and use patent licensing as a revenue stream. However, IBM does not typically go after small fry.

The targeting of small business brings by patent trolls needs provisions similar anti-SLAPP laws.

    Bruce Hayden in reply to sequester. | June 3, 2015 at 6:11 pm

    For the most part, patent “trolls” going after the small fry is a myth. A helpful myth from the point of view of the multibillion dollar tech firms pushing this legislation, because they want to hide what is really going on in the legislation – which is that it is cheaper to weaken the patent laws than to pay the patent royalties that they should pay for the technology that they appropriate from innovators.

    The reason that patent “trolls” going after small companies is mostly a myth is because it is bad economics. You need to keep the following in mind, when thinking about this. The cost of a patent infringement suit is likely to be somewhere north of a half a million dollars. Maybe a million today. Damages in a patent infringement suit are often a reasonable royalty, which for much of this sort of technology is 1% to maybe 2%. Sure, sometimes you can make more, but often that is what you are stuck with. So, if you figure a million dollars of legal fees times 1/reasonable-royalty ($1,000,000 * 1/2% = $50,000,000). It will likely be over a hundred million dollars of infringing sales if you figure in chances of winning, contingency fee, etc. It just usually makes little, if any, economic sense for patent owners to sue the small fry for patent infringement. They will never get back their attorneys’ fees from the damages awarded.

      sequester in reply to Bruce Hayden. | June 3, 2015 at 7:40 pm

      It would be very unwise for a patent troll to cast its net near a big fish — say an IBM or Microsoft. Both of these enterprises are prone to assigning in house professional engineers to attack the trolls patent portfolios. Both have reputations of being willing to spend tens of millions — even more — on litigation. They view these costs as deterrence. IBM earns over 1 billion a year in patent revenue. IBM is very proud of paying almost no patent royalties.

      So the troll target is a well-funded business, but without the resources (both financial and manpower) or investor patience to engage in protracted litigation. A “start-up” for example. For those businesses, the best business decision is to pay off the troll.

      Although my experience goes back some years, I have seen the view from both the Microsoft type large enterprise and a smaller “start-up”. The “start-up” ended up paying off a troll, because it was less expensive than full blown litigation. Litigation would have created ruinous financial uncertainty, that would have upset investors. The start-up I had experience with went on to become a Fortune 500 company.

        Bruce Hayden in reply to sequester. | June 4, 2015 at 4:43 pm

        Different approaches for different targets. For small companies, you just send out demand letters, and some will be willing to settle. That often doesn’t work with the biggest companies, esp. those that are patent savvy. But, they have their own vulnerabilities. Remember my quick lesson in patent litigation economics (below)? It works out that you often need a couple hundred million in infringing sales to make litigation cost effective. But, what happens if you have billions at risk? That means that very low probability lawsuits can be economically justified. And, remember, the reasonable royalties that I was working with are per year, and you are often talking multiple years of potential infringement.

        In the electronics field, there have been a couple guys who managed to make serious nine figure settlements from their patent portfolios. The biggest name was Jerome Lemelson, who managed to keep his family of patents active in the USPTO for forty years, allowing him to write claims reading on technology discovered decades after his priority dates. What he would seemingly do was to settle for an amount well below the reasonable royalty that he could expect over a single year. One example was when he went after Motorola, then a $20 billion dollar company. He claimed that his patents read on their entire product line, but settled for $12 million or so paid to his foundation/charity. The Japanese companies that provided a large chunk of his money were more willing to settle.

        Still, you can see why companies like Google, Apple, Microsoft, etc. are pushing this legislation. They have enormous revenue bases, and the potential for hundreds of millions of dollars in damages.

MouseTheLuckyDog | June 3, 2015 at 4:00 pm

Yes. Patent law has been a big problem. Not just now, when LI and the MSM are noticing, but for fifteen years ( read old groklaw articles to get a clue ).

However trolls, are not the main problem. Technically if Bob creates a better mouse trap, patents it, licenses the patent to company A, then sues company B for not getting a license for the patent, he is a troll.

The main problem is some of the really bad patents issued by the patent office, up to and including old ideas with the added bit of “do it on a computer” or “do it on the internet”. Thank God SCOTUS snuffed that out with Alice.

Other problems are things like Microsoft going around to manufacturers that by putting Android on their machines, they were violtins some 200+ Microsoft patents , but they wouldn’t tell them which ones, pay up or sue.

The Supreme court has been slapping down the CAFC regularly, and they seem to have gotten the message, ( Especially with Radar gone. ) But now with Oracle, the CAFC seems to be extending it’s theories into copyright law.

OK, two powerful Senators participate in an on-line ‘conference’. My questions:

1. How much will the entrepreneurial attendees have to ‘contribute’ to Leadership PACs or Campaigns to get the votes they want?
2. What percentage of the Senators’ financial holdings are associated with companies with interests in such legislation?

Washington runs on money and no Senator, especially these two, do anything for free. They’re going to exploit this opportunity so watch for large amounts of stock trades by Senators on whatever committees mark up this legislation.

Rules and Laws for thee but not for We.

    Bruce Hayden in reply to SeniorD. | June 3, 2015 at 5:58 pm

    The money involved is a bit scary – Google was believed to be spending $100 million a year in DC or on federal legislative matters. And, they aren’t the only huge company involved here trying (and apparently succeeding) to better their bottom lines by reducing the amount of patent royalties, etc. that they have to pay.

    It mostly isn’t direct benefit to the members of Congress, but rather indirect. The companies help them get reelected, and that is what is important. But, the aids, etc. are vulnerable. We saw in Amy’s last post of patent deform, how the staffer (Aaron Cooper) most involved in the previous round of patent legislation (AIA) has put himself in position to make millions on this round.

      SeniorD in reply to Bruce Hayden. | June 3, 2015 at 6:07 pm

      Don’t disagree, Mr. Hayden. However, Pay to Play is the Washington Way and the Professional Politicians WILL get their cut.

    Anything involving Schumer is suspect.

Bruce Hayden | June 3, 2015 at 5:38 pm

The bill isn’t perfect, and doesn’t fix the problem of low-level patents being awarded to begin with, but it’s a good start in the fight to separate legitimate patents from illegitimate ones.

Nope – it isn’t a good start, and its primary purpose isn’t to protect innovation, but rather, to protect companies like Google, which was putting on this confab, from innovators.

As I pointed out earlier, there are two sides to the IP bargain – IP creators and IP users. Google is a major net IP user, as are most of the companies pushing this legislation. They pay many millions in patent royalties, and are sued on a routine basis for the patents that they infringe but haven’t licensed. These companies are not innovators (but were at one time), but rather, the companies that have gotten rich by exploiting technology invented by others. If you want a definition of a “troll”, think of the innovators whose IP is appropriated by huge companies like Google. That is who the legislation is aimed against.

The latest legislation is still stacked significantly against patent owners, in favor of patent infringers. Alleged infringers still get attorneys’ fees if they win, but not the other way around. There are still the strict limitations on discovery, and requirements for significant information in the pleadings – which patent plaintiffs often don’t have access to until discovery. The problem is that plaintiffs are going to have to limit their claims to what they can prove before filing suit, even if the infringement is well hidden. And, what companies are likely to gain the most from this sort of thing? Not the poor “innovators” highlighted at the Google conference (who are typically too small to sue in the first place), but rather the multibillion dollar multinationals that have many products on the market.

As I pointed out earlier, the companies behind this legislation, such as Google, have discovered that it is far cheaper to buy legislation that greatly weakens the patent system, than to pay patent royalties for the technology that they did not invent, but rather, appropriated.

    MouseTheLuckyDog in reply to Bruce Hayden. | June 3, 2015 at 6:25 pm

    You mean like Project Paperless LLC’s patents on scanning documents then emailing them?

      caseym54 in reply to MouseTheLuckyDog. | June 3, 2015 at 11:14 pm

      No, more like Brent Townshend who invented the trick needed for 56K modems (probing the local telco switch during the handshake), then had the major modem makers try to use it without paying him.

Bruce Hayden | June 3, 2015 at 5:52 pm

Let me add that it is pretty fairly depressing to find the Google line being pushed so heavily on a quasi-conservative/libertarian blog. This is pretty egregious rent seeking and crony capitalism. We have seen huge amounts of money being spent here to push this legislation specifically designed to benefit the bottom lines of those huge companies. So, I ask again, why is Legal Insurrection helping these companies?

Bruce Hayden | June 3, 2015 at 6:16 pm

Until very recently, patent trolling was an issue that mostly affected the technology and pharmaceutical industries; now, however, patent trolls are going after “main street”—think small business owners, startups, and independent inventors—and end users, meaning that people who simply use allegedly patented technology are being hit with bogus lawsuits.

Not really, but keep up the propaganda. See my earlier comments about the economics of patent litigation. This is pretty egregious rent seeking on the part of companies like Google, which, not coincidentally, was putting on that confab.

So Bruce, what would you do about:

1) Shakedown letters that demand ~10% of the litigation cost ($40,000 – $50,000) “or else” that have NO specifics other than general accusation, and

2) Patents that to any practitioner are obviously bogus (i.e. standard processes “with a computer” as Mouse said.)

If you have forinstances of legitimate computer related patents from small inventors that are being trampled by Google et al, I’d like to read about them.

The abuses I’ve seen cataloged are pretty obvious lawfare to me, not cases where legitimate inventors are being harmed by corporations stealing their ideas — so, I’m looking for the opposite presentation of people whom Google has stepped on.

You’ve used “IP creators” in a way that’s vague enough that it readily encompasses the shysters along with the virtuous, and all the media coverage focuses on the shysters.

    Bruce Hayden in reply to Zhinlo. | June 4, 2015 at 3:57 pm

    First, and foremost, keep in mind who is funding this legislation. It isn’t the poor victims of trolls, but large tech IP consumers, led by, yes, Google. We are talking tens, if not hundreds, of millions of dollars being spent over the last year or two pushing this legislation. The money is going to an army of lobbyists, a lot of academics to write papers showing just what you are claiming, etc. The small companies, etc. don’t have the money to play in this league. Not even close. Follow the money and don’t get side tracked by all the diversions that are being orchestrated by the massive international companies pushing the legislation.

    Demand letters are nothing new. You see them on a routine basis in patent, copyright, trademark, and even trade secret areas of IP. What anyone who receives one should do is to consult with a licensed patent attorney, and have them review the patent, its claims, file wrapper history, and how the client’s product might infringe those claims. In most cases, you should be able to get a feel for whether the party making the demand has a valid claim, or doesn’t. Most often, they don’t. My view is that anyone who pays up without getting expert advice is a fool very quickly separated from his money.

    And, none of this is the least bit new. I worked with a guy some 20 years ago who loved this sort of thing. He would get clients in, send out a couple demand letters, and then dump the clients if and when the target companies did not pay up. You see exactly the same dynamic with most of the accident attorneys you see on TV. They mostly don’t litigate their cases, but mostly are in it for the quick settlements. If they actually have cases, and the other parties don’t settle, they will very often refer the case out to real litigation attorneys who specialize in this sort of cases (and who don’t tend to advertise).

    Bruce Hayden in reply to Zhinlo. | June 4, 2015 at 4:00 pm

    You’ve used “IP creators” in a way that’s vague enough that it readily encompasses the shysters along with the virtuous, and all the media coverage focuses on the shysters.

    Of course that is the case – the same companies that are spending so much on lobbying Congress, buying academic papers, etc., are also working the media. They have entire departments whose job it is to deal with such. It is a very, very, lopsided battle.

    Bruce Hayden in reply to Zhinlo. | June 4, 2015 at 4:18 pm

    Let me add that there really aren’t that many computerization of routine stuff patents being issued. Never have been, since it is mostly (legally – see 35 USC 103) obvious. Making things even worse – the Supreme Court in Alice specifically addressed this subject. The result there is that not only are they legally obvious, but also constitute non-statutory subject matter (35 USC 101).

    Yes, there are bad patents that manage to get issued. That shouldn’t surprise anyone – after all, patent examiners, etc., are all civil servants. They are government workers, and that means there is a lot of mediocrity. Making things worse, they are mostly unionized. Think of the other unionized government workers we see, whether they be teachers, TSA, IRS, etc. Even the worst workers are hard to get rid of. Plus, counterproductive work rules.

    Should we be surprised that this isn’t being addressed by this legislation (and, yes, it has been brought up repeatedly)?

    The bigger problem with the patent process (ignoring that examiners are unionized govt. workers) is that of prior art. This is esp. bad in the software arts, and not that bad with old, staid, art areas, esp. in the mechanical areas. Several things have made it worse for software patents. One is that the USPTO refused to grant very many software patents until the early 1990s, and as a result, there is not the patent prior art there as there is in other areas. And, even though the examiners have database access for searching non-patent prior art (for example, they have a subscription for the entire IEEE database of articles), they still tend to use issued patents and published patent applications as their primary source. The other problem is that terminology is not as standardized, and that affects the sort of key word searching that they tend to employ.

    Still, and keep this in mind, a large percentage of software patent applications right now are never going to issue as patents thanks to the Alice decision. Many of these inventions are novel and nonobvious, but now considered non-statutory subject matter. Entire art units have essentially shut down allowing claims (and therefore issuing patents) as a result. The Federal Circuit has yet to find a way around Alice, which means that appeals from the rejection of those software patent application claims are likely to be rejected, and litigated software claims invalidated.

    This is already happening, and the proposed legislation has nothing to do with it. Nothing.

      Bruce Hayden in reply to Bruce Hayden. | June 4, 2015 at 4:27 pm

      Quick clarification to my last post.

      The reason that prior art is critically important is that it is how patent claims are determined to be not novel or obvious. Put simply (it is a bit more complex), if a claimed invention is described in a single prior art reference, it is considered to be anticipated, and, therefore, lacking novelty (35 USC 102). If the examiner (or judge) has to put together two or more prior art references, then it may be obvious (35 USC 103). Most of the prior art cited by examiners consists of issued US patents and published patent applications. But, it can be anything that is written or printed, including the Internet (the Wayback machine is used heavily for such to nail down dates, etc.) You also see scientific papers, etc. But, also sales brochures and the like.

      A couple of things come together here. First, the burden is on examiners to prove that claims in an application are not patentable, and this has traditionally meant lacking novelty, or being obvious (see above). They have to build a written record for this, esp. since most of the prosecution and appeals process is written. And, that is why the examiners cannot just say that they think that it is obvious. They have to be able to back that up, and for novelty and non-obviousness, that means printed prior art.

MouseTheLuckyDog | June 3, 2015 at 7:21 pm

I came across a very timely story:
The EFF is being sued for criticizing a patent in a blog post!
Before I talk about the story itself, here is the patent in question:
http://patft1.uspto.gov/netacgi/nph-Parser?Sect1=PTO1&Sect2=HITOFF&d=PALL&p=1&u=%2Fnetahtml%2FPTO%2Fsrchnum.htm&r=1&f=G&l=50&s1=9013334.PN.&OS=PN/9013334&RS=PN/9013334

tell me what is being patented.

Hmm. You sure? Look at it again.

I couldn’t figure it out until I read the blog post, and I’m an engineer by trade.

Seems that patent describes something to do with a package out for delivery and some kind of text message. Maybe change the destination via text? Change the time of delivery? Request that the deliverery be to some third part location ( a UPS center, a post office )? Finally I got it.

Ok. I guess I’ve given enough “spoiler space”. The patent describes
sending email, texts, phone calls etc to a driver to change the quantity/amount of something to be delivered.

To put it in simple English, if a driver is supposed to deliver 10 widgets to company Y and his superviser texts him and tells him to drop off 25 instead, then the company had better have a license for this patent.

Oh and take a close look. This patent has been issued by the USPTO, so on the face it is valid. Oh and that part before about changing time of delivery via text. The company has another patent on that. Recently invalidated.

So the EFF ( for those of you in Rio Linda that’s short for Electronic Freedom Foundation ) print a blog article, by a lawyer where he names this patent, “Stupid Patent of The Month”. So the company owning the patent has come back and sued the EFF and the writer for defamation.

http://arstechnica.com/tech-policy/2015/06/patent-lawyer-sues-eff-over-stupid-patent-of-the-month-post/

BTW the actual lawyer doing the suing, is threatening to sue another company called CaseRails which is an online legal document handling company, for having Case in it’s name > He owns a website called CaseWebs and he claims any legal site with the word Case in it is a violation of it’s trademark.

Large companies like Microsoft and Google never do patent searches for their products. If they do, and find that their upcoming product *might* infringe on a patent, they have to worry about treble damages. So they proceed intentionally ignorant. Then they complain about patent trolls when they’ve infringed.

In any event, a true patent troll won’t go after a small fry because there’s no money there. If anything it’s the giant companies trying to squash a disruptive competitor. Perhaps there needs to be a way to quickly determine if a claim could< have merit, but it has little to do with so-called trolls.

    Small companies need no less protection from patent trolls than big companies. This nonsense of using the courts for extortion has to end.

    Perhaps criminal penalties – with the attendant higher burden of proof – should apply to patent trolls.

      Bruce Hayden in reply to TheFineReport.com. | June 4, 2015 at 3:37 pm

      See above – it is not economic viable to sue small companies for patent infringement. Remember, you don’t get attorneys’ fees in patent litigation.

      Bruce Hayden in reply to TheFineReport.com. | June 4, 2015 at 3:43 pm

      The patent “trolls” mostly aren’t using the courts to extort small companies. That is because it is not economic to sue them. Period. And, once they file suit, they lose complete control over the case. For example, if they try to withdraw, they may get the patent(s) invalidated (invalidity is one of two standard defenses, the other being non-infringement).

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