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Patents Defended

Monday, September 12, 2011

Recent court rulings and a new law have reined in the excesses of the U.S. patent system.

On September 8, Congress at long last passed the “America Invents Act,” the first overhaul of our patent system in decades. Yet not everyone has cheered the new law, or how it came about.

The U.S. patent regime has always been a careful balancing act between encouraging innovation, enforcing the rights of inventors, and ensuring the public interest. Yet in two recent reports—one on National Public Radio’s “This American Life” and one in the New York Times—critics have argued that that equipoise is in grave danger.

Yet, like all complex issues presented by the mass media—even (especially?) by outlets as sophisticated as NPR and the Times—the ins and outs and what-have-yous of our patent system are far more nuanced, and the players far more difficult to cabin into bad guy and good guy roles, than NPR’s Ira Glass and company would have you believe.

The segment on “This American Life,” electrically titled “When Patents Attack!” aired in late July and immediately made the rounds in the intellectual property community. The report followed NPR’s successful, if well-worn, model of sending reporters on an investigative hunt to uncover the excesses of the American patent regime.

Exhibit A in the indictment was Intellectual Ventures (IV), a so-called “patent troll,” or company that appears to exist only on paper, and only to amass patents and assert them in litigation against “actual innovators.” The term “patent troll” was, according to legend (and NPR), coined in the late 1990s by Peter Detkin, an in-house attorney for Intel. (Detkin himself later went to work for IV.)

The U.S. patent regime has always been a careful balancing act between encouraging innovation, enforcing the rights of inventors, and ensuring the public interest.

The NPR segment went to great lengths to accentuate the “fear” that IV inspires in its opponents (a “Mafia-style shakedown,” according to one of the interviewees) and to attempt to track down, sting-style, the seemingly fictional entities (and their lawyers) that target big companies for lawsuits in the plaintiff-friendly Eastern District of Texas.

To its credit, “This American Life” furnished IV’s self-defense: “They're on the side of inventors. They pay inventors for patents. They gather these patents together into this huge warehouse of invention that companies can use if they want. Sort of like a department store for patents. Whatever technology you're looking for, Intellectual Ventures has it.”

But the segment mostly depicted the patent regime in its worst light, citing the statistic that, supposedly, “30 percent of U.S. patents are essentially for things that have already been invented,” as well as polls stating that “80 percent of software engineers say the patent system actually hinders innovation.”

The Times article, written by Steve Lohr, explored a slightly different aspect: the intellectual property arms race among large computer technology companies, most of whom appear to be loading up with patents for defensive purposes. In this peace-through-strength model, for instance, Apple and Microsoft purchased $4.5 billion worth of intellectual property (some 6,000 patents) from the bankrupt Nortel Networks, while Google launched a bid to purchase Motorola Mobility and its 17,000 patents for a cool $12.5 billion.

Lohr writes, disapprovingly:

This patent gold rush has a darker side. It is diverting money for innovation from industries crucial to the economic future of the United States, analysts say. Patents were created as an incentive for innovation, giving inventors a temporary right to commercialize their ideas, without others copying them. While the recent blockbuster patent deals may make sense for the companies, analysts say, they are fed largely by legal considerations—asserting patent claims or defending against claims—rather than economic ones.

These concerns are valid, as far as they go, but that isn’t too far. Keep in mind that Nortel (or what’s left of it) and Motorola will profit handsomely from the innovation they inspired in their employees, who generated thousands upon thousands of inventive ideas reflected in their patents.

Recent decisions have made it more difficult to claim damages for a device or software program when the infringing feature is tiny in comparison to the larger project.

Yet even taking these complaints about the patent system at face value, they’re overblown. In fact, pace the Times article and “This American Life” segment, both the courts and Congress have intervened in recent years to restore balance to the force.

The Times’s Lohr claims that:

The patent legislation that emerged from the House and Senate, and which may well be enacted in the new session of Congress, has been scaled back. It no longer includes proposals that would have sharply curbed damage awards and the freedom of patent-holding companies to file patent infringement lawsuits. Another provision that was dropped would have limited the ability to file patent claims in known plaintiff-friendly courts, notably those in the Federal District Court for the Eastern District of Texas, which includes Tyler, Texarkana, and Marshall.

Large technology companies championed those patent suit restrictions. But they were cut from the legislation after resistance from interests that rely on strong patent protection, like pharmaceutical companies, individual inventors, and patent-buying firms like Intellectual Ventures, a multibillion-dollar fund run by Nathan Myhrvold that owns more than 35,000 patents.

Yet Lohr entirely neglects the impact of recent court rulings that have addressed precisely these points. In landmark opinion after landmark opinion, both the U.S. Supreme Court and the Federal Circuit Court of Appeals—the specialty court that entertains appeals of all patent cases filed in the United States—have reined in the excesses of the patent system on all fronts.

Recent decisions have rendered it easier to invalidate an issued patent as “obvious,” including by recourse to “common sense.” Rulings have made it harder for patentees to assert “willful” infringement, which results in treble (triple) damages. They have made it darn near impossible for a “non-practicing entity” to obtain an injunction preventing the sale of an infringing device (as a small company called NTP famously did to RIM, the maker of BlackBerry, five years ago). They have made it more difficult to claim damages for a device or software program when the infringing feature is tiny in comparison to the larger project. And they have significantly eased the way for companies sued in East Texas to escape to friendlier climes, such as Northern California.

There is an intellectual property arms race among large computer technology companies.

Thus, it’s not so much that the Intellectual Ventures of the world have denuded reform legislation of any meaningful changes, as that those changes have been obviated by the judiciary’s determined action.

The legislative branch, too, has joined the battle, especially as computer software and hardware makers ramped up efforts to change the law. The America Invents Act, passed last week, comprises several core provisions. First, it will switch the United States from a first-to-invent to a first-to-file system in an effort to curb messy inventorship disputes and normalize practice with most of the rest of the world, which has already adopted a first-to-file approach.

Second, it will establish new post-grant review procedures that will make it somewhat easier to invalidate shaky patents right out of the gate.

Third, it will curtail plaintiffs’ rights in so-called “false patent marking” cases. Currently, any individual can file suit against a company for including expired patent numbers on the packaging’s list of patents covering the product—an arrangement that benefits consumers (and their attorneys) but burdens companies, who must vigilantly update their packaging to account for patent expiration. Under the new law, companies can “virtually mark” their products by referring consumers to a website that firms update. The America Invents Act will also limit false marking suits to companies that have actually suffered “competitive injury” from such activities.

Fourth, the new legislation will fortify the U.S. Patent and Trademark Office’s authority over the fees it levies on applicants. Currently, while the PTO is a rare government agency that takes in more money than it spends, Congress typically diverts its receipts to the general fund. The new bill would move those received funds into a special escrow account, while also raising fees modestly.

So while patent critics have proven as ubiquitous and persistent as Title 35 of the U.S. Code itself, their (at least partially justified) critiques must be examined in the proper context.

Michael M. Rosen, a contributor to THE AMERICAN, is an intellectual property attorney and writer in San Diego.

FURTHER READING: Rosen also writes “Steal This F&$#ing Book!” “The Real Problem With High-Speed Rail,” and “The Real Problem with Government Employee Unions.”

Image by Rob Green | Bergman Group

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