The New Breed of Patent Trolls

Lee Cheng, President & Co-CLO, Symmetry IP LLC, and Vera Ranieri, Staff Attorney, Electronic Frontier Foundation

Moderator: Doug Kramer, General Counsel, Cloudflare

DK: Patent--IP issues and challenges are accelerating important supreme court cases. there’s also a flurry of legislative activity about patents. Good idea to talk about this topic: where is this going? How to push world in virtuous direction?

DK: current state of affairs. Vera: at the core is the patent itself, which is issued by and often adjudged by the patent office… is this where the problem lies?

VR: I like to blame everyone. How does someone get a patent in the first place? Someone comes up with an invention, patent attorney, documents it with opaque language, and files. The examiner then interprets the patent and searches for prior art, and says “I think this is what the patent owner is trying to claim.”

In the software space, it’s especially difficult. A lot of where inventing happens in software is right here, in businesses. People have a problem and find a solution by developing software. They don’t patent and publish.

Patent office tends to focus on patents.

DK: Talk about the incentive structure for those.

VR: Patent examiners are part of a union and their deal includes doing work and get credit for issuing patents. There’s no way to reject a patent because the applicant can come back over and over again. So most patent officers will issue the patent and let people deal with it later.

DK: Is there anything in this system that could change the dynamic?

VR: I’d give patent examiners more time, which they lack. There is also currently incentives at the patent office to not search the Internet. Patents don't become public until 18 months after a patent application is filed.

DK: So then how do enforcement proceedings work? Is that where the fault should lie?

LC: Patent trolling is a manifestation of litigation abuse. If you look at the problem historically, it’s far too easy in america to sue someone and almost impossible to hold someone accountable. It’s costly to defend against assertions of patent abuse.

One of the reasons we were able to embark on the strategy we did is that there were already signs at higher levels of the judiciary that this was a problem. So there have been a lot of cases over the years that have been rationalizing patent law. It’s incredibly slow and easy to find loopholes. We still have trolling today; the best we can hope for is to drive it to a sustainable nuisance level.

DK: So this is a moving target; do you have any examples of new and expanded challenges of creative assertion of patents?

LC: You can think of trolling as part of the litigation industry. There’s so much money at stake. So, it’s not surprising that you have creative human beings on the complainant side. They’re protecting their livelihoods and will evolve their tactics. We see developments; recently there has been news about [a medical company] selling to an indian tribe and making an argument that the tribe is protected against litigation. It’s a cat and mouse game.

DK: IP is property; the question becomes how do you allocate or set up an incentive structure that leads to optimal allocation for societal good? At the administrative level, how do you set up patent application or process in a way that could lead to optimal allocation?

VR: Don’t be confused. I don't think we should be doing a thorough job in the patent office. The vast amount of patents have no economic value and only certain patents case the problem. If a patent becomes economically important, maybe charge those owners more money to weed out others that aren’t economically important. Prove its worth. We should say to patent owners: “If you want to keep this patent, prove it by paying for it.” Right now a lot of the costs are on the people who have ostensibly infringed.

DK: Reallocation of costs or raise review to prove value. Is there a reasonable way to get companies in the game before they get sued?

VR: They way the system is setup right now is that if competitors try to participate, they will hurt themselves. The public should be a patent office customer; I’d like to see lower costs in challenging patents. Patent owners are pushing back because it’s taking away some of their leverage.

DK: The country issues patents and congress later finds a flaw in that, and sets up their own process. But now there is a challenge about whether or not they can do that.

Do you sympathize with the argument that these are important rights?

VR: I’d have more sympathy if there was more rigorous evaluation at the outset. What I see is not that rigorous of an evaluation by allowing someone to say “I have a very strong property” right after the office only spent 19 hours looking at it. There’s an imbalance right now.

LC: It’s already a high bar to file an IPR. Better than going through court, I see the solution as economic: Achieving end of patent application which is a benefit to society.

DK: Is there a way that you could define the genuine attempt to practice a patent?

LC: I’d love to see compromise: If something’s not practiced, you get your filing fee back.
Patents are monopolies and monopolies are bad for society. We shouldn’t have an arm of the government handing them out like candy. You can reward the garage inventors, but they don’t deserve a gigantic windfall if they don't bring the economic advantages to society.

DK: Let’s talk about wins in other direction: People who win litigation have their own patents. How do you think about achieving balance between company innovation & value as an individual with own IP?

LC: I’m a purist and idealist; I think that for the people who start companies, none of those successful companies became successful initially. They made products and services that added tremendous value to society and to everyone’s lives. They eventually developed robust portfolios. I would hope that their founders keep in mind the importance of preserving the ability to start companies. I want them to maintain that sense of idealism about what patents represent.

DK: The paradigm is the pharmaceutical industry. In twenty years and one day the price of a pill goes to pennies. It’s hard to imagine a corollary in the tech world where you just wait 20 years and a day and then you can use all of Facebook’s patents.

What is one change you could make that would move the needle toward positive changes in patents?

VR: I was thinking if I lived in a perfect world, everyone would get free lawyers. The rationale is that litigation is really expensive; what I see is that people aren’t winning or losing patent suits not because of merits or demerits but because of the cost of their lawyers. When you know you’re in the right but your lawyer tells you it’ll cost $200,000 and they can’t promise anything, it’s a wise business decision to just pay the $50,000 to the patent office instead.

LC: One of my wishes was granted: “TC Hartland” was decided. We have impacted 40-50% abuse of patent cases.

DK: Before TC Hartland, you could sue a company anywhere they were selling their product, and a lot of these cases were centered in East Texas. Was this about home field advantage?

LC: It wasn’t even a home field advantage. Judges wanted to make sure these communities were economically stimulated and these cases could drive a lot of revenue. So East Texas ended up becoming a place where about 45% of all patent cases in the US were being filed.

One decision addresses potential huge volume of frivolous patent litigation.

LC: I would also reform damages.

Q&A

Q: I have two questions: 1) There hasn’t been much discussion about post-grant review and I’d love to hear your thoughts. 2) There was discussion of the Oil States case; I’d like your thoughts on that.

VR: Post-grant review can be very helpful in one or two areas, but not really in the software space. There are too many to search through.

Post-grant review is a procedure for newly issued patents where a third-party can come in and say it shouldn't have been issued. But you have to do it pretty quickly. Unless you are a large company with legal resources, I don't see much of an impact in software.

DK: if you're in software, you don’t know how the patent is going to get applied.

LC: it doesn't bother me at all…

Q: one of the problems with post-grant review is that if youlose, you increase your damages.
IPRs can consider 101 grounds as prior art
Standard of proof is much higher on art that patent office didnt consider
Patent owner has long time to write infringement report; tremendous disadvantae to… with 3-week turnaround

DK: part of the thread we’ve been running through is the idea that the playing field is tilgin

We’re not really dealing with one rule here, but a series of different rules…

VR: On 101 issue: Supreme Court recently reaffirmed that you can't get patent on abstract idea. This is important to software patents because many are abstract ideas, not any technical explanation of how to implement an idea.
To have a way to decide that is important.

LC: hopefully everyone in the audience will take a stand against the injustice of the patent system

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