The reform that is generating the most worry is the expansion of the Covered Business Method (CBM) review program, which we wrote about last week.

Is It Unfair to Give Troll Targets a Way to Defend Themselves?

Here’s self-described “notorious patent troll” IPNav:

We oppose [expanding CBM review], because it is unfair to patent owners. A patent can be challenged over and over at both the patent office and in court, and as a result a patent owner with a valid patent can be forced to spend a lot of money defending the same patent in different venues, and the day when the infringer has to pay is pushed out. Companies challenging patents should get one shot: at the patent office, or in court, but not both.

The expansion of CBM review only applies to existing patents that have been asserted against someone, either with a demand letter or a lawsuit. And if the patent is valid, it will come out of review intact. How is that unfair?

Let’s unpack IPNav’s reasoning. Why would a patent owner be “forced to spend a lot of money defending the same patent in different venues”? Because the patent owner has sued on the same patent in different venues. CBM review offers targets of trolls like IPNav a more reasonably priced (although hardly cheap, with a filing fee of $30,000) way to defend themselves; and the fact is that any argument you raise at the PTO is an argument you can’t raise in district court. In other words, a company does only get one shot, not two as IPNav claims.

The reality is that IPNav is complaining because defendants might get to fight back instead of being forced by financial pressure to cave. My response to IPNav goes something like this:

Are We Risking Innovation?

Here’s another example, this time from the Business Software Alliance:

[Senior Vice President for external affairs of BSA, Matt] Reid said a proposal to expand the patent office’s program allowing for special review of computer-related patents “could inadvertently put at risk innovation for many industries that rely on software, from manufacturing to biotech.” Changing measures that have been in effect for less than a year “before we see the results doesn’t make sense,” he said.

“Put at risk innovation”? How might that work? Suppose a company has an innovative product and asserts a related patent against a competitor. If the competitor requests CBM review of the patent and wins, the original company still has an innovative product; the difference is that now it might have a competitor in the marketplace.

That’s actually a good thing. Now we have two companies with innovative products instead of just one. And the competitor is allowed to keep making its product, which might be even better than the original company’s.

It’s true that the first company doesn’t get the monopoly it wanted, but patent policy is supposed to benefit competition. It’s hardly putting innovation “at risk” to prevent a company from monopolizing a market with an invalid patent. It’s actually protecting innovation by protecting companies from lawsuits that assert invalid patents.

Don’t Worry, Be Happy [About Covered Business Method Review]

As I’ve written before, expanding CBM review is a crucial part of patent reform. So don’t let the concern trolls make you nervous.

The post Concern Trolls “Worry” About Covered Business Method Review appeared first on Patent Progress.

It is quite unusual for the White House to assume leadership on patent reform.  To my memory, the only comparable initiative was the President’s Commission on the Patent System of 1965-1966.  At President Johnson’s request, the Commission took a broad look at the patent system in a time of technological change and issued its report as “‘To Promote the Progress of …Useful Arts’ in an Era of Exploding Technology.”  The report made 35 thoughtful recommendations (including recommending against software patents) but got little political traction beyond the administration.  As noted by Commission member James Birkenstock (IBM):

The commission members were greatly pleased that the Johnson administration accepted all of its recommendations. Regrettably, only a few were enacted into law due to the highly influential Patent Law Bar that opposed most of the recommendations.

The Obama administration’s initiative is narrower, more targeted, and well-documented.  The report not only examines the troll problem in depth but links it to fundamental problems of functional claiming in software, uncertainty in the face of massive patenting, and the overshadowing of R&D by strategic patent acquisition and assertion.  The report recognizes that it is not just a problem of restraining and sanctioning a few bad actors.

As with the run-up to the 2008 financial crisis, the present crisis is the result of inadequate and fragmented understanding of a system that has grown too big, self-interested, and trapped in its own rhetoric.  The patent system has not had to account for its effectiveness for a variety of reasons.  Patent law is highly technical and fact-specific; it is not easy for non-specialists to take a close look.  While government programs are often criticized for mission creep and creating constituencies that fight hard for perpetuation, the patent office has escaped real scrutiny because it is supported by the fees it generates.

 Yet patents are not self-enforcing.  They must be enforced in court, and taxpayers must underwrite the infrastructure and salaries of the judicial system.  When cases are decided in a reasoned public decision, there may be a public benefit, but when trolls use the judicial system to extract settlements, there is a burden but no benefit to taxpayers.

The greater problem is that the real costs of the patent system are simply pushed out to the private sector, where they may or may not exceed the benefits.  The Patent and Trademark Office (PTO) has historically been unengaged with what goes on in commerce beyond its walls.  It does not monitor patent practice, nor the development of patent markets and new business models.  In legal terms, the patent system is one-size-fits-all, and the result is that the pharmaceutical industry has received substantial benefits at modest relative cost.  But high-tech receives benefits diluted by an excess of patents and pays the heavy costs of overpatenting through information failure, nuisance assertions, legal maneuvering, and global portfolio wars.  While trolls threaten all producing companies, large-scale patenting creates winners and relative losers within high-tech.  Companies with the largest patent portfolios gain an advantage over new entrants.  The biggest losers are the individual app developers, startups, and small entities that cannot afford to mount a defense against patent attacks.

The PTO has never had much to say publicly about these issues.  However, in 2010 the PTO created an Office of Chief Economist with what was initially an aggressive economic research program to provide data on the effect of intellectual property on the economy.  Yet its work has focused on fees and internal metrics.  Contrary to what one might think, the PTO’s “quality metrics” are entirely directed to its internal processes, rather than the quality of the patents that go out into the world.  The one externally focused economic study, Intellectual Property and U.S. Economy: Industries in Focus, contributed nothing to the understanding of how patents affect innovation and competition, but simply looked at the absolute size of those industries that were above average in their use of particular forms of intellectual property.  This proved nothing except that half of the U.S. economy is a big number.  One could accomplish the same result by showing half of the economy is more lawyer-intensive than the other – and citing the value of half the economy as an implicit argument for the economic value of lawyers.

Economists have long understood from a series of large-scale surveys that the value and use of patents differs greatly across industries.  As Jim Bessen and Michael Meurer showed in Patent Failure (2008), the cost-benefit calculus varies even more dramatically across industries.  By using “event studies” on stock market valuation they made the case that the costs relative to benefits have grown over time and the benefits now exceed the costs only in a few industries, such as pharmaceuticals and chemicals.  Others, including Richard Posner (a federal judge and one of the fathers of the law and economics movement), argue that industry-specific factors such as long product development cycles and high levels of investment relative to ease of copying justify patents in pharmaceuticals but not in software (where copyright protects against copying).

The problem of imposing a one-size-fits-all legal system on innovative activity is that it leads to disparate, indeed discriminatory results.  Not surprisingly, the system is optimized for the industries that derive the greatest benefits from patents, while it generates conflict and controversy at the other end of the spectrum.  Innovation is too important to leave to lawyers, who have naturally benefited from inflating the scope and scale of the patent system beyond what it does well to where its effects have become divisive and counterproductive.

The real significance of the White House initiative lies in its collective effort to bring economic analysis to bear on patent policy – to achieve the economic results that the patent system was originally designed to provide.  The report is the joint product of all three White House agencies with relevant expertise in economics and innovation.

It is also significant that the PTO does not appear to have been involved in the report – and that the items for executive action would move the PTO away from its applicant-centered mindset.  The PTO is known throughout the government and academia for its insular culture, but the office is now charged with making information available to those who are attacked by trolls.  It is also charged with developing and making public robust data and research on issues related to abusive litigation.  In the long run, this will give the office perspective beyond its walls and insight on how patents operate in the real world.  The next PTO director should be willing to take hard, evidence-based look at the role that patents play in innovation – and not assume the best as a matter of faith.  The answer to the systemic problems of the patent system is not just “more of the same.”

The post Troll Economics: The White House Weighs In appeared first on Patent Progress.

First up, on Saturday June 8, our own Matt Levy’s Letter to the Editor was published in the New York Times, in which he explained the key takeaway of the administration’s proposal:

It’s important to understand the larger point of President Obama’s executive actions. The president has correctly identified software patents as the main fuel for the patent troll litigation wildfire. And he has proposed a reasonable solution: directing the Patent and Trademark Office to focus on limiting patents to what someone actually invented.

That refers to the functional claiming fix, which he explained in depth in a post last week.  In a post yesterday, Matt Levy did a deep dive into another desirable reform, the expansion of the Covered Business Method (CBM) review program, found in Senator Schumer’s Patent Quality Improvement Act, and also in the President’s proposal.  Senator Schumer also had a great op-ed in the Wall Street Journal (paywall alert, sorry!) yesterday, where he explained the benefits of expanding CBM review:

If a troll knows he can no longer trap a defendant in expensive and lengthy litigation, his interest in the suit will diminish substantially. And American businesses can get back to the work of innovation and growth, rather than frivolous litigation defense.

This week, Matt Levy also did a line-by-line takedown of an op-ed in the Boston Globe by former Senator John Sununu, debunking all of his classic pro-troll arguments, like: “Patents Are a Constitutional Right”, “Sure, There’s Abusive Litigation, but Reform Is Hard. And Also Trial Lawyers!”, “Look! Over There!”, “But Universities!”, and “What About Individual Inventors?”

Also, although it’s an area of patents we don’t often cover on Patent Progress, I just wanted to point out that the Supreme Court’s Myriad decision came out yesterday, and SCOTUS unanimously held human genes aren’t patentable.  A few interesting excerpts are below:

To be sure, it found an important and useful gene, but separating that gene from its surrounding genetic material is not an act of invention.

Groundbreaking, innovative, or even brilliant discovery does not by itself satisfy the §101 inquiry.

Did we miss something?  Questions or suggestions?  Feel free to leave a comment below, mention us on Twitter (@PatentProgress), or email us: patentprogress[AT]ccianet[DOT]org

The post Roundup of This Week’s Patent News: June 14 Edition appeared first on Patent Progress.

One part of the solution is to make it easier to get the PTO to review those patents. The Covered Business Method (CBM) review program, which was implemented by the America Invents Act, is a good candidate to use. Here’s why: a person can request CBM review of a CBM patent (I’ll talk about what that means below) at any time, so long as the patent has been asserted against the requestor. You can request review based on any validity argument, and if there’s an infringement lawsuit pending, the judge is encouraged to stay (i.e., put on hold) the lawsuit until review is done.

CBM review is not cheap (the fee alone is $30,000), but it’s much cheaper than litigation. Also, businesses threatened over the same patent can pool resources to jointly file a CBM petition. The two other types of review created by the AIA, inter partes review (IPR) and post-grant review (PGR) are substantially more limited. For example, you can only request IPR based on certain prior art references, namely printed publications or patents and no other grounds of invalidity. And you can only request PGR on patents filed after March 16, 2013, and then only within the first 9 months after the patent issues. So PGR can’t help with most of the patents that trolls are currently using. There’s also no provision in either IPR or PGR to encourage a judge to stay a lawsuit if either type of review is going on, so neither type of review helps avoid the costs of litigation.

Unfortunately, CBM review is only available for a limited group of patents: financial services patents that are not technological. Also, the program ends in 2020. But if CBM review could be used on more low-quality patents, victims of troll suits would have a potentially powerful tool to fight back with.

That’s one of the legislative proposals that President Obama announced last week: expand the transitional program for reviewing Covered Business Method patents to more generally include computer-implemented patents. As we’ve noted, Senator Schumer has introduced a bill, the Patent Quality Improvement Act, which expands the program and makes it permanent.

Expanding the Covered Business Method review is critical to dealing with problematic troll patents. As Sen. Schumer explained in an op-ed in the Wall Street Journal (subscription required) this morning:

The expansion of [CBM review] will benefit businesses in multiple ways. For any business that has actually been sued, it provides a cheaper exit strategy. More broadly, the very existence of this offramp will discourage trolls from suing. If a troll knows he can no longer trap a defendant in expensive and lengthy litigation, his interest in the suit will diminish substantially. And American businesses can get back to the work of innovation and growth, rather than frivolous litigation defense.

In fact, the PTO just issued its first review of a CBM patent, owned by a patent troll called Versata, and the relevant claims were cancelled as being unpatentable subject matter. Considering that the accused infringer, SAP, lost a $351 million jury verdict, that’s a big deal.

Considering how much of a difference this expansion could make, it’s no surprise that a number of big names for hire have come out expressing “concern” about expanding CBM review.

For example, former Commissioner of Patents Robert Stoll is worried about “uncertainty”:

Stoll, now a patent attorney at Drinker Biddle, is especially concerned about unintended consequences of the proposal to expand the subject matter of “business method patents” that can be challenged. Right now, such patents include processes like those behind the buying and selling of stocks, or how an insurance company decides what to charge consumers. The Obama administration is pushing for legislation to expand that category to cover “computer-enabled patents,” which could include software.

“It could have damaging effects on small inventors trying to get into this area because the added uncertainty may scare investors,” Stoll said. “I think software is one of the areas where [the United States] leads the world. I’d rather not mess with it now.”

When I first read that, I wondered what Commissioner Stoll was talking about. Why would it matter to an investor in a startup if a patent covering the startup’s business could be challenged? The challenge would only be possible if the startup threatened or sued someone on the patent, so how does that affect the decision to invest in a developing business?

Then I realized what he was actually saying: if we expand CBM review to cover more business method patents, it’ll be harder for inventors to sell those patents to trolls. It also means that a large company with some old patents that aren’t worth the maintenance fees might have a tougher time unloading them by selling them to a troll.

Obviously, Commissioner Stoll thinks that’s a bad thing. But it’s nice to know that he thinks that Senator Schumer’s bill (and the Obama Administration’s similar proposal) will actually work.

There are also some voices complaining that we shouldn’t single out one category of patents, namely software patents:

“The idea of expanding the PTO’s transitional program for covered business method patents is an area of concern for many BSA members,” Reid said. “Singling out computer-enabled inventions as [sic] class could inadvertently put at risk innovation for many industries that rely on software, from manufacturing to biotech…”

Of course, we’ve had special procedures for challenging particular classes of patents for years: for example, pharmaceutical patents are the subject of the Hatch-Waxman Act, which creates a special type of infringement and a process for challenging validity for just for those patents. That process was created because of the nature of the regulatory and litigation environment for pharmaceutical patents.  We now have a litigation environment with business method patents that is filled with abuse.  Again, we’re talking about allowing the PTO to review patents that someone is using to threaten or sue.

To the extent a patent is more valuable because it can be used more effectively as a tool for extortion, that’s hardly a benefit to innovation. We don’t want more patents; we want more innovative products and services. If patents help get those products and services, that’s good. If they make it harder, that’s bad. Patents are not the end goal here.

Which is a long way of saying if your patents are worth less because they won’t stand up to a challenge, who cares? That’s exactly what should happen.

And lest you think that Covered Business Methods lack a certain flash:

The post How Covered Business Method Review Can Help Beat Back the Trolls appeared first on Patent Progress.

First is the “Patents Are a Constitutional Right” argument:

A patent is a property right, written into the Constitution by the Framers to encourage innovation. The trolls have legally bought and own their patents. Arguing that some patent holders have full rights to sue while others do not flouts the principle of equality under the law.

This has been debunked so many times, it’s hard to believe it keeps coming up. Article I, Section 8, Clause 8 says,

Congress shall have power … To promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries;

That is, Congress has the power to grant a limited monopoly to inventors in order “to promote the progress of … useful arts.” There is no right to a patent, much less a property right. Congress has no obligation to grant patents at all, and it certainly has the power to define the nature of the “limited monopoly” it grants.

Then, former Sen. Sununu moves on to the “Blame the PTO” argument:

The deeper problem begins with bad patents. When the US Patent and Trademark Office issues a patent that is overly vague, broad, or trivial, it invites uncertainty and litigation. The administration’s instruction to require more clearly defined patent claims illustrates this point. Don’t blame the person who made the application; blame the government that granted them 20 years of exclusivity.

Really? That’s like saying a con artist isn’t guilty because the victim fell for it. And even if it were the PTO’s fault, why should society subsidize someone who got a patent he shouldn’t have gotten?

Next, comes the “Sure, There’s Abusive Litigation, but Reform Is Hard. And Also Trial Lawyers!” argument:

Frivolous lawsuits are equally at fault. But nuisance lawsuits plague every corner of our legal system. The solution isn’t fixing the trolls; it’s fixing the courts. In fact, the most meaningful of all the White House recommendations would give judges more power to shift legal fees onto plaintiffs filing “abusive” litigation. Good luck with that. Even modest “loser pays” proposals have been thwarted time and again at the federal level by the American Trial Lawyers Association.

Again, if bad actors are gaming the system, why shouldn’t we try to stop the bad actors? While it’s true that trial lawyers have opposed fee-shifting, there’s much more to the White House’s recommendations than just fee-shifting. (On the legislative side, there is, for example, the expansion of the Covered Business Method review, which I’ll post about later this week.)

Not to mention, how is this an argument against reform? “Well, the courts are the problem, and the trial lawyers will block one of the things the President proposed, so we should just give up.” We should give up because reform is hard? This is a concern troll protecting patent trolls.

Of course, we have the “Look! Over There!” argument:

The anti-trolls lament that the cost of litigation “hurts the economy.” Indeed it does. By far the biggest costs, however, are borne when the giants go head-to-head. The day of the White House announcement, the front pages were filled with the latest chapter in the patent battle royale between Samsung and Apple. Ruling against the latter, the International Trade Commission halted imports of the iPhone 4 and several models of iPad as well.

Of course, court decisions in other cases have favored Apple over Samsung. So who’s the troll there?

What do Apple and Samsung have to do with patent trolls? Nothing. But it’s a nice attempt to distract from the real issues.

And no anti-reform piece would be complete without the “But Universities!” argument:

Some of those suppliers are applied research firms developing everything from algorithms that process digital signals to genetic sequences for disease-resistant crops. They are in business to develop new ideas, build a portfolio of proprietary technology and patents, and license or sell rights to the highest bidder.

Pure research also abounds at colleges and universities. Today, most big schools maintain sophisticated licensing offices that earn royalties from patented technologies developed in campus laboratories year after year.

Look, no one is grouping legitimate R&D companies or universities in with patent trolls. It’s disingenuous to think that President Obama was referring to such entities when he said that patent trolls “don’t actually produce anything themselves.” R&D companies and universities do produce something, namely valuable research.

And finally, let’s look at the “What About Individual Inventors?” trope:

And lastly, what about individual inventors struggling to perfect innovations of their own? Without the resources to pursue every company that may try to use their idea without authorization, selling patents to someone with deeper pockets often represents the best way to guarantee the income they deserve.

It’s like a scene out of Dickens, isn’t it? The poor, struggling inventor, beaten down through no fault of his own, with no choice but to sell his patent to a patent troll. Bah, humbug!

Since when does anyone “deserve” income for failing to develop a successful business? In this case, I have to agree with the person who said that, “governments are setting expectations, without saying so explicitly, that [inventors] will be rescued, supported, or coddled when things go wrong.”

Of course, former Sen. Sununu said that, although to be fair he was talking about banks, not inventors.

But this isn’t about pointing out hypocrisy. It’s about examining incentives. What kind of incentive is it if a person can make a fortune simply by getting a patent, instead of having to develop the patent into a business? We won’t get more innovation; we’ll just get more patents and more lawsuits, which is exactly what’s happened.

As the Obama Administration’s recent study showed, for every dollar a patent troll makes, the defendants who paid them lose ten dollars. That’s a net loss to the economy. Clearly, the incentives are wrong. We should be incentivizing entrepreneurship, not patent lottery tickets.

And that wraps up our quick analysis of former Sen. Sununu’s op-ed. You’re going to be hearing these same talking points over and over again as the push for reform gets stronger, so you might as well practice batting them down. This fight is just getting started…

The post Talking Points Mau-Mau: Sununu Objects to Reform on Patent Trolls appeared first on Patent Progress.

On Monday Tim Wu came out with a great article in the New Yorker, provocatively entitled “How to Make War on Patent Trolls,” in which he discussed the Vermont AG’s new suit against patent troll MPHJ, and suggests FTC action.  An excerpt:

It is time to declare total war on patent trolls. The federal government, and the states, should do everything they can to exterminate them and to make anyone regret getting into such crooked work. The existence of trolls is entirely a product of government: they abuse a government program (the patent law), and continue to exist only thanks to government inaction.

Finally, another recent piece of news is last weekend’s long-awaited follow-up episode of This American Life’s When Patents Attack!  That, and the original from 2011, are worth a listen.

Did we miss something?  Questions or suggestions?  Feel free to leave a comment below, mention us on Twitter (@PatentProgress), or email us: patentprogress[AT]ccianet[DOT]org

The post Roundup of This Week’s Patent News: June 7 Edition appeared first on Patent Progress.

Both business and consumer groups have come out in strong support of the proposals, joining CCIA in praising the President.  After the jump are a series of statements issued by just some of these groups — American Bankers Association, American Hotel & Lodging Association, Application Developers Alliance, Coalition for Patent Fairness, Consumer Electronics Association, Electronic Frontier Foundation, Engine Advocacy, Food Marketing Institute, i2Coalition, National Restaurant Association, National Retail Federation, Public Knowledge:

American Bankers Association

The risk of abusive patent litigation and disingenuous license fee demands by non-practicing entities or ‘patent trolls’ is a serious and growing problem for banks of all sizes.  We sincerely appreciate the White House’s announcement of a package of executive actions and legislative recommendations designed to protect against frivolous litigation and ensure high-quality patents.  We are particularly pleased the package included recommendations to address end-user and demand letter issues, which are very important to smaller banks.

We are committed to working with both the Administration and Congress on this issue and hope that legislation addressing abusive patent litigation can be enacted into law as soon as possible.

American Hotel & Lodging Association

Many consumers, businesses, and other end users across the country, especially in the lodging industry, have been unfairly subjected to infringement suits by the holders of patents – so-called ‘patent trolls’ – on equipment and devices used in their day-to-day operations…The legislative recommendations issued today by the Administration, particularly in the areas of off-the-shelf use protections and steps to curb frivolous lawsuits, would provide significant protection to hotels, resorts, and inns across the county.

We thank the White House for their leadership and look forward to working with them and Congress on addressing this critical issue.

Application Developers Alliance

It is time to snuff out patent trolls and end the damage they inflict on our economy and to innovators.  The White House plan shows app  developers and entrepreneurs that they have an ally in the White House in the fight against trolls. Along with several Congressional proposals, this multi-faceted slate of reforms will go a long way to curbing abusive patent litigation.

Coalition for Patent Fairness

The Coalition for Patent Fairness (CPF) applauds President Obama for expressing his support for combating the abusive patent litigation problem in America.

President Obama’s patent reform recommendations highlight a growing consensus for action against patent assertion entities, or patent trolls, which have expanded their burdensome activities against America’s most innovative industries.

Consumer Electronics Association

President Obama’s decisive action today against Patent Assertion Entities (also known as patent trolls), is on the side of innovation and job creation and against the spineless parasites of society who ruin American businesses.

Electronic Frontier Foundation

Frustration with patent trolls, and momentum for reform, has been building for some time now. Today, the stakes got even higher when the White House announced that it was actively taking on the troll problem. This is big news, and not just because of the seven legislative proposals the White House recommends (more on those below). Even more important are the five executive actions the President intends to take with or without congressional help.

The news here is good. Not all of these reforms go as far as we’d like, but each takes on dangerous aspects of the patent troll business model.

Engine Advocacy

Today the White House Task Force on High-Tech Patent Issues issued a statement with a clear message: it’s time to tackle patent reform…The executive actions make clarity a top priority… The administration’s legislative recommendations also meet key startup needs.

Food Marketing Institute

The grocery industry applauds the Administration’s efforts to increase transparency in the patent system and increase protections for entrepreneurs from PAEs, a.k.a. patent trolls. It is our hope that these measures will serve to reduce the tens of billions of dollars trolls cost our economy every year and free up these resources to be used for  innovation and job creation.

Patent trolls pose an increasing threat to supermarket retailers and we are  heartened that the President is taking major steps to address the enormous burden they are imposing on businesses, and ultimately, consumers.

i2Coalition 

The White House’s executive order and legislative recommendations, coupled with movement we have seen on this issue in both the Senate and House, would deal the patent trolls a big blow.  These reforms to the patent system would arm innovators with the legal tools to conduct their business without the threat of litigation and bogus lawsuits that steal away time and money they could be spending elsewhere.

National Restaurant Association

Patent trolls are a fast growing concern for the restaurant and food service industry… Our membership has become increasingly aware of and concerned with the frivolous demands and litigation  brought by patent trolls that harm innovation in the industry, and ultimately our customers.

We are pleased to see recognition from the Administration that these  patent trolls don’t actually produce anything themselves; yet, they  create a real strain on Main Street businesses, making it critical that  we find a solution that protects downstream users of patented technologies.

National Retail Federation

 The National Retail Federation welcomed today’s White House announcement on plans to rein in “patent trolls,” saying resources retailers could use to create jobs are being diverted to fight frivolous patent infringement claims. NRF will also join other business groups and a key lawmaker at a Capitol Hill event this afternoon calling for patent reform.

‘Retailers have become one of the largest groups of non-tech companies targeted by patent trolls,’ NRF Senior Vice President and General Counsel Mallory Duncan said. ‘Retailers are using precious capital resources to fight or settle infringement claims that they should be using to invest in their businesses and create jobs. This is an abuse of our nation’s laws that needs to be stopped.’

‘Patent trolls don’t target just national brands,’ Duncan said. ‘Small and medium-sized retailers are also being threatened and sued, and they are seen as easy prey because they don’t have the legal expertise or money to easily fight back. Congress needs to be sure Main Street businesses that play such a vital role in our local communities are protected.’

Public Knowledge

 As we have seen in recent weeks, abusive patent practices are serious issues that have attracted attention from lawmakers. We are pleased that the administration introduces new reform proposals, and also supports many of the ideas presented in legislation currently proposed by Senators Cornyn and Schumer, and Representatives Goodlatte, Deutsch, DeFazio, and Chaffetz. Additionally, the five executive actions address issues such as patent quality and International Trade Commission enforcement of patents, patent issues which have posed serious problems for American consumers and businesses.

The post Business and Consumer Groups Come Out in Support of Obama’s Patent Proposals appeared first on Patent Progress.

This is a very big day: the Obama Administration has just entered the fray to help deal with patent trolls, and it’s taking steps that have the potential to be a major part of the solution to the patent troll problem.

The early press reports on the Administration’s efforts have missed the real story: the President and the Administration are publicly recognizing that the problem with patent trolls stems from the problems with software patents. You cannot deal with patent trolls without dealing with software patents.

The President’s Executive action to tighten functional claiming does exactly that.  It recognizes that in order to stop issuing bad and overbroad patents that wind up in the hands of patent trolls, we need to specifically address software patent applications.

Functional patent claims are the claims that drive us all crazy, where a patent just claims a general idea, like, say, filtering files that might be spam, or scanning documents and sending by email, or backing up your computer over a network.

As an example, suppose I came up with an idea for a car with a gas-electric hybrid engine, but where the battery for the engine is recharged by a passenger pedaling a built-in stationary bicycle. But my patent claim is broader than that; I claim “A motor vehicle with a gas-electric hybrid engine comprising a storage battery, wherein the storage battery is recharged using a mechanically-powered generator.” It’s an accurate description, although it doesn’t include the specifics of what I invented. By describing the invention in terms of its functions, that is, its general features, my patent omits what should be an important limiting detail: my invention is impractically pedal-powered.

As a result, this hypothetical patent would cover nearly all hybrid cars, even though I only invented one (fairly silly) type of hybrid car, because all commercially available hybrids recharge the battery using some sort of mechanical generator. I could make a fortune suing car manufacturers, even though I wasn’t the first to come up with a hybrid car, and my design is totally impractical. That’s because the patent system strongly favors patent owners; once a patent issues, it’s very difficult to prove the patent is invalid. And once a company is sued for patent infringement, it’s nearly impossible to get out of the case quickly and cheaply, no matter how bad the patent is.

The hybrid car patent I described is ridiculous. And yet that’s exactly what has happened with software patents for years.

No more. The Administration is going to work with the PTO to develop guidelines for examiners to make sure that inventors can’t claim more than they invented, focusing on computer-implemented (that is, software) patents. The flow of crazy software patents should stop at last, or at least slow to a trickle.

The Administration deserves huge praise for this — many of us have been pushing for just this change for a long time. Obviously, it will take time to implement, but it is clear that the Administration is committed to making this commonsense reform happen.

We have to work with the Administration and Congress in a bipartisan way to get this done right, because there will be naysayers among certain legacy special interests.

But Wait, There’s More!

If that were the only thing the Administration announced, it would still make my day. But there is also a newly-released study, four more Executive Actions, and legislative proposals, and there’s a lot of good stuff included.

First, the White House has released a study showing patent trolls are a huge problem that wreak damage to the economy. Not a big surprise, but it’s nice to have data backing us up.

In addition to the action on functional claiming, here’s a quick summary of the other four Executive Actions announced today:

• There will be no more hiding who owns a patent from the PTO. The real party of interest will have to be disclosed on every application and when maintenance fees are paid.

• End users, who have been the most vulnerable victims, will get support from the PTO to help deal with demand letters.

• There will be more academic experts brought into the PTO to study and research patent troll litigation.

• And finally, the Administration is going to work to better enforce exclusion orders issued by the International Trade Commission (ITC). The ITC has the power to issue an exclusion order barring importation of goods that infringe a U.S. patent, and Customs and Border Protection (CBP) carries out the order. The problem is that even if a company redesigns its product to get around a patent, exclusion orders can be so broad that CBP bars the redesigned product as well. The Administration is going to work with the ITC and CBP to try to fix this problem.

The President is also calling on Congress to pass legislation to address patent trolls. There are a few proposals he makes that are particularly good:

• Expand the Covered Business Method patent review program — The Administration is proposing to expand the Covered Business Method post grant review. This seems to be along the lines of Senator Schumer’s bill, and it’s a very good idea.

• Protect end users — The Administration is proposing some sort of immunity or reduced liability if a consumer or company buys a product and uses it as intended. There would also be an automatic stay of infringement suits against end users if there’s also an infringement suit against an upstream (e.g., the manufacturer) company. We need to see the details, but this looks promising.

• Fee shifting — Another important piece that CCIA has long supported is shifting the defendant’s legal fees to the plaintiff in troll patent litigations. The Administration is supporting a type of fee-shifting similar to what is done in copyright now; basically, a judge would have the discretion to award fees to the winner. This doesn’t go as far as the SHIELD ACT, but it is definitely a step in the right direction.

Overall, we are very pleased with the Administration’s announcement. We look forward to continuing to work with the Administration and with Congress on addressing the patent troll problem.

The post Why the Obama Administration’s Actions Against Patent Trolls Should Make a Difference appeared first on Patent Progress.

This weekend, This American Life aired the follow up to When Patents Attack!

The episode couldn’t be more timely, with patent troll legislation being considered in Congress.

The great thing about the follow-up is that we learn some important details that the reporters weren’t able to find out for the first segment. And it turns out (surprise!) that Intellectual Ventures wasn’t exactly truthful.

Remember the patent that This American Life focused on? The named inventor was someone named Chris Crawford, who sold the patent to IV. Crawford’s patent claimed to cover updating computer software remotely. Leaving aside the fact that the idea wasn’t new, it wasn’t even Crawford’s. He stole it from his business partners and named only himself on the application. Is this the kind of inventor that IV really wants to be “protecting”?

There’s no evidence that Intellectual Ventures knew about Crawford’s conduct, but it seems unlikely that IV bothered to ask too many questions. After all, it’s extremely difficult to prove either fraud on the PTO or incorrect inventorship in court.

But the more interesting tidbit in the story is the deal that IV made to sell the patent to the patent troll Oasis Research. IV claimed that it had no control over what Oasis did with the patent, so if Oasis happened to act like a troll, IV’s hands were clean.

Except that it turns out that IV takes 90% of whatever Oasis makes from the patent. That’s basically money laundering, with Oasis getting a 10% fee for keeping IV’s tentacle prints off the cash. I don’t mean to imply any illegality — I just mean that IV is being dishonest, claiming that it’s not a patent troll while at the same time sending its hired gun, Oasis, out to do the dirty work. Are we really supposed to believe that IV gets 90% of the money Oasis makes, but IV has no say in how that money is made?

IV’s denials of being a patent troll remind me of a classic scene from Casablanca:

IV’s seeming inability to acknowledge what it’s doing shouldn’t be too surprising, I suppose. As Upton Sinclair said, “It is difficult to get a man to understand something, when his salary depends on his not understanding it.”

As to everyone else, if you still believe that Intellectual Ventures is anything more than a patent troll with better funding and nicer suits, I have a proverbial bridge to sell you.

And this brings me back to a question I was trying to get at a couple of weeks ago: what is the benefit to society of allowing patent trolls like Intellectual Ventures to enforce patents at all? How does making IV and people like Chris Crawford richer help promote the useful arts?

If you have a real answer, I’d love to hear it.

The post Dear Intellectual Ventures, Part 3: NPR Showed You’re A Patent Troll, Get Over It appeared first on Patent Progress.

MPHJ, and its 40 or so shell companies, goes around threatening small companies that it believes might use a scanner attached to a network. Two of the organizations that MPHJ targeted were Vermont non-profits that help the disabled.

That was too much for the Vermont AG, who brought suit against MPHJ, accusing it of violating consumer protection laws by lying in its demand letters.

It’s certainly creative, and I applaud the AG for trying to do something about MPHJ. Unfortunately, as I wrote the other day, it’s a stretch to apply state law to patent trolls.

MPHJ is what Mark Lemley calls a “bottom-feeder troll”:

Second, a growing number of trolls are interested in quick, low-­value settlements for a variety of patents. These plaintiffs do not want to go to trial and are thus not particularly interested in the quality of their patents or whether they are infringed. Rather, they rely on the high cost of patent litigation — a median of $6 million for substantial cases that go to trial, by one recent estimate — to induce the parties they sue to settle for small amounts of money rather than pay millions to their lawyers. We call this group the “bottom‐feeder” trolls. While no individual patent suit in this model makes a lot of money, the model can be lucrative because patent holders can sue lots of defendants on the same patent, forcing multiple settlements, and because there are lots of patents to be had for very little money as long as quality is unimportant.

There are a number of litigation reforms being discussed in Congress, and those are important. But getting at bottom-feeders needs more than just litigation reform, because trolls like MPHJ don’t litigate. Their goal is to get a large number of payoffs using the threat of litigation as leverage.

Part of the problem is that small businesses feel helpless — legal advice is expensive, and patent lawyers (including yours truly) can’t promise anything except that litigation will cost a lot, meaning that there’s a substantial risk of going bankrupt. It takes a lot of guts to go all-in when your business is being threatened.

Bottom-feeders thrive on the isolation of one small business at a time. That suggests that bringing small businesses together to share information and resources should be part of any package aimed at dealing with patent trolls.

It’s also important for manufacturers to be part of this process. Xerox, Ricoh, and HP have petitioned the PTO to review some of MPHJ’s patents. But right now, a manufacturer doesn’t have the right to intervene to protect its customers. That needs to change as well.

Vermont is doing the best it can, but it will take federal action to have much of an effect.

The post Vermont Targets A Bottom-Feeding Patent Troll, But It Can’t Do The Job Alone appeared first on Patent Progress.