PublishedFebruary 3, 2016

“Efficient Infringement” Doesn’t Mean What You Think It Means

Production linePatent reform opponents have found a new pet argument to push: something called “efficient infringement.” They’re using “efficient infringement” to mean that companies will find that it’s cheaper to choose to infringe a patent and fight any lawsuit that comes along than to license patents they’re using. The victims in this scenario are the small inventors who don’t have the resources to sue, because the big companies can simply run out the clock in court, draining the inventors’ resources until they give up.

I think that there’s something else behind this argument: the actual intent is to go back to the days of easy injunctions, when a patent owner who won an infringement suit basically got an injunction as a matter of course.

In order to explain my reasoning, it’s worth a little background.

It’s Not Good to Let One Patent Block Innovation

The original intent behind the term “efficient infringement” was quite different than the way patent reform opponents are using it now. Julie Turner coined the term in a 1998 paper, and she was looking at the problem of companies and individuals who use their patents to block others, but don’t practice those patents. She concluded that society would be better off if we changed the rules of liability for patent infringement to promote the use of new innovations rather than allowing patents to be used solely for exclusion.

That is, if there’s a new invention that improves the way things are currently done, we want society to benefit from it. Turner argued that it’s more efficient to allow infringement (for a price) in such cases, rather than allowing a patent owner to distort the market by blocking technology from everyone. (In this case, “efficient” is an economic term meaning “maximizing social utility.”)

If a large company independently invents something, it’s not to society’s benefit to give an individual inventor the ability to block all of us from having access to it. And I think that’s the real complaint behind “efficient infringement”: it’s too cheap to infringe.

Those who rail against “efficient infringement” are, in effect, arguing that they should be able to get injunctions more easily. Any risk of money damages could simply be priced into a product. The only way to make infringement truly “inefficient” is to enjoin the accused infringer.

In other words, I think the whole “efficient infringement” story is a sort of cover for the real intention: a return to automatic injunctions for patent infringement. Without injunctions, large companies can afford any damages a court might assess, and small inventors may not be able to afford legal costs to make them pay up anyway.

“Efficient Infringement” Hardly Ever Happens

In reality, “efficient infringement” doesn’t exist on any large scale. The main reason is that the story behind “efficient infringement” assumes something that isn’t true, namely that patents are clear and easy to find. That is, in order for the “efficient infringement” story to be true, companies have to know that they infringe. But that’s rarely the case.

Even for an experienced patent attorney, patent claims are a challenge to interpret. Here’s a sample from a recent Federal Circuit case:

A computer-implemented system for enabling borrowers to anonymously shop for loan packages offered by a plurality of lenders, the system comprising:

a database that stores loan package data specifying loan packages for home loans offered by the lenders, the loan package data specifying, for each of the loan packages, at least a loan type, an interest rate, and a required borrower credit grading; and

a computer system that provides:

a first interface that allows the lenders to securely upload at least some of the loan package data for their respective loan packages to the database over a computer network; and

a second interface that prompts a borrower to enter personal loan evaluation information, and invokes, on a computer, a borrower grading module which uses at least the entered personal loan evaluation information to calculate a credit grading for the borrower, said credit grading being distinct from a credit score of the borrower, and being based on underwriting criteria used by at least some of said lenders;

wherein the second interface provides functionality for the borrower to search the database to identify a set of loan packages for which the borrower qualifies based on the credit grading, and to compare the loan packages within the set, including loan type and interest rate, while remaining anonymous to each of the lenders and without having to post a request to any of the lenders, said second interface configured to display to the borrower an indication of a total cost of each loan package in the set, said total cost including costs of closing services not provided by corresponding lenders.

Just by reading that, how can someone know if their company infringes? First of all, it’s long, as many patent claims are. Do you have a “borrower grading module”? What if you outsource your database? Does that infringe? The more you dig into the claim, the more questions come up.

And all that analysis assumes the claim is valid. (It isn’t, according to the Federal Circuit.) To determine whether a claim is valid, you need to hire a patent attorney, which isn’t cheap.

Moreover, how are you supposed to find this patent in the first place? Which of your business activities need to be cleared for any possible patent infringement?

There are literally hundreds of thousands of patents to search, and they often use made up terminology that you’d never think to look for. You could spend millions of dollars searching and analyzing patents and still miss the important ones.

At this point, with a few exceptions, it’s nearly impossible to find the patents that your company might infringe and analyze them.

The analogy that reform opponents are trying to use is clearing a title to land, but that analogy doesn’t fit. The boundaries of parcels of land are registered with a local government office, and each parcel of land has exactly one description of it. You can have a surveyor use that description to physically mark the boundaries of the parcel where you can see them.

With a few exceptions, it’s pretty easy to know if you’re on someone else’s land. It’s next to impossible to know if you infringe a patent someone owns. Even if someone claims you infringe their patent, they could easily be wrong.

Are there a few bad actors? Of course there are. But it’s a fantasy to believe that more than a handful of companies consciously decide to infringe patents.   

“Efficient infringement” is just another way of saying that many people who monetize patents think they’re not making enough money. That’s not a reason to avoid patent litigation reform.

Matt Levy

Previously, Matt was patent counsel at the Computer & Communications Industry Association

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