The PATENT Act
Regular readers know of my longstanding concerns and frequent posts on the topic of patent trolls. They are a scourge on the startup sector, where patent trolls wreak havoc, and the innovation sector more broadly. The Senate has been working to address these issues via a non-partisan bill called the PATENT Act and a companion House bill called The Innovation Act. These are both good bills and everyone in the startup sector should support them enthusiastically. Julie Samuels of Engine wrote an excellent post about the PATENT bill in the Senate and I’m going to cut and paste it below instead of trying to do better (because I can’t).
Today, Sens. Grassley, Leahy, Cornyn, Schumer, Lee, Hatch and Klobuchar introduced the PATENT Act, an important piece of legislation targeting a serious patent troll problem. Engine is proud to support that bill.
The PATENT Act, and the Innovation Act, its House counterpart, are effective because they are comprehensive in scope. Each contains a package of incentives that, taken together, insert balance back into patent litigation, giving troll targets the tools to fight back and ensuring that patent holders act responsibly. Importantly, they are carefully crafted to ensure that a patent holder with a high-quality patent and a legitimate claim of infringement will face no barriers to making that claim.
To understand the way these bills work, you have to understand a bit about the patent troll problem. Patent trolls are primarily armed with two weapons: low-quality, impossible-to-understand patents and the outrageous costs of patent litigation, which can easily cost a defendant well into the millions of dollars. So imagine you are a small startup, cash-strapped and hungry, and you get a patent demand from a company you’ve never heard of, claiming it owns some seemingly basic technology. (This really happens. Often. See here, here, here, and here, for example.) Your choices are: hire a lawyer and spend valuable time dealing with the problem or pay the troll to go away, usually for a sum far smaller than what it would cost to hire that lawyer or go to court.
The good news is that the Supreme Court has been busy trying to fix the problem of low-quality patents. The bad news is that we still have a long way to go. Patent litigation remains outrageously expensive and one-sided, giving a patent owner who is willing to take advantage of loopholes in the system the ability to run roughshod over defendants.
This is where Congress, and specifically today’s introduction of the PATENT Act, comes in. Its provisions help right the imbalance in patent litigation through a series of reforms:
- Transparency and Heightened Pleading: Currently, someone can file a patent suit without providing almost any basic details about his or her case, information like how a patent is infringed, what products allegedly infringe it, and even who owns that patent. This information is easily known to any patent holder at the outset of a case, especially those who engage in a responsible amount of due diligence prior to filing a case. However, getting this information can cost a party being sued tens or even hundreds of thousands of dollars. The PATENT Act would fix that, requiring patent holders to provide this basic information at the outset of litigation and also require patent holders to tell the Patent Office when they transfer a patent. Only with this basic information can parties make informed decisions about how they should proceed. If a party legitimately cannot find some of this information after making a “reasonable inquiry”, it may still file a suit, an important caveat protecting the responsible patent holder.
- Fee-shifting: Currently, little incentive exists for a party to defend itself in court. After years and millions of dollars spent litigating, a successful party will often be sent on its way with nothing more than a Pyrrhic victory. The PATENT Act remedies this by awarding fees to a winning party when a court determines that a losing party’s position was not “objectively reasonable”. This provision carefully strikes a balance between deterring those who bring crappy, unsubstantiated lawsuits and those who bring reasonable, good-faith cases. It also includes important provisions that would effectively end the practice of using shell companies with little or no assets to avoid responsibility. Specifically, a party who doesn’t make or sell anything with its patents will have to show that it can pay for fees if they are awarded. Only with this incentive can many startups afford to take on a troll threat, discouraging those trolls from bringing frivolous cases.
- Demand Letter Reform: Currently, trolls send vague demand letters full of legalese, targeting small businesses and even individuals. Because this takes place before a lawsuit is even filed, there is no public record of how often it happens. We know it is common practice, so we also know that we can’t even properly understand the scope of the entire patent troll problem. The PATENT Act will help fix this by requiring that such letters include certain basic information about the infringement claim and that they do not make false claims about the patent holder’s rights with regard to the patent. Only with these requirements will startups be able to make informed decisions about whether they should respond to or ignore a demand letter and whether they should hire a lawyer.
- Discovery Reform: Currently, discovery is by far the most expensive part of litigation for any party facing suit. For a patent troll who doesn’t make or sell anything, the cost of discovery is next to nothing. However, it can use abusive discovery practices to drive the costs of litigation even higher than they already are. The PATENT Act would curb some of the worst of these practices by staying discovery until a party has had a chance to try to have a case dismissed. It also makes further recommendations to shift some of the discovery burden from the party producing information to the party requesting it. Only with these reforms can small companies and startups afford to litigate.
- Customer Stay: Currently, trolls love to target a company’s customers, claiming that by using off-the-shelf technology those customers are liable for infringement. This can put enormous pressure on companies that provide products and services (e.g., every company). The PATENT Act provides tools to both the customers and the companies in this dangerous situation, allowing the company to fight the litigation on behalf of its customers. Only with this provision will startups be able to protect their customers.
To be certain, the PATENT Act is not perfect. There are a number of areas where the bill could be made stronger. For instance, we wish the discovery reforms went farther, clearly providing in-statute limits on discovery to those documents directly related to the litigation and requiring a party seeking documents to cover the costs of getting those documents. We’d also like to see the bill more directly address venue and make it easier for parties to move a case out of the Eastern District of Texas, where so many cases are brought and where judges are notoriously plaintiff-friendly. Likewise, we remain concerned that the current customer stay provision only kicks in when the manufacturer is already involved in litigation. We think improvements could be made to make it any easier for that manufacturer to actively step in on behalf of its customers. Finally, we think the bill could also make it easier and cheaper for parties to challenge low-quality patents at the Patent Office through a process called inter partes review (IPR). For many parties, seeing a case all the way through to a final decision is not an economic reality, even with the above-discussed reforms. IPR provides a valuable means for a startup or party with limited financial resources to invalidate or narrow the scope of an otherwise overly broad patent.
All that said, we remain proud to support this bill. The heart of it—the litigation reform provisions—represent a hard-fought compromise, spearheaded by Sens. Schumer and Cornyn, who tirelessly worked to get this done. We will continue to work to improve the PATENT Act where we think it needs improvement, and fight off any efforts to water down its provisions. We look forward to seeing this become law.
On the practical issue, it seems that there is equally worth doing financial opportunity for anti-patents-troll service. Charge reasonable fees from each sued startup, exploit the economy of scale when fighting many patents lawsuits, and collect the fees when winning.
Litigation doesn’t really scale. Maybe through joinder you can reduce costs on same claims with different defendants but that’s about all I think you can do. I could also imagine law firms working patents in a particular subject area being able to negotiate cheaper fees for expert witnesses they use more consistently.
Legal insurance type businesses have been tried before and I’ve never seen one work. Most likely because of the unpredictable nature of the legal process. Insurance companies are of course a well oiled machine that have actually managed to make a dent in slip and fall and similar type claims, but I don’t see them going down this route.
When I first read The Patent Act http://en.wikipedia.org/wik… that was passed in 2011, I didn’t like it. It was based on first to file, and I thought major corps would take advantage by filing on every piece of IP they had-compromising startups. There are three strategies to thwart innovation. First, Ignore it and hope it goes away. Second, “Sue the Bastards”. Third, lobby and get regulations written to stop competition and put up a regulatory barrier to entry.It’s good Congress is taking this on. Innovation is the lifeblood of America and part of the American dream. It’s why stuff happens here, and not other places.
It is sad but you are right not to include the fourth which is innovate yourself.
When tax collection and muni bonds are not enough: https://ipcloseup.wordpress…
.While this issue pertains to patents, it is symptomatic of the broken nature of commercial litigation, in general.There will likely be no real reform–including for patents, though the Patent Act is taking a step in the right direction–until there is “loser pays” which places the danger of losing as an important element in the original decision making as to whether to file suit or not in the first place.Make no mistake, the real enemy here is the plaintiff’s bar who are the enablers of patent trolls. Again, it is the plaintiff’s bar. Again, it is the plaintiff’s bar.The fact that Schumer and Cronyn are cooperating on this bill speaks volumes.JLMwww.themusingsofthebigredca…
i agree with you that litigation costs are a huge issuethe “fee shifting” provisions in this bill are as close as i’ve seen the senate democrats come to crossing the trial lawyers
Dems going against trial lawyers would start earthquakes in DC.
“loser pays” would tllt the scales of justice firmly to those with the deepest pockets. who could possibly afford to pursue litigation in such a world? only those who could afford to lose. that would be a tragedy. the rich would have nothing to fear and would suppress and oppress the little company and inventor with gleeful abandon. the courts do not decide “winners” and “losers” – they settle disputes amongst litigants who are presumed to have legitimate claims and defenses. the new legislation goes a long way towards clearing away spurious claims and defenses. but lets not throw out the baby with the bathwater by saying poor small inventors and startups somehow have to have zillions of dollars on reserve to consider fighting against IP theft
.Dissecting what you say, I observe the following:The rich already have a huge advantage. They currently can sue and destroy whomever they want. No changed condition there.The “contingency” funded lawyer today essentially exists only on the plaintiff’s side — you have to win something to get a piece of it.If there were “loser pays” then law firms would be wiling to undertake a defense on the same contingency basis as there is now something to win.I know this from first hand experience having bought into troubled companies with big legal liabilities and seeing how contractual matters — which often have contract legal fee recovery provisions — and torts are settled differently.What we have now favors the trial lawyers. What we need is to defang the trial lawyers.Medical tort reform in Texas has proven it is possible. Perfect? Not yet but then again it is Texas and we are damn near perfect already. [This is a joke, y’all.]JLMwww.themusingsofthebigredca…
The “contingency” funded lawyer today essentially exists only on the plaintiff’s side — you have to win something to get a piece of it.Not only that but the contingency lawyer is incentivized to keep a case going once he has invested a certain amount of time into it “throwing good money (time) after bad”. This is a really powerful principle and I feel the reason why malpractice and personal injury claims accelerated since the advent of legal advertising decision (in the 70’s). (Now appears as explained below to be swinging in the other direction..)The concept is simple. If the lawyer only makes money if they win a case (contingency) then the other side knows they are not going to give up easy because there won’t be a client receiving bills every month to apply pressure. This seems counter intuitive since you would think that the lawyer would rationally realize they should cut the bait and walk away. But they won’t and the other side knows that. Rationally and emotionally are two different things.Only (I believe) in the recent decade the insurance companies more or less decided collectively that they were going to not get walked all over so balance of power has shifted and the PI attorney is less likely to take on the case.
Good point Steve. This bill could favor larger companies to possibly bully startups.
btw, i do agree the real villains here is the plaintiff’s bar.
until there is “loser pays” which places the danger of losing as an important element in the original decision making as to whether to file suit or not in the first place.How does “loser pays” make a difference if the entity filing the lawsuit is a shell company?  Unless they were required to post some kind of bond in advance.
The post by Julie wasn’t super detailed about this component but did mention the bill contains a requirement that plaintiffs show an ability to pay the defense legal fees if they lose. Presumably if they do not then they are barred from moving forward.
And taking the other side on this you can also see how having a “loser pays” with either posting a bond or “show an ability to pay the defense fee” could hurt the small inventor (with let’s assume a legitimate claim) who needs to bring legal action.
True. Although I think if the infringement claim was strong enough and the pockets of the defendant large an enterprising law firm would find the creative energy inside itself to help their client meet that burden and to shift the risk of losing elsewhere.
.The use of shell corporations specifically for litigation purposes runs afoul of the concept of “piercing the corporate veil” wherein the liabilities of a corporation are visited upon its principals.I have successfully litigated that issue several times and it a fairly easy proof under the law.The way to tighten this up is to redefine the nature of “frivolous” lawsuits in which the claim itself is thrown out because of the nature of the plaintiff.It is not unusual at all for a party to an appellate action to be required to post a supersedeas bond wherein the loser is required to provide proof of financial wherewithal to ensure collection as a condition of an appeal.Know this — the plaintiff’s bar wants to be able to file claims/lawsuits without any more rigor than the $25 filing fee.If a plaintiff and a law firm were required to make a definitive statement that the claim is serious and that if the claim is defeated they acknowledge the requirement to pay the winner’s legal fees, then the practice will be dampened.A shell corporation exists for only one reason — to shelter the owners of the corporation from the liabilities of the corporation.This is a legitimate objective for “real” companies but not for companies whose business is suing folks.JLMwww.themusingsofthebigredca…
Agree and agree but it’s hard for me to believe that a proper shiester couldn’t game this type of system even if just at the early stage (and prior to having to post a bond). Also as I pointed out in another comment the same things that stop patent trolls could very well stop the guy in the garage with no assets but an attorney willing to be reasonable and take a case on for them. We all want to think about this like SCOTUS and pornography “we know a troll when we see it” however obviously we can’t define legally that way.
typically i’m skeptical – the very legitimate need for patent litigation reform is so often used by huge entrenched corporations and deep pocketed financial players to further consolidate their control of markets and upstart inventors. but i applaud and support these new laws. they offer sensible reforms, and balanced approaches. we who sit in the far center salute the collaborative thoughtful effort that went into crafting these reasonable pieces of legislation. 🙂
the “far center”!!!!
I was going to ask what the “far center” was/meant but a quick search returned me back to AVC: http://avc.com/2012/06/the-…
Greetings. All are welcome!
Reasonable? It will not be possible for an independent inventor to get to the courtroom. Loser-pay with a joinder of investors so they lose personal assets and bonding (called certification) will eliminate that. Also, have you checked with any contingency law firms lately? Even under today’s post AIA and post Alice world, they are not taking cases on contingency. Inventors already can scarcely defend their rights. This legislation wipes it out.
TL;DR but fixing the issue of “low-quality patents” seems to be an important causal factor.Does this reform cover the case where patent holders sit on these patents and don’t apply them for any products. It strikes me there ought to be an aggressive sunset on patents that aren’t used for anything.
I actually had a similar thought. Trademark law already has a use in commerce requirement. a similar requirement could be adopted for certain classes of patents and maybe only go into effect after a certain number of years so inventors have time to properly ramp up and utilize it. However I do think some NPEs would likely try to get around it through token uses. A group like intellectual ventures could probably finance low yield production using 3d printers etc.
Patent terms are set by statute, 20 years from the filing date. Keep in mind that drug patents take years to get approved.
But tech could be different.
These look like good ideas. Happy to see Congress doing something productive and helpful. It will be interesting to see who opposes this and why.Fred – In your experience, what is the best way for a early stage startup to currently deal with these patent trolls after they are threatened?I want to share this recent clip on Patents from Last Week with John Oliver (one of my favorite shows currently) https://www.youtube.com/wat…
Thank you Fred. I have lobbied personally for these bills and improvement of patents and copyright for some time. Some will find things not to like in these bills, but they look like progress to me. With so much pressure and maneuvering around these, it is important that citizens and firms keep this issue alive. Even with these bills there will still be a lot of work ahead.
Sure you have. You’re a lobbyist with the Consumer Electronics Association. Issa used to lobby for your group too, but now he’s Chairman of the House Judiciary committee that writes the bills. Probably pretty easy for you to get into his office and help.Your group members assemble other people’s inventions into products and, using massive financial resources and market power, saturate the market leaving inventors in the dust.Nice job.
No Paul I am not a lobbyist. I am a small business owner. I make products. I have patents, I have been held up by patent trolls
As I noted to you separately, I am not a lobbyist. I am a small business owner. I make products, I hold patents and I have been held up by patent trolls and I know many others over the course of my career in CE. I am a citizen and I make time once or twice a year to go to talk to my representatives, and I hope you do too even if I do not agree with your views.
A quick question. From your own site, you are part of CEA. CEA has been lobbying quite hard for pro-reform. Why is it that CEA continues to use false and misleading stats for the pro-reform stance? For instance, CEA on their own site and on twitter, continues to use a multitude of ‘new’ twitter accounts to contact people in congress with following stats:- Patent Trolls drain the economy of $1.5B a week- Patent Trolls cost the economy $29BBoth of these stats misleading at best. They are from the 2011 Boston Study that was funded by the Coalition for Patent Fairness…which is a coalition that includes Google, Cisco, etc. http://en.wikipedia.org/wik…Even if you took the numbers at face value (and disregarded that they are a transfer from one entity to another and not a loss), they refer to years 2007-2010. Not present time and not after AIA, Alice decision, etc. This has been pointed out multiple times to CEA but they continue to use these false numbers and narrative.
Of course the other side of this is the legal economics one.If in fact these troll claims are so bogus on their face, you would think that with all of the unemployed lawyers and law professionals (apparently) out there, there would be an opportunity to offer legal services at a far lower rate than by using a top shelf firm which “runs into the millions of dollars”.See the paradox (or is it irony)? Companies are saying the claims have no merit but yet they are hiring the best, or white shoe, or very expensive law firm which costs “into the millions” to defend against these lawsuits. After all when you break your arm you don’t go to the top orthopedic surgeon, you go to the ER where a nurse or medical student can set the cast.
An interesting idea. I think there are a few reasons why this hasn’t occurred. First is that in any litigation there are fixed costs that do not change in relation to the firm you use. For example airline travel and hotels to the court venue (if applicable) or the software needed to appropriately process eDiscovery and engage in legal research. Some of these costs are not applicable to other things law firms might do like real estate closings. Secondarily even if you are comfortable with the civil litigation process, the patent litigation process has special components to it like Markman hearings and claim construction that many find difficult. If you are litigating a pharmaceutical patent you will find it troublesome to build a defense without knowing how chemistry and biology work. Either way you’ll likely need to pay experts at some point whether to take the stand or to consult through your process and those are quite expensive. I am told that within the litigation community patent and death penalty litigation are considered the hardest things to do. Finally even if all these things do align and you are smart and have familiarity with patents and the subject area, client acquisition is going to be difficult as most companies already have engaged a law firm they use and are comfortable with when they went through formation.
client acquisition is going to be difficult as most companies already have engaged a law firm they useYeah exactly but that’s a pox on their house then. If you are making a business decision because “you feel comfortable” and “it’s the easy thing to do” then you have less of a reason to complain when that decision costs you more money than it should.Of course people frequently go for the low hanging fruit of professionals rather than seeking out new less expensive or even better alternatives. In some cases this makes sense since the cost of trying to find a improved solution outweighs the benefits And there is no question that lawyers are salesman and develop their client base not only by the work that they do  but by wining, dining and playing golf or just acting in a way that the client thinks that they are their friend. If you pay someone by the hour $1500 they will listen to you as well and be your friend. You will think they like you. (And they might actually like you but let’s face it the money goes a long way in creating the “relationship”. I am doing this right now paying a “professional” painter way more than I should for a particular job. Or using the “regular attorney” for a trademark filing (not enough $$ to worry about, right?) I just don’t have the time to interview more painters and besides (I rationalize) “it’s spring and all painters are busy and jacking up their rates”. But if the cost of the work wasn’t trivial (It’s only about $2500 of painting) I would certainly put in the time to find a better lower cost solutions or get bidding (on a large project obviously). Let’s face it many things that lawyers do contract wise will never ever matter because most agreements don’t have any real world legal consequence.
I think that’s a fair assessment although when someone is starting out I do not believe there is a good mechanism for evaluating how “risky” of a choice they are to take as counsel to litigation, and patent litigation is (generally) much higher stakes for a company than a trademark filing or having a contract written.
low quality patents could end tomorrow if the bill inserted “common sense” into the governing law (literally). Patent claims are akin to a jigsaw puzzle, you need all the pieces to reject a patent claim. If pieces of the puzzle that are not within the prior art but common sense says are likely to be (or likely to “developed in a hackathon” ) could support an obviousness rejection, low quality patents would be not be the problem they are today.
What really needs to happen is to stop granting software and business methods patents. Consider the case of the can opener. I have no problem with patents being granted on thousands of can opener designs. But now lets allow an algorithm (software) patent — patent making holes in the can until you can get to its contents. See the problem — you now own the concept of opening the can, not a design for a can opener. No one can make another can opener of any design without your permission. Algorithm patents allow you to patent things that haven’t even been thought of yet (like new can opener designs). This certainly does not “promote the arts and sciences”, in my opinion software patents harm progress in the arts and sciences. Copyright the code, but disallow patents on it.
This is not a correct characterization of algorithm patents, though business method patents can work that way. You cannot patent an abstract algorithmic concept like “sorting”, only a specific way of expressing that concept. There are always an infinite number of ways to express an abstract algorithmic concept, so it is not possible to exclude people from implementing an algorithmic concept, only particular expressions (which may be more efficient than other known expressions or be required by a standard).The rationale behind why algorithm patents are valid in Europe, contrary to popular misunderstanding, is that a qualified algorithm patent can be expressed as a specific electronic circuit design — they are fundamentally equivalent. Business method patents (“doing X on the Internet”, “one-click shopping”, etc) are not expressible as specific electronic circuits. Since electronic circuit designs are patentable, so are computer algorithm patents.
Software patents are over 50% of all patents. They are in everything from your phone to you shoes. If they are not the product, they are an enhancement to the product. If they are not the product or an enhancement, they are the system that supplies the factory, builds the widget, distributes it, manages its finances and people and sells the product. Software is everywhere.You want to copyright code? Micky Mouse is over 75 years old and still copyrighted. Do you want to give someone a lifetime grant that can be continued for decades?If you eliminate software patents, would you invest your money into start up a software company knowing that a larger player could steal your core technology and then using big money and market power take the market and leave you in the dust? I suspect that you probably wouldn’t.You may argue that you could get VC funding to gain a first mover advantage. Perhaps that would work if you are in a consumer internet space, but it would not work for something technical like enterprise software where giants control the space. They’d just copy your stuff and massivelyupgrade their systems leaving you to eat your losses.That is a foolish view that passes the brainpower and creativity of independent inventors to large entrenched corporations like Google… who by the way is paying for this legislation in the first place.
Code is already copyright. Code is the only thing that can be both copyright and patented at the same time.
It is probably worth reading up on copyright laws. “copy” must be substantially identical to be considered copyright infringement. Writing all-new code to build the same application is an easy way around copyright protections.
A very simple way to hugely increase the quality of patents issued would be to limit the PTO to issuing 1,000 patents a month. Last year they issued 302,000 patents. I truly do not believe that there were 302,000 inventions made last year that were worthy of patent coverage. Given historical growth rates they will be issuing over a million a year within 20 years.Cellphones currently have about 250,000 patents that can be applied. What is that number going to be in 20 years? Five million? Of course every one of these patent holders wants a royalty of 3% of revenues.
That seems arbitrary to me. Shouldn’t the number of patentable ideas increase linearly (or even exponentially) as the population and education of population increases? Isn’t it a bit cynical to believe there is a ceiling on human ingenuity?
Look at the trend – 20 years from now there will be over 10M active patents. Does society need 10M government granted 20 year monopolies and the corresponding pile of 20M lawyers to fight over it? Or would we better off only granting monopolies only to the big inventions (1,000/mth) and not patenting the rest? How can anyone possibly comprehend the 10M patents you may be infringing on?Everything we use today is built on past inventions. The more friction we pile onto this process the slower the world economy grows. Instead of messing around with piles of patent lawyers get your idea into production and start selling it. So many people don’t understand that ideas are a dime a dozen and what really counts is executing on it. You don’t have to have a patent to be successful.The real crime of patents is that they stop innovation. I’m a practicing engineer. There are entire areas I won’t touch since they are patent coated mine fields. Some of those areas haven’t seen any innovation in a decade because the threat of patent litigation from the ruling dinosaurs keeps everyone out.
I don’t disagree that the patents create the issues you mention, but I think that capping the number of issuances is a pretty blunt instrument to solve these issues with. If next year someone invents cold fusion, teleportation, and a cure for cancer which thing are we going to disallow?
Do you really think we will solve more than 1000/mth of those problems? Limiting the number of patents granted has some really nice side effects.It makes the patents that do get granted really valuable. By reducing the number of patents granted it becomes possible to tell if you are infringing. With electronics/software right now it is almost impossible to tell, you have to ship and wait for the vultures to descend. It is far easier to search for someone infringing your patent than it is to search and make sure you aren’t infringing someone else’s patent.Limiting the number moves where the legal fight occurs. Now the big legal fights will be with the PTO and how they pick that 1000 each month. That’s great – get all of those lawyers fighting with the government and leave the businesses alone. Since there are far fewer patent you will know what is patented and you will be able to avoid infringing if you choose to. So if you are willing to not use those 1000 technologies you can be free of the patent system.
Honestly I’m not convinced capping issuances is going to suddenly make the examiners grant more clearly defined patents. I also am not sure I want to live in a world where government is making a judgement of the value of my inventions in relation to other inventions.
And I don’t want to live a world where I have to worry about infringing on 10M patents. Consider how many patents that is, there are only 16M books in the Library of Congress. Have you read them all?
No but I don’t need to, I use Google to sort and filter the relevant ones.
If only it were that simple to identify all of the patents that can be asserted against you. I’ve had to sit down with a lawyer and spend six hours staring at patent claims trying to understand what the other party thinks we are violating.
Check out how patents from Hayes modems are being used to go after current Bluetooth. Last time I saw a Hayes modem it was in a museum.
Since the beginning of the patent system (1790), only 1.5% have been litigated. Of those 97% settle without trial. The vast majority of those patents create no market. So what if they are allowed? If someone wants to spend some money at the PTO, I say let them.
Another approach would be to significantly shorten the coverage period.
phrama would scream. They need 20 years since drugs can spend 10 years in testing before they hit the market. Drug companies like the patent system the way it is, so they fight changing it. Of course if each new drug had to clear off 250,000 patents they might have a different opinion.
Very good point. Some industries require a lot of research, development, and testing. Longer protections are needed to encourage that investment. These industries don’t seem to be bothered as much by patent trolls.I tend to agree that the core of this problem is excessive patent coverage.
There are 250,000 patents in a smart phone. Since that is only one technology invented in the last few years, perhaps it is possible to issue 302,000 patents. Just a thought.
Why are bill names obfuscated with bizarre acronyms?
Fred – I think you need to read both the Innovation Act and PATENT Act in detail (if you haven’t already). Though on the surface these both seem like good ideas for startups, they do more harm than good – especially as a startup grows and might be more IP dependent. I recently countered Engine’s OpEd’s on this matter here – http://venturebeat.com/2015…I came into this issue being very objective as we’ve dealt with patent trolls but also have watched our IP get ripped off by large tech corporations with little to no options to stop it. What’s bothering me the most about this is how much the larger tech corporations are using the patent troll/startup issue to push forward their agenda to dilute smaller entities IP rights and value. For instance, the “Patent trolls cost the economy $29b a year” stat is from a Boston Study that was funded by a pro-reform group that includes Google, Cisco, etc. It gets even more disturbing the further down the rabbit hole you go…There’s definitely room to target patent abuse or troll-like activity, but both the Innovation Act and PATENT Act have far more reaching affects on IP rights of others..
How are you sure you are being ripped off? If you spent the resources to patent something and have good claims then why not go through with litigation? If you didn’t do that, then is the IP really protected or ripped off, or did they just develop the same thing through independent creation?
I don’t think you realize how hard it is to currently litigate as a startup against a large, well funded entity. To start, they ignore licensing requests to force litigation. That is if you can find a contingency attorney to handle your case and you avoid a ‘declaratory judgment’. That is why the Innovation Act and PATENT Act are so harmful to small startups and inventors. It would make it impossible (through fee shifting provisions) to even start an infringement case against larger entities.As for us, we’ve dealt numerous times with the corporate ‘business development investment disguised as info gathering’. This has led to meetings that go nowhere, the tech company going silent and then launching a replication of our patented technology in market. There’s a reason why the tech companies are lobbying hard for both patent reform acts. It effectively removes any risk for them to take other companies ideas and inventions without recourse.Finally the reason why patent trolls have become synonymous with NPE’s is because NPE’s have been the only hope for smaller entities to go after the larger infringers. But large tech companies don’t like this model because they cannot use their favorite litigation strategy – to counter sue and create a war of financial attrition with the smaller company. There has definitely been abuse with NPE’s and poor patents, but there is a much bigger tech company agenda at play here.
We have a saying here in Connecticut, maybe they have something similar where you live: “Fool me once, shame on you, fool me twice, shame on me.”If you’re disclosing proprietary IP to external parties without a contractual agreement in place and it’s sufficient to allow them to copy and implement what you are doing, and they go ahead and do that multiple times, then maybe it’s not a good idea to do that anymore. I can’t imagine any lawyer worth his salt advising a client to go ahead and make such disclosures without an agreement.
These were all under NDA…but NDA’s are barely enforceable as is. Our IP is pretty easy to see.For instance, one multi-national tech company we met with recently debuted their new ‘tech’ at CES this past year. I had a few friends and associates email me to say “Hey cool, didn’t know you were working with X company”. My reply, “We’re not,” I get why there needs to be reform with certain software related patents but with what we have patented, it’s pretty clear what is being infringed by other entities.The disturbing trend is that the larger tech companies have been settling with patent trolls for poor quality patents, but if it’s a quality patent or patent related to an industry they want to get in to, they’ll ignore licensing and infringe. Much easier for them to gain market share that way given the risk is negligible to them.
If it is patented, it is already disclosed to the public. An NDA is redundant and unnecessary unless you have additional technology not patented or patent pending.
You’re right that it is not required, but the advantage of the NDA would be two-fold: first is that it is easier to prove a breach of contract than patent infringement. Secondarily if you do go through litigation and prove infringement, the NDA could serve as evidence of willful infringement which could mean you get treble damages.To be honest I’m being very nice in my responses, but I don’t believe the commenter actually has large companies infringing on his IP. I have run into many “entrepreneurs” that sing that same tune and more often than not once the full facts come to light the claims are weak or the ideas are obvious.
A agree that it provides protection. The meeting sharing the technology also provides evidence that can be used for treble damages. I’m not certain who the commenter is, but I think I know. If it is, he does have large companies infringing.
Matt, this is like saying “you left the keys in your car, therefore if someone takes it you can’t call them a thief.” That is not how property rights work.
I wasn’t making a statement about the law but rather the practical nature of life. As they say in some places, an ounce of prevention is worth a pound of cure. The law, sadly, isn’t a preventative measure (although in the best cases it does serve as a deterrent).
A good, pragmatic step.But we should be looking to move towards a world where the root problem, the definition of patentability itself, is fixed.I think the way to do so is to essentially add ‘non-triviality’ to the conditions of novelty, non-obviousness and usefulness.. http://www.rocrastination.c….Jefferson was on to something.. http://cdixon.org/2011/07/1…That ideas should freely spread from one to another over the globe, for the moral and mutual instruction of man, and improvement of his condition, seems to have been peculiarly and benevolently designed by nature, when she made them, like fire, expansible over all space, without lessening their density in any point, and like the air in which we breathe, move, and have our physical being, incapable of confinement or exclusive appropriation. Inventions then cannot, in nature, be a subject of property.Society may give an exclusive right to the profits arising from them, as an encouragement to men to pursue ideas which may produce utility, but this may or may not be done, according to the will and convenience of the society, without claim or complaint from anybody.
Interesting to watch this debate try to thread the needle between various spaces. The end answer may just be to ban software only or business method patents. I hate patent trolls. But many of the ways you try to define patent trolls also pick up small biotechs, where patents are vital to their business but they are still in a multi-year R&D phase with no commercialized products. Small biotechs also cannot afford a loser pays regime against big pharma.
The Wright Brothers were the original patent trolls and this narrative was a construct of the US government (http://blog.oup.com/2014/12….I’m concerned for the individual inventors who will be required to demonstrate they have the financial means to pay the legal bills (1M+ ?) before they may sue for infringement.
Patent litigation can be $1.5m/yr for 2-3 years.
Thanks for sharing this terrific summary by Julie Samuels.The patent system in the US is imperfect and needs an overhaul but here’s how it compares with Europe.I’m wondering whether the “reviews and trust” models from the likes of AirBnB might not be able to disrupt and improve the patent process.Will have to give this more thought…
So I have a problem with legislation that targets ‘non-practicing entities’. Most individual inventors are non-practicing entities until they launch the product. In many cases this may require millions of dollars in funding.In consumer devices you can bootstrap and find loopholes around this – but in say medical devices (the field where I work) – you can’t just bootstrap for anything that’s Class II or higher.Unfortunately, people think that all non-practicing entities must be trolls. The reality is that the majority of patents are filed by *individual inventors* or micro-entities.Startups (the kind Fred talks about) are usually backed with cash.So really there are at least 3 tiers to this playing field.1) Super large conglomerate type companies (I.e. General Electric & JNJ). These guys have tons of money, are targets for trolls and fight back.2) VC Backed Startups (i.e. Company that disrupts GE and JNJ). These guys have some money, but not enough to really fight back against trolls.3) Individual Inventors (i.e. Dude in garage who starts small business based around invention – might eventually become VC backed, but then maybe not). These guys have *no* money. These guys are rarely targeted by trolls. They do have legitimate patents, and may sue group 1 or 2 if they have legitimate patents that have been infringed. I want to stress that group 3 are not trolls. They don’t go around collecting patents with the express intent to sue. They are individual inventors who have worked for years on *one* idea and someone infringed. They are often non-practicing entities because it is difficult to take a product to market.I have a serious problem with any piece of legislation that damages Group 3. They are the true innovators. I have the sinking feeling that this piece of legislation being advanced will prevent Group 3’s ability to legitimately protect their invention, and patents will become more of a pay to play game, where to have any real chance of enforcement, you’ll need to be VC backed, which goes counter to the entire spirit of invention.An example,”Specifically, a party who doesn’t make or sell anything with its patents will have to show that it can pay for fees if they are awarded.”–How does an individual inventor who develops a new technology for say ‘nanofiber seatbelts’ (made up, but roll with example) show that they can pay for litigation fees against General Motors? I may develop the technology in a lab, have a tremendous amount of difficulty getting this into cars, be considered a ‘non-practicing entity’? You realize that *MOST* individual inventors would fall into this category?Also shifting discovery burdens to the individual inventor against General Motors?This all strikes me as ridiculously non-democratic.The transparency sections of the bill you mentioned are all fine. I think there needs to be a much stronger distinction between trolls and individual inventors – as both are lumped into the category of “non-practicing entities”, otherwise this bill will prevent a lot of individual people from ever trying to patent something or start a business around it.
Sachmo’s response is one of the most intelligent I have seen on this topic. While the original article is straight from the Consumer Electronics Association playbook (one of the biggest anti-patent orgs out there), the comments on this article are clearly from balanced thinkers who can see past the rhetoric.What I find really interesting is that while the key problems identified all point to the patent ISSUANCE process needing revision, the two bills don’t propose to do anything about issuance. What they do instead is focus on assertion.If Congress actually wanted to “reform” the patent system, they should probably propose legislation that addresses the patent system, not the legal system.
The root cause of abusive patent litigation is the asymmetry of risk between patentee-plaintiff and defendants, and these proposed reforms would help in resolving that problem. A response to the commenters who express concern about the negative impact this would have on the claims of independent inventors and other small entities who seek to enforce their claims against large entities is that they should be in favor of these reforms too, because the reforms would help weed out the bad actors and weak claims that are giving the independent inventors and small entities with legitimate claims a bad name. A practical consequence of the reforms for many independent inventors and small entities will be that more of the work necessary to succeed with a patent claim will have to be done upfront, before the filing of a lawsuit. If the claims are not frivolous, then that won’t affect costs much because that work was being done anyway. In the long run, the non-frivolous claims get taken more seriously because they’re not getting lumped in with the ambulance chasers.Alas, as a patent lawyer who has been involved in every phase of the life of patents — from conception of the invention and application drafting, to jury verdict and damages awards, to successful licensing and sales — the sad fact is that litigation is a practical necessity for many patent licensors. Over a hundred years ago, the system was working more the way it was intended by the founders. Scientific American listed issued patents and offered subscribers the chance to order copies of their specifications. Patent lawyers routinely negotiated licenses on behalf of the inventors they represented. Nowadays nearly all the proceeds from patent sales and licensing go to corporations. (Research universities represent a limited exception to this rule.)This is what I think about when I hear people point out how there seem not to have been as many fundamental breakthroughs in science or engineering since the 1960s. Back then, we had the federal government and a bunch of private monopolies (AT&T in particular) funding basic science. In principle, we could be using the patent system to facilitate a market for basic science. We could be granting inventors at universities, for example, the right to commercialize their work with a capped royalty running back to the university. Or we could be bundling up federally funded patent rights by subject matter for licensing out on a fixed fee basis — an ASCAP/BMI for federally funded researchers.None of that is likely to happen so long as the dominant paradigm for valuing a patent license is the cost of litigation and litigation damages. And everybody is so used to thinking in those terms, that many won’t even accept that an alternative might be possible.
I think you’re glossing over the major issues involved with both Acts – primarily Fee Shifting and Customer Stay.The Innovation Act presumes loser pays which would require a startup to prove their case isn’t frivolous to begin with. The PATENT Act doesn’t have a presumption but still has loser pay provisions. This will scare off any potential contingency attorneys that might need to handle a case for a startup or inventor.The Customer Stay provisions in both acts allow larger corporations to act as ‘customers’ which would make it nearly impossible to get to the heart of the infringement matter.I agree with your other sentiments about where we are now with the patent system vs. where it was awhile ago….however, when you really start to uncover where the lobbying money is coming from (hint: large tech companies) it’s hard not to see something more critical at play here.There are some good articles that show how ‘asymmetric’ the issue is behind what Congress is hearing vs. what the realities are:Why Customer Stays Are Terrible For the Patent System – http://www.ipwatchdog.com/2…Only One Startup / Entrepreneur Has Been Called To Testify At House/Senate Hearings on Reform – http://www.iam-media.com/bl…The Costs of NPE Suits – http://www.iam-media.com/bl…
There is a problem with this bill – it seems to allow for piercing of corporate veil which may be used by the large established players to go after shareholders (read founders and investors) of smaller startups. What is your view on this?
What would be the best & most credible database for a startup to do its due diligence regarding any patent infringement?
For what it’s worth, I sent this article to a seasoned patent litigator. Here’s his reply:1) IP litigation is expensive. The proposed legislation only nibbles at this fact around the edges.2) The proposed legislation will hurt legit patent holders as well as trolls. It is very hard to target trolls without collateral damage.3) Several of the problems listed are not big problems except for unsophisticated people (demand letters where the author does not intend to sue, customer stay).4) Heightened pleading requirements are good.5) Discovery reform is likely illusory. We’ve been trying to control discovery for 45 years so far.6) The one nuclear proposal is fee shifting with shell entities putting up a guarantee of fees and costs. There already is some fee shifting after the Octane decision. But, this would take it to a whole new level. Not many lawyers want this as it would significantly reduce litigation.Bottom line — there are some good and bad things. Fee shifting is the big deal if it occurs. If it does I will probably not focus on patent litigation after awhile.
great to see Cornyn and Schumer are still working together on this very important issue! Keep Nick on ’em!
just get rid of all patents and share with the rest of humanity whatever you invent for free under a Creative Commons license as means to get the credits for the invention.
This VC primarily invests in consumer internet companies. Aps and things like that. They do not appear to invest in technology start-ups – things like chips or enterprise software. Investment in consumer internet start-ups are about using big money to take a market fast and create a sticky environment for your customers… It’s about speed and money – not technology.To create a product they can market, they unfortunately use other peoples technology VC bucks for VC’s like this one to take the market. Most of the portfolio companies of this VC can expect to be sued because they likely infringe a lot of technical patents.The Innovation Act and the PATENT Act are good for consumer internet companies becasue they make it impossible to sue infringers. The problem, of course, is that over time there will be nothing for them to infringe because there will be no inventors. This VC’s support is disingenuous at best.
I know I howl at the moon. But if you want to stop patent trolls just do away with patents. They are an unnatural aberration in the market and the unintended consequences are pervasive. You shouldn’t be able to own an idea. And you can’t build a business around an idea. Businesses are built around implementations – and may the best one win.
So if anyone can use anyone else’s ideas, why would anyone fund a startup to execute a great new idea instead of taking the idea to an established, well-funded company and having them do it? You might still get people inventing new types of hairbrushes or scalp massagers, but breakthrough, society-changing inventions (like a solar cell that can produce enough energy to power a neighborhood with an hour of sunlight) – forget about it. Universities and engineers will lose all incentive to work on that stuff.The patent system is about rewarding people for sharing their ideas – making them public – by giving them a time-limited monopoly on their inventions. Without this reward, why would people EVER share their ideas? For the good of society?”From each according to his ability, to each according to his need?” (look that up, especially if you have any capitalist leanings.)
@delross:disqus – starting a business isn’t about “sharing ideas”, it is about profiting from bringing a value-added product/solution/service to market.One of the problems with the patent game is that most of them are not “breakthrough, society changing inventions”, they are minor variations on the state-of-the-art, designed solely as a means to provide some government sponsored protection of a business model. I have been granted a patent in a past life and I am very familiar with the process. It is a lawyer’s game to convince some patent reviewer that this contains a variation which might be interesting to someone “skilled in the art.”The granting of the patent only provides you with the standing to go to court – other than that there is no “protection”, no “reward”.If you have an idea, which you think is a game-changer, you have a couple of options:1. Sell your idea to an operating business who can implement it (you don’t need a patent to do this).2. Take the big leap off the cliff and start your own business to profit from the implementation of your idea.3. Put it in the public domain for others to use. There is no profit in this (directly) but there are a lot of people who are not solely motivated by money. (Look up Jonas Salk and the Polio vaccine).Government-granted monopolies are an intrusion into the market place that, at best, are not required and, at worst, has the potential to totally distort a freely functioning marketplace.Being against patents does not mean that I am against Company secrets. Try and get the formula for Coca Cola. You can’t – and I am fine with that. No government intervention is necessary.While I am on the Cola theme – there is Coke vs Pepsi. They are both Colas. They each have their fans. There is no patent on the idea of a Cola – but both have protected recipes which allow them to compete.Again – the business of business is to bring a product to market and profit by the market’s purchase of said product. It may be a cool idea – but if the implementation is sub-standard or is viewed as “who cares” then it will fail. On the other hand, if the implementation is truly groundbreaking and life changing then the business will have success. And then imitators. Let the games begin.BTW – I don’t understand the reference to “From each according to his ability…”. I am familiar with the quote, but need some context for how it applies to this thread.
Reprinted from an email sent by Randy Landreneau, Founder – Independent Inventors of America:On June 4th, the showdown is scheduled which will decide whether or not the majority of American independent inventors could completely lose the ability to defend a patent or ever attract outside investment. If you aren’t aware of the legislation, go here and here.Hundreds of millions of dollars have been spent lobbying for this legislation. This is David vs. Godzilla. But if any of you are experiencing any loss of confidence in our ability to stop this tragedy, you need to consider our own history.Did you know that only one third of American colonists were even for the American Revolution? Only one third! And a full third were against it. At Valley Forge, George Washington’s men were in rags and freezing to death because the states were not providing enough support. The men upon whom the future of America depended weren’t even provided warm clothing! Mutinies were personally stopped by Washington, who lost battles, but was never beaten. And, by the grace of God, this great nation was born.One of the first things done in America was the creation of the unique American Patent System. The rights of inventors were actually written directly into the Constitution; the Bill of Rights was added later. In fact, the word “right” only appears in the Constitution with respect to the rights of inventors and authors.While the rest of the world had patent systems that only allowed the participation of the rich and the powerful, America’s patent system gave incentive for anyone of any walk of life to create something new and valuable, own it, and profit from it. And it was this unique American Patent System that enabled America to become the source of so much more innovation and economic growth than the rest of the world.Now, a handful of corporations are dangerously close to destroying these rights so they can reduce their patent infringement liabilities. This is outrageous! Even more outrageous is the fact that the politicians we elected are listening to hired gun lobbyists every day, but not a single inventor will be allowed into a single hearing regarding Senate’s PATENT Act before an effort to pass this bill out of the Senate Judiciary Committee on June 4th. The most recent hearing was made up of “those who love the bill and those who really love the bill,” according to Senator Durbin.As recently as a few weeks ago, universities and drug companies were our allies in the fight. Now they have been shamefully carved-out – they are not subject to the worst provisions in The PATENT Act. This is how some politicians reduce opposition to bad bills.You and I, my friends, are targeted for destruction. The politicians for the bills won’t say this, and I don’t know which among them even realize this. Hundreds of millions of dollars in lobbying and public relations Kool Aid has had its effect. But I assure you that the corporations behind the bills know exactly what they are doing – their crosshairs are deliberately centered on the heart of America.Every one of us needs to be in this fight:I’m going back to DC on June 1st to work with our allies and turn more Senators our direction. I need more letters from inventors that describe how they have been harmed by the current state of our Patent System (patents infringed willfully, patents invalidated by post grant opposition procedures or abstract theory, attorneys unwilling to take cases, etc.).We must get our message out far and wide. Thank you Michele Nash-Hoff for your article in Industry Week ! We need to get this article and the papers here and here out to anyone that this information will matter to. Get these articles to conservative or liberal media or groups. For liberals, this legislation allows corporations to crush the little guy. For conservatives, this bill goes against the Constitution, property rights, and small business capitalization. Call it “the worst and most damaging legislation in American history” (which it is).Continue calling and emailing your Representatives and Senators (find them here). They are in their local offices this week – call them there. The fatal House bill is The Innovation Act, H.R.9. They are trying to jam it through their Judiciary also. The fatal Senate bill is The PATENT Act, S.1137 (for information, see House Bill and Senate Bill). These bills are fatal, but the Senate’s Strong Patents Act, S.632, is good for us (it makes the Post Grant Opposition Procedures operate more like Federal Court Procedures, eliminates fee diversion, and reins in abusive demand letters). Tell them you are against The Innovation Act and The PATENT Act, but for the Strong Patents Act, S.632.This will be my 8th trip to DC this year. Paul Morinville and I went to 200 offices in the House, and this helped cause the Innovation Act to stall (“experts” expected it to fly through). We are kind of like the troops at Valley Forge – we really need some support and you can help at the US Inventor “Donate” button.The only way we can head this thing off is to make as much noise as possible right now. Do not let your rights be taken without a fight.Sincerely,Randy Landreneau, FounderIndependent Inventors of America
“When I grow up I want to invent things and start a company, but when I try to stop larger companies from stealing my invention, I’m called a patent troll”–said reality
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What you call stealing I call competition. If you can’t take the heat get out of the kitchen
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I’m all for competition but on a level playing field. There’s plenty of startups that don’t want to give preferred shares or liquidation preferences and would rather grow organically. They can only do that if they can protect their IP.Company A without VC creates widget and files patent. They build their product and take it to market. Company B with VC funding creates replica of Company A’s widget and goes to market. Because they’re funded they increase market share at expense of Company A even though replicating Company A’s IP. I don’t see how this is competition and 99.999% of people outside of VC community would consider it theft.I’m not against patent reform (as stated in other comments). I’m just against the Innovation Act and PATENT Act as both make an already unlevel competitive field worse. There are other acts like the senate STRONG act that do more to tackle patent troll activity without as much collateral damage on legitimate IP holders..
Stealing is not competition. It is robbery. There is a difference.
Just to be clear, I am talking about stealing of Intellectual Property. Not just any idea.