Patent News

May. 27, 2014

The Hill: Not all NPEs are patent trolls, by Julie Mar-Spinola and Phil Hartstein

This article originally appeared in The Hill on May 27, 2014.

Mar-Spinola is VP of Legal Operations and Hartstein is president of Finjan Holdings, Inc.

By definition, most patent owners are Non-Practicing Entities (NPEs), including operating companies and universities because they assert patents not practiced in their products, if any. Our company, Finjan Holdings, Inc., falls within this category, as do many notable inventors including Thomas Edison and Susan Taylor Converse. But, most NPEs are not “patent trolls” since they, including Finjan, exercise ethical business practices when it comes to asserting their patent rights.

So why further patent reform? Certainly the current draft of the proposed amendment of Section 285, Title 35 fails to target the bad behavior at issue. Rather, it creates a second-class patent holder that would plainly deprive such citizens of their right to due process and preclude them from enforcing their presumptively valid patents. Further, the proposed amendment will disrupt the patent system and hurt our economy, while barely deterring the real culprits – those who misuse patents and the patent system to extort monies or for sake of competition. The issue is about bad behavior, not a bad business model. Indeed, the patent licensing business model is not only viable but flourishing inside and outside of operating companies.

The problem comes when a patent owner acts in bad faith. Bad faith can take the form of obfuscation of patent ownership or other forms of transferring patent-related rights. For example, patent cheaters create limited liability holding companies to hide the identities of the actual owners (assertors) of the patents and/or to limit their liability. Others use their patents and the court system as a business competition tool, clogging the court system and hurting no one but the buying public and the economy as a whole. One particularly sensitive bad behavior involves asserting bad patents and sending a barrage of ominous, vague demand letters to the customers and end-users of purported infringers, hoping to extract monies from these lay recipients with little intention of commencing lawsuits against them.

Despite these bad acts or actors, further patent reform will not fix the problem; however, a few tweaks of existing law or procedures will go far in reducing bad assertion behavior. For example, the courts can require proof of ownership and other interests in the assertion before allow an action to commence. Further, with an increase in operating companies, universities, and the like creating licensing entities of their own, or using third party confederates to assert their patents for them, identification of all stakeholders behind the assertions must also be mandated. Failure to establish or disclose the requisite information should result in a dismissal of the complaint until satisfied. Though the reform language addresses the problem of vague and harassing demand letters, it arbitrarily applies only to the second-class patent holder when it should apply to all patent holders.

Respecting assertions of bad patents, the solution lies with the agency that issued such patents in the first place, the United States Patent and Trademark Office (USPTO). To help the small business targets, the USPTO created a link on its website to outside litigation resources, but that treats the symptom not the disease. We believe the creation of a fee-less, ex parte program where such targets can submit the asserted patents for expedited reexamination is a better solution. The PTO would conduct the reexam internally during which no damages can accrue. If the patent survives reexamination, the owner must pay the reexamination fees before receiving the benefit of the further vetted patent. With access to vast amounts of digital information through technology, there is no excuse for the PTO to issue poor quality patents. To achieve the right result, however, the PTO must be able to keep its revenues to support its resources and examine patents to match the speed of business.

Further patent reform is ill advised and will inevitably create new problems, more litigation, and cause damage to the still-delicate economy. Misguided legislative reactions in response to big corporate squeaky wheels and other special interest groups seldom benefit more than the squeaky wheels. The patent system is not broken, at least the majority of patent owners aren’t complaining about it. It behooves us all to let the patent system work as it stands. The United States Supreme Court’s recent decision on the hot reform issue of fee shifting in the Octane v. ICON case likely removed it off of Congress’ plate. Interestingly, Octane was recently asserted not against a patent troll but an operating company.