Patent News

Jan. 29, 2014

IP Watchdog: “Main Street” patent coalition wants patent litigation reform, by Gene Quinn

This post originally appeared in IP Watchdog on January 29, 2014.

There is a new entry into the patent reform debate. The Main Street Patent Coalition is a national coalition of organizations that says they are dedicated to stopping patent abuse by so-called patent trolls. The Main Street Patent Coalition is encouraging Congress to pass what they call “common sense patent reform legislation.”

The Main Street Patent Coalition members include: the National Restaurant Association, the National Retail Federation, the American Hotel and Lodging Association, the National Grocers Association, the International Franchiser Association, the Application Developers Alliance, the National Association of Realtors, the Retail Industry Leaders Association, the National Council of Chain Restaurants, the American Association of Advertising Agencies and the American Gaming Association. These trade associations say they want Congress to give small businesses a fighting chance against the growing threat of patent trolls.

The Main Street Patent Coalition claims they represent the small business community at large, which has to make you wonder. On their homepage they talk about an innovative, family owned and privately held company named White Castle. According to the LA Time, White Castle has 9,600 employees. How exactly is that a small business? Answer: White Castle is not a small business, at least if you concern yourself with the way the Small Business Administration defines small business. To be a “small business” you have to have no more than 500 employees. Clearly the Main Street Patent Coalition recent press release Small Main Street Businesses Launch Patent Reform Coalition carries a misleading, if not false, title.

The falsity of the claim that this organization represents “small main street businesses” is further demonstrated when you look at who are members of the Associations that make up the Main Street Patent Coalition. The corporate members of the National Restaurant Association, and the members of the National Retail Federation are some of the largest corporations in the United States. The American Gaming Association membership likewise includes some of the largest corporations in America, including several of the largest banks in the world, including Goldman, Sachs and Morgan Stanley.

So who is fooling who? The Main Street Patent Coalition may be the entity with the single most misleading name in the history of misleading organization names. Who could really think this group, which is overwhelmingly made up of the largest corporations in the United States, is really representing the interests of “Main Street America”? The name and their propaganda suggest this is an entity dominated by small, mom and pop establishments, but the truth couldn’t be any more different.

Regardless of the extraordinarily misleading name and assertions about who they represent, this organization is asking Congress to pass patent reform that deals with transparency of patent ownership, patent quality, demand letter reform, preventing lawsuits against infringing end users and to make patent trolls pay if they bring frivolous lawsuits. These goals sound laudable, but when you dig a little deeper it is rather clear that the Main Street Patent Coalition is not really familiar with patent matters and they are not particularly well advised.

Patent Quality

The Main Street Patent Coalition wants Congress to improve patent quality and providing a way to fight bad patents. I am all for greater patent quality. Truthfully, patent quality has really been much lower than it could and should be. Far too few patents are granted on innovations that deserve protection, and far too many patents are granted on innovations that are rather trivial. The problem with the “patent quality” argument is it is always code for “the Patent Office grants too many patents.” That, of course, is ridiculous; a first level view that can’t pass even elementary scrutiny.

That problem with patent quality is the USPTO doesn’t have the ability, apparently, to have patent examiners uniformly apply the patent laws. Interpretations of obviousness are all over the place, which isn’t really the fault of the USPTO but rather squarely the fault of the Supreme Court because they refuse to allow for any bright line rules to be used and applied by the 7,500+ patent examiners, most of whom are not attorneys.

The other problem with the “patent quality” argument is that it seeks to fight a problem that existed 12+ years ago. The patents that are vilified as being too basic and not including enough innovative disclosure are legacy patents from a different era. The problem with patent quality is that real innovations cannot get patented in many high-tech spaces.

If the Main Street Patent Coalition wants to take a holistic view of patent quality then count me in. If they are just another of the many voices that pretends to want patent quality and instead really wants fewer patents then they are nothing more than a part of the problem. To have a coherent national innovation policy we can’t have actors on either side promoting only what is expedient for them today. The patent lobby is already full of short-sighted companies that couldn’t care less about a meaningful, coherent national innovation strategy. They don’t want to get sued today, period. That isn’t patent reform, it is whining.

Demand Letters

The Main Street Patent Coalition says they want to make it easier to punish trolls that send fraudulent and abusive shakedown demand letters. Simply stated, there is no need for additional federal legislation where laws already exist and are not being used to address the complained of problem.

The Main Street Patent Coalition wants laws to make it easier to punish patent trolls for sending fraudulent shakedown demand letters. Of course, this isn’t necessary at all. Just recently the New York Attorney General successfully went after MPHJ Technology Investments for sending false and misleading demand letters. The NY AG used consumer protection laws, which are already on the books. In at least some states violations of consumer protection laws carries with it mandatory attorneys fees as well. So there is no need for new federal legislation. The necessary laws exist even if the membership of the Main Street Patent Coalition choose not to use the laws that already exist to assist their individual members.

If the problem is as bad as the Main Street Patent Coalition says it is then why don’t they use existing laws to stop the conduct? Has to make you wonder, doesn’t it? They don’t seem interested in stopping the problem because if they were they would use the tools that already exist. So, just like so many others, they must have a hidden agenda themselves. That is the only logical explanation, which makes their calls for transparency all the more funny and hypocritical.

The call for demand letter reform is also extraordinarily hypocritical when the Main Street patent Coalition is misleading the public themselves when they assert that the small business community has come together to seek reform.

Intermediary Manufacturers and Infringers

Let’s look closely at what the Main Street Patent Coalition says here. They say that they want to “protect end users from troll lawsuits based on infringements by intermediary manufacturers and producers.” Notice that they don’t say that these intermediary manufacturers and producers are not infringing, but rather they say that despite the infringement they want Congress to insulate them from patent infringement lawsuits. So they want a “you can infringe without penalty card” from Congress. Ridiculous.

For those who are more knowledgeable and nuanced they will say that they don’t think patent infringement actions should be able to be brought against the end users because ultimately it will be the manufacturers and distributors who sell and install the equipment who are ultimately liable as the result of indemnity agreements. That certainly makes some logical sense, at least until you actually hear the truth.

When did the problem of end users getting sued become an issue? It really is only recently, at least in the greater scheme of things. So what happened? The manufacturers and distributors who will be ultimately liable decided that they would simply refuse to talk to or negotiate with patent owners.

You can go to pretty much any industry event and in-house corporate counsel will gleefully announce to those in attendance that they simply throw away, or “circular file” any demand letters or letters sent in hopes of initiating licensing discussions. Of course, they then have their lobbyist on Capitol Hill run around town complaining that their clients get sued and no one even reaches out to them to negotiate and they would surely talk and negotiate but they are forced to spend large amounts of money defending lawsuits that they could have settled. Sickening!

The truth is most large companies no longer talk unless they are sued first. Even after they are sued if the patent is strong and the infringement clear and damages significant they will refuse to talk. Large companies ironically only negotiate and settle the cases where they are being held up as part of a shakedown. Amazing really, but that is the truth of the industry.

What this means is that to get the attention of those who otherwise refuse to negotiate both before and after lawsuit patent owners have chosen to sue everyone who infringes, including the end users. That gets the patent owner vilified, but what else is a patent owner to do when the true infringer simply ignores patent rights?

Trolls Pay

The Main Street Patent Coalition says they wants trolls to pay when they file frivolous lawsuits. They also say they want Congress to do something to stop runaway litigation costs.

Of course, there is no need for federal legislation dealing with frivolous lawsuits because it already exists. It is hard to understand why this Coalition would be asking for something that specifically already exists, but clearly there are already laws on the books that allow District Courts to award fees when there is a frivolous lawsuit situation.

With respect to stopping runaway litigation costs, I have no idea what the Main Street Patent Coalition has in mind. Perhaps Congress is supposed to wave some magic wand, or maybe institute price restrictions on lawyers fees and the cost of complying with discovery requests. I’m all for reducing the cost of patent litigation. That would make it much more economical for patent owners to sue infringers. Of course, the Main Street Patent Coalition isn’t really for reducing costs, they just want to reduce the costs of the infringers.