Patent News

Jan. 7, 2014

IP Watchdog: Who is a patent troll?, by Gene Quinn

This article originally appeared in IP Watchdog on January 7, 2014.

With the enormous media focus on the so-called problem of patent trolls one might start to think that any patent owner can easily stand up to and take on industry giants to obtain lottery like winnings. Not so fast! The great irony is that if you want a larger entity to fold like a cheap suit and settle quickly you would be better off filing a frivolous patent infringement lawsuit using a dubious patent. You see, the great irony is this: Only when large entities get sued on completely frivolous patent claims do they settle right away. Now I’m not advocating that course of action, rather just observing the truth of the matter asserted.

On the other hand, if you have a strong patent that covers real technology, perhaps pioneering technology, and there are substantial damages, the tech giants you sue will vilify you as a patent troll in the media and do whatever they can to make sure that they never pay you a dime. This is particularly true when the small company is building upon a base technology already owned by one of those technology giants.

Many large companies are happy to pay nuisance value on frivolous claims, but they are never going to pay meritorious claims if they can avoid it using any and all techniques and procedural machinations. The reality that frivolous claims get settled and meritorious claims get litigated has to make you wonder whether the so-called patent troll problem is really a problem or whether it is something that they actively perpetuate in order to achieve the “reforms” they continually ask Congress to adopt.

The “patent troll problem” dates back for over a decade, but it was NTP v. RIM, which in most circles is viewed as the “poster-child” case for patent reform, is constantly referred to as particularly illustrative of the patent troll problem, but that case was not nearly as straightforward as many press reports implied. In fact, it is unclear to me that NTP is or was a patent troll in the first place.

One unique aspect was that NTP had rather fundamental patents on a technology that was employed by RIM. So the first question you might ask is whether it is even possible to be a patent troll if you are suing on foundational or pioneering patents? I say the answer to that question is absolutely not. The patent system is supposed to foster, indeed celebrate, pioneering innovations. The owner of a pioneering patent, or standard essential patent, or patent that is just really, really important can’t be a patent troll any more than Thomas Edison or a University.

Another unique feature of the case was that RIM initially seemed to have a strong infringement defense because the process covered by the NTP patents did not occur completely within the United States. RIM had argued both at trial and on appeal that because the BlackBerry Relay is located in Canada, as a matter of law RIM could not be held liable for infringement under 35 U.S.C. § 271. The trouble for RIM was that the main patent appeals court in the United States disagreed.

The United States Court of Appeals for the Federal Circuit explained that the plain language of section 271(a) does not preclude infringement where a system is used within the United States, even though a component of that system is physically located outside the United States. As a result of the Federal Circuit decision, when two domestic users communicated via their BlackBerry devices, their use of the BlackBerry system occurred “within the United States,” regardless of whether the messages exchanged between them may be transmitted outside of the United States at some point along their wireless journey.

Further complicating matters, RIM seemed to think it could win at least until the United States Supreme Court refused to hear its appeal. Because they thought they would ultimately prevail RIM continued to use technology protected by NTP patents, and never really seriously engaged in settlement discussions until the final hour. The end result was an extraordinarily large settlement in favor of David and against Goliath. Forgotten in most recent press reports and opinion pieces decrying this result, however, were the frequent situations in which a large company uses its patent power against a smaller upstart rival.

Query: Is is possible to be a patent troll where there are such complex legal issues involved in the case? Where the legal issues are so complex that the case could go either way? I say no. A loser in a patent infringement case is not a patent troll, they are merely the loser. Not all losers are created equally, and not all loses are achieved in the same way. For a frivolous case a loss is not just a run-of-the-mill loss. Does a frivolous loss, or a loss by one who employs vexation litigation tactics, create a loser of the same magnitude as one who fights a good fight, has legitimate theories, but at the end of the day doesn’t prevail? The answer is obvious.

This is not to say that NTP was “Snow White” in the case; no litigant is ever Snow White pure. Nor am I suggested that the case couldn’t have been better streamlined. Of course the case could have been streamlined, but why haven’t we been talking about reforms that would lead to a final resolution in patent litigation matters through all the various forums in a quicker, more efficient manner? The reason is because those who vilify patent trolls don’t want to lose the ability to challenge issued patents and defend in multiple forums. The tragedy is that there are common sense reforms that Congress could concern themselves with, like streamlining patent litigation, but the “reforms” they pursue are the wish-list of those who have the most money to lobby on the issue. Sadly, they also want a weaker patent system that looks nothing like the strong patent system that was the envy of the world.

The sad reality is that “patent reform” is not making a better patent system, it is making a different patent system. Indeed, “patent reform” is creating a patent system that is inferior, which will only benefit infringers, particularly those from outside the United States where manufacturing still exists.

But is NTP a patent troll? By the definition of most people NTP is the quintessential patent troll because they acquired a patent and then had the audacity to enforce the rights acquired. Acquiring patents and enforcing them, for many, makes the entity a patent troll— that is unless the entity doing the acquiring and enforcing is Google. Google is actually the only adjudicated patent troll, at least according to Florian Mueller who writes FOSS Patents and follows the smartphone wars more closely than anyone.

Frankly, the term patent troll has evolved to mean nothing more than this: You are a patent owner who is suing me. Essentially, whether one is a patent troll is in the eye of the beholder. If I’m on the receiving end of a patent lawsuit then you are a patent troll, regardless of whether you are an innovator, regardless of whether you are an operating company, regardless of how you acquired the patents. But why then isn’t Google rightfully considered a patent troll? Google paid $12 billion to acquire Motorola’s patent portfolio and seeks to enforce those patents. So, if paying a lot of money for patents and then subsequently enforcing those patents makes you a patent troll, Google has to be a patent troll. The fact that they grossly overpaid for the patents they acquired for Motorola can’t be a defense to the claim of being patent troll. Furthermore, one of the alleged telltale signs of being a patent troll is that you didn’t innovate. Well, Google didn’t innovate either, which is why they needed to acquire the portfolio to help insulate them as they entered the smartphone marketplace.

Of course, the RIM case happened years ago. But not much has really changed if you look closely. But as was the case with the NTP v. RIM, there is nearly always more than meets the eye with most patent battles.

Take for example Soverain Software’s fight against Newegg, which now stands before the Supreme Court. It is anticipated that the Supreme Court will decide sometime later this week whether to take the case in what by all outward appearances is an obviousness dispute. If it were just an ordinary, garden variety obviousness dispute the Supreme Court would likely not get involved, but this case is not your ordinary obviousness dispute. The Supreme Court should take this case.

While Newegg and a host of ill-informed, know-knowing commentators and critics seek to vilify Soverain Software, the factual reality is that the patents at issue in this case relate to a filing that occurred back in 1994. The patents were granted, the patents have gone through reexamination twice and escaped without losing claims and instead adding many claims. In another case a jury determined that these patents were not invalid and the District Court in this particular dispute found that the evidence that the claims were obvious was so lacking that it wasn’t appropriate to even let a jury decide that issue. How can you blame the Judge? The Patent Office has reviewed these claims 3 separate times and another jury has found them to be appropriate as well. Yet, the Federal Circuit found the claims invalid on their own and for a reason not even argued by Newegg. Appeals courts are supposed to review the record, not find their own facts and ignore those in the file.

But this all begs one important question: Is Soverain Software a patent troll as they are being alleged to be? Of course they are not a patent troll! Only the most ideologically driven and intellectually dishonest critic would ever accuse Soverain Software of being a patent troll. After all, if you aren’t going to categorize Google as a patent troll how can you really call anyone a patent troll? Google did no research or development, instead electing to purchased Motorla’s patents so they could enter the marketplace armed with intellectual property in the form of patents.

I have no problem with Google paying, or even grossly overpaying as they did, for a patent portfolio. But Google really isn’t a patent troll because they acquired and enforce patents. They operate in the marketplace, they acquired patents to solidify their position, they did no research and development and instead acquired the patents and know-how to facilitate their entry into a market. This is no different than how start-up businesses have been acquired for generations. Start-up company comes along and are nimble, quick and responsive. They create great technology and then get acquired. This has happened in the high-tech sector, as well as in the biotechnology and pharmaceutical sectors. If this activity makes you a patent troll then every pharmaceutical company in the world is a patent troll, and virtually every technology company in Silicon Valley is likewise a patent troll.

Lets be clear, acquiring patents, in and of itself, cannot make you a patent troll, period! To the extent Google is properly characterized as an adjudicated patent troll it is because they engaged in abusive behavior. As Mueller explained: “found to have breached the duty of good faith and fair dealing flowing from Motorola’s FRAND licensing pledges to standard-setting organizations.” It is bad action that makes one a patent troll, nothing else.

So why then is Soverain Software accused of being a patent troll? Yes, they acquired the patents in question from the innovator, but Soverain Software actually services thousands of customers. They didn’t just buy the patents, they acquired patents to facilitate their business plans and continue to be an operating company that services the products covered by the software patents they now own and enforce.

It is as ridiculous to call Soverain Software a patent troll unless you are going to characterize an entity such as Cisco as a patent troll. You may recall that Cisco famously acquired one or two dozen start-up companies a year, every year, at least through the 1990s.

The reality is that at least since the NTP case with RIM there has been a belief that those that acquire and then enforce patents are patent trolls, of course save those large operating companies that do it. But this does nothing to forward the discussion or get at the root problem plaguing the patent system, which is that there are a number of bad actors who use patents as part of an abusive litigation strategy to attempt to shakedown defendants. Bad actions that warrant one being called a patent troll include shakedowns where the patents are laughably inadequate from an era of questionable patents being issued (over 12 years ago now), or where there is not a shred of evidence that supports infringement, or where one seeks to enforce patents that were subject to a duty of good faith and fair dealing flowing from pledges made to a standard-setting organization. But in and of itself acquiring patents, particularly when one is an operating company, cannot make one a patent troll.

There is no doubt that there are bad actors operating in the patent space, but what should we do to stop patent trolls? First, we should be asking the question, which sadly is not happening.

Second, if the Courts were interested they have all the power they need. See Judges Can Make Patent Trolls Pay. If the Federal Circuit wants to help solve the problem they should require more of a plaintiff prior to filing a patent infringement lawsuit, like an opinion from a competent patent attorney that there is objective reason to believe there is infringement and that at least some level of due diligence has been undertaken to ensure the patent claims are valid.

I do realize that patents are presumed valid, and I’m not suggesting that presumption be stripped. The presumption of validity is essential to the patent system. What I am suggesting, however, is that the abusive patent plaintiffs be required to engage in some level of due diligence just like responsible patentees already do prior to filing a lawsuit. Perhaps a sliding scale would be appropriate, since the Supreme Court seems to abhor bright line rules. The more diligence you engage in on the front end the less likely you are a patent troll. Of course, that would never fly, because those advocating that there is a patent troll problem know that the entities they point to most often, namely Acacia Research and patent litigator Ray Niro, engage in quite a lot of due diligence. But doesn’t that just make you wonder even further? If the reforms they advocate for won’t help the problem, which they won’t, what is it that they really want to accomplish?

Hopefully someone in the Senate wakes up and starts asking questions!