For the half-year to 31 December 2014, the IPKat's regular team is supplemented by contributions from guest bloggers Rebecca Gulbul, Lucas Michels and Marie-Andrée Weiss.

Regular round-ups of the previous week's blogposts are kindly compiled by Alberto Bellan.

Tuesday, 14 January 2014

Trolls? We won't have no stinkin' trolls!: Commission "fails to see" the UPC's problem with trolls


Marc Tarabella, a friendly-looking
slayer of trolls?
On 24 October 2013, Marc Tarabella, a Belgian politician and Member of the European Parliament quietly prepared a question to the Commission on the issue of patent trolls and the potential door that the new unified patent system may leave open for them to creep in. Mr. Tarabella's question was thus:
"Are ‘patent trolls’ soon to arrive in Europe en masse? These companies, which are very active in the United States, make money by buying up patents with the sole aim of taking anyone who infringes them to court. ‘Patent trolls’ thus make no commercial use of the patents they own; rather, they use them purely as a way of pressuring other companies into giving them money.

For now, ‘patent trolls’ are largely an American problem. However, the new EU legislation on patents could change that.

1. How is the Commission preparing for this legislation?

2. Does it have concerns that the law will be abused?

Intellectual property cases may be dealt with by two courts: one focuses on the validity of the patent, while the other establishes whether the patent has been infringed or not. As both courts work independently of each other, a product may be preventively taken off the market before the issue of the patent’s validity has been resolved. What is more, this could happen in at least 13 Member States, once the single patent becomes a reality.
3. In view of the major impact such a ban would have, would this not enable plaintiffs to extract considerable sums of money on the basis of poor-quality or even invalid patents?"
All very reasonable, you may be thinking.

Commissioner Barnier
So, in what must be "real-time" in European politics terms, two months later a response comes from Commissioner Barnier (Commissioner for the Internal Market) almost as quietly as the initial question (thanks to Jason Rix of Allen & Overy for alerting the AmeriKat to the response) who replies:
"The Commission fails to see how the recent Union legislation on patents, namely Regulations 1257/2012 and 1260/2012, could increase the activity of so called ‘patent trolls’ in Europe. To the extent that the Honourable Member's question pertains to the Unified Patent Court (UPC), it should be noted that the UPC agreement is an instrument under international law and is not part of Union law. The matter is thus outside the Commission's remit. The Commission will, however, provide the following factual information.

The UPC as a common specialized patent court will increase legal certainty, and a centralized patent revocation procedure will leave less room for ‘patent trolls’ to exploit current fragmentation.

The UPC Agreement provides for safeguards against ‘patent trolls’. No automatic injunctions shall be granted: the UPC has the discretion to weigh the parties’ interests and to take into account the potential harm from the grant/refusal of the injunction. The Rules of Procedure (draft of 25 June 2013) foresee a possibility to require reasonable evidence that the patent is valid and being infringed and to order an adequate security for any injury likely to be caused to the alleged infringer if the injunction is later revoked.

The UPC is a single court competent for both patent infringement and revocation actions. A local/regional division has only a possibility, after having heard the parties, to refer a counterclaim for revocation to the central division. The Rules of Procedure provide that in case of a high probability that the patent will be held invalid in the revocation procedure the court must stay the infringement proceedings. The objective is to ensure that the patent validity is dealt with before the infringement action can proceed. "

There is something incredibly jarring about the tone of the opening paragraph that divorces the Commission's involvement with the proposals. Yes, the Unified Patent Court Agreement is an international instrument which the European Union is not a signatory, but it was the European Commission who was at the helm during the 2012 and 2013's negotiations on the entire package. It was the same Commission and other members of EU organs who sat through long nights of debate on the wording and provisions of the two Regulations and Agreement (the latter of which would form the basis of the Rules of Procedure that the Commission is now divorcing itself from)(see the AmeriKat's summary of the negotiations here here) .

It was, also of course, the same Commissioner Barnier who back in December 2011 referred to the unitary package as a "symbolic project" which he submitted in the "hope that we will reach a result that is line with the European economy." It is also the same Commissioner Barnier who as recently as December 2013 when European ministers agreed on the changes to the Brussels I Regulation (and here) , said that the agreement was another "decisive step" towards
"...the Unitary Patent package becoming a reality, and the Unified Patent Court ensuring much greater consistency in the way patent litigation is conducted in the EU. This shows that the single market is progressing and serving innovation and ultimately for growth and jobs."
So a blanket "we fail to see what your problem is and in any event the UPC Agreement wasn't us" is disturbing (although probably not unexpected). As to the substantive reasons why the Rules are adequate safegaurds, the AmeriKat refers to you the industry open letter and the accompanying AmeriKat article cited below and found here as to why they are not.

Readers may also recall that one of the main reasons for promoting this package was because, in the words of the Commissioner (see press release here):
"Europe is falling behind the US and China in number of patents granted. The new rules, once in place, will increase the potential for inventions and innovation within the European Single Market and reassert Europe's competitiveness".

The signed Unified Patent Court Agreement
It is not the number of patents being granted that concerns US litigants right now, its who is enforcing them - concerns recently expressed in an open letter by an industry coalition including Microsoft, Intel, Google, Samsung and Apple.

With patent litigation reform swinging its way through the halls of government in DC and the Court of Appeals for the Federal Circuit raising the welcoming presence of fee-shifting (see the AmeriKat's post here), the climate in the US is focused on closing the gaps that make it a troll's paradise.

On Monday, New York's attorney general, Eric Scheniderman, reached a civil settlement with MPHJ Technology Investments LLC which calls for new guidelines to ensure that patent assertion entities (PAE) do not abuse the litigation system by vaguely threatening with no specificity as to what claims of their patents they say are infringed or by failing to disclose their actual identity. The Wall Street Journal and Reuters report that
"The settlement requires MPHJ to reveal its true identity to targets, describe with "reasonable specificity" its claims, and have a good faith basis for claiming infringements."
Attorney-General Schneiderman states that
"The guidelines established in today's settlement will put an end to some of the most abusive tactics by placing the industry on notice that these deceptive practices will not be tolerated in New York."
With all this going on in the US, should now not be the time that the Commission, the legislative powers that be and those tasked with finalizing/implementing the Rules of Procedure (or providing rules for their interpretation) face-up to the potential gaps in the system (a system that is inevitably here to stay)? Or will we just wait until Commissioner Barnier's vision of a US style system in Europe is a reality?

"You are such a pollyanna, AmeriKat!" sneers Merpel, "The ship has sailed. The Rules of Procedure are essentially finalized and they all stem from the Agreement itself. Are you planning to amend the Agreement?!". Her tone aside, Merpel's points are well-taken and a reality that the AmeriKat is already well-versed in, but she won't give up. Perhaps, she contemplates, this is one area we should follow the stylings of our American cousins and start some lobbying (see recent news of industry hiring lobbyists in respect of the patent litigation reform bill here and here), and then, perhaps, the Commission won't "fail to see" the problem anymore...

19 comments:

TGlassey said...

I find it interesting that the Patent Troll matter didnt come up until the frauds around the US and foreign Location Based Services patents surfaced and the return of the subsidiary licensing rights were returned to me on Aug6th 2013 after 12 long years of the Standards World stealing my IP...

It is amazing to me how many of you distinguished members of the Bar want this to not be true and who want to 'now set aside the rules of the TRIPS and other agreements' to stop me from being able to claim the first status on Earth as an IP Trillionaire.

For the record, because of the IETF there is nothing my IP is not a part of today and you (the IP Kat Group) - and this BLOG would simply not exist in this form without the infringers...

What no one say coming was Bernie and Congress' response in their creation of the IRC165 Fraud Loss statute with its 2009-09 extensions.

So what is that great phrase? - Lets Get Ready to Rummmmmble.

Todd Glassey - Owner Subsidiary Licensing - ALL US LOCATION BASED SERVICES controlled under US6370629

Anonymous said...

Interesting "factual information". Looks more like opinion, speculation and complete unsupported b0ll0cks to me, Mr Barnier. But at least you weren't involved in any way. Definitely not.

Anonymous said...

I wonder if this is an "American problem" because in the US there is no such thing as a use requirement, or if in the US, the maximization of business assets is typically a couple steps ahead of the rest of the world?

Anonymous said...

The "Troll" problem is largely a mirage.

Overhyped anti-property, anti-patentism on steroids.

MaxDrei said...

What is IPCom if not a troll? It has been asserting its European patents (acquired from Bosch) against Nokia for some years now. Nokia has had to spend millions to defend itself. But did not the UK Courts (no bifurcation there) find at least one patent infringed and not invalid? Does that not vindicate IPCom's position?

The USA is uniquely hospitable to those trolls who blackmail patentees with patent claims that turn out in the end to be either invalid or not infringed. What are the unique features of US law? They include: the jury, the chaotic state of patent law on such elementary issues as eligibility under 101 and obviousness under 103, and the presumption of validity (such that it takes evidence that is as high as "clear and convincing" to secure a finding of invalidity) and, finally, punitive damages. None of these Troll-attractive factors is part of the European landscape.

And anyway, isn't the troll problem in the USA going away now, with the success and bite of inter-partes re-examination at the USPTO?

Anonymous said...

The "troll" problem is not going away because it was never there.

The United States Government Accountability Office took a neutral look "under the bridge" and found no such "Troll."

See http://www.gao.gov/products/GAO-13-465

Anonymous said...

The UPC appears to be based broadly on the existing German system of local Courts hearing infringement cases and a central court deciding on validity. Germany is also the engineering power house of Europe with a strong SME culture. Despite this, the troll problem is largely non-existent. In the US, there is no real system of "loser pays" hence the speculative litigation situation where it is cheaper for a defendant to settle rather than fight even a rock-solid case. Why should the UPC lead to a sudden troll Problem for European industry.

I'm a robot said...

The real problem of the UPC is that it is very complex and so it will be very expensive for small defendant (e.g. SMEs), who will be then forced to settle to avoid larger expenses.

MaxDrei said...

Hi Robot. That your actual real life experience of the German system of patent litigation, is it? Or are you just supposing?

When issues are joined, the District Court judge fixes the "value of the case". That fixed value determines the sum of money you will pay to the other side, if you lose. If the set value is low, so too is the cost figure.

But high or low, if you win you get your injunction. That is what concerns the likes of Google, that the German system is skewed too far in favour of SME patent owners.

Anonymous said...

I agree, it is jarring indeed to see the EU Commission seemingly deny any responsibility for the complex child that is the UPC. Without the EU commission's involvement would the UPC have been agreed upon (albeit by international agreement)?

And now that we have it (internationally agreed upon), where does the responsibility lie for its success? Should EU resources be used to support an internationl (non-EU) agreement?

And surely, if the UPC is not a child of the EU, then its name should be changed, dropping the "U" (whether that is Union, or Unified or Unitary), else it would be misleading indicating it is of the EU, when seemingly it is not?

I'm a robot said...

@MaxDrei:

I guessed that the attorneys' fees and court fees for a UPC case will be much higher than for a European national (non-UK) case now.

I just raised an issue of access to justice: when litigation costs are high (e.g. as in US), "poor" parties are forced to settle.

MaxDrei said...

Hi Robot. As you imply, access to justice is a big thing in England, true. What is the use of Rolls-Royce fact-finding if only Big Corp can afford it?

But here in Germany, litigation is not a last but a first resort. Your neighbour has upset you? Get satisfaction! Take a lawyer (there are swarms of them competing for work) and sue the beggar! Remember Hugh Laddie explaining to us that the English courts are not a "branch of Social Services"? Which country do you think he had in mind when he said that? Patent attorneys here are flabbergasted by the (to them) humungeous costs of patent litigation in England. It is as much as I can do to explain to them why the cost is sometimes worth it (more than 95% of cases settle within a year of starting the dispute, less than a third of trialled cases go to appeal, definitive road map of the proven facts available within a year, upon which all the judges in all the other EPC jurisdictions can base their Decisions). So, as of now: horses for courses, choose the jurisdiction to fit. With the UPC: who knows?

I'm a robot said...

@Maxdrei: I come from a EU state where litigation costs are even lower than in Germany, that's why the UPC could really create an issue of "access to justice" here.

MaxDrei said...

Thanks for that observation, Robot. It helps to reveal to readers in England that elsewhere in the EU an SME takes it for granted that, up to now, it does enjoy full "access to justice". What would English SME's make of that, I wonder, if they only knew?

Stephen Adams said...

As a non-lawyer, I would appreciate some clarification of this situation. You write:
> On Monday, New York's attorney general, Eric Scheniderman, reached a civil settlement with MPHJ Technology Investments LLC which calls for new guidelines to ensure that patent assertion entities (PAE) do not abuse the litigation system by vaguely threatening with no specificity as to what claims of their patents they say are infringed or by failing to disclose their actual identity.
I am amazed that such an agreement was in fact required. I am aware that in the UK there is provision for a defendant to counter-claim on the basis of "groundless threat". Does the US not have a similar course of action available? Surely any warning which lacked the information for a third party to understand clearly what they are supposed to have infringed is, by definition, groundless?
If there is a genuine difference in the manner in which patent holders can communicate to alleged infringers their intention to enforce their rights, perhaps this is one of the reasons why patent trolls have caught on in the US but not in Europe?
Perhaps it is slightly off-topic, but I would be interested to hear others' comments.
Thank you

MaxDrei said...

Good question from Stephen Adams. Here is my attempt at an answer.

Many Americans are very proud of their uniquely "strong" patent system which they say is the reason why, in science and Technology, the USA is the world-leader.

What does "strong" mean? Perhaps:

1. patent owners can threaten infringement proceedings with no downside cost risk except to pay their own lawyers. No "loser pays" tisk of having to pay costs to the winner.

2. But their own lawyers can work on a contingency (no win, no fee) basis

3. Patent presumed valid, to the extent that only evidence of invalidity that is "clear and convincing" can prejudice enforceability.

4. triple damages awarded against those who "wilfully" infringe.

You might well now conclude that the dice are loaded and see how lucrative it can be to threaten big companies with infringement proceedings in the USA.

Anonymous said...

"Strong" in quotes,...
Loaded language of "dice are loaded",...

Sorry MaxDrei, your bias is too overwhelming for me to give any credence to your views.

MaxDrei said...

I think Anonymous in his silence (acquiescence?) makes my case.

All he can say in reply is that, when I put "strong" in quotes, and when I refer to "dice", I reveal myself as biassed.

Readers, thanks to anon, you are now in a better position to decide, how much weight to put on what I wrote above.

Anonymous said...

MaxDrei @ 15:06

Thanks for the tip, but I at least can pretty much tell directly from your post and do not need another anon to tell me the obvious.

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