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Friday, 31 October 2014

If all the patent trolls disappear, can royalty stacking take their place?

This Kat is of the view that when historians take stock of the patent troll/NPE ("non-practising entities") saga, it may rank among the oddest of all IP narratives. More than a decade into the issue, one is hard-pressed to find any consensus on how to define a troll/NPE or how to describe the problems that they have allegedly created. A telling example is that status of universities within the debate. Are they, or are they not, NPEs; is the status of universities in this mix influenced by the fact that most commentators are university faculty members ("Of course universities are not really NPEs")? While articles on the subject are legion, empirical data pro and con the argument is thin and hotly contested.  All of this did not deter support from the Obama White House from identifying NPEs as a central problem confronting the patent system and for efforts to take place to pass legislation in the U.S. to improve the position of the defendant in patent litigation.

There is no better example to demonstrate the swings that have characterized the patent troll/NPE narrative than to consider the reports about the sudden decline in patent litigation activity in the U.S. As Katfriend Joff Wild, the editor of Intellectual Asset Magazine, reported several weeks ago in a blog post, according to research data published by Unified Patents, an outfit that seeks to assist SME's against baseless patent litigation, it appears that for "the third quarter of this year (June to September), there was a 23% drop in the number of suits filed compared to the second quarter, and a 27% year-on-year reduction. The findings come just weeks after data released by Lex Machina showed that there had been a 40% fall in patent suits in September 2014 as compared to the same month in the previous year."

Unified Patent further examined where the decline came from and concluded that it derives primarily from what is called "NPE suits" in the high-tech sector. Thus, "[l]itigation initiated by operating companies fell by just 19 quarter on quarter, but actions launched by NPEs dropped by 301, from 885 in Q2 to 554 - a fall of 35%." Both Professor Mark Lemley of Stanford, the founder of Lex Machina and Shawn Ambwani, the CEO of Unified Patent, suggest that the decline is due in material part to the impact of the U.S. Supreme Court decision given in Jun 2014 in the case of Alice v CLS, which arguably makes it more difficult to obtain business method patents. Ambwani also attributes the result to the America Invents Act, although why its impact should only be acutely felt in Q2 2014 in connection with the filing of patent litigation is not fully clear. Wild reports that Professor Lemley has reacted to these data points by stating that “[t]he need for legislative reform is a lot less right now than it was a year ago and it probably makes sense to wait a bit and see how these cases play out and what the new dynamic looks like before we try to rewrite the rules."

It is interesting to compare Prof. Lemley's cautious observations with the conclusion that he reached in a law review article well worth reading, "Missing the Forest for the Trolls", written together with Douglas Melamed, Intel General Counsel, which appeared in the December 2013 issue of the Columbia Law Review. There, Lemley and Melamed conclude as follows:
Patent trolls are taking the rap for problems with the patent system. That is not to say trolls are not a problem; they are a large and growing one. But they are not the [emphasis in original] problem. Rather, they area a symptom of systematic issues the patent system faces in the IT industry—too many patents interpreted too broadly, a remedy system that routinely awards excessive damages and enables patent holders to bargain for excessively costly settlements, and an enormous patent royalty stacking problem. Practicing entities, as well as trolls, can and do take advantage of these issues. Rather than focusing on the trolls—the symptoms—the law should turn its attention to the disease itself."
Juxtaposing this wide-ranging indictment of the patent system with Lemley's cautious comments, and pondering whether the Alice case is the anti-patent troll wonder drug, one wonders where the patent troll/NPE narrative will now go. In particular, is the grand sweep of the Lemley-Melamed conclusion still relevant; if the answer is "yes", is the patent troll the "symptom" of the "disease" or rather the rhetorical anchor without which popular attention will be very difficult to mobilize? Without the bogeyman of the patent troll, will arguments about the problem of patent stacking interest the legislative machinery on Capitol Hill? One reads that the Obama administration is still committed to patent reform, presumably of the kind described by Lemley and Melamed, but whether the current narrative will support this seems questionable -- yet another twist to be considered when the history of the patent troll phenomenon is ultimately written.


MaxDrei said...

Here are a few thoughts, to get a thread rolling.

Since the infamous State Street Bank decision at the CAFC, holding out that business methods are patentable, the number of US patent grants has exploded. The Supreme Court's recent Bilski and Alice decisions are the antidote to State Street, and will prompt a precipitous decline in filings at the USPTO, never mind patent infringement suits.

Ironically, one of the cheerleaders for business method patents, CAFC Judge Pauline Newman, wrote in re Schrader:

1) that data is just data, whether it is data about rubber curing (Diehr) or financial hedging

2) that methods of hedging are just as technical as methods of curing rubber.

Isn't it amazing, that it has taken the USA from 1994 to 2012, to clarify which (if any) business methods are fit to patent?

Just as the EPO belatedly found the self-confidence to say No to Applicants, so the US Courts are now finding the confidence to say No to ineligible subject matter and spurious claims by Applicants for patent and holders of bad patents.

The wheels turn, and grind, but oh how exceedingly slow.

Just this week, I got a Newsletter from an Investment Bank inviting me to invest in the USA and telling me that the doubling in the number of US patent applications in the last few years is powerful evidence of how much more innovative the USA is than the rest of the world. Oh really! You could have fooled me.

Anonymous said...

Does "getting the thread rolling" necessarily require the type of "trolling" post that MaxDrei offers?

If MaxDrei cannot understand that patent law is first and foremost a sovereign based affair, and that the US jurisprudence allows patents for Useful Arts (which includes business methods), how can his attempt at "stirring" be considered anything other than blog trolling?

MaxDrei said...

The way I would put it, anon, is that the US Constitution and patent statute contemplate patents for such processes (whether or not they be methods of playing games or doing business) as promote the progress of useful arts. I've no quarrel with that. More: I think it admirable. I just wish the US Supreme Court would give us all a clue, a steer, what is encompassed by the "useful arts", and what is not. We need to know.

The best it has done, thus far, is "not abstract" and this is not very illuminating, is it?

Anonymous said...

Is this the same poster that refuses to give a definition of "technological" and bleats that such should not be defined, but rather, left open?

Anonymous said...

MaxDrei @ 20:19,

Please define "technological."

Do not be circular, as that is not illuminating.

To get the discussion rolling, I find the tie to economics interesting in this definition:

MaxDrei said...

anon, thanks yet again, for the generous feed.

Define "technological"? Does GATT-TRIPS define "technology" in its "all fields of technology"? If not, why might that be so? Should GATT-TRIPS have usedinstead "useful arts"? If it had, would anybody today have understood such 18th century language? As it is, I think anybody who has occasion to study GATT-TRIPS will immediately know for sure what "technology" means, don't you?

But perhaps anon wants instead a definition from the EPO of "technical", as used in its "technical character" and "technical effect". Well, the EPO doesn't do Binding Precedent, so such a once and for all Definition isn't needed or wanted. And anyway, as with "Technology" in the context of GATT-TRIPS and Utility patents, everybody already knows what "technical" means. But if you're still not sure, educate yourself please, by having recourse to the EPO's White Book of established caselaw.

When you do that though, be careful. Select the most recent Edition to get the most up to date jurisprudence in an ever-evolving, ever-sharper European jurisprudence on what exactly is encompassed by "technical". You will find out that there are no pendulum swings at the EPO.

Or ask a European Patent Attorney who practises in this field. They would know.

Anonymous said...

Goose and gander with wanting a definition from the US, but not offering one for the EP.

Looks rather weak.

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