It is time to talk about the Patent Ogres 16 Dec 14
Here at IAM we have consistently argued that patent litigation in the US is heavily weighted in favour of deep pocket corporations. How could it be otherwise when it costs so much to enforce a patent? Our major criticism of the suggested legislative reforms that moved through the House of Representatives last year before stalling in the Senate earlier this year – and which look likely to resurface again next year – is that by making it even more expensive and more high-risk to enforce patents than it is now they skew things even more in favour of the big boys.
In the following article, Fatih Ozluturk, head of technology and innovation at Soryn IP Group and a prolific inventor himself, sets out just how the US system is so weighted in favour of what he describes as the Patent Ogres and suggests some steps that might help to rebalance things. In a debate that is so focused on just one side of the patent story, Fatih’s article is one that should give legislators significant pause for thought. Whether it will is another matter entirely. This is what he has to say …
Unless you live under a rock in a far away land, or have been locked up in a cabin in Montana for the last few years, you know what a 'patent troll' is. A troll acquires patents to assert them against companies making or selling products that may infringe those patents. What makes patent trolls so ugly is that the patent infringement cases they bring are often based on a questionable read of patent claims, and that they count on the fact that it is often easier and cheaper for companies to settle those cases rather than fight them in court. Patent trolls are the IP equivalents of ambulance chasers.
But as an inventor of nearly 200 issued US patents, as a tech entrepreneur and as an IP strategist, I suggest that there is another type of creature that inhabits the IP world that is just as ugly and just as objectionable: the Patent Ogre!
A patent ogre is a large company that has a significant market position in a product or service category and protects its economic interest by suppressing, bullying and/or simply grinding into the ground smaller, more innovative competitors that have patented technologies. Faced with a small innovator with patents that potentially read on its products or services, the patent ogre may refuse to communicate with the patent owner, may refuse to license the technology at market rates, might force the inventors into lengthy legal proceedings beyond their financial abilities, create publicity campaigns to label the inventors as trolls, and drag them through endless legal manoeuvres until they run out of money, patience or time, and go away. Then the patent ogre continues to derive economic benefit from the technology that someone else invented or perfected.
There was a time in the history of American inventions when individual inventors made very notable contributions to the social good: two bicycle mechanics could go into a barn and build an airplane. Nowadays, how many engineers and how big a team do you think you would need to build the next Dreamliner? Clearly, inventions have steadily moved to the domain of larger companies, simply because technology has become more complex and research requires larger financial commitments. Today only about 10% of all US patents are filed by individual inventors. Based on that, you may be inclined to think that we should support the large companies and large financiers, and let them innovate – small inventors are less relevant anyway. But you would be very wrong.
There are two changes that happened over the past decade that make small inventors more and more important, and affirm their status as true drivers of economic progress. One such change is that a huge innovation frontier has opened up through the internet. This means that SaaS, security, advertising technology, e-commerce, social networking, media delivery and countless other areas are advanced every day by small startups.
This has become possible because a lot of internet-related innovations are software based, or bring together specialised software with general purpose hardware. They can be brought to life with smaller teams using improved software development tools and modular code. Entrepreneurs of the software age are also the users of the technology that they develop, and therefore can assess needs and demands quickly. Confluence of all these changes made it possible for a handful of hungry innovators to create the likes of Pinterest, Facebook, Uber, Google … you name it. In their core, the products are software based intellectual property.
The second change that happened that pushes the innovative momentum towards small inventors is the introduction and proliferation of cloud computing. You do not have to build million dollar data centres to construct a prototype and test your inventions anymore. You can now do that at a reasonable cost. This all means highly talented people are able to create and test more ideas at a faster rate. Combine all of that with the exponentially quicker spread of information today compared to 20 years ago, and it means that small startups are changing the way we live, communicate and work. Of course high-end bio, pharma, nanotech and semiconductor research will always require large non-recurring engineering investment, and they will remain in the monopoly of larger research teams with healthy funding. But for just about everything else, there is a new front in innovation that is expanding.
Therefore, small inventors are more important today than they have been in recent memory. This makes it imperative that we preserve and strengthen the intellectual property laws that protect small inventors. It is also imperative that while attempting to fix the patent troll problem we don't undercut small innovators and give a free pass to patent ogres.
And the fact is that a huge reason why patent trolls exist is because patent ogres exist.
As a small inventor, especially in the IT, software, internet, advertising technology, e-commerce, online media and related industries, you will see larger companies take your ideas and incorporate them into their product lines. One fact about software based intellectual property is that it is difficult to conceive but relatively fast to develop if you have access to large groups of developers. Once a large competitor sees your product online, in a trade show or in a publication, they can duplicate it more easily than, say, another bicycle mechanic duplicating the flight of the Kitty Hawk. It may even be the case that you tell a larger player about your invention in good faith while trying to forge a relationship. Sometimes the larger competitor may get into a partnership with you, pay you for your inventions or compensate you in another way; but what's the incentive for them to do that? Not much. If you are dealing with a patent ogre, they will take your intellectual property and build their own product around it, and just step on you on their way to poaching yet another invention.
A small inventor then has no option but to go to a patent assertion entity, a patent troll, to attempt to get compensation. See the irony? Patent trolls thrive because small inventors have no other recourse against patent ogres.
It is disdainful that unscrupulous entities bring baseless patent infringement cases in order to extract nuisance fees from operating companies and we have to find ways to discourage that. In fact, maybe we have: recent court cases, such as the Supreme Court's Alice decision, have reportedly resulted in significant falls in NPE lawsuits this year. However, only a balanced solution will be viable in the long term and ensure that we are not talking about another patent reform package again in five years. Therefore, I propose we do a thought experiment and while looking at troll remedies take care of the patent ogre problem as well.
One hot-button issue is fee shifting, which basically means in a lawsuit the loser pays for the attorney fees of the prevailing party. So, if you assert your patents and lose, you may be on the hook for several millions of dollars. This works to discourage frivolous cases – but it also works to discourage legitimate cases. In effect, you can't assert your patents against a patent ogre, no matter how clear the infringement case is, without signing on to a round of Russian roulette; something that’s clearly bad for small innovators. I say let's counter-balance this with a concept of affirmative-fee-shifting, where if the defendant is found to be infringing a patent and the infringement appears prima facie clear and obvious, then attorney fees should be awarded to the patent holder. Many judges are quick to award attorney fees to the defendant in cases that they see as baseless; why shouldn't the opposite be true?
Another tool at the disposal of the patent ogre is inter partes review (IPR) proceedings where patents can be challenged on broader bases than was possible in the past. There is plenty of room for the patent ogre to use this tool to grind down inventors and deplete their financial capabilities. After all, the IPR makes the plaintiff the defendant and forces it to spend several hundreds of thousands to protect a right that's already issued and is presumed to be valid. I say let's counter-balance this by introducing the rule that if a patent ogre institutes an IPR against a plaintiff and the patent survives, then the ogre should pay for the IPR fees of the patent owner; in other words, an IPR-fee-shifting of sorts. Without that, most patent ogres will, and do, immediately resort to IPRs to exact a financial toll on a small inventor, so exploiting the gigantic asymmetry in financial resources that exists between the two sides.
Patent ogres have little incentive, if any at all, to even answer a legitimate call from a patent holder about licensing their invention. If you are the general counsel of a patent ogre, it should be your standard operating procedure not to answer any calls or emails from a small innovator claiming that you infringe their patents. Unless the patent holder can somehow find $3 million to $5 million to fund a patent infringement case or convince a respected law firm to take the case on contingency, you are home free. Even if a case is brought, and even if the ogre loses squarely, it pays the same damages anyway. So why in the world would a patent ogre take a licence to any patent from a small inventor? It wouldn't, and they don't. It's that inefficiency in the patent ecosystem that breeds patent trolls. Patent trolls become the only avenue for an inventor who is shut down by patent ogres.
You may think that not responding to a legitimate claim by a patent holder may give rise to willful infringement. But you would be wrong. As it stands now, to prove willful infringement, a patent holder has to show with clear and convincing evidence that the alleged infringer has acted despite “an objectively high likelihood that its actions constituted infringement of a valid patent”, and moreover the patent holder must show that this high likelihood was “either known or so obvious that it should have been known” by the infringer. These are very high bars. You don't have to be a lawyer – and I am not one – to understand what this means. Unless a patent holder can find an email from the general counsel to the CEO of the accused infringer that reads "… yeah, we are infringing this patent for sure, but go ahead and use it willfully anyways …", there is no way to prove willful infringement.
This treatment of small inventors by patent ogres is unfair and abusive. I say we level the playing field for the small inventors by forcing patent ogres to have to give due consideration to claims and requests from small inventors. A patent ogre should be required to answer a request from a small inventor within a reasonable time and have a credible process for doing so. In failing to show this in court, should the patent holder prevail, treble damages should automatically kick in. Let's give the patent ogres an incentive to not shut out legitimate inventors and patent claims by stonewalling them.
It is a simple and demonstrable fact – and already the subject of many articles – that the money patent ogres spend in defending against patent cases brought by small inventors is very small compared to the money they spend in patent suits between themselves. So, as an inventor, as a portfolio strategist and as an entrepreneur, I say that to find a fair solution to the patent troll problem that doesn't squash the small inventors in the process, let's address the patent ogre problem also.
At IAM we would not describe all those who acquire “patents to assert them against companies making or selling products that may infringe those patents” as trolls. We think it is a lot more nuanced than that and that the focus should be on the quality of what is asserted and behaviours, rather than business models; but it’s Fatih’s article so we are not going to change his definition, especially as his central message is so important.
There may be trolls out there and they may need to be dealt with through legislation (though the case is far from made), but there are also plenty of big companies – especially in the tech sector – that are all too happy to use their deep pockets to drive patentees that are short of resources into unfavourable deals, into walking away from disputes or even into bankruptcy. The behaviour of these Patent Ogres is as abusive as, and probably far more damaging than, anything any troll has ever done. And yet no-one in Congress ever talks about it and no group pushing for reform ever acknowledges it.
When did you last see the EFF or the CCIA, for example, ever issue an angry press release about, or take up the case of, a small company being run into the ground by a big company that refuses to engage in equitable patent licensing negotiations? It’s not something I can ever remember them doing. Maybe they should, because it happens all too frequently and does significant harm to talented innovators and the people who back them. Giving the ogres even more power through imbalanced legislative patent reform is not only wrong, it is utterly foolish. Let’s hope that at some stage soon, before it is all too late, US legislators see sense and start to focus on the little guy.
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