Allen Lo, Google interview transcript

Transcript of full interview with Allen Lo, deputy general counsel, patents and patent litigation, Google; conducted by Richard Lloyd, North America editor of IAM

What was the state of the team when you joined?

I joined in January 2012 – at that time, patent activity was growing at the company. If you look at the smartphone wars, you could probably point to 2010 as when Google got active and engaged in the smartphone patent wars. Troll activity had grown significantly by that point as well. So on the litigation front, Google was seeing a lot of activity. On the patent portfolio front, Google was growing the portfolio rapidly. We had announced, but not closed the Motorola acquisition, which was going to bring in a significant number of patent assets to the company. So when I joined, part of what we did was that we consolidated some of the teams that were handling different types of patent matters – so patent litigation with the patent portfolio team. And then as we brought on Motorola, there was the Motorola IP team – which although we kept it as a distinct entity, we needed to have that strategy and its efforts rolled up into a single place.

One of the things I did when I came on was essentially create… Well, I should add before I get there that there was another effort, which was patent policy, and at that time in 2012 it wasn’t yet clear that legislative reform was something that could be real. But Suzanne Michel had already joined at that point, who is in our DC office and leads our patent policy efforts. So those three functions had existed before I came, and we wanted to consolidate, centralise and have better coordination over those efforts. After I got here, I essentially created two additional functions which were largely already distributed among these groups; but I wanted to create distinct functions – so one of them was our patent transactions team and that basically allowed us to centralise and create deeper expertise around things like patent licensing and patent acquisitions. And so that group is led by one of the attorneys who came over from Motorola, and that team is made up of a number of Motorola licensing folks, as well as some folks from Google. So we have one team to focus on that and to allow us to do cross-licensing and other larger patent transactional-type efforts.

Then the other team that we created and really centralised out of the other teams is Jeremiah’s function – which is the operations and analytics function. So basically, a support group which allows us to provide more support across the team, as well as do more data analysis and analytics to enable us to be more thoughtful in terms of how we make decisions and how we look at our own portfolio, as well as portfolios outside of Google.

Is that something you had done at Juniper, that sort of analysis?

My team at Juniper was quite a bit smaller than here at Google. We had three or four different people handling all of our patent matters there, so we were using tools that were commercially available. So vendors like Innography and others that have analytics tools. But when I got here, I felt that because patents were so important to Google and were having such a big impact on our company, and because Google has this DNA around being data and analytics-driven, we really needed to develop deeper expertise here than certainly what I had done at Juniper.

What I’m hoping is that we’ll be able to do more of it than any other company. So part of what we’ve been doing is not just leveraging commercially available tools and becoming knowledgeable and experts on everything that’s out there, but also leveraging resources internally – whether it’s from engineering, from our economists, from other parts of the company – to really say, “How do we get smarter about understanding patents?” And – whether it be trends, whether it be greater insights – understanding our portfolio, understanding portfolios of others, understanding how things are being transacted. We need to develop that expertise more organically, and really develop and institutionalise that. So we basically formed that group, moved some of the folks from different parts into that group, and I made an outside hire to head up that group, so Jeremiah came later in 2012 to lead that team.

Were you given free rein internally to make those changes? What was the reaction internally?

I did that through consulting with my management and our HR group. It was really a matter of how to organise the group and what makes sense in terms of what our goals are. There’s always this balance between being distributive versus being centralised; and, you know, how much do you want to create a structure where the organisation is built around functions versus being built around the business? And so when you look at the team and how it’s set up, we’ve got four groups that are essentially more functionally based – litigation, transactions, policy, operations and analytics – and then you’ve got the larger part of our team, which is the portfolio side and is organised more in alignment with our business. So the business and engineering is distributed into different product areas and technologies, and Tim Porter’s team is structured in a way that aligns with how the company is set up. His group is providing support more to the engineering teams around patents and patent issues, and these other groups are more specialised to provide more specialised functional support to that when we all work together. So it’s a combination of some being distributed to support the business, but also centralising various functions.

Before you joined, what was your external perception of Google’s patent function?

I’ve had a fairly long history with Google and its patent function. Its first attorney was someone I had worked with at Finnegan Henderson. So Google’s first attorney was a gentleman called Kulpreet Rana and he and I worked closely together at Finnegan; and I left Finnegan to go to Juniper and he left to go to Google. So familiarity is how the group has evolved over the 12 years before I joined Google, going from one person to two to 10 and then growing.

I think what we’ve seen is that since 2010, there was a lot of rapid growth within the team, as well as just the amount of work that Google was seeing around patents. A lot of that was litigation that was being brought against Google or its partners; and part of what we also saw late 2000s, going into 2010, was the expansion of the business into more verticals and more markets. So while Google started out as a search engine in the earliest days and then added the ads business, in those earlier days it slowly expanded into other things – it went into maps, it went into Gmail – a lot of it, though, in relatively the same space: online web services. But I think what you saw in the late 2000s and to where we are today, G expanding into far more different areas of technology and new industries. So Android is an example – you know, moving into the mobile space. A very different set of patent issues in the mobile space compared with what you see in the typical internet, web space that Google had come from.

So a new set of issues; and then as we acquired Motorola, you get a new set of issues because now we’re dealing with hardware and devices we’re selling to customers. And as we continue to expand the business and go into different industries, we’re seeing different types of patent issues than what Google had seen before. So there’s this continual evolution of the company. And if you look at that history of the company and the growth of the company, what you’ll see is that the patent issues have also evolved along with the company. And so I would say there’s a real rapid growth starting around 2010 in terms of the team, in terms of the type of work the group was doing. So I would say that by the time I got here, it was a matter of… The group was trying to keep up with all of the different issues, and I think at that point had been doing a tremendous job of being able to handle the litigations and defend and build the portfolio very rapidly; but bringing someone in from the outside was in some ways an opportunity for us to take a different look at it and organise it in a way that wasn’t just simply organic growth of the group, but in some ways a reset of the organisation to say, “What makes sense?” and “Where are we going five years from now? and “How do we make sure that we have a group and structure that will scale to where the company is going and not just keep up with where the company has come from?”

You’ve seen a lot of development in the smartphone sector – it has influenced the deals that you’ve done (obviously, Motorola being the main example). What do you take from that experience in the 2.5 years you’ve had here?

I think a lot of it is around competencies that we had to develop or gain during that period. So in the earlier days, the patent function was more about protecting the innovation that Google was developing; and when you look at the volume of litigations that we had pre-Android, the number of patent cases was fairly limited – so while we had litigation to defend, it was in the order of 10 or less. Whereas once we got into mobile, we started to see the volume pick up significantly – so now we’re at 10 times where we were a few years ago just in terms of the size of docket.

So we’ve had to develop a lot more competency in terms of how we defend these cases. What are commonalities between cases? How can we be more efficient? How can we look at these cases in a different way? When you look at just a handful of cases, you might look at them one way; when you deal with a large docket of cases, you’re going to look at them in a different way. So part of what we’re looking at now is not just, for example, settling one-off cases, but looking at, “Hey, every time we do a settlement, every time we choose to fight a case, what impact and effect does it have down the road in terms of new cases that might be brought against us? What is our perception? How are we viewed?”

We’ve decided to take a fairly aggressive stance in terms of how we defend our litigations, so we’re not going to be a company that settles very quickly – particularly when we see the case doesn’t have a lot of merit. There are companies that have reputations in terms of as a defendant – some more willing to settle than others – and I think part of what we see is that as the volume of cases increases, and patent plaintiffs are deciding who they want to sue, they look at those kinds of things in making determinations. Who’s going to settle quickly and pay more, and who’s going to fight harder and maybe pay less? So as we look at where we are and where we’re going, I think with that increase, we’re trying to look at the longer term to say, “Hey, if we have 100 today, we could have 200 in the future. What is the right reputation? What is the right message we want to be sending in terms of how we deal with these types of cases?” The portfolio itself is something we’ve had to develop a lot of skills and expertise in terms of – are we developing the right portfolio and for what purpose?

So one of the things we’ve had to crsytallise much more is our thinking around: why are we developing a portfolio and what is the benefit to Google? What is the return to Google? How are we deriving value out of our portfolio? I think when you’ve got a very small portfolio and you can invest a little into it, there is maybe less rigour around how you derive value from that. When you’re talking about the scale we’re at now – you know, a portfolio of over 50,000 assets issued and pending – the cost is much more significant to us. So we need to have in our mind, much more clearly crystallised: what is the value to us for having this portfolio?

And I think for us, as we looked at how we wanted to develop the portfolio and how we wanted to continue to develop it, it really falls into a couple of buckets. But there’s an over-arching piece to this, which is: we are developing a portfolio to support the business, so we have this business and the business strategy, and we want to make sure that our IP strategy aligns with that business strategy. That’s the simplest articulation. So as our business has evolved and grown, we’ve had to adapt and understand where we are going, where we are now compared to where we were yesterday and where we are going tomorrow, because we want to make sure that our IP strategy is continually evolving to support that business.

When you break that down in terms of what it means in more concrete goals, I would say that the two goals really are protecting the core innovation we’ve been developing within Google – there really are a lot of areas where we’re on the cutting edge in terms of developing new technology, new things that didn’t exist before, and we want to make sure we have protection for those things. The other, though, is as we’ve seen the volume of attacks against both Google as well as our ecosystem – and that’s something that is not necessarily unique, but it is part of our business model – we tend to do a fair amount of partnering. And so I’ll give you Android as an example: we are providing an operating system to partners who then bring devices to market. As our partners are seeing litigation against them, and while Google may not be named specifically as a defendant, we are involved in the litigation because Android might be implicated.

So part of what we’re looking at is the impact on the ecosystem. So as we see all these attacks, a big part of building a portfolio is being able to use it to deter those attacks as much as we can. So we’ve been fairly active over the last couple of years in both making sure we’ve got the right portfolio to be able to use against any of those companies now or in the future that may be patent threats to us or our partners, as well as being much more active in trying to put in place cross-licences with companies to avoid litigation in the first instance. And I think for us, a lot of the goal is how we can achieve ‘patent peace’ and use this portfolio to obtain what our business is largely looking for – which is the freedom to operate, the freedom to develop products that our users want, and how we can place users first. And if we can do things with our portfolio to license patents and then not have to worry about them being used against us in the future, which might drive up our costs or might result in injunctions which will then mean we can’t ship something – if we can achieve that peace and achieve that freedom to operate, then we’ve achieved a lot of what our business is looking for.  

You’ve seen a lot of growth in your portfolio – to what extent do you resist the temptation that it becomes a numbers game as it looks for some companies (eg, IBM)? How can you keep it under control so it remains focused on the business and it’s not, “We need to have 50,000 patents?”

The way we resist that temptation is by not focusing on the numbers. The number doesn’t serve the goal, it’s: what is it that the business is trying to achieve? So the business is trying to achieve putting users first, and delivering products and doing it very quickly. The question is: how do we help them do that? If we can do that with 10,000 patents, we’ll do it with 10,000 patents. The numbers in some ways don’t matter. The question is whether we have the right patents to be able to do that and whether we are doing the other things that we want to do to help make sure that we’re preventing, for example, litigation in the first instance.

So one of the things we’re very focused on these days, now that we have the portfolio that we have, is not waiting for the litigations to happen and simply being reactive and saying, “Okay, let’s defend, let’s countersue, and if we need to do that, we need to do that.” And I think what we’ve seen over the past year with the analytics team, with the transactions team, with the litigation team and with the portfolio team, is that we’ve developed a portfolio that we think we’re ready. So if someone wants to sue us, we’re ready to have that countersuit to engage with almost anybody. And as our business expands, we need to be ready for those potential threats in the future. But as to where we stand today, we’ve spent a considerable amount of time and effort really developing the right portfolio to make sure that if we’re going to use it for counterassertion, let’s do that. But we want to go beyond that and say, “Let’s not wait for the litigation.” If there are companies that we can engage in cross-licensing negotiations and put in place the licences now, then we can avoid the litigation altogether and that’s going to save us all a bunch of money and expense that’s largely unnecessary.

So we’ve been much more proactive – especially having developed this transactions team to be much more active in putting in place these cross-licences. So, as an example, earlier this year we announced cross-licences with Cisco and Samsung. And as we look at the universe of patents that are out there that could potentially be relevant to our products and our business, we’re trying to figure out who has those patents and can we put in place cross-licences that make sense for both companies so there are fewer patents that now we have to worry about in the future. And, you know, I think part of what drives that for us is that there has historically been the notion of just, you know, détente: as long you don’t sue me, I won’t sue you and we can live in peace as long as we can co-exist and we don’t need to do a cross-licence. I think part of what we’ve seen is a lot of companies selling patents, and so the patent marketplace has seen patents that are coming from companies who are still in business, but they’ve decided to take the portfolios that they have and sell pieces of them off. In that case, détente doesn’t really help me if patents are getting in the hands of others – NPEs and other entities – who might then use them against me. So, putting in place a cross-licence just ensures you can do what you want with those patents, and you don’t have to worry about who I’m going to sell my patents to in the future as well.

You’ve built the portfolio; you’ve improved the defence around the company. Do you ever foresee a time when you might flick the switch: go on offence and use it more as an outright monetisation play? Or – given that you are going into new sectors – that this becomes something that you have to do?

I think for us, everything comes back to supporting the business and alignment with the business and the business strategy, as we look at what we think is the greatest value we can derive out of portfolio – and certainly monetisation is a way to derive value out of a portfolio. If you are an NPE that had no other products, then that becomes your product, that is what you’re selling – and monetisation is really the only model that makes sense for that kind of entity.

I think when you look at Google, you say, “We have this business, independent of patents and patents are just an adjunct, patents are just a tool that we use to help the business and help the business achieve its goals and pursue its interests.” I think for us, the greatest value we can derive from our patents is really this notion of protecting the core innovation and using it in this way to either, through cross-licensing, avoid litigation in the first instance or have it ready for counterassertion against us or our ecosystem, because the value we derive from the business is so great.

So if we wanted to go down the monetisation path, I think that’s another way to derive value; but I think the value we derive would be considerably smaller than the value we currently derive by being able to support the business. I’ve seen, in the time I’ve been in-house at various companies, different companies try monetisation; and often where they fail is where the monetisation fails in the goal of supporting the business. So when you think about monetisation, who are you going to go after? Who are you going to seek to derive revenue from? If you have enough customers, then you’re going to start to go after your customers and that might start to harm your product business. We’ve seen it in a number of other instances with other companies who have tried that. And so while it’s not completely mutually exclusive, there is some potential for conflict between those models.

So I think for us, it’s a fairly straightforward analysis that we get way more value out of using our portfolio by supporting the business in the way I’ve described, as opposed to monetisation. So I think the temptation isn’t there, because that would be small dollars for us, versus the big dollars.

But does it grow given what has happened with your team, the amount of investment the business has made into patent assets – does that start to shift the conversation internally?

I don’t think so, simply because we’re able to keep our focus on what our goals are. And maybe the way to distinguish it is that it’s kind of the long term versus the short term. Google’s history, Google’s culture, Google’s values have really been about: how do we put the user first? How do we deliver great products to users? How do we take the long view? And so we may invest in research that may not see immediate return if we feel like it’s going to have benefit value in five, ten, 15 years – the company is willing to make those kind of investments.

I think we look at the patent portfolio in the same way, which is: yes, we could always look at patents as a way to derive some short-term monetisation to justify the expenses we’re incurring or how much we’ve invested in developing a portfolio. But I think we take that longer-term view of: that’s not really as important to us as making sure the business can be successful. And as we move into different industries, I think the use of patents may differ from industry to industry. And I think what we’ve seen is that we’ve come from a very web-based, internet-focused industry to – say if in the future we get into pharmaceuticals or other kinds of things that are much more in the healthcare space, we’re going to see that patents are used in a much different way there, and we’re going to have to then learn and adapt and figure out how we develop a patent strategy that fits that space and that industry.

I think what we want to be careful about is not to take a one-size-fits-all approach because Google isn’t just one company; it’s really many companies with different businesses at different levels of maturity in different industries, and the patent strategy that makes sense may vary from business to business. At the end of the day, our ultimate goal is: how can we innovate as a company? How can we deliver products and put users first and make sure that the business is as successful as it can be? And a lot of that is going to be around clearing patent risk and trying to achieve freedom to operate for the business.  

What do you say to people that say that you’re not actually interested in a strong patent system, strong patent rights and a lot of your involvement in recent reform efforts are directed at that? How do you respond?

I think, number one, we are both a patent holder as well as a patent defendant, so we’re on both sides of this, just like I think a lot of companies are. When we look at reform and patent policy, I tend not to think of it as strong patent rights versus weak patent rights. I think that is a red herring; it takes you down the wrong path. Because if you’re about strong patent rights, in a vacuum, then there are certain positions you will take to ensure there are strong patent rights; that might make sense if you’re in a business all about patents, then I can understand that.

But I think for us, it’s more about understanding what the role of the patent system is and making sure the patent system is achieving the goals of the patent system; that the patents and the patent laws are achieving the goals of the patent system. And if it means that there needs to be stronger patent rights, then we would be in favour of making sure that the patent system fits that and the patent system is achieving the right purpose. If it achieves what you would call weaker patent rights, then I guess that we would support that too. But I don’t like those labels. I would prefer to look at it and say: is the patent system achieving its purpose? And I think what most people would not disagree with is that the patent system works in some places and is not working in other places.

Like where?

So I think, say, in the pharmaceutical space, it probably is working much better. There are fewer patents on a product; there is significant investment in R&D to develop a drug that would not have happened without patent protection; and so the whole purpose of the system around promoting innovation – and in particular around promoting investment in innovation – is about making sure that things that would not have happened otherwise do happen and we give rights to allow that to happen. In cases where innovation would have happened independently, by itself, the patent system doesn’t serve that purpose as much; it doesn’t have as much of a need.

I think what we see in a lot of other industries, the investment that’s needed to come out with some new piece of software or an app on your phone is much less significant, and competition in the marketplace is actually what promotes innovation. Having more companies to be able to come out with something and get customers and make money that way – we have to remind ourselves that competition also promotes innovation and so the patent system makes sense where competition fails in promoting innovation.

So where competition alone isn’t enough – and I think the pharma example is where you would say that the first pill might cost you $1 billion because of all the research that’s needed, but the second pill might cost you $1 – how do we make sure that the company that invested in the first pill in the research gets a return so it makes sense for that company to make the investment and come out with the new drug?

I think what we’re seeing in the high-tech space is a number of things. One is many, many patents that relate to a product. So unlike in the pharmaceutical sector, where you have very few patents, you have many patents here. And unfortunately, the way I think the patent system has worked in high-tech – and maybe different people would disagree – but I think there’s a feeling that there are many patents that are invalid even under today’s standards, should never have been granted in the first place in the high-tech area. And there are a lot of reasons for why that may or may not be the case; but too many patents – in particular, too many bad patents. You couple that with a low barrier to entry and this notion that you don’t need to invest so much to develop a product in the high-tech space; all of a sudden the patent system doesn’t satisfy the same needs as in the pharma space. So I think it’s question of how it’s being applied and saying, “Okay, how do we fix some of these problems?” If we can agree – and I think most people do – that there are problems, that the patent system isn’t fully functional, how do we address that?

I think what we’ve seen is that there are two main sources of the problems that we’re seeing – one of them is that the way the system is set up, there is opportunity for what we would call litigation abuse. Companies are using litigation as a way to extract settlements even when their cases have very little merit, because the cost of defence is so high. So it’s very asymmetrical the way it is; there’s very little downside for a company to bring a meritless case under the current system. So how do we change that so that we don’t want abuse? And it’s really not a question of NPE versus non-NPE; we don’t want abuse by anybody who’s going to bring a patent suit.

The other source of the problem is the quality of the patents that we’re seeing in the high-tech space, because of the various reasons that the patent office may have challenges, in terms of access to the right prior art, the resources to examination, how claims are interpreted – broadly, narrowly, maybe by different people – the number of patents that relate to a product. So all of those relate to quality – if I have to defend 100 cases and 98 of them are against patents that never should been granted in the first place, I’m spending a lot of money just to win and prove that I’m right. But it’s costing me a lot of money to get there, and it really shouldn’t. So how can we improve quality in the first instance so the patents that do issue, there is more confidence and reliability by the public that these are patents that are inventions that are worthy of patenting?

And I think that part of what we’ve seen is that because of the system and what is happening, there’s an erosion of that confidence and perception by the public of what a patent represents. A patent used to represent innovation – you got a patent that meant something. I think today, when you talk to the public, people equate patents more to litigation; and I think the shift is symptomatic of the problem that we’re seeing, so we’re seeing a lot more litigation, a lot more companies having to defend. If we could clean up and eliminate some of the abuses as well as improve the quality of the patents, then I think we would have a much more balanced system and a system that probably worked much more effectively.

We’re seeing a lot of innovation at the same time, so can you point to areas where innovation is being held up by patent litigation?

I thought you were going to ask a different question – a lot of people are asking, “We’re seeing a lot of innovation and can we give credit to patents for that innovation?” To me, that’s a stretch. You might say innovation is happening despite the patents and problems we’re seeing.

But to your question – I think it’s what we’re not seeing, and that’s the hard part to prove. It’s proving the negative. Because when Google has to spend tens of millions dollars defending meritless patent cases, what is the innovation that Google could be developing with the same money if we could allocate it and invest it in something new? So it’s that lost opportunity cost I think we’re losing. And where you’re really seeing it happening, I think, is with the small companies. With the big company, it’s about opportunity cost; we’re having to reallocate resources that could have gone into new development to defending baseless patent litigation. With the small companies, this is life or death, and so a handful of lawsuits are putting companies – start-ups – out of business. And so what you’re seeing is companies having to spend all of the money they have in defending a single lawsuit and then saying, “We give up; we can’t do this anymore.”

We are also seeing companies choosing, for example, not to release products in the US because of the amount of litigiousness there is in the US. They will release products in Asia and Europe, but they won’t come to the US. So what we’re seeing is a combination of increased costs because of patent litigation which eventually gets passed down to the consumer, so it makes it more expensive for the consumer to buy and pay for products. And you’re seeing fewer choices because start-ups can’t get off the ground. Companies that are international that may sell in Asia and Europe won’t come to the US, so US consumers, as an example, will have fewer choices.

Who does that benefit? It benefits the companies with the large portfolios who are maybe generating revenue from these other companies; and it’s also limiting competition, and so for those companies who are selling products it benefits them by having less competitors. I think what we want to be able to see, and what we’re trying to promote, is more fair competition. So, how do you get more companies to come out with products and drive innovation that way? Because when you have more competing products, you’ve got more choices and that’s going to feed into more innovation, I think, among competitors. You can’t just rely on last year’s release or two years ago.

But the sense is that you’re a company that obviously makes its money through innovation and bringing things to market quickly and improving products quickly to satisfy consumer demand, and that’s only accelerating; and therefore the sense is that ultimately, a patent system is an impediment. If you have 200 engineers working on the latest iteration of Android, they’re not thinking, “Oh but we need to think about Mr NPE who owns 200 patents right in the thicket where we’re developing.” No; they’re thinking about the product they’re trying to get to the consumer. And therefore the patent system isn’t working in your favour, isn’t working to support what you’re trying to do; and therefore, you want to change the system to suit your needs better. How would you respond to that?

I think to us, what we’ve been trying to say and trying to advocate for is a balance in the patent system. Patents by their nature are negative rights – they are rights to be able to sue somebody else. They are not rights to make a product. That’s why you have NPEs – they have rights to be able to sue and license others under the rights that they have. We’re not talking about abolishing patents; that would be the extreme view and I don’t think that’s ever been our position. Our position has been that we need to make sure that, if you’re going to have negative rights, it should serve a goal and a purpose, and that the patent system’s purpose needs to be achieved. Where the patent system’s goal is not being achieved, and you’re giving a lot of rights to individuals and taking them away from companies being able to release products, then the system is out of balance.

I think that really what we’ve been trying to advocate for is: how do we bring it back into balance? Google is not talking about abolishing the patent system; it’s about – how do we eliminate the litigation abuse that I think most people would agree has happened, is happening today? How do we make sure the right patents are being issued and that the quality of the patents that are being issued by the patent office is higher than it is today? And we’ve heard from a lot of NPEs who are saying the same thing. So in a lot of ways, we’re no different from what a lot of others are saying. And the question is: how do we get there? From a legislative standpoint, the things that we’ve been proposing or supporting are things that would eliminate the litigation abuse or improve patent quality. So for us, it all comes down to those things, and if we can do that we restore the balance in the patent system and it can maybe function in the way that it was intended to. But right now, it’s not.

Is that best left to Congress or to the courts?

I think it depends on the particular areas. I think there’s a role for both of them and I think we’re seeing Congress taking a great interest in trying to address issues. I think we’re seeing the courts – in particular, the Supreme Court with some of its recent cases – coming out and saying, “Hey, we’re seeing issues as well”. And I think there’s room for both the Congress and the courts to try to rebalance and bring the system back into balance.

I think where SCOTUS has made decisions makes sense in terms of where the system may have gone too far, and they’re the ultimate decider to bring it back from a case law standpoint. In some cases the courts don’t have the authority or the power to make certain kinds of decisions that really are up for Congress to legislate. So there are things we feel like it’s the role of Congress to change and there are areas where it’s the role of the court.

Some people say we had the America Invents Act (AIA) – the first major piece of patent legislation in more than 50 years – that introduced a number of areas and particularly what’s going on at the patent office and Patent Trial and Appeal Board (PTAB), and some people would say we need to let that run through, we need to see the full effects of the AIA before more reform. And yet here we are three years on, and we’ve got another bill on the agenda. Why not let the full impact of AIA come through; why do we need another piece of legislation?

The PTAB is addressing one of the two problems that I identified – patent quality. And I think what the AIA did was it allowed us to create a structure which allowed us to go back to the patent office and say, “Hey, here’s a patent that probably shouldn’t have issued in the first place – can you take a look at it again?” And there are consequences for doing that. You don’t get to take that shot and then go to court and take the same shot with the same prior art and the same argument. So you’re going to choose – am I going to make these arguments in court or am I going to make them at the patent office?

I think what the AIA did was that it created a much more efficient system for companies to be able to challenge patents and their validity back at the patent office. Lower cost, maybe more quickly, so that companies weren’t spending so much money on discovery and litigation defence having to raise those issues in court. So it addresses this issue of quality; but a lot of the reform proposals that we’re seeing deal with more of the question of litigation abuse, which really the AIA didn’t touch. So when you talk about fee shifting and what is the right standard for when fees should shift – is the standard reasonableness in terms of the case that you brought? There are proposals around elevating the pleading standard so that you have to specify with more detail. If you’re going to file a lawsuit, you should know what you’re suing; you should be able to articulate it. Under the current standard you can be very vague about it. So why should that even be controversial: that plaintiffs, if you have a valid case, tell us what it is?

There are some questions in some proposals on the legislative front as well around discovery and costs and when certain kinds of discovery should happen, trying to address the asymmetry that is inherent in litigation: that defendants are having to spend a lot more money defending a patent case than it costs a plaintiff to bring it. While we do support the notion of access to courts, which I think is what a lot of the law is set up to do, it significantly disadvantages companies that may have to produce, because of a very broad allegation, millions of documents in discovery, many of which are totally irrelevant and are just fishing exhibitions by the plaintiff to see if they can impose enough cost on a company to have the company say, “We’ll just pay you a fraction of what it’s going to cost us to defend just to make this go away.”

I look at a lot of the proposals that were in front of Congress more recently – a lot of them deal with the litigation abuse side of things and where we can improve patent quality, to try and improve patent quality. So I think we’re not done yet and I think that’s the issue – when we know there are several sources of problems, why not try to fix them? Why fix it halfway and wait and see if the other set of problems… They won’t go away by themselves.

Was quality an issue at the patent office when you were there?

I think quality is always something that’s a priority for the patent office. When patents issue, there’s always a question of, “Is this a valid patent or not?” And I think in patent litigation, for decades, that is one half of the defences that are raised – there’s non-infringement and there’s invalidity. I think what we’re seeing today is the volume of applications going up significantly; so when you’re talking about 100,000s of patents being filed every year now, the patent office is struggling with the resourcing that they have and the tools that they have and the cutting-edge technologies that are being sought for patenting and whether they are able to identify the right prior art against that. I think when you look at the old days, it was a different type of technology; so I think things are evolving in a way where it’s harder and harder for the patent office to find the right prior art. And Google is trying to help with some of those efforts – help the patent office, help others identify prior art – because I think that’s one of the challenges that companies and the patent office have all seen: which is that if they don’t have the best prior art, they have to allow the patent. They can’t just do it because they feel like they don’t want to; they need to be able to support that with documentation.  

Would you throw more money at the problem at the patent office?

I’m not sure – it’s a complex problem. I think some folks feel they have funding; it’s a question of maybe expertise. Are there process changes we can make so that there’s more access to prior art? Right now, examination is done by individuals – one case may be examined by a single examiner, or maybe two or three; but it’s a handful, at most, of people looking at things. Should we move to a system that has more eyes looking at patents? Do we move to a crowdsourcing process? I think there are a lot of ideas that are worth exploring in trying to figure out how we best address the problem. And if the problem is one that can’t be solved, then one of the things that I think we have to consider is: right now, we have this presumption of validity, which is that we assume the patent office has done a great job and that this patent is valid, and then the burden of proof – of proving invalidity – in court is very high. I think we have to ask ourselves: does the quality of what is being issued by the patent office warrant the high standard for proving invalidity later?  

Do you not think that inter partes reviews are shifting that dynamic, though?

For those that avail themselves of the process in the patent office. f you want to deal with it in the courts, which many companies do, they’re dealing with a different standard of review. So your burden in the courts is going to be much higher in terms of proving invalidity and in the evidence you can present – you may be more limited than what you can use in inter partes reviews.

And inter partes reviews have their own limitations as well: there are certain kinds of prior art that you can put or certain grounds for challenging that are available, and certain ones that are not available in inter partes reviews. So I think we need to look at this and ask: how can we reconcile some of these differences and what is the best way to have a second set of eyes or a second review of patents, so that it is more of an adversarial proceeding? So that it’s not simply the patent owner who is advocating by himself in a process and getting a patent issued; then there are others who have spent time looking for prior art and whether this should be a valid patent or not, challenging them.

Do we really want to make it so hard for them to be able to do that? Maybe we do, but I think it’s worth revisiting. I think there’s an opportunity to look at the system from examination all the way down to challenges of validity and really say: what is this holistic system, what should it look like and where do we need to make changes?

You and your colleagues talk about the small business that’s now under threat, has more challenges facing it. But at the same time, you have those SCOTUS decisions; you have reform; you have the uncertainty about what’s going to change with ongoing reform; and if you’re a small business with a couple of patents and trying to develop your own products or assert them, actually the landscape looks pretty uncertain. And it may look to you as if it’s going to be get more uncertain, particularly if Mr Big Tech Company can come along and put your patents in inter partes review, which is going to cost you $500,000 and a couple of years. So do you not think that the climate we’re in at the moment is moving away from that small business owner?

I guess all I can do is draw upon history and what we’ve seen. If you look at Silicon Valley – a place where start-ups are founded; and some grow into big companies, some may not be successful – patents have really played little to no role in the success of a lot of those businesses in terms of whether they succeeded. It wasn’t because they had patents or didn’t have patents. How do companies get investors to invest in them? Is it the ideas that they have? Is it the market opportunity they’re pursuing? Is it the team they’ve put together to execute? Those are the things that are determinative of whether they get investment or not and the amount of success they have; ultimately, their ability to execute.

And what we’ve seen even in the more recent history, there are small companies that have emerged that have proven to be successful; and it’s not just that the big companies aren’t going to be able to take over and make sure they’re not successful. Their success has not been because they’ve had patents to assert and have a large portfolio – it’s quite the contrary. Most of those companies, even if they have any patents, the patents that they have filed have not yet issued; but their success depends on their ability to execute, their ability to bring an innovative idea to market. I think that’s what we want to make sure: that patents are not preventing more of those companies being able to come to market. And I think the concern – and some of the evidence is beginning to suggest – is as the assertion market is evolving, we’re seeing a shift from what has traditionally been focusing on the tech companies, the manufacturers, the large companies… You’re now starting to see it’s the small businesses that are being attacked. And I think that’s where there should be significant concern: about what impact that’s going to have on their ability to be successful. It’s hard enough to compete with a big company if, on top of that, you have to defend five patent litigations; your chances of success decrease significantly.   

But the small businesses that reform is focused on are not patent owners – they’re mom-and-pop shops; restaurants which are the subject of frivolous demand letters…

And certainly those are examples along the continuum, absolutely. But on that spectrum, you also have the start-ups, the companies that are still private, the companies that are trying to be disruptive – seeing demand letters, seeing lawsuits against them. If Google were a start-up today, the question I might pose: what are the chances of Google being successful as a company if it were to be a start-up in the climate that we have today versus 1998, when Google was first founded? I might suggest that it is harder for any company today to try to be successful. Not because of competition, but because of additional taxation through patent assertions and having to spend lots of money defending. There is a risk, certainly, that that is going to stifle innovation and where innovation is going to come from is these small companies.

But Larry Page did have the very good sense to make sure – helped by Stanford – to make sure that PageRank was patented pretty early on?   

It was patented – to my knowledge, it has never been asserted, used in litigation for patent infringement. So while the initial ideas that came out of Stanford were patented, I think what we’re really talking about, when we talk about the abuses and the negative impact that patents are having, is not simply the filing and issuance merely of a patent in of itself; ultimately, it’s the use of the patent through assertion, through litigation that is the problem.

Google’s success was never based on the assertion or use of the patent. It got the patent; Stanford owns it; but then Google was able to build a successful company through its own execution. If there were 15 companies that were going to use patents in a very heavy-handed way against Google, and Google had to pay royalties and damages and attorney fees defending itself, you would see a lot of distraction and a lot of reallocation of resource on the legal side, which would mean that Google would not have the same opportunity to grow the way it did back then.

I think that’s the challenge we see, and we want to make sure it’s not just about the big companies – it’s about the small companies and they’re more disparately impacted than we are. They’re the ones that are going to have bigger challenges, because $1 million for them is quite meaningful in terms of whether they can be successful or whether they can hire 10 more engineers or whether they can ultimately release a product. So I think that’s where the greater risk is and why you see a lot more focus from the reform standpoint is the impact that this is having on that ecosystem.

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