Feb 162009

The Evils of Patent Litigation

The Evils of Patent Litigation

There have been a lot of posts over the years on the blogs I read about patents and how they are problematic.  I know Brad has done a bunch, including this one. I wrote one once about a dumb patent issued in the email space, which is here. 

And of course no listing of great patent posts would be complete without a nod to my colleague Whitney McNamara, who I believe coined the term "ass patent" starting with this post.  In fact, Whit has a whole category of posts on his blog about ass patents.  

But one of the most thoughtful, accurate, and proscriptive ones I've read is what Fred wrote a couple days ago.

And I should know.  We are the company that he refers to who spent about half a million dollars successfully defending ourselves (for now – who knows what appeals might bring) against a baseless suit by a patent troll.  For the record, we did try to settle and were presented with a multi-million dollar option only.  I have been advised by our lawyer not to write about this case because there are elements of it that are still pending, but I don't care.  I'm irritated enough about it that I want to get this out there while it's still fresh in my mind.  And I'm not going to use names here or say anything I wouldn't say publicly in any other forum.

I've thought about this problem a lot for the last several years, as you might imagine.  Fred's two patent reforms — that plaintiffs who lose a suit have to pay defendant legal fees, and that patents should have a "use it or lose it" clause like trademarks — would totally do the job. 

I'm a fan of the "losing plaintiff pays" clause, but one challenge is that it would discourage a certain percentage of legitimate suits and claims, particularly from small inventors, out of fear that high-priced defense counsel will not only win on some technicality BUT will then cost a disproportionate amount of money since the risk is completely transferred to the other side.  This is probably a challenge that's worth living with, but it has the potential to be a "lesser of two evils" solution.

I love the "use it or lose it" one in particular, because it would not just force companies to use the invention, but it would also more clearly articulate what the patent is.  In many cases with business process patents, it's too unclear what the patent actually covers and whether or not other inventions are in conflict with it.  Too much is left up to wording interpretations.  That would not be the case if the invention was actually in use!

Here's another problem with the system that I think requires a third simple solution.  I'll call it The BigCo problem, and it happened to us in our case.  The BigCo problem is that the same troll who sued us also sued two other companies, one of them a Fortune 100 technology company, concurrently and similarly baselessly over the same patents.  But here was the problem:  the troll suing us wouldn't consider a modest settlement with us, even knowing that our resources were limited, because doing so would make it harder for them to pursue their case against BigCo and get a Big Settlement.

So here's my proposed third simple solution:  a defendant-initiated settlement should be confidential and not influence the outcome of related pending litigation.  Why should little guys have to suck up costs because BigCo has deep pockets?

I hope last year's ruling around business process patents (creating a more narrow definition of what is patentable) helps with patent trolls, one of the real scourges of the Internet — possibly even a new member of the Internet Axis of Evil — but it won't solve the problem the way Fred's two suggestions will.

UPDATE:  Great comment from Mike Masnick: 

another very very very useful solution to the problems you face would be (finally) allowing an "independent invention" defense to patents. The problem is that almost no patent infringement lawsuits are actually due to someone "copying" someone else's product or patent. The vast majority are due to "independent invention." I think two things should happen: 1. If sued, and you can show an independent invention defense the case is over. And… 2. If you can show that independent invention defense and it works, the patent itself should be invalidated. This is because patents are only supposed to be granted for inventions that are new and non-obvious to those skilled in the art. If those skilled in the art are coming up with the same concept independently, I'd say it fails the non-obvious to those skilled in the art scenario. Do that and much of the patent problem goes away, while still "protecting" the scenario where some company just flat out copies an invention.

Filed under: Business

18 responses to “The Evils of Patent Litigation”

  1. The third idea just won't work because defendants in future litigation are entitled to know what a plaintiff has been paid for a patent in the past before being forced to pay damages. You or your lawyers should have made more of an effort to coordinate your defenses. Collaboration is a good way to deal with the patent troll problem, and their are private solutions emerging now to facilitate that collaboration — see, for example, Kleiner Perkins and CRV backed RPX Corp.

    Better than your third idea is for the PTO to require the disclosure of the terms of all licenses and sales. The problem with the patent market is ultimately a problem of valuation, and the trolls thrive in an environment in which companies don't want other companies to know how much they're paying — it puts the trolls in the position of holding all the cards.

    It's like hockey players and helmets. Nobody wants to wear them when they're not required because it puts them at a disadvantage in playing. But at the same time, everybody would be safer — and at the same disadvantage — if they're required.

  2. Not wild about a solution that lets the government (in this case the courts, but still the government) hide more records which should be public. Why not just seal the records for a year or two?

  3. RE: Jeffrey McManus commented on The Evils of Patent Litigation That would work – or seal them until related matters have been resolved.

  4. It’s definitely not perfect.  But I only shared so much detail in the post. We collaborated with BigCo on the defense, and I think in the end, it cost us more money (they weren’t budget sensitive and did a lot of work in-house) and more time without producing a better result.  It was definitely a problem though that we couldn’t settle because of the presence of BigCo in the suit, don’t you think?

  5. I see that startups are caught between a rock and a hard place in such a situation. You have no leverage with either the troll or the BigCo. Folks like you are right to complain about the current system, which is not working for the people who are creating.

  6. Exactly my point.  Now I just need to figure out who to communicate it to!

  7. Ironically, the same BigCo that made life hard for you probably has a lobbyist on payroll working toward the sort of patent reform that you'd like to see.

    The bigger problem for startups right now are the SEC rules that make IPOs so expensive and IRS and accounting rules that make financing and staffing startups more difficult than ever. If only patent trolls were the only problem for startups.

  8. Andy Freeman says:

    > But here was the problem: the troll suing us wouldn't consider a modest settlement with us, even knowing that our resources were limited, because doing so would make it harder for them to pursue their case against BigCo and get a Big Settlement.

    I suspect that there is more to the story/negotiation.

    If a $100M from you deal makes it easier for them to get $500M from BigCo, a 1% from you deal makes it easier for them to get a 1% deal from BigCo.

  9. There is more to it than that – hard to do in comments (or without compromising the remaining open items in the case).

  10. Andy Freeman says:

    > I love the "use it or lose it" one in particular, because it would not just force companies to use the invention, but it would also more clearly articulate what the patent is.

    I have a branch prediction patent. I think that it's worth 10-20% in program run time.

    What is an acceptable way for me to profit from my invention?

    Thanks to existing IP, it's almost impossible for an individual to start a microprocessor company.

  11. Andy Freeman says:

    Also, the major players in many industries have formal (or informal) agreements to not sue each other over IP. As a result, a "infringment actions can only be brought by an operating company" law means that said companies will never buy IP because they can't be sued by those outside the club and there's no benefit to buying.

  12. Mike Masnick says:

    Matt,

    I sent Fred this suggestion as well, but another very very very useful solution to the problems you face would be (finally) allowing an "independent invention" defense to patents. The problem is that almost no patent infringement lawsuits are actually due to someone "copying" someone else's product or patent. The vast majority are due to "independent invention."

    I think two things should happen:

    1. If sued, and you can show an independent invention defense the case is over. And…

    2. If you can show that independent invention defense and it works, the patent itself should be invalidated. This is because patents are only supposed to be granted for inventions that are new and non-obvious to those skilled in the art. If those skilled in the art are coming up with the same concept independently, I'd say it fails the non-obvious to those skilled in the art scenario.

    Do that and much of the patent problem goes away, while still "protecting" the scenario where some company just flat out copies an invention.

  13. RE: Mike Masnick commented on The Evils of Patent Litigation

    Now that's a fantastic idea!

  14. RE: Mike Masnick commented on The Evils of Patent Litigation

    Now that's a fantastic idea!

  15. Mike,

    I almost agree with you on this. The problem with your proposal is that it won't save most litigation expenses since you'd have to go through discovery to get to a point where you could assert an "independent invention" defense.

    But I proposed a similar idea on my blog way back in August 2007. What I suggested is that only easily reverse-engineerable (i.e., copied) subject matter should be eligible for patent protection. If you can't copy it, you can't patent it. Such subject matter would still be subject to trade secret and contract protection, of course. But patents create perverse incentives when available for this type of subject matter.

    The advantage of making it a pure matter of law like that is that you could potentially get rid of the cases sooner — perhaps even in the PTO.

    Here's the original post:

    http://brokensymmetry.typepad.com/broken_symmetry

  16. Sorry, there are too many negative signs in there. Where it says "Such subject matter," it should read "Other subject matter."

    The idea is to keep patent and trade secret protection from overlapping — at least until patent disclosures really are useful teachings.

  17. Tom McGovern says:

    Well I am late to this discussion but I can tell you first hand that our system is seriously broken. We are currently defending ourselves from a complete ass patent where the assignees have a contingency law firm suing us and 7 other companies. The patent covers basic HTML technology ( essentially serving images on a web page from a separate server) which they called a newly invented name, never mind that old <IMG SRC= tag in their example code, and got the patent office to issue a patent. Now we are months into this and $400k poorer. We will win but I will never get those lost hours back.

    I love losing plaintiff pays!!

  18. Sorry to hear that, Tom.  Your situation sounds almost exactly like ours.  Hang in there, and ask your counsel about pursuing claims for fee recovery.  If the suit was egregious enough, you may have a shot at it.