Professors Noel Maurer & Stephen Haber wrote an interesting article: An Empirical Analysis of the Patent Troll Hypothesis: Evidence from Publicly-Traded Firms that addresses patent monetization, innovation, and patent trolls.
From the Abstract: "Do firms that earn revenues from licensing patent portfolios, rather than producing physical
products—often called patent assertion entities (PAEs)—frustrate or facilitate innovation?
Using a sample of 17 years of SEC filings by all 26 publicly-traded firms that an expert (RPX
Corporation) categorized as PAEs, we estimate spending on, patent acquisition, and litigation;
and their revenues, rates of return, and risk-return ratios.
We also estimate an upper bound of the transfer from operating companies to those 26 firms, including the cost of defending against their
lawsuits.
We find that sample firms spent twice as much on R&D (as a percentage of revenues)
than the average for large high technology companies. We also find that most sample firms lost
money.
Finally, we find that the magnitude of the transfer from operating companies (including
legal defense costs), represents only 0.28% of the revenues of the U.S. high technology market.
These findings are inconsistent with the characterization of the PAE business model in an
influential policy and academic literature."
Copyright © 2020 Robert Moll. All rights reserved.
Showing posts with label PAE. Show all posts
Showing posts with label PAE. Show all posts
Friday, January 31, 2020
Thursday, May 25, 2017
Professor Stephen Haber - Patents and Wealth of Nations
Tonight, I recommend reading Professor Stephen Haber's article Patents and Wealth of Nations. This article debunks the myth that the US economy is harmed by patents. I haven't read the entire article, but whatever I read made sense and was interesting. For example, please check out this passage addressing Bessen and Meurer's misleading claim that PAE's resulted in a $29B tax on innovation:
"There is also no convincing evidence that PAEs negatively affect innovation. Professors Schwartz and Kesan, for example, analyze the data and methods employed by Bessen and Meurer to produce the widely cited claim that in 2011 PAEs generated a direct tax on innovation of $29 billion.
Their analysis effectively undermines the Bessen-Meurer claim. Kesan and Schwartz point out that the Bessen-Meurer estimate is generated from a survey of eighty-two business enterprises regarding their experiences with PAE litigation, but those firms were neither randomly selected nor chosen so as to generate a representative sample. Rather, Bessen and Meurer relied on a survey sent to “‘about 250 companies,’ which include ‘RPX clients and nonclient companies with whom RPX has relationships.’” RPX is a business enterprise that describes itself as a defensive patent aggregator. There are therefore multiple reasons to be concerned about sample selection bias.
Kesan and Schwartz also demonstrate that Bessen and Meurer conflate “costs” with “transfers.” Slightly less than one-quarter of their $29 billion figure ($6.7 billion) represents actual litigation costs; the vast majority of the $29 billion is composed of settlement, licensing, and judgment amounts, which are the rewards that patent holders should have received for their intellectual property in the absence of infringement.
Kesan and Schwartz also point out that Bessen and Meurer do not ask whether the $6.7 billion in litigation costs is a large number in relation to some benchmark. They ask how $6.7 billion compares to the amounts spent by operating companies that regularly sue each other for patent infringement (e.g., cases such as Apple v Samsung). We would point out deadweight losses are usually assessed as a percentage of GDP, and on that basis the $6.7 billion in PAE litigation costs in 2011 amounted to only 0.05 percent of America’s $15.5 trillion national product. To put this in context, $6.9 billion was the amount Americans spent in 2015 on Halloween.
Finally, Kesan and Schwartz note that any analysis of costs must be balanced by an analysis of benefits, but these are ignored by Bessen and Meurer. Recall here the history of the laser. The initial patents generated lengthy and costly litigation financed by a PAE. But who would maintain that those costs represented a deadweight loss to the U.S. economy in light of the hundreds of billions of dollars generated by the commercialization of laser-based products over the past five decades?"
Copyright © 2017 Robert Moll. All rights reserved.
"There is also no convincing evidence that PAEs negatively affect innovation. Professors Schwartz and Kesan, for example, analyze the data and methods employed by Bessen and Meurer to produce the widely cited claim that in 2011 PAEs generated a direct tax on innovation of $29 billion.
Their analysis effectively undermines the Bessen-Meurer claim. Kesan and Schwartz point out that the Bessen-Meurer estimate is generated from a survey of eighty-two business enterprises regarding their experiences with PAE litigation, but those firms were neither randomly selected nor chosen so as to generate a representative sample. Rather, Bessen and Meurer relied on a survey sent to “‘about 250 companies,’ which include ‘RPX clients and nonclient companies with whom RPX has relationships.’” RPX is a business enterprise that describes itself as a defensive patent aggregator. There are therefore multiple reasons to be concerned about sample selection bias.
Kesan and Schwartz also demonstrate that Bessen and Meurer conflate “costs” with “transfers.” Slightly less than one-quarter of their $29 billion figure ($6.7 billion) represents actual litigation costs; the vast majority of the $29 billion is composed of settlement, licensing, and judgment amounts, which are the rewards that patent holders should have received for their intellectual property in the absence of infringement.
Kesan and Schwartz also point out that Bessen and Meurer do not ask whether the $6.7 billion in litigation costs is a large number in relation to some benchmark. They ask how $6.7 billion compares to the amounts spent by operating companies that regularly sue each other for patent infringement (e.g., cases such as Apple v Samsung). We would point out deadweight losses are usually assessed as a percentage of GDP, and on that basis the $6.7 billion in PAE litigation costs in 2011 amounted to only 0.05 percent of America’s $15.5 trillion national product. To put this in context, $6.9 billion was the amount Americans spent in 2015 on Halloween.
Finally, Kesan and Schwartz note that any analysis of costs must be balanced by an analysis of benefits, but these are ignored by Bessen and Meurer. Recall here the history of the laser. The initial patents generated lengthy and costly litigation financed by a PAE. But who would maintain that those costs represented a deadweight loss to the U.S. economy in light of the hundreds of billions of dollars generated by the commercialization of laser-based products over the past five decades?"
Copyright © 2017 Robert Moll. All rights reserved.
Monday, October 10, 2016
FTC - Patent Assertion Entity Activity: An FTC Study
The Federal Trade Commission (FTC) published a report that investigates patent assertion entities (PAEs) that acquire patents then try to monetize them and makes recommendations for patent reform.
Here is the FTC press release:
"This report is a big step forward in enhancing our understanding of PAEs and provides an empirical foundation for ongoing policy discussions,” said FTC Chairwoman Edith Ramirez. The recommendations we are proposing are designed to balance the needs of patent holders with the goal of reducing nuisance litigation.
The report, Patent Assertion Entity Activity: An FTC Study, examines non-public information and data covering the period 2009 to 2014 from 22 PAEs, 327 PAE affiliates, and more than 2100 holding entities (those entities that did not assert patents) obtained through compulsory process orders (subpoenas) using the agency’s authority under Section 6(b) of the FTC Act.
The report found two types of PAEs that use distinctly different business models. One type, referred to in the report as Portfolio PAEs, were strongly capitalized and purchased patents outright. They negotiated broad licenses, covering large patent portfolios, frequently worth more than $1 million.
The second, more common, type, referred to in the report as Litigation PAEs, frequently relied on revenue sharing agreements to acquire patents. They overwhelmingly filed infringement lawsuits before securing licenses, which covered a small number of patents and were generally less valuable.
The report found that, among the PAEs in the study, Litigation PAEs accounted for 96 percent of all patent infringement lawsuits, but generated only about 20 percent of all reported PAE revenues. The report also found that 93 percent of the patent licensing agreements held by Litigation PAEs resulted from litigation, while for Portfolio PAEs that figure was 29 percent.
The study found that the royalties typically yielded by Litigation PAE licenses were less than the lower bounds of early stage litigation costs. This data is consistent with nuisance litigation, in which defendant companies decide to settle based on the cost of litigation rather than the likelihood of their infringement.
'The FTC recognizes that infringement litigation plays an important role in protecting patent rights, and that a robust judicial system promotes respect for the patent laws. Nuisance infringement litigation, however, can tax judicial resources and divert attention away from productive business behavior,' the report states. With this balance in mind, the FTC proposes reforms to:
The report also looked at whether PAEs were able to make money by mass-mailing so-called 'demand letters'; however, the FTC observed an 'absence of large demand letter campaigns for low-revenue licenses among the Study PAEs.'
To gain a better understanding of how PAE behavior compares with the behavior of other firms that assert patents, the report also looked at the wireless chipset sector, examining how reported PAE assertion behavior compared to certain manufacturers and non-practicing entities (NPEs) (who primarily seek to develop and transfer technology ). For this study, the FTC obtained non-public data from eight manufacturers and five NPEs, for the same timeframe using its 6(b) authority.
The wireless case study found that Litigation PAEs and manufacturers behaved differently. Within the study, Litigation PAEs brought far more infringement lawsuits involving wireless patents—nearly two-and-a-half times as many as manufacturers, NPEs, and Portfolio PAEs combined. Litigation PAE licenses involved simple lump-sum payments with few restrictions, if any, whereas the reported manufacturer licenses frequently included field-of-use restrictions, cross-licenses, and complicated payment terms.
This new report furthers the Commission’s commitment to addressing patent policy issues, that began with its 2003 report, To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy, and continued with its 2011 report, The Evolving IP Markeplace: Aligning Patent Notice and Remedies with Competition."
Copyright © 2016 Robert Moll. All rights reserved.
Here is the FTC press release:
"This report is a big step forward in enhancing our understanding of PAEs and provides an empirical foundation for ongoing policy discussions,” said FTC Chairwoman Edith Ramirez. The recommendations we are proposing are designed to balance the needs of patent holders with the goal of reducing nuisance litigation.
The report, Patent Assertion Entity Activity: An FTC Study, examines non-public information and data covering the period 2009 to 2014 from 22 PAEs, 327 PAE affiliates, and more than 2100 holding entities (those entities that did not assert patents) obtained through compulsory process orders (subpoenas) using the agency’s authority under Section 6(b) of the FTC Act.
The report found two types of PAEs that use distinctly different business models. One type, referred to in the report as Portfolio PAEs, were strongly capitalized and purchased patents outright. They negotiated broad licenses, covering large patent portfolios, frequently worth more than $1 million.
The second, more common, type, referred to in the report as Litigation PAEs, frequently relied on revenue sharing agreements to acquire patents. They overwhelmingly filed infringement lawsuits before securing licenses, which covered a small number of patents and were generally less valuable.
The report found that, among the PAEs in the study, Litigation PAEs accounted for 96 percent of all patent infringement lawsuits, but generated only about 20 percent of all reported PAE revenues. The report also found that 93 percent of the patent licensing agreements held by Litigation PAEs resulted from litigation, while for Portfolio PAEs that figure was 29 percent.
The study found that the royalties typically yielded by Litigation PAE licenses were less than the lower bounds of early stage litigation costs. This data is consistent with nuisance litigation, in which defendant companies decide to settle based on the cost of litigation rather than the likelihood of their infringement.
'The FTC recognizes that infringement litigation plays an important role in protecting patent rights, and that a robust judicial system promotes respect for the patent laws. Nuisance infringement litigation, however, can tax judicial resources and divert attention away from productive business behavior,' the report states. With this balance in mind, the FTC proposes reforms to:
- Address the imbalances between the cost of litigation discovery for PAE plaintiffs and defendants;
- provide the courts and defendants with more information about the plaintiffs that have filed infringement lawsuits;
- streamline multiple cases brought against defendants on the same theories of infringement; and
- provide sufficient notice of these infringement theories as courts continue to develop heightened pleading requirements for patent cases.
The report also looked at whether PAEs were able to make money by mass-mailing so-called 'demand letters'; however, the FTC observed an 'absence of large demand letter campaigns for low-revenue licenses among the Study PAEs.'
To gain a better understanding of how PAE behavior compares with the behavior of other firms that assert patents, the report also looked at the wireless chipset sector, examining how reported PAE assertion behavior compared to certain manufacturers and non-practicing entities (NPEs) (who primarily seek to develop and transfer technology ). For this study, the FTC obtained non-public data from eight manufacturers and five NPEs, for the same timeframe using its 6(b) authority.
The wireless case study found that Litigation PAEs and manufacturers behaved differently. Within the study, Litigation PAEs brought far more infringement lawsuits involving wireless patents—nearly two-and-a-half times as many as manufacturers, NPEs, and Portfolio PAEs combined. Litigation PAE licenses involved simple lump-sum payments with few restrictions, if any, whereas the reported manufacturer licenses frequently included field-of-use restrictions, cross-licenses, and complicated payment terms.
This new report furthers the Commission’s commitment to addressing patent policy issues, that began with its 2003 report, To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy, and continued with its 2011 report, The Evolving IP Markeplace: Aligning Patent Notice and Remedies with Competition."
Copyright © 2016 Robert Moll. All rights reserved.
Friday, November 7, 2014
FTC Settlement Bars Patent Assertion Entity Deceptive Patent Licensing Effort
On November 6, 2014, the FTC announced that MPHJ Technology Investments, LLC, and its law firm reached a settlement that barred the patent assertion entity from sending letters making phony claims in licensing its patents and that each letter in the future would cost $16,000.
As background, MPHJ Technology had purchased patents that purported to cover network scanning then sent letters to more than 9,000 small businesses claiming they likely infringed and faced an infringement lawsuit if they failed to purchase a license. The letters gave a two-week deadline and included a complaint ready to file in closest federal court, but no complaints were filed and no preparation was made to file the complaints. This is the FTC first action against a "patent assertion entity."
For details see the agreement and consent order, the other FTC documents, and the FTC press release.
Also see Mr. Joe Mullin's FTC ends first case again a "patent troll" with a slap on the wrist - MPHJ owner Jay Mac Rust won't pay a fine, can sue all he likes.
Copyright © 2014 Robert Moll. All rights reserved.
As background, MPHJ Technology had purchased patents that purported to cover network scanning then sent letters to more than 9,000 small businesses claiming they likely infringed and faced an infringement lawsuit if they failed to purchase a license. The letters gave a two-week deadline and included a complaint ready to file in closest federal court, but no complaints were filed and no preparation was made to file the complaints. This is the FTC first action against a "patent assertion entity."
For details see the agreement and consent order, the other FTC documents, and the FTC press release.
Also see Mr. Joe Mullin's FTC ends first case again a "patent troll" with a slap on the wrist - MPHJ owner Jay Mac Rust won't pay a fine, can sue all he likes.
Copyright © 2014 Robert Moll. All rights reserved.
Friday, October 17, 2014
Hovencamp - Predatory Patent Litigation: How Patent Assertion Entities Use Reputation to Monetize Bad Patents
Tonight, I recommend Northwest PhD candidate Eric Hovencamp's Predatory Patent Litigation: How Patent Assertion Entities Use Reputation to Monetize Bad Patents.
Here's the author's abstract of the article: "Despite their expertise in patent law, the most litigious patent assertion entities (PAEs) frequently file dubious infringement claims on which they are ostensibly very unlikely to turn a profit. Thus one might conjecture that these PAEs are mistaken to follow through on their litigation threats when their chances of coming out ahead are so scant. To the contrary, this paper demonstrates that this is in fact a calculated strategy of predatory patent litigation: by following through on its threats of seemingly irrational litigation, the PAE develops a litigious reputation that convinces other producers that these threats are credible, leading them to accept licensing offers they would ordinarily rebuff. This allows the PAE to garner substantial licensing revenues using low quality patents that would otherwise be difficult or impossible to monetize."
The article is interesting but suffers a bit from a heavy dose of mathematics guaranteed to knock out all but the economist. It also struggles with formulating a practical strategy to address patent assertion entities (PAEs) that file dubious infringement claims. It should note the AIA trials (e.g., inter partes review) that have been successful at invalidating dubious patent, but instead argues without a lot of evidence "potential defendants could better protect themselves by entering into a litigation cost-sharing agreement." How about avoid litigation altogether? I don't consider myself an expert on this topic, but I have only heard litigation cost-sharing does not works that well. Multiple defendants have different things at stake. Most should settle quickly, while a few may need to go further. So after you quibble over costs and strategy, you typically see a lot of free riding followed by "me first settlements."
Copyright © 2014 Robert Moll. All rights reserved.
Here's the author's abstract of the article: "Despite their expertise in patent law, the most litigious patent assertion entities (PAEs) frequently file dubious infringement claims on which they are ostensibly very unlikely to turn a profit. Thus one might conjecture that these PAEs are mistaken to follow through on their litigation threats when their chances of coming out ahead are so scant. To the contrary, this paper demonstrates that this is in fact a calculated strategy of predatory patent litigation: by following through on its threats of seemingly irrational litigation, the PAE develops a litigious reputation that convinces other producers that these threats are credible, leading them to accept licensing offers they would ordinarily rebuff. This allows the PAE to garner substantial licensing revenues using low quality patents that would otherwise be difficult or impossible to monetize."
The article is interesting but suffers a bit from a heavy dose of mathematics guaranteed to knock out all but the economist. It also struggles with formulating a practical strategy to address patent assertion entities (PAEs) that file dubious infringement claims. It should note the AIA trials (e.g., inter partes review) that have been successful at invalidating dubious patent, but instead argues without a lot of evidence "potential defendants could better protect themselves by entering into a litigation cost-sharing agreement." How about avoid litigation altogether? I don't consider myself an expert on this topic, but I have only heard litigation cost-sharing does not works that well. Multiple defendants have different things at stake. Most should settle quickly, while a few may need to go further. So after you quibble over costs and strategy, you typically see a lot of free riding followed by "me first settlements."
Copyright © 2014 Robert Moll. All rights reserved.
Monday, October 6, 2014
Morton & Shapiro - Strategic Patent Acquisitions
Morton & Shapiro's Strategic Patent Acquisition:
"We report data on patent litigation activity initiated by patent assertion entities and discuss the tactics used by these entities to monetize the patents they acquire. We develop a simple economic model to evaluate the effect of enhanced patent monetization on innovation and on consumers. We then study the economic effects of several different categories of patent acquisitions based on the type of seller, the type of buyer, and the patent portfolio involved."
Copyright © 2014 Robert Moll. All rights reserved.
"We report data on patent litigation activity initiated by patent assertion entities and discuss the tactics used by these entities to monetize the patents they acquire. We develop a simple economic model to evaluate the effect of enhanced patent monetization on innovation and on consumers. We then study the economic effects of several different categories of patent acquisitions based on the type of seller, the type of buyer, and the patent portfolio involved."
Copyright © 2014 Robert Moll. All rights reserved.
Friday, April 18, 2014
Startups Face Obstacles Protecting Innovation with US Patents
I was visiting Professor Hricik's blog tonight, and noticed his post with a link to an IP Today article by Joseph Hosteny on prosecution bars. Prosecution bars prevent prosecuting attorneys from viewing confidential information that is discovered during litigation that could be used to guide the strategy for patent prosecution of pending applications. When I arrived at IP Today it required a login, etc. I decided to sidestep all of that by visiting the Niro, Scavone, Haller & Niro's web site where Mr. Hosteny works to see if I could download the prosecution bar article and noticed he has his own website with publications. Although it didn't include the prosecution bar article, the articles were interesting.
Tonight, I mention one of them because it may cause some to think differently about how Congress is striking the balance in favor incumbents over startups with respect to patents. Lobbyists have Congress' attention on patent trolls, but startups interests tend to be ignored. This may be because they cannot afford lobbyists and must focus on innovation rather than changing laws. At the same time, the innovation needs legal protection from larger entities that can take it. Congress needs to give startups favorable patent laws to help them grow and if they deserve it, become incumbents. If we reform patent law in ways that generates obstacles for startups protecting their patentable innovation, we produce a world where only incumbents win.
In The Long Walk From the Gobi Desert to the River Styx Mr. Hosteny paints a stark detailed picture of the obstacles inventors face in profiting from patents. Although Mr. Hosteny talks about inventors, I think the ideas can be extended to startups which are built on inventions. He notes they have a long march to succeed. They have to invent something valuable, hire a patent attorney to prepare and file patent applications timely, build prototypes (let's assume real inventions), convince the examiner of the merits, then persuade skeptical companies to license the patent, and at times enforce the patent against companies with much more resources. Unfortunately, defendants' attorneys often treat inventors worse than robbers or embezzlers during enforcement. Don't expect to see it in court -- the judge is watching, but you do see it in depositions, where inventor's character is too often called into question. And the battle to enforce patents can stretch over years as it goes back and forth between the district court and the Federal Circuit on various issues. Definitely worth reading as it may help some realize that the playing field is not at all level for small companies and inventors that seek to license and enforce their patents.
Copyright © 2014 Robert Moll. All rights reserved.
Tonight, I mention one of them because it may cause some to think differently about how Congress is striking the balance in favor incumbents over startups with respect to patents. Lobbyists have Congress' attention on patent trolls, but startups interests tend to be ignored. This may be because they cannot afford lobbyists and must focus on innovation rather than changing laws. At the same time, the innovation needs legal protection from larger entities that can take it. Congress needs to give startups favorable patent laws to help them grow and if they deserve it, become incumbents. If we reform patent law in ways that generates obstacles for startups protecting their patentable innovation, we produce a world where only incumbents win.
In The Long Walk From the Gobi Desert to the River Styx Mr. Hosteny paints a stark detailed picture of the obstacles inventors face in profiting from patents. Although Mr. Hosteny talks about inventors, I think the ideas can be extended to startups which are built on inventions. He notes they have a long march to succeed. They have to invent something valuable, hire a patent attorney to prepare and file patent applications timely, build prototypes (let's assume real inventions), convince the examiner of the merits, then persuade skeptical companies to license the patent, and at times enforce the patent against companies with much more resources. Unfortunately, defendants' attorneys often treat inventors worse than robbers or embezzlers during enforcement. Don't expect to see it in court -- the judge is watching, but you do see it in depositions, where inventor's character is too often called into question. And the battle to enforce patents can stretch over years as it goes back and forth between the district court and the Federal Circuit on various issues. Definitely worth reading as it may help some realize that the playing field is not at all level for small companies and inventors that seek to license and enforce their patents.
Copyright © 2014 Robert Moll. All rights reserved.
Wednesday, January 15, 2014
New York AG Investigation Results in Settlement with MPHJ Technology Investments
Professor Robin Feldman said I might find this interesting: A.G. Schneiderman Announces Groundbreaking Settlement with Abusive "Patent Troll." She is right, and thus it's my late night post.
I suggest reading the attorney general's press release, but the following passage describes the deceptive conduct that led to the attorney general's investigation:
"Certain patent trolls, such as MPHJ, have adopted a strategy of targeting small and medium sized businesses. These companies acquire patents of dubious validity, then send deceptive and abusive letters to a large number of small businesses in an effort to extract small, often nuisance-value license payments from them. This strategy can be successful, and the collective value of these smaller payments can be quite high, because smaller businesses often do not have the experience or resources needed to fully evaluate the patents. In MPHJ’s case, it told hundreds of New York businesses that they "likely" infringed its scanner-related patents, creating the impression that MPHJ had conducted a meaningful, individualized analysis of the targeted company’s business. In fact, MPHJ merely sent form letters to companies of a certain size and industry classification. In addition, MPHJ falsely told businesses that most other businesses it had previously contacted had acquired licenses when in fact only a handful of businesses had done so. MPHJ also provided misleading information about the fees that the (few) prior licensees had paid. And MPHJ falsely threatened to sue hundreds of businesses if they did not respond to its letters within two weeks; in fact, it has never filed a patent lawsuit against a New York business.
The AG also listed its guidelines to stop the most abusive tactics used by patent trolls:
"Diligence and Good Faith When Contacting Potential Infringers. The guidelines require a patent holder to make a serious, good-faith effort to determine whether a targeted business actually engages in infringement before making an accusation. This prohibits the mass mailing of accusations of infringement to hundreds of businesses with little regard to the actual likelihood that the businesses infringed. The guidelines also forbid using a lawyer as a threatening mouthpiece for baseless allegations. If a patent troll communicates through an attorney, the attorney sending such letters must also make diligent efforts to ensure that there is a good-faith basis for believing that the targeted business infringed the patents.
Providing Material Information So an Accused Infringer Can Evaluate the Claim. When a patent holder accuses a business of infringing its patent, the guidelines require it to explain the basis for the claim in reasonable detail. This information will allow the recipient to assess whether the accusation has any foundation in light of the actual activities of the recipient’s business. The guidelines also prohibit a patent holder from trying to collect revenue for a patent that has been held invalid, and from failing to disclose material information that reveals the patent’s likely invalidity.
No Misleading Statements about a License Fee. If a patent holder seeks to justify a specific licensing fee, it must clearly explain the factual basis for its proposed fee. This requirement prevents a patent troll from taking advantage of informational asymmetry to deceive businesses into paying more than a fair price for a license.
Transparency of the True Identity of the Patent Holder. The guidelines prohibit a patent troll from hiding its identity from its targets. This allows businesses that have been targeted by patent troll campaigns to find information about the patent troll. Ensuring transparency has a number of positive effects, including allowing targeted businesses to find and communicate with one another."
The attorney general says "the guidelines in this settlement are minimum standards- they are not a safe harbor."
"As redress, the settlement requires MPHJ to allow any licensees that received deceptive letters to void their license with it and receive a full refund, and it prohibits MPHJ from further contacting certain small businesses it previously targeted. The settlement also imposes a variety of obligations on MPHJ that should serve as guidelines for all patent trolls engaged in similar patent assertion behavior."
Copyright © 2014 Robert Moll. All rights reserved.
I suggest reading the attorney general's press release, but the following passage describes the deceptive conduct that led to the attorney general's investigation:
"Certain patent trolls, such as MPHJ, have adopted a strategy of targeting small and medium sized businesses. These companies acquire patents of dubious validity, then send deceptive and abusive letters to a large number of small businesses in an effort to extract small, often nuisance-value license payments from them. This strategy can be successful, and the collective value of these smaller payments can be quite high, because smaller businesses often do not have the experience or resources needed to fully evaluate the patents. In MPHJ’s case, it told hundreds of New York businesses that they "likely" infringed its scanner-related patents, creating the impression that MPHJ had conducted a meaningful, individualized analysis of the targeted company’s business. In fact, MPHJ merely sent form letters to companies of a certain size and industry classification. In addition, MPHJ falsely told businesses that most other businesses it had previously contacted had acquired licenses when in fact only a handful of businesses had done so. MPHJ also provided misleading information about the fees that the (few) prior licensees had paid. And MPHJ falsely threatened to sue hundreds of businesses if they did not respond to its letters within two weeks; in fact, it has never filed a patent lawsuit against a New York business.
The AG also listed its guidelines to stop the most abusive tactics used by patent trolls:
"Diligence and Good Faith When Contacting Potential Infringers. The guidelines require a patent holder to make a serious, good-faith effort to determine whether a targeted business actually engages in infringement before making an accusation. This prohibits the mass mailing of accusations of infringement to hundreds of businesses with little regard to the actual likelihood that the businesses infringed. The guidelines also forbid using a lawyer as a threatening mouthpiece for baseless allegations. If a patent troll communicates through an attorney, the attorney sending such letters must also make diligent efforts to ensure that there is a good-faith basis for believing that the targeted business infringed the patents.
Providing Material Information So an Accused Infringer Can Evaluate the Claim. When a patent holder accuses a business of infringing its patent, the guidelines require it to explain the basis for the claim in reasonable detail. This information will allow the recipient to assess whether the accusation has any foundation in light of the actual activities of the recipient’s business. The guidelines also prohibit a patent holder from trying to collect revenue for a patent that has been held invalid, and from failing to disclose material information that reveals the patent’s likely invalidity.
No Misleading Statements about a License Fee. If a patent holder seeks to justify a specific licensing fee, it must clearly explain the factual basis for its proposed fee. This requirement prevents a patent troll from taking advantage of informational asymmetry to deceive businesses into paying more than a fair price for a license.
Transparency of the True Identity of the Patent Holder. The guidelines prohibit a patent troll from hiding its identity from its targets. This allows businesses that have been targeted by patent troll campaigns to find information about the patent troll. Ensuring transparency has a number of positive effects, including allowing targeted businesses to find and communicate with one another."
The attorney general says "the guidelines in this settlement are minimum standards- they are not a safe harbor."
"As redress, the settlement requires MPHJ to allow any licensees that received deceptive letters to void their license with it and receive a full refund, and it prohibits MPHJ from further contacting certain small businesses it previously targeted. The settlement also imposes a variety of obligations on MPHJ that should serve as guidelines for all patent trolls engaged in similar patent assertion behavior."
This is an interesting development in patent law and it makes some sense for states to police deceptive practice. At the same time, why aren't manufacturers defending and indemnifying these small businesses? It should be universal practice and widely publicized. Most small businesses cannot conduct a patent investigation even if all the guidelines are followed nor can they afford defending themselves in a patent suit. Further, the manufacturers might add a web page up for purchasers to upload or email any patent dispute letter and a standard reply to the patent owner saying I bought my gear from company X which has requested all correspondence go directly to it, because it is handling this dispute. Finally, I have mixed feelings about state efforts. US patent law is federal law and most times best handled by Congress to avoid the risk of balkanizing US patent law state by state.
Copyright © 2014 Robert Moll. All rights reserved.
Sunday, September 29, 2013
FTC Seeks Public Comments on Proposed Information Requests to Patent Assertion Entities
On September 27, the FTC stated in a press release that it "seeks to examine patent assertion entities and their impact on innovation, competition," and "is soliciting public comments on proposed information requests to Patent Assertion Entities ("PAEs") and other entities asserting patents in the wireless communications sector, including manufacturers and other non-practicing entities and organizations engaged in licensing."
The FTC defines a PAE as a firm that purchases patents then attempts to generate revenue by asserting the patents against those using the patented technology.
The FTC states the public comments will be considered before compulsory process orders seek information from PAEs and other entities concerning patent acquisition, litigation, and licensing practices.
Copyright © 2013 Robert Moll. All rights reserved.
The FTC defines a PAE as a firm that purchases patents then attempts to generate revenue by asserting the patents against those using the patented technology.
The FTC states the public comments will be considered before compulsory process orders seek information from PAEs and other entities concerning patent acquisition, litigation, and licensing practices.
Copyright © 2013 Robert Moll. All rights reserved.
Tuesday, June 18, 2013
USPTO Leadership Blog - USPTO and the Obama Adminstration Taking Action to Improve Incentives for Future Innovation via High Tech Patents
On July 17, Teresa Stanek Rea Acting Under Secretary of Commerce for IP and Director of USPTO posted an article about the USPTO's response to the Obama Administration's plans for improving the patent system: USPTO and the Obama Adminstration Taking Action to Improve Incentives for Future Innovation via High Tech Patents.
Copyright © 2013 Robert Moll. All rights reserved.
Copyright © 2013 Robert Moll. All rights reserved.
Saturday, June 8, 2013
White House's Plan to Improve US Patent System
On June 4, 2013, the White House proposed steps to improve the US patent system, including seven legislative recommendations and five executive actions designed to protect innovators from frivolous litigation and ensure highest-quality patents in our US patent system.
For details see Fact Sheet: White House Task Force on High-Tech Patent Issues. The White House also announced the National Economic Council and the Council of Economic Advisers report Patent Assertion and U.S. Innovation, which outlines the challenges we face and the need for legislative action.
The Obama Administration recommends that Congress pursue at least seven legislative measures:
1. Require patentees and applicants to disclose the “Real Party-in-Interest,” by requiring that any party sending demand letters, filing an infringement suit or seeking PTO review of a patent to file updated ownership information, and enabling the PTO or district courts to impose sanctions for non-compliance.
2. Permit more discretion in awarding fees to prevailing parties in patent cases, providing district courts with more discretion to award attorney’s fees under 35 USC 285 as a sanction for abusive court filings (similar to the legal standard that applies in copyright infringement cases).
3. Expand the PTO’s transitional program for covered business method patents to include a broader category of computer-enabled patents and permit a wider range of challengers to petition for review of issued patents before the Patent Trial and Appeals Board (PTAB).
4. Protect off-the-shelf use by consumers and businesses by providing them with better legal protection against liability for a product being used off-the-shelf and solely for its intended use. Also, stay judicial proceedings against such consumers when an infringement suit has also been brought against a vendor, retailer, or manufacturer.
5. Change the ITC standard for obtaining an injunction to better align it with the traditional four-factor test in eBay Inc. v. MercExchange, to enhance consistency in the standards applied at the ITC and district courts.
6. Use demand letter transparency to help curb abusive suits, incentivizing public filing of demand letters in a way that makes them accessible and searchable to the public.
7. Ensure the ITC has adequate flexibility in hiring qualified Administrative Law Judges.'
The Obama Administration also announced steps to "to help bring about greater transparency to the patent system and level the playing field for innovators. Those steps include:
1. Making “Real Party-in-Interest” the New Default. Patent trolls often set up shell companies to hide their activities and enable their abusive litigation and extraction of settlements. This tactic prevents those facing litigation from knowing the full extent of the patents that their adversaries hold when negotiating settlements, or even knowing connections between multiple trolls. The PTO will begin a rulemaking process to require patent applicants and owners to regularly update ownership information when they are involved in proceedings before the PTO, specifically designating the “ultimate parent entity” in control of the patent or application.
2. Tightening Functional Claiming. The AIA made important improvements to the examination process and overall patent quality, but stakeholders remain concerned about patents with overly broad claims — particularly in the context of software. The PTO will provide new targeted training to its examiners on scrutiny of functional claims and will, over the next six months develop strategies to improve claim clarity, such as by use of glossaries in patent specifications to assist examiners in the software field.
3. Empowering Downstream Users. Patent trolls are increasingly targeting Main Street retailers, consumers and other end-users of products containing patented technology — for instance, for using point-of-sale software or a particular business method. End-users should not be subject to lawsuits for simply using a product as intended, and need an easier way to know their rights before entering into costly litigation or settlement. The PTO will publish new education and outreach materials, including an accessible, plain-English web site offering answers to common questions by those facing demands from a possible troll.
4. Expanding Dedicated Outreach and Study. Challenges to U.S. innovation using tools available in the patent space are particularly dynamic, and require both dedicated attention and meaningful data. Engagement with stakeholders — including patent holders, research institutions, consumer advocates, public interest groups, and the general public — is also an important part of our work moving forward. Roundtables and workshops that the PTO, DOJ, and FTC have held in 2012 have offered invaluable input to this process. We are announcing an expansion of our outreach efforts, including six months of high-profile events across the country to develop new ideas and consensus around updates to patent policies and laws. We are also announcing an expansion of the PTO Edison Scholars Program, which will bring distinguished academic experts to the PTO to develop — and make available to the public — more robust data and research on the issues bearing on abusive litigation.
5. Strengthen Enforcement Process of Exclusion Orders. Once the U.S. International Trade Commission (ITC) finds a violation of Section 337 and issues an exclusion order barring the importation of infringing goods, Customs and Border Protection (CBP) and the ITC are responsible for determining whether imported articles fall within the scope of the exclusion order. Implementing these orders present unique challenges given these shared responsibilities and the complexity of making this determination, particularly in cases in which a technologically sophisticated product such as a smartphone has been successfully redesigned to not fall within the scope of the exclusion order. To address this concern, the U.S. Intellectual Property Enforcement Coordinator will launch an interagency review of existing procedures that CBP and the ITC use to evaluate the scope of exclusion orders and work to ensure the process and standards utilized during exclusion order enforcement activities are transparent, effective, and efficient."
Copyright © 2013 Robert Moll. All rights reserved.
For details see Fact Sheet: White House Task Force on High-Tech Patent Issues. The White House also announced the National Economic Council and the Council of Economic Advisers report Patent Assertion and U.S. Innovation, which outlines the challenges we face and the need for legislative action.
The Obama Administration recommends that Congress pursue at least seven legislative measures:
1. Require patentees and applicants to disclose the “Real Party-in-Interest,” by requiring that any party sending demand letters, filing an infringement suit or seeking PTO review of a patent to file updated ownership information, and enabling the PTO or district courts to impose sanctions for non-compliance.
2. Permit more discretion in awarding fees to prevailing parties in patent cases, providing district courts with more discretion to award attorney’s fees under 35 USC 285 as a sanction for abusive court filings (similar to the legal standard that applies in copyright infringement cases).
3. Expand the PTO’s transitional program for covered business method patents to include a broader category of computer-enabled patents and permit a wider range of challengers to petition for review of issued patents before the Patent Trial and Appeals Board (PTAB).
4. Protect off-the-shelf use by consumers and businesses by providing them with better legal protection against liability for a product being used off-the-shelf and solely for its intended use. Also, stay judicial proceedings against such consumers when an infringement suit has also been brought against a vendor, retailer, or manufacturer.
5. Change the ITC standard for obtaining an injunction to better align it with the traditional four-factor test in eBay Inc. v. MercExchange, to enhance consistency in the standards applied at the ITC and district courts.
6. Use demand letter transparency to help curb abusive suits, incentivizing public filing of demand letters in a way that makes them accessible and searchable to the public.
7. Ensure the ITC has adequate flexibility in hiring qualified Administrative Law Judges.'
The Obama Administration also announced steps to "to help bring about greater transparency to the patent system and level the playing field for innovators. Those steps include:
1. Making “Real Party-in-Interest” the New Default. Patent trolls often set up shell companies to hide their activities and enable their abusive litigation and extraction of settlements. This tactic prevents those facing litigation from knowing the full extent of the patents that their adversaries hold when negotiating settlements, or even knowing connections between multiple trolls. The PTO will begin a rulemaking process to require patent applicants and owners to regularly update ownership information when they are involved in proceedings before the PTO, specifically designating the “ultimate parent entity” in control of the patent or application.
2. Tightening Functional Claiming. The AIA made important improvements to the examination process and overall patent quality, but stakeholders remain concerned about patents with overly broad claims — particularly in the context of software. The PTO will provide new targeted training to its examiners on scrutiny of functional claims and will, over the next six months develop strategies to improve claim clarity, such as by use of glossaries in patent specifications to assist examiners in the software field.
3. Empowering Downstream Users. Patent trolls are increasingly targeting Main Street retailers, consumers and other end-users of products containing patented technology — for instance, for using point-of-sale software or a particular business method. End-users should not be subject to lawsuits for simply using a product as intended, and need an easier way to know their rights before entering into costly litigation or settlement. The PTO will publish new education and outreach materials, including an accessible, plain-English web site offering answers to common questions by those facing demands from a possible troll.
4. Expanding Dedicated Outreach and Study. Challenges to U.S. innovation using tools available in the patent space are particularly dynamic, and require both dedicated attention and meaningful data. Engagement with stakeholders — including patent holders, research institutions, consumer advocates, public interest groups, and the general public — is also an important part of our work moving forward. Roundtables and workshops that the PTO, DOJ, and FTC have held in 2012 have offered invaluable input to this process. We are announcing an expansion of our outreach efforts, including six months of high-profile events across the country to develop new ideas and consensus around updates to patent policies and laws. We are also announcing an expansion of the PTO Edison Scholars Program, which will bring distinguished academic experts to the PTO to develop — and make available to the public — more robust data and research on the issues bearing on abusive litigation.
5. Strengthen Enforcement Process of Exclusion Orders. Once the U.S. International Trade Commission (ITC) finds a violation of Section 337 and issues an exclusion order barring the importation of infringing goods, Customs and Border Protection (CBP) and the ITC are responsible for determining whether imported articles fall within the scope of the exclusion order. Implementing these orders present unique challenges given these shared responsibilities and the complexity of making this determination, particularly in cases in which a technologically sophisticated product such as a smartphone has been successfully redesigned to not fall within the scope of the exclusion order. To address this concern, the U.S. Intellectual Property Enforcement Coordinator will launch an interagency review of existing procedures that CBP and the ITC use to evaluate the scope of exclusion orders and work to ensure the process and standards utilized during exclusion order enforcement activities are transparent, effective, and efficient."
Copyright © 2013 Robert Moll. All rights reserved.
Tuesday, May 14, 2013
Yale Law School - Patent Troll Panel April 2013
Today, Lisa Larrimore Ouellette's article on Patently-O: Patent Troll Panel at Yale Law School raises some interesting points that came up at Yale Law School. I appreciated whether you refer to patent-assertion entities (PAEs), non-practicing entities (NPEs), or patent trolls, we must focus on bad behavior and a patent system that sometimes issues patents that enable bad behavior not on whether the patent owner practices the invention.
Copyright © 2013 Robert Moll. All rights reserved.
Copyright © 2013 Robert Moll. All rights reserved.
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