Supreme Court Continues to Address Patent Concerns

The Supreme Court has taken on another possibly landscape-changing patent case that will determine if patent holders are able to sue everyone up and down the food chain for a patent infringement. "This case, officially between LG and Quanta, really concerns the question of how many times patent holders can get a cut of any component found violating a patent. Currently, patent holders will often sue up and down the food chain. So, if you happen to have a patent on a component within a motor that is used in automobile wipers, you could sue the motor maker, the wiper maker and the auto manufacturer -- and get all three to pay, even though the same product is used throughout the supply chain. This case will look at whether or not it makes sense to allow for that type of double, triple or quadruple dipping."

Comments

... and sue ...

[nategoose]

the car dealer, the owner when she sells the car, the used car dealer, the shop for replacing the wiper motor when it breaks, and the parts store for selling them the replacement

the only winners in patent disputes...

[lottameez]

...are the lawyers.

It doesn't...

[repvik]

Of course it doesn't make sense to sue the whole food chain. Sue the manufacturer of the specific part, and leave it at that. Imagine how much fun it'd be if someone discovered that Award (or some other major BIOS manufacturer) had violated a patent in their BIOSes. There is no way the rest of the food chain can verify that no patents have been violated. Of course they can sue Award for damages, but imagine 400 companies suing Award. Anyone get any money? Nah. It would be incredibly expensive for a large manufacturer (eg. Dell) to verify that each and every component it uses does not violate any patents or IP. Same way with a car. Car manufacturers manufacture a fraction of the components themselves, and buy eg. wiper motors from Bosch.

Re:It doesn't...

[Kjella]

Well, that was my first thought. But when I reversed it "Should you never sue anyone but the closest in the chain" it wasn't really that clear. I'm sure there are ways to construct some sort of shell company that'll be the the actual infringer, while others are turning the real profit. A classic example are all the cafes and restaurants that go bankrupt, but the building owners which are often the same, never do. Legally they have one company owning it, and one renting and operating it. Or some sort of transit company which buys legally produced goods abroad, then sells them in the US violating US patents. It can be basicly massless with no money to collect. But yes, in the general case where they've bought it at normal rates then the original producer should be the one paying.

Patent Laundering

[Nymz]

If you deny legal redress, with exception for 'first sale' defendants, then you could certainly expect to see shady companies simply subcontracting out for any possible patent infringing items.

1) Setup a puppet company
2) Infringe all you want
3) Profits!!! stay safe (safely stolen) from patent holders

Re:Patent Laundering

[morgan_greywolf]

I hope you contracted out your post. Because you just violated my patent on patent laundering! Not to mention the Unix code in your post! I'm suing!

-- Darl McBride

Re:Patent Laundering

[Applekid]

1) Setup a puppet company
2) Infringe all you want
3) Profits!!! stay safe (safely stolen) from patent holders Wouldn't discovery expose a shell company like that? RICO covers that sort of thing, doesn't it?

What does the patent claim?

[Valdrax]

The real problem is who do you have to sue based on what your patent claims.

Let's take the example used in the summary of a component used in a motor in a windshield wiper blade. What does the new component do that made it patentable?

- Is the innovation purely in the use in a motor? (Reducing wear and tear?)
- Or maybe is the innovation in its effect on the wiper? (A smoother wiping motion with less noise?)
- Or maybe is the innovation in how the car performs? (Allowing a more aerodynamically friendly wiper?)

What if the patented item does all three and claims all three things? Does a SCOTUS decision ruling that you can only collect once open the door for a finger-pointing exercise between defendants (something the courts like to avoid) in trying assign infringement? Does going straight to the bottom of the supply chain always make sense? (For example, what if it doesn't do anything for the motor itself but only for the higher level functions?)

These are very important balance issues that the SCOTUS will have to consider.

Re:What does the patent claim?

[Valdrax]

Ummm you sue who is actually producing the violating item.

That's the bottom of the supply chain argument I mentioned earlier. It seems the easiest argument, but what happens if the innovation is based on the use of the component in a final product and not an intermediary one?

For example, let's imagine a windshield wiper that automatically adjusts its speed to the rate of rainfall. This would require at least two components -- a sensor for the rain and a controller that acts on said information. Assume that we don't have existing parts for each of these.

The patent for this would describe:
A) The sensor for detecting rain.
B) The motor control mechanism.
C) The method of tying the two together to produce the result.

In this case there are at least three parties that could be infringing on the patent:
A) The sensor maker.
B) The motor control maker.
C) Whoever makes the system to tie them together (most likely the auto manufacturer).

If you can only collect from the first people in the chain, then does it become impossible to patent non-obvious ways of combining off-the-shelf parts such as a system to auto-adjust your wiper speed to the rain? If you could only collect from the last person in the chain, then who is the last person in the chain? The auto manufacturer? The auto dealer?

The RIM patents are very similar to this, if I recall correctly. You have the hardware interface portion of the patent, the back-end server portion of the patent, and the service portion of the patent. Who must you be limited to suing, A, B, C, or some combination of them?

While it seems sensible that infringement should only happen at one point in the supply chain for a good or service, coming up with a hard and fast rule for where this should happen is going to be hard and may take decades of future Supreme Court rulings to nail down.

Of course with a bit of maneuvering that violating producer could be a shell company out of the courts jurisdiction with physical production in china at which case the issue becomes more complex as you mentioned.

That's not so much of a problem. You just sue them in federal court, and if they don't pony up the licensing fee, you sue to bar entry of their goods into the country. That's the ultimate (and only) power that a government has over a multinational or extranational entity -- the power to bar them from doing business in their country unless they play by their rules.

Test for Obviousness

[king-manic]

I propose a axillary test for obviousness. If two or more companies already implemented your patent before your initial application date then your invention was too obvious to patent. This seems like a common sense idea. That if someone is already using your proposed idea you ought not to be able to patent it. This would drastically cut down on patent trolling.

Re:Test for Obviousness

[kebes]

I'm not a patent expert, but isn't this already the case? Prior art is indeed a valid defense against patent claims.

The problem is that proving prior art is difficult. Even if you are in the right, and can provide evidence to that effect, it becomes a long and expensive court case, which many cannot afford (especially the small-time inventors that patent law ostensibly promotes).

Patent-happy companies will continue to throw as many patents at the system as they can. Whatever sticks is ammunition, regardless of whether or not the patent is valid. Even patents that may be invalidated can be used as threats.

We really need to decrease the number of patents granted, so we need "early detection" of prior art. Frankly, I think patent applicants should be liable in some way if their application is shown to be invalid due to prior art or obviousness. It should be treated as a very serious offense, akin to perjury. We need to make it so that there is an incentive to scour the literature for prior art, and a penalty for making false claims.

Lawyers

[db32]

Ever wonder why lawyers write the laws? And no this isn't about some vast conspiracy by the megacorps to make people hate lawyers. A lawyer acting in your best interests involves you not being in court anymore and protected in the future, which is entirely counter to their best interests of being in court and continuing to bill someone. The common man can do nothing until the laws are written by common men, common men cannot write the laws so long as people attempt to exploit them. The folk clever in manipulating the law for exploiting are lawyers, so you must hire another lawyer to defend yourself against that, and the cycle continues forevermore. The underlying desire of men to exploit eachother lead to the creation and continuation of lawyers. The best you can do is get a lawyer from out of town so that the opposition's lawyer isn't his golfing buddy and he might actually do a decent job of representing you.

Of longer term concern

[starseeker]

While it is refreshing to see an outburst of sanity from the Supreme Court, remember that Congress can proceed to pass new laws (a point made by the blogger.)

If the commercial interests in the patent system in its current form are able to purchase enough political influence, Congress may take the steps needed to make software and friends explicitly patentable under the law.

The only answer to something like that would be to vote in people who would change the law back to something sane. Will it happen? Who knows. It doesn't seem too terribly fantastic given the current system...

Another /. totally BS patent story

[Anonymous Coward]

First sale doctrine already does apply to patents. More commonly referred to a patent exhaustion. The linked to -> linked to "patently o" reference explains it:

"Exhaustion - also known as the first sale doctrine - serves as a default rule in both patent and copyright laws. Under the principle, a license fee is only be charged one time per object. Thus, a rights holder controls the first sale of a protected object, but does not control subsequent sales. The copyright rule is codified in Section 109. The patent rule, however, is only based on case law."

You can ignore this if you prefer hysteria and misinformation to reality.

Re:Another /. totally BS patent story

[DRJlaw]

"First sale doctrine already does apply to patents."

True, but the article summary and your response both gloss over the interesting issue in favor of something that's irrelevant. Patent exhaustion exists. Caselaw preventing double dipping for infringement damages already exists. This situation is different.

The decision in the Federal Circuit holds that a patent is exhausted by an unconditional sale, p. 7, in line with Supreme Court precedent, but also holds that a patent rights are not exhausted by a conditional sale, pp. 7-8, in line with about 20 years of Federal Circuit precedent.

The interesting problem here is that the LGE patents do not cover the products sold by Intel. They only cover those products when combined with additional components. It appears that in the absence of a license, LGE could only have sued Intel for "contributory infringement" because Intel would be making products specially adapted to implement LGE's invention when combined with other components, see 35 U.S.C. 271(f), but not the patented combination itself. In essence, LGE and Intel negotiated a license that makes Intel a component source/supplier. Now those who purchased the specialized components and combined them in a manner that would infringe the patents are arguing that a license to manufacture a non-infringing but specialized component without fear of a patent lawsuit also conveys to the supplier's customers the right to practice the entire invention. That's not a clear cut question.

One of the axioms of property law is that you can only sell that which you yourself possess. If Intel has a license that merely permits it to manufacture and sell a specialized component, then arguably the purchasors have the right to resell the specialized component (that fraction of the patent right is exhausted), but do not have the right to manufacture or sell the patented invention because not even Intel has the right to manufacture and sell the patented invention. If Intel has a license to manufacture and sell the patented invention using its own components, with LGE getting a percentage of the revenues for the Intel components, then arguably neither Intel nor its purchasors have the right to manufacture or sell the patented invention when manufactured using non-Intel components -- LGE would be deprived it its rightful revenues, and Intel would infringe the patent for those combinations made with non-Intel parts.

The decision is unclear on the license structure, and I don't have time to dredge up the District Court decision, but there are potentially valid reasons for dividing up patent rights and royalty rates in this manner that cannot be reasonably described as double-dipping. For example, the Intel chips may still have value when combined with non-Intel chips in ways that do not produce the patented invention, but it may not make economic sense to manufacture two types of chips, one with the specialized aspect and one without. A licence with a modest royalty that is less than the entire royalty, whatever that is, benefits Intel by simplifying its product line and securing it from the potential of being sued as a result of the actions of its customers.

No joke, they can.

[Kadin2048]

While you're at it.. sue the drivers of the cars with the patent-infringing wiper motor. They're obviously benefiting from the innovation without having compensated the patent-holder. They can, actually, do exactly this. "Use" of an infringing device is considered infringement. Generally, patentholders don't bother to go after end users of consumer product, because it's wringing blood from a stone and really terrible PR, but they sometimes threaten it as a way to discourage use of a possibly-infringing product. (Cf. Anti-Ford ads taken out by competitors alleging that Ford's products infringed the Selden patent.)

Shell Company

[Nymz]

Wouldn't discovery expose a shell company like that? RICO covers that sort of thing, doesn't it?

A shell company is not an active bussiness, often holding zero assets. A puppet company would be a real company, that passes on cheap (patent infringing) items, but not passing on the legal liability.