Report Shows Patent Trolls Are Thriving

eldavojohn writes "The 2009 Patent Litigation Study has been released by Price Waterhouse Coopers. It shows evidence that patent trolls are growing and doing quite well. Using a very conservative view of a non-practicing entity (referred to as NPE in the report), PWC noted that 'damage awards for NPEs have averaged more than double those for practicing entities since 1995' and 'certain federal district courts (particularly Virginia Eastern and Texas Eastern) continue to be more favorable to patent holders, with shorter time-to-trial, higher success rates, and higher median damages awards.' The report paints a dire picture of the state of patent lawsuits and especially those brought by NPEs and also shows that in the past eighteen years the number of patent cases filed yearly is on the rise significantly when normalized against the number of patents granted yearly."

Comments

"...shorter time-to-trial..."

[John Hasler]

Is favorable to both sides. It's especially favorable to the defendant if a preliminary injunction is issued.

Re:"...shorter time-to-trial..."

[darkmeridian]

A shorter time to trial is not more favorable to a defendant UNLESS a preliminary injunction is issued. The plaintiffs hold an overwhelming advantage. They get to spend months or years preparing their case, having their motions ready, doing research and investigation, finding experts, etc. They get to chose the time and venue of the suit. Once they file, they can drown the defendant in motions for preliminary injunction, summary judgment, etc. The defendant has to play catch-up because they have no idea what's going on with the plaintiff's patents. They have to play defense on PI motions without a lot of discovery. Rushing a case to judgment is very unfair to defendants who did not have the time the plaintiff had in figuring out their case.

Re:"...shorter time-to-trial..."

[eldavojohn]

Is favorable to both sides. It's especially favorable to the defendant if a preliminary injunction is issued.

I'm not a lawyer but there's an article from Sunday about Dallas firms specializing in 'tricky, rocky terrain' of patent litigation to be hired out in the Eastern Texas District Court ('Rocket Docket') cases listed in the report.

Now, pay attention to this part of the article

'Rocket docket'

The Eastern District, which includes Collin County and much of eastern Texas, has won a reputation as extremely plaintiff-friendly and a preferred venue to get patent claims through quickly.

Just getting a case into the Eastern District – known by some as the "rocket docket" because its comparative lack of criminal cases lets judges move civil patent cases swiftly – has prompted some companies to settle quickly.

Nguyen says the district's reputation as friendly to patent plaintiffs is widespread; whenever it's mentioned at law conferences around the country, she hears the same reaction.

A case against you that you found out about last week has just gone to trial in Eastern Texas and you need to be there to represent yourself even though you're based out of New York City. The reputation of the court is a bias toward the plaintiff and on top of that they have the Dallas firm that specializes in winning patent cases ... now, quickly, you need to decide to settle or fight this.

Sound fair to you?

Re:"...shorter time-to-trial..."

[TheTurtlesMoves]

Yes! I am a lawyer and i can bill for travel time :D

Re:"...shorter time-to-trial..."

[Anonymous Coward]

Patent trolls don't need to spend months or years preparing their cases, and typically they don't. Most law firms representing trolls do the minimum amount of work necessary to keep the case going. The real nightmare comes when the defendant receives discovery requests for documents. A single 30-page generic set of requests (that can be copied from a prior case) forces a defendant's lawyers to interview scores of employees and collect what almost always amounts to millions of pages of documents. Then these have to be processed, searched, and reviewed (with a price tag larger than a very nice home in the Bay Area).

Circa 2007, the median cost of a patent suit (with more than $25 million at risk) was $5 million with half of that cost incurred by the end of discovery. For a lot of patent trolls, that holdup value is what they are after. If you can sue every company in an industry (and most of these ridiculous software patents span multiple industries) and extract a few million from each one, you've made a nice profit with very little work.

IAAL

Disgusting

[HEbGb]

It's a real shame that the patent system has been able to be manipulated so effectively, to siphon hard-earned money from real companies, and real inventors, into the pockets of these parasites. They're nothing but a drain on everyone. Lemelson's legacy lives on!

I'm glad this is getting some attention, though.

Re:Disgusting

[doramjan]

It's not the patent system that's being manipulated; the court system is being manipulated.

Re:Disgusting

[Anonymous Coward]

Both are being manipulated.

The problem would not exist without a set of patent laws (and a USPTO) which encourage this type of systemic abuse.

Whether any fair patent system can exist, or is necessary, is another question entirely -- but it's clear that the rules defining our current treatment of patents are fundamentally flawed.

Don't Abbreviate

[whisper_jeff]

Don't abbreviate it to NPE. Spell it out, each time - non-practicing entity. By just saying three letters, it weakens the point that these companies do nothing. They exist solely to sue. They are the personification of what is wrong with the patent system. Make it clear that these companies are leaches that do nothing of good. They are non-practicing entities.

We may have issues when companies like (for example) Nokia and Apple wage patent warfare but both of these companies spend enormous fortunes on R&D and they both produce exceptional products. While the patent system may be borked, it exists so that companies like Nokia and Apple may exist and view R&D as a worthwhile expense. Patent trolls should be legislated out of existence. Don't produce anything using the patent? Bye bye patent. Your business model is built around "buy patent, sue everybody in sight"? Bye bye company. Start with that and we might get closer to a point where the patent system isn't a joke.

Non-practicing entity. Spell it out. Make it clear. Leaches who do nothing of value.

Re:Don't Abbreviate

[Grond]

Don't abbreviate it to NPE. Spell it out, each time - non-practicing entity. By just saying three letters, it weakens the point that these companies do nothing. They exist solely to sue.

Right, because universities, individual inventors, and non-profit research organizations do nothing and exist solely to sue. Oh, wait, those are actually common examples of non-practicing entities. For example, in the article the chart of damage awards exceeding $100 million lists 4 NPE plaintiffs, one of whom is an individual inventor (a doctor who invented a kind of drug-eluting stent) and another is Cornell University.

Re:Don't Abbreviate

[Red Flayer]

Don't abbreviate it to NPE. Spell it out, each time - non-practicing entity. By just saying three letters, it weakens the point that these companies do nothing. They exist solely to sue. They are the personification of what is wrong with the patent system. Make it clear that these companies are leaches that do nothing of good. They are non-practicing entities.

I know that likely I'll be modded into oblivion because I disagree with this.

While the potential of patent abuse by NPEs exists (and has been seen to occur), NPEs are an important part of the patent system. They allow for better valuation of patents.

Let's say I invent something, which some company uses in their flagship product, making millions off my invention. Let's say that I am unable to bring my product to market (because of limited capital, because of limited knowledge, because of a single market for my invention that someone else has control of... pick a reason, or multiple ones).

My choices in seeking redress are to set up my own company to litigate the matter, or to sell the patent to someone who will litigate it. There are other choices, but these are the best ones available.

Why should I outsource the litigation to someone who is much more efficient at it? Why shouldn't I offload the risk of unsuccessful litigation, in exchange for a reduced payout? Why shouldn't a company be allowed to do assume the risk and cost of the patent litigation, in exchange for the potential reward?

Not allowing NPEs limits the ability of small inventors to overcome the cash of huge corporations. It gives those with the deepest pockets even more of an advantage.

The key is to prevent abuse of the system by NPEs. Unfortunately, any system will be abused by those seeking unfair gain. So we need to balance the rights of patent-holders against the potential for abuse. Eliminating NPEs trades one form of abuse (egregious litigation) for another (small patent-holders get screwed by the big corporations making millions off their inventions).

Re:Don't Abbreviate

[cormander]

People are going to abbreviate no matter what you do, so we need to come up with an abbreviation that speaks for itself: POOP - People Orchestrating Obvious Patents Everybody say it with me. These companies are POOP!

Re:Don't Abbreviate

[devnullkac]

Just goes to show that the US generally values the ability to convince people that something is true over the ability to discover that something is true. Time and again we see that marketing, fear mongering, and legal tactics overwhelm reasoned arguments and hard work. Not that I would have the laws simply torn down to get at this devil (see A Man For All Seasons). We must take care in our approach to reform that we don't find ourselves adrift in a worse sea of argument and arbitrary assignment of winners and losers.

Re:Don't Abbreviate

[vadim_t]

For universities it's easy: as most of them benefit from public funds, they shouldn't be able to patent anything and release it all under the public domain for the public's benefit.

Re:Don't Abbreviate

[Rogerborg]

Let's say I invent something

Let's not, until you do. Can you name three patents for inventions in the past 20 years that were filed by Joe Basement which were subsequently abused by Evil Incorporated? And when I say "abused", I mean that you can show that they only started to design Widget X after the patent had been published, rather than that they were developed co-incidentally?

Three examples from the past 20 years, and I'll cede you the point.

Re:Don't Abbreviate

[Tim C]

I do see your argument, but a counter-argument is easy. By doing so, you will be cutting off a source of income for them, ensuring that they need to have more public money to maintain their activities and so costing the public more.

Re:Don't Abbreviate

[eldavojohn]

For universities it's easy: as most of them benefit from public funds, they shouldn't be able to patent anything and release it all under the public domain for the public's benefit.

Well, you have to repeal/amend the Bayh-Dole Act that essentially gave universities the right to patent their findings. I think before that the patents went to the United States government if they funded the research. I know that our friends at the University of Wisconsin (Madison) have courted the government to keep funding them by offering Institutional Patent Agreements. Does WARF sound familiar to you? It should.

There's a lengthy blog post about this that has good quotes and points from both sides including:

Georgia Tech professor Mark Allen said "In a number of circumstances, the competitive advantage afforded through exclusivity [that is, patent monopoly] may be absolutely critical to justify the risk undertaken by a company in developing a product from a promising early-stage university technology, as it was in the case of Cardiomems." Professor Allen, also Chief Technology Officer at Cariomems, did not reveal his compensation from privately-held Cardiomems using the patented technology from his Georgia Tech research.

Susan B. Butts, Dow Chemical Company, had a different perspective: "Although the Bayh-Dole Act has enabled the transfer of technology developed with federal funds from US universities to industry it has also contributed to a contentious climate around the issue of intellectual property (IP) rights which discourages research collaborations between industry and US universities. Second, most foreign universities, which do not have the IP expectations created by Bayh-Dole, allow industry research sponsors to own or control inventions resulting from the research that they fund. This much more favorable treatment of IP is causing companies to do more of their sponsored research abroad [emphasis added]."

And, you know, with how much value we place on intellectual property elsewhere it would seem that the amount of funding and rewards universities are getting for this research is down right laughable. So the Bayh-Dole Act was a very simple solution: let both parties involved benefit from the research and allow the university to reap the benefits of licensing and royalties.

What's a better alternative method for appropriate rewards?

Re:Don't Abbreviate

[Red Flayer]

Look at Microsoft's abuses. i4i and others.

It doesn't need to be Joe Basement (the single inventor), many firms are "small" when compared to the deep pockets of Microsoft, IBM, et al.

Re:Don't Abbreviate

[jandrese]

It costs the public more, but you also get a benefit: namely patent free technologies that can be incorporated into products far and wide. It is actually a public good to have more technology available to entrepreneurs who would make the best use of it, instead of just to large corporations who can afford the up-front costs of licensing the dozens of patents they need to tie together to make a new product.

Then again, I'm also one of those crazy people who thinks the Public Domain and Fair Use should be greatly expanded for the same reason. All of the great men of the world did their work standing on the shoulders of giants, and we have been letting the system stifle that for too long IMHO.

Re:Don't Abbreviate

[Anonymous Coward]

That is a bad idea, because that would cause universities to only research what makes the most money, not what is best for humanity.

Re:Don't Abbreviate

[apoc.famine]

As an anecdote to this, I'm in grad school now, and I'm funded based on patents my school received in the 40s and 50s. (And a bunch since then, but there are a couple from way back when which turned into millions of dollars for the school, which was then invested into the research endowment of the school.)
 
Which is better? Patenting something, and then using the money from that to fund tens to hundreds of thousands of students, or releasing it to the US for free? I can see the argument both ways. But in my mind, the chance that one of those students ALSO went on to do something which also benefited society is pretty damn large. Based on the research that's been done at my school in the last 50 years, I'm willing to bet that the US was better off with the school keeping the patents, and milking them for all the research they could get out of them.

Re:Don't Abbreviate

[apoc.famine]

It all depends on the company, really. If that money goes into slush funds, ridiculous executive salaries, and market speculation, it wouldn't be all that great for the economy. If it went to a company that provided fair wages and invested in its workers, it would be fantastic.
 
Overall, corporations abuse patents. It's in their best interest to squeeze as much money out of them as possible, despite any ill effects on other businesses, the economy, or anyone else. Educational institutions milk them for additional funding to do more research. I guess I trust research colleges to be better citizens than any corporation ever could be.

Re:Don't Abbreviate

[syousef]

Can you name three patents for inventions in the past 20 years that were filed by Joe Basement which were subsequently abused by Evil Incorporated?

Can you even estimate the number of people who haven't invented anything because they know there's a good chance someone will have some vague patent that has almost nothing to do with what they might build but that they would have to fight anyway? I don't think ANYONE would recommend "inventor" as an occupation, and it is certainly NOT because all the good one man inventions are done. It's a freakin' mine field.

What I want to know is...

[Pojut]

...how come patent trolls are awarded patents in the first place? Would it be possible to make an applicant show proof that they are in the planning stages or are currently using what they are trying to patent?

Or would that just be a logistical nightmare?

Re:What I want to know is...

[bschorr]

It would probably be pretty easy to fake that though. Create some bogus plans to produce the thing you're patenting but never actually go through with it. It would be too costly to follow-up on every patent to make sure people actually did what they said they would.

Plus there are folks who get patents who don't intend to actually produce the thing themselves, rather they want to license it to others. Sort of an "R&D Department for Hire" concept. Unfortunately it's a fine line between those who intend to license their patents and those who intend to lay in the weeds and wait for somebody to infringe their patent and then sue.

It's those kinds of parasites we need to figure out way to deal with.

Re:What I want to know is...

[Grond]

how come patent trolls are awarded patents in the first place? Would it be possible to make an applicant show proof that they are in the planning stages or are currently using what they are trying to patent?

That's called a 'working requirement' or a requirement to practice the invention. A few countries have such a requirement (Turkey, for example), but the requirement is usually riddled with exceptions that make it essentially toothless. There are several reasons why a strong working requirement is a bad idea, as I explained in a comment on a recent Slashdot story that suggested forbidding patent ownership by or assignment to non-practicing entities.

In the US patents are personal property--and thus freely assignable--by statute. 35 U.S.C. 261. Assignability is also guaranteed by Article 28 of the TRIPS Agreement, which is a treaty that the US is party to. So changing the assignability of patents would require amending the law and withdrawing from or amending a very important international treaty.

And even if the law were changed, it would mean that hundreds of patent holding companies would suddenly lose their patent rights because of an action by the government. That's called a taking, and the ex-patent holders would be able to sue the government for the value of the patents. It would be a massive litigation and cost the tax payer an enormous amount of money.

But anyway, how would we implement such a requirement? We could require that patents only be assigned to an entity that intended to practice the invention. Sounds great, right? No more patent holding companies, therefore no more trolls. There are at least five big problems with that:

1. Not all patents can be freely practiced because of other patents surrounding the technology. Imagine I own a startup company. If I invent a new transistor design I can't be expected to practice it myself: other companies have patents on things like manufacturing processes, bus designs, chip packaging, etc. I would have to license dozens of other patents in order to sell chips with my new transistor design. But that's backwards. Instead, I should license my one patent to companies like Intel and AMD and let them do the manufacturing and sales. But a requirement to practice means I couldn't do that; I'd have to practice it myself.

2. And what about pure research institutions like universities? They can't be expected to also become manufacturers.

3. But suppose we say it's worth making universities sell their patents. So now the patent will be owned by a single practicing entity. The patent can no longer stay with the university and be licensed to whoever will pay the fee. The end result is less competition in the market place for the finished product.

4. Okay, suppose we say that it's sufficient that the patent owner license the patent to at least one entity that is going to practice it. But then the law is too narrow. Almost no patent trolls actually rely on litigation damages for income; it's too uncertain and the margins are too narrow--and often negative. Litigation is just a tool to extract a licensing fee. So the end result is that the trolls can point to a manufacturer who licenses the patent and nothing changes.

5. What about patents on technologies that are ahead of their time? For example, suppose I invented an amazing new transistor design. It will make computers much faster but it requires X-ray lithography in order to work. Well, X-ray lithography is not cost-effective yet, so I can't really practice my invention. Does my patent just evaporate? How does that spur innovation?

As you can see, there are a lot of problems with such a proposal.

Re:What I want to know is...

[grasshoppa]

I'm probably alone in this, but if the patents were of significant value, I wouldn't have a problem with the "trolls".

The problem is that they are not of significant value. Usually, they are trivial extensions of existing technology which are inevitable. Thus, they are worthless to exploit directly, but if you wait for someone else to exploit it you can derive more value from them. That's the problem that needs to be fixed.

Re:What I want to know is...

[bluefoxlucid]

It'd be a nightmare. The guy who invented pulse wipers has sued every car company for royalties now; when he first invented them, he presented the idea to 2 car companies, who dismissed him because his idea was non-useful. They immediately implemented pulse wipers, followed by every other car manufacturer. After several years of legal bullshit, he managed to start making some headway and getting judgments against them for the theft of his idea.

Patents are marketable. Some folks like to sit back on a patent and wait for someone else to re-invent it, rather than go out there and risk someone finding a way to work around your idea so you can't sue them for it. If they successfully work around it, then they don't have to license the patent from you and can't be successfully sued, so there is incentive to attempt to come up with a similar-but-legally-different implementation. On the other hand, waiting for the entire industry to implement your invention and then suing everyone in the world is a shit move.

Forbidding inventors from profiting from their inventions would be a disaster. It would prevent small-shop inventors without the capital to make a real, marketable product from capitalizing on their work at all. I could design a new type of nuclear reactor, but I can't build any significant components for it and thus my invention is impossible for me to actually manufacture (I'd need hundreds of millions of dollars). I could license the design to someone else, of course. There may not be a market for new nuclear reactors at this time, though; maybe I need to wait 10 years....

What a mess, yes? The system has to make these considerations, but in doing so it leaves itself open for abuse. In failing to do so, however, it also leaves itself open for abuse.

Re:What I want to know is...

[russotto]

There are a few research institutes that make money by licensing research, though. Would they be considered non-practicing entities? Because that does seem like a legitimate use of the patent system.

It's legitimate if they're actually doing research. It's not legitimate if they're just brainstorming a bunch of ideas based on the current state of the art and then patenting everything which comes out of the brainstorming session.

When Normalized...

[Bob9113]

the number of patent cases filed yearly is on the rise significantly when normalized against the number of patents granted yearly.

Number of patents granted are also on the rise significantly when normalized against GDP.

Solve this the capitalist way

[francium de neobie]

The politicians can't be bothered with minor problems like the technology lead of the US. So let's just solve it the capitalist way.

Get the financial industry into the game, set up mutual funds and exchange traded funds to support patent trolls, get the investment banks into the game.

Once this gets started, within 6 months all the technology companies in the US will be able to do nothing. Then here's the smartest bit of the plan: the whole tech industry ask White House for a bailout because we've collectively become yet another too big to fail. So we get the money while we sit our asses doing nothing. No more death marches.

The perfect win-win situation! Wall Street wins, Silicon Valley wins!

Cheers to Non Practicing Entitites!

[BooRolla]

This is great! The only way these things changing is if the game becomes to costly for the corporations who write the rules. I hope "NPEs" start putting more companies through the wringer.

Sounds harsh but consider this: If I independently created something useful and it blows up like Facebook or Google but infringes on some minor or trivial patent for IBM/MS/Apple/Etc, the fruits of my labor will be taken from me.

God bless the NPEs for taken advantage of the game created by the advantaged.

Nothing inherently wrong with NPEs

[Grond]

Non-practicing entities exist in other legal and business contexts. Consider a car rental company, for example. It might own thousands of cars, yet it does not build cars, sell cars, or use the cars itself. What's more, it charges an obscene fee to rent a car compared to buying one (~$20/day for a compact is $7300/year!).

Sounds a lot like a patent troll, right? It doesn't use the technology, it won't sell the technology outright, and it quite possibly didn't even invent it in the first place.

But what both kinds of NPE provide is convenience and certainty. People pay car rental companies a comparative fortune because it's cheaper than owning a car in every city you might want to fly to, and the car rental company provides certainty that the car will be available, in reasonably good condition, properly titled, etc.

By the same token, a patent holding company provides convenience and certainty. Patents and patent applications are publicly available, so you can avoid wasting time and money on duplicate research and development by simply seeking a license from a company that has already done the work. And of course a license gives you legal certainty. Knowing that your product is licensed reduces the risk of an infringement lawsuit, which makes things like developing venture capital and contracting with suppliers and distributors easier.

Now, of course, there are problems. Too may patents are too vague to be of much practical use to a practicing entity because they don't go into adequate detail on how to actually make and use the invention. In response the courts are moving towards tightening the written description and enablement requirements, which I support. Another problem is that too many patents are actually invalid, and Microsoft is currently asking the Supreme Court to make patents easier to invalidate by eliminating the strong presumption of validity that patents currently enjoy, which is another reform I support. (That's right, Microsoft is trying to make it easier to invalidate patents).

The answer to the problem of non-practicing entities is not to ban them outright, nor to engage in overly narrow reforms that will only add complexity to the law. The solution is simple, broad reform that will increase the societal value of all kinds of patents while at the same time reducing the incentive to file for unsupported patents.

Re:Nothing inherently wrong with NPEs

[Animats]

Yes. Having invented something, you may not want to do a startup. Often, the technology developed is useful, but not suited for a standalone business, because it's better used as part of something else.

I hold several patents, and put "inventor" on my tax return. One patent was licensed to Autodesk, one was licensed to Havok, and I'm currently going after DARPA for patent infringement on a third. My fourth patent is about to issue, and a fifth one is in examination. In each case, there's a working implementation, but not necessarily a commercial product.

The one that was licensed to Havok is for an approach to game physics engines. I had the first ragdoll physics engine that worked, back in 1997, and I sold it as a high-end animation plug-in for a few years. But the physics engine middleware business looked awful as a business. Mathengine went bust, and Havok lost money for its founders and original investors. (Havok was revived by a second round of investors who bought in cheap and replaced the management team. In the VC community, this is called a "haircut".)

Most of the whining about patents comes from people who've never solved a hard problem. I've never had serious "obviousness" objections from the USPTO. For the ragdoll physics patent, we submitted, among other things, reviews of Trespasser, describing its miserable physics engine, with objects randomly flying off into the air ("This is the worst game I ever played"). That's a clear demonstration of non-obviousness - a big, expensive failure by a major organization to solve the problem. The USPTO accepts that.

Prima Faciae Corruption?

[swb]

Is it merely the volume of the cases that makes it plaintiff friendly, or is it more plaintiff friendly than other districts when you adjust for volume?

Has anyone asked why it's more plaintiff friendly? Has anyone done any kind of analysis of the judiciary to determine if they have some kind of background that gives them a superior understanding (engineering degrees, patent experience, etc)?

Somehow it all smells rotten -- a group of judges and a group of local attorneys who have built a cozy little legal franchise. Local attorneys with familiarity in the courts handle the plaintiffs, the attorneys get paid handsomely for their access & familiarity and the judges get re-elected with the financial support of the attorneys.

In short, everyone gets paid and the trolls don't really care because to them its all profit.

Now, I'm sure this is more conspiratorial than it all really is, but even so -- why would judges in those areas be so plaintiff friendly?

Re:Prima Faciae Corruption?

[Anonymous Coward]

Being from Eastern Texas, I feel like I can speak with some authority in the matter. I've known many of these judges and lawyers (and bar-tended a few of their private functions) and I have found that they are idiots. It's really that simple. There is no conspiracy, there is only a mindset of "If someone sues someone else, then the defendant must deserve it".

Re:Prima Faciae Corruption?

[daemonburrito]

Federal judges are selected, not elected, and their appointment is for life.

This is really misleading. District courts are wholly in the purview of Congress, specifically the Judiciary committees. District Court != Supreme Court.

If you want to know why E.D. Texas is able to do what it does, for example, look at who is the ranking member of the House Judiciary Committee.

When it suits their political interests, Congress has no problem changing the specialization of District courts, or even firing a judge.

Don't let them pass the buck with this "appointment for life" nonsense. Your elected representatives are wholly responsible for the District system.

Re:Those who can do. Those who can't sue.

[kimvette]

Well, considering that one of the hotbeds is Texas, maybe some of the defendants can use the "Well, he needed killin'" defense? ;)

Side Note

[bakestyle20]

Might be off topic but.... Wish Bell Labs was still truckin.... All those public works patents made the world a better place and the R&D staff were compensated well. The failure of the firm though is just another instance of business executives and politicians banding together to ruin a strong and truly beneficial company.