We are seeing more negative press coverage of today’s digital dominance of our giant networked platforms who employ their free user-generated information to sell ads. Their natural monopolies do not trigger traditional anti-trust regulatory response because the anti-trust law is premised on concerns about consumer rent-seeking based on monopoly supported pricing power. In most circumstances, the consumer service and product pricing offered by these digital mega-techs is cheaper. But the anti-trust tide may be turning.The EU recently fined Alphabet (Google) for using its search dominance to boost sales of its other services. Newspapers are suing Facebook and Google over unlicensed use of their content. Even if these natural monopolies do not violate traditional anti-trust law, their leverage to benefit themselves in other areas even includes Congress and the US Supreme Court. One of their methods is to solicit academic support for their lobbying objectives.They have done so with arcane patent reform by academically validating their phony troll narrative. A long, well-researched Wall Street Journal article this week examined Alphabet’s (Google’s) practice of richly rewarding academic researchers whose “views” on policy just happen to support its DC lobbying agenda.
The public patent skirmishes between and among ICT tech titans are fought with weaponized patents stored and deployed to protect and promote market share in a fiercely competitive global consumer arena where its incumbents’ shelf-life is short. The press covers them because they involve the planet’s largest firms whose digital platforms have enslaved us all with necessary if non-understandable, dependency. Apple v. Samsung, Google v. EU, etc. are now the stuff of daily headlines. For ordinary folks, these billion-dollar battles about obscure technology describe and define today’s patent landscape. In this exponentially evolving global competition delayed market, timing compresses profits and threatens continued incumbency. Getting to consumer shelves first is more important than getting there lawfully. But this is not the only patent war raging at present. Enter efficient infringement.
These same squabbling incumbents also are at war on a second front — their decade-old version of patent reform. This war has been fought in publicly remote Capitol Hill jungles hidden beneath a canopy of public apathy. In this separate war, the battling consumer market digital platforms are allied. Their common cause is protecting their product pricing share from the power of patented component suppliers. In this war, their concerted objective is not global consumer market share. It is about how much of their final product sales price they get to keep versus how much they must share with their component suppliers. By weakening patents through congressional and SCOTUS revisions, they weaken component bargaining power while deploying their efficient infringer business model. Their common objective is to enhance their leverage. With the now public Apple-Qualcomm dispute, this formerly hidden second front has spilled into the open. And the press is covering it. Pro-patent advocates need to understand it.
“So obviously the patent claims VirnetX has used to pursue infringers such as Apple and Microsoft are not the weak patents that opponents of the patent system claim are the scourge of the system. Well — not so fast! Just because an Article III federal district court confirms the validity of a patent doesn’t mean anything anymore. Indeed, federal courts have become subordinate to the PTAB, which is as ridiculous as it sounds but sadly true. A patent is not valid until an Article I executive tribunal says so, and absolutely no deference is paid to Article III judges of the United States federal courts.”
Today the barons of big tech meet at the White House with President Trump whose understanding of their work and how that work bears on our present global economic leadership and security in this new digital information age is doubtful. But at least he appears to be uncontrollable. For more than a decade tech titans have been dominating our Congress, federal agencies and Supreme Court by spreading their poisonous anti-patent troll narrative among DC patent policy makers. We were reminded of this last week when the “patent troll narrative” (now lingua franca in all Capitol Hill patent discussions) surfaced in a House Judiciary Subcommittee meeting held to examine the impact of on the patent landscape of the Heartland venue decision. Rep. Issa oiled his way through various iterations of the stale troll narrative. He even sniffed about a recent patent suit against Apple. Pro-patent interests had one friendly witness in the person of Adam Mossoff, but the rest were members of the anti-patent chorus led by anti-patent apparatchik Colleen Chien.
Like certain Justices, House members Nadler, Goodlatte and Issa seem shamelessly transfixed by the troll narrative’s trope that our patent system is being destroyed from within by the abusive conduct of patent trolls, when in fact they are destroying it themselves. We hope the same narrative will not be replayed at the White House today. But it is very much alive in key congressional circles. It is equally clear from House Committee bloviating they want to keep it alive in case an opportunity arises enabling them to revive their tech-dictated Innovation Act. They are telling us that any bill that mentions patents will become a House vehicle for their Innovation Act “modular adjustments.” Big Tech’s congressional tub thumpers have waited for years to tack them on as amendments.
What is becoming scary, however, is that we are in the early stages of two tectonic world developments—the new Information Age and the rise of China as a superpower. Our patent system is being destroyed by the troll narrative and its impact on patent policy makers who are themselves destroying it. China is strengthening its patent system with the same dispatch deployed to stake its claim to the South China Sea and fill the Far East trade vacuum ceded by US PP abandonment. We are headed towards a dual superpower world in an evolving digital age. If our patent system cannot cope with the economic and defense demands needed to maintain leadership, China’s patent system will. If our Congress cannot understand what lies ahead, we have to hope our President does.
In its recent Impression Products v. Lexmark decision, SCOTUS (Chief Justice Roberts for the 7-1 majority) more than once referred to a patent’s “monopoly.” Patents do not confer a monopoly. They confer exclusivity rights for a limited time.This common patent monopoly misconception may be a tolerable one-time error among patent law tyros and first-year law students. It is intolerable however when routinely used by the Chief Justice of the US Supreme Court, not because it is wrong, but because it reveals in our nation’s highest judicial tribunal a fundamentally inadequate understanding of US patents’ purpose and place in our mixed economy. If the Supreme Court can routinely refer to patent rights as “monopoly” powers, it demonstrates either inadequate understanding of US commerce and our nation’s waning global economic leadership, or a dangerous susceptibility to misguidance by self-serving special interests. When a clock strikes thirteen, it is not merely an inconsequential occurrence of little importance. It means that there is a fundamental problem with its entire mechanism, making its next chime ringing unpredictable and unreliable. SCOTUS references to patent monopolies are like a clock striking thirteen!
Is it that the Court doesn’t know what it doesn’t know? Does it not care? Are patent decisions being drafted chiefly by legally sophisticated but commercially inexperienced law clerks? Is SCOTUS treating amicus brief propaganda as if it were submitted for any purpose other than to lobby the Court? Do the Court’s recent anti-patent decisions signal further patent diminution based upon a re-emergence of antitrust market power concerns? These are unanswerable questions, but their import must be soon offset. Take Lexmark. Is it merely one “domino “in a pre-orchestrated series of cases the Court is absorbing while waiting for its next opportunity to cripple our innovation ecosystem further? For example, will SCOTUS next consider the patent exhaustion issue in a case involving the license of a patented product they “find” so restrictive that it is constructively a conditional sale of underlying patent rights exhausted when the “license” was granted? These questions are not unimportant. Rather they reflect an urgent need to educate SCOTUS before it is too late. Congress theoretically could fix this problem and many others that lately have arisen but . . . Continue reading Patent Monopoly
Patent Reform was intended to be in full effect before anyone noticed that like AIA it was based on false assertions by anti-patent academics including: a non-existent litigation crisis; a tax on innovation; alleged patent holder valuation inflation; alleged patent holder valuation inflation and; the so-called, diversionary, “patent troll narrative” which, for a while, completely captured congressional attention but now shares the top-of-mind limelight with “efficient infringement.
Unfortunately, this story’s destructive thrall appears still to have captivated SCOTUS and captured PTO. Congressional delay, however, gave us room to convince enough members that at least there were two sides to the story. That same delay has now given responsible parties in academia time to respond to the barrage of faux studies demonstrating a “need” to address waning (and otherwise explicitly addressable) troll abuses with the comprehensive litigation reform the efficient infringer lobby sought. Each of their promulgated academic “fake views” has now been refuted.
Actual and readily available facts debunk the so-called “volume crisis” in patent litigation. The “tax on innovation” most prominently promulgated was a thoroughly discredited “study” authored by Bessen and Meurer. (It is also attacked in this article but still quoted by duped anti-patent apparatchiks who have not yet realized how foolishly gullible they sound.) This past year USC economist Jonathan Barnett has been circulating a draft law review article before its final publication in the Berkeley Law Journal scheduled later this year and entitled “Has the Academy Led Patent Law Astray.” Barnett’s thoughtful analysis will be released this Fall in final form. In it, he conclusively demonstrates that previous patent reformer academic assertions about “royalty-stacking,” “patent hold-ups” and “patent thickets” were entirely speculative when released and since have been proven by empirical data to be completely false. Nevertheless, they still are contributing to the “depropertization” of patents. Here is an advance citation to what can only be referred to as “must reading”
Now we have a new and definitive debunking of the misleading “patent troll” narrative entitled, “Patents at Issue: The Data Behind The Patent Troll Debate” by Ashtor, Mazzeo and Zyontz. Like the detailed Barnett article, it is a “must read” for pro-patent advocates. It also discusses the counterproductive remedial implications of applying “liability theory” instead of “property theory” to patent ownership. Liability theory maneuvering led to the notorious Justice Kennedy anti-injunction concurrence in eBay.
Here is a quotation from the article’s “Background” explanation:
“The core questions in the “patent troll” debate include issues of whether and to what extent patent assertion practices take a toll on innovation, whether PAEs are asserting low-quality patents and seeking quick settlement payoffs, whether startups suffer more harm through patent assertions than the benefits they gain from patent market liquidity, and whether high litigation costs are shifting the economics of patent assertion to favor PAEs. These questions implicate the underlying tension between “patent monetization” and “patent assertion.” Which types of patent monetization practices are legitimate, and which types exceed the intended scope of the patent grant? Does “after-market” patent value extracted by PAEs deserve the same status as the patent value derived by practicing entities? More generally, should PAEs be entitled to property rule protection for their patent rights – should they have the right to exclude infringers – or should liability rules apply? In this paper, we seek to inform the policy debate about “patent trolls” and modern patent assertion practices by studying some of the key questions concretely, through empirical analysis of patent infringement award data.”
“Our findings reveal a number of important facts about PAEs and their patent assertion practices, some of which are directly contrary to popular positions in the “patent troll” debate. Rather, in some respects this data paints a very different picture of PAEs, showing them in some cases to assert patents and conduct litigation in ways that are highly similar to other patent– holders enforcing their rights. From the perspective of decided cases, it is very difficult to distinguish the “trolls” from any other patent plaintiff……
“On the whole, our findings suggest that the realities of PAE assertion practices are complex, and it is difficult to identify clear signs of abuse or misuse of their patents relative to other plaintiffs. Rather, the similarities we observe between PAEs and practicing entities highlight the risk that attempts to limit PAE’s enforcement rights or restrict the remedies available to them could inadvertently impact all patent-holders and cause adverse effects on the ability of practicing entities to enforce and otherwise monetize their patents. These results counsel caution in designing policies aimed at PAEs and patent assertion practices.
“Moreover, these results further indicate that modern patent assertion practices may yield unique efficiencies and benefits relative to traditional enforcement actions by practicing firms. We need to understand the relationship between modern patent assertion, patent monetization and patent value in its variety of forms before we can identify which practices “promote progress” and which prevent it. True “patent trolls” are difficult to find, and all patent rights are at issue in the hunt to apprehend them.”
An important feature of the rule of law is the economic support imparted by its predictability, a growth-supporting quality enabling the economically necessary use of contracts, deeds, debt, trusts, currency and licensing. Without it, long range planning and investment are impossible, variously timed delivery differences would cancel trades, and mutually beneficial transactions would necessarily be crammed into the immediate present. The absence of a predictable rule of law thus severely hamstrings economic progress. Patent law depends heavily on its special rule of law. It is expressly created in our Constitution to authorize Congress to provide future investment reliability for a “limited times.” What does limited mean? It doesn’t say how much time but it certainly means some. But if AIA’s IPR can nullify a patent throughout its term all the way to expiry, metaphysically there is no “limited” time. If laws and court decisions continue to nullify effective patents retroactively, the express constitutional provision for prospectively “limited times” is distorted. If patent rights are property rights instead of public privileges, Article I agency-appointed PTAB tribunals cannot be constitutionally enabled to cancel them without reference to the protections in Article III and the Bill of Rights.
A wise man once warned me that standing by themselves, arrogance or ignorance was to be pitied, not condemned but combined in positions of power, they are extremely dangerous. So it is with patents. Our nation’s patent system finds itself caught between apathetic ignorance and under-informed assertiveness. On the one hand, there is the proud apathy of congressional ignorance that resulted in AIA’s PTAB. On the other, there is the under-informed assertiveness of SCOTUS that still uses the term “patent monopoly” in Impression Products v. Lexmark while erasing decades of established patent law by retroactively altering the impact of conditional sales that conformed to existing law when made. Such retroactive conduct scorns patents’ special “limited time” rule of law, by enacting retroactive nullifications unforeseeable during past compliance by legal practitioners as well as practitioners of grant patents. Retroactive patent nullification decisions have become commonplace in the courts and Congress. From AIA’s IPR to Lexmark’s recent nullifications of then complying conditional sales, such conduct not only cancels past established economic process, but it also deters future investment of innovative time and developmental financial support in our nation’s innovation ecosystem. It harms our economic future. The on-going self-inflicted collapse of the patents’ rule of law has become a counter-productive “cruel of law.” Worse, stopping this relentless DC march to economic madness may itself be madness. Can we halt them? Continue reading Cruel of Law
Our Constitution’s Article I reference to an inventor’s “exclusive rights” is not insignificant. It is the document’s sole reference to “rights” in its main body. It speaks to a source of property ownership that mattered deeply to our Founding Fathers. Influenced by the then-unconventional property theories of John Locke and having militarily rejected the King’s centuries-old sovereignty over all constituent property rights, the founders constitutionally rejected sovereign whim as the source of intellectual property rights. In his first State of the Union message, President Washington devoted considerable content to the economic importance of patents. Our patent system’s first Administrator was Thomas Jefferson. In our country’s earliest days patents were a top-of-mind civic issue. Today patent enthusiasm has retreated from civics’ front lines to the arcane redoubt of feuding practitioners, a smattering of abusive predators and the C-suites of digital platform mega-techs. Unless their constitutional origin and economic importance become better understood soon, US global leadership in the Information Age is doomed.
These are strong words. They are meant to be. Patents once were governmentally encouraged. For 200 plus years examiner conduct during patent prosecution more resembled midwifery than the adversarial preceding it has become. Applicants then were guided through eligibility’s statutory requirements of usefulness, novelty, and non-obviousness criteria. Later declared criteria judicially were applied during patent prosecution with predictability. The rejection was more like an invitation to try again, than the final result of judicial procedure. The right to obtain a patent could be waived or withdrawn by the applicant but never terminated by the PTO. Examiner workload, lax management, the complexities of digital and biologic technologies and pure politics have taken their toll on what was once a highly respected government service to our nation and its innovative citizenry. Today we are losing sight of patents’ substantial and significant role in the US innovation ecosystem. The new sovereignty established in our Constitution is being influenced by a self-serving segment of our IP community. Resultantly we are losing ground in the global race to maintain world innovational leadership.
The Revolutionary War’s battlefield promotion of property rights formerly bestowed by sovereign whim on the King’s cronies became constitutionally-established individual rights when the war ended. The King’s sovereignty was replaced by the more fragile but longer lasting new sovereignty of separated government split equally among its three branches and charged with preserving individual property ownership and the economic strength our founders knew it would impart. US sovereignty was created in our Constitution. Property protection was vested in the checks and balances provided by its three equal branches. Now that sovereignty is back-sliding to its pre-revolutionary war English ancestor not by restoring all property ownership to a royal monarchy but by enabling a cluster of powerful digital platforms to redefine patent property rights into something considerably less, called ” public rights.” The political battlefield’s demotion of patent property rights is occurring as US governing sovereignty is succumbing to a digital cabal of influencers whose powers of persuasion resemble the pre-revolutionary cronies of English potentates who once determined what was patentable and to whose charge they would be entrusted. Today’s crony controlled intellectual property law may be more nuanced, but it is no less effective. Digital economy titans are taking control by leveraging their overwhelming influence through their mastery of emerging technology; their overwhelming networked resources and their political power unleashed by the decision in Citizens United. They have cleverly contrived patent troll narrative they have directed the governmental sculpture of a new patent landscape where patent property has been devalued for everyone but themselves. The parlous results of their patent weakening influence on our constitutional sovereigns work are beginning to pile up.
As we approach this month’s end, please consider reading and saving a revealing and credible May post by IPWatchdog regular Steve Brachmann. Linked below, it recounts a recent Washington DC presentation by former Cisco CTO Charles Giancarlo in which as an ex-Cisco insider he presented the facts and laid bare the truth behind the false patent troll narrative still distorting the views of DC’s policy makers. Beneath his post’s headline, Brachmann summarized his presentation by quoting Giancarlo’s revelation of the truth, “Let’s call patent reform for what it is: a blatant economic power grab by tech firms to infringe on technology created by others.”
Giancarlo’s presentation persuasively supported this rare admission, opening with a quote by Sen Durbin during an early May Senate hearing on patents praising the efficient infringer lobby’s false “patent troll” narrative by saying: “Whoever came up with that phrase should get a special bonus because they manage to mischaracterize anyone who goes to court to assert patent rights as a troll. What I came to understand was one man’s patent troll was another man’s assertion of a patent right which they fought for and worked for years which is now being infringed upon by some giant.” Combining insider knowledge with relevant data Giancarlo explained why the Senator was correct.
Giancarlo noted that the infringer lobby’s “proposed solutions don’t even address the false narrative.” His data-backed refutations of the efficient infringer lobby’s “alternative facts” were compelling.
The defense venue rule in patent cases had been that suits must be brought in the state where the defendant resides or where they have committed regular acts of infringement and have a regular and established place of business. In Heartland, the Court focused on the “resides” portion of this test. In 1990 the Federal Circuit ruled that patent actions also could be initiated in any venue where the defendant conducts its business. Patent suit venues were thus treated differently for more than 25 years. No more. SCOTUS has ruled by a vote of 8-0 that the special rule for patents should be narrowed holding that its “resides” prong means wherever the domestic corporation is incorporated. SCOTUS thus has overruled the Federal Circuit’s broader rule regarding venue. Henceforth plaintiffs relying on the reside prong of the test will have to bring their actions in the defendant’s state of incorporation (which often is Delaware). The regular acts of infringement or permanent place of business prong were not affected. Until now “doing business” especially in the digital age had meant they could be brought virtually anywhere and had led to forum shopping.
Justice Thomas writing for the Court said concerning venue based on party home location as distinguished from their infringement activity: “we, therefore, hold that a domestic corporation ‘resides’ only in its State of incorporation for purposes of the patent venue statute.”
We consider this decision to be another setback for patent holders. The infringer lobby has long complained that the Eastern District Court in Marshall Texas of being a haven for patent trolls. That particular venue was not at issue in this case, but most consider that the Texas court’s conduct was what this case was about. The Marshall court both moved too fast in the opinion of anti-patent infringers and ruled too often in favor of plaintiff patent holders. Anti-patent infringers will characterize it as a setback for patent trolls, but of course, it applies to all patent suits. Stanford professor Mark Lemley authored a brief for 61 economists emphasizing these issues, reiterating the troll narrative that dangerously seems to have become the prism through which SCOTUS now views all patent cases. It could be considered the final troll abuse to be addressed and end the patent troll narrative’s repeated harm to early stage innovation. But do not expect big tech to relent. Because efficient infringement tactics traditionally include the imposition of attrition through stalling and delay, the decision is another significant loss for all under-resourced patent holders, the usual victims of the anti-patent troll narrative. Big tech still values that capacity. This decision will more likely be seen by them as an invitation to seek more anti-patent costs sanctions in Congress.
So here we go again. Senator Hatch has indicated earlier that he wants to introduce venue legislation, however, Heartland was decided. To be sure Senate Judiciary is busy but there is always time it seems for Chair Grassley to respond to the wants of Silicon Valley. The decision is below. Any bill introduced in the House for any purpose or that passes the Senate will be before the House Judiciary Committee anxious to revive portions of the Innovation Act. Rep Goodlatte’s supportive Statement (below) suggests that the Innovation Act’s punitive sanctions are still alive.