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Summary:

The medical practice of blood-letting persisted for decades in the face of evidence that it was a bad idea. Today’s patent system is experiencing the same difficulty.

Bloodletting
photo: Wikipedia

Momentum is building in Washington to finally fix the country’s patent system, but the good guys better hurry. While Sen. Clare McCaskill, who has decried patent troll “bottom feeders,” moved to fast-track a reform bill this week, the trolls have been busy too. The most pernicious of them, Intellectual Ventures, has started a PAC and could succeed in neutering real reform before Congress scatters to campaign for the mid-terms.

If patent reform fails like it did in 2011, the patent system originally intended to encourage ideas will ironically remain a prisoner of a bad idea: that the economic model of patent trolling somehow produces innovation. Fortunately, every bad idea has a shelf life and sooner or later people abandon it for a better one.

Quack medicine and poor patents

Up until the early 20th century, America’s leading physicians still used scalpels and leeches to draw blood and drain “ill humors” from their patients. Eventually, modern science concluded that this practice, known as bloodletting, did nothing to cure patients and could end up killing them instead. Yet many doctors continued to use it all the same.

Today’s patent troll proponents share something in common with the bloodletting doctors of a century ago: both defend an ill-conceived idea despite mounting evidence that it doesn’t work.

In the case of the patent system, the story of its dysfunction (this time) began in 1980, when courts loosened the rules for what could qualify as a patent. The new rules resulted in ridiculous patents, including for a five-year-old’s method of swinging on a swing, and a general flood of software patents too. More dangerously, this proliferation also led to the rise of patent trolls who amassed old patents by the thousands and promised to spin these “inventions” into gold.

For a time, the trolls succeeded in tricking the public into believing that they were brewing marvelous medicine. In 2009, for instance, the leading patent troll Intellectual Ventures gulled New Yorker writer Malcolm Gladwell into publishing a gushing account of its grand plans to cure malaria and to perfect nuclear fission. But it didn’t work out that way.

Instead of delivering a wave of new science, the trolls instead unleashed a ruinous regime of lawsuits that amounted to a direct tax on some of the most productive companies in the country. Backed by speculative investors, the trolls did their dirty work by distributing their patents to thousands of shell companies, and instructing them to sue everyone in sight. The results have been depressing and expensive.

Stealing joy

Google and Apple recently complained that trolls take them to court hundreds of times a year. Popular startups like Etsy and small app developers are also among the trolls’ targets and, as NPR explained in its landmark documentary “When Patents Attack,” the trolls are even attacking mom-and-pop stores. All of these companies had to divert money from expand their business or hiring employees to pay for the patent trolls instead.

And then there is the emotional toll of getting sued. As one startup entrepreneur explained this week, “a frivolous and unfounded lawsuit like this steals your joy. The joy of running a business, creating and innovating becomes the bane of attorney’s fees, court dates and legal strategy.”

The anti-troll evidence isn’t just anecdotal. There is also mounting scholarly evidence that the patent system is draining billions from the innovation economy, and that trolls threaten emerging industries like biopharmaceuticals.

So why does this continue? Why doesn’t the government simply rewrite the patent laws and put a stop to this? The problem has a lot to do with the power of entrenched ideas — even if the idea is a bad one.

End the bloodletting

Like the bloodletters of old, the patent trolls don’t respond with evidence but with authority. The trolls are fond of solemn pronouncements like “we have to be careful not to harm innovation” and invoking the “intellectual property clause” (a relative neologism) of the U.S. Constitution. Given American’s reverence for inventors — from Ben Franklin to Steve Jobs — those appeals pack a punch. But that doesn’t change the fact that the patent system isn’t working.

That won’t stop the trolls from trying. This month, look for the trolls’ rhetoric to get more shrill at a time when all three branches of government are pondering how to stop the harms they cause. This pressure appears to be what led Intellectual Ventures to launch a PAC to give money to members of Congress who will vote for its twisted vision of “innovation.” If this works, IV’s victims will have to grit their teeth extra hard as they watch the extortion money they paid being used not for malaria cures, but for more patent trolling.

Enough is enough. It’s time for Congress to reject the trolls’ basic premise — that most patents are promoting innovation — and restore a cheap and effective proposal that would let troll victims spear bad patents once and for all. Nervous law makers can take comfort in the fact that the measure would only create a way to challenge bad patents — not all patents — and that innovators have plenty of other methods such as trademark, trade secrets and copyright to protect their inventions.

Real entrepreneurs already confront myriad obstacles to succeed in a tough economy. The least we can do is to take away a government-issued tool that gives parasites a legal way to bleed them.

  1. First off, since 92% of patent infringement cases are settled and since an even larger absolute number from demand letters are settled without a case being filed, there are those who claim that there is no problem. They say that unless you prove that these settled cases are without merit, then you are just speaking anecdotally. Seriously.

    Second, even if you do talk to people informally, you will find that only around half of the problem is with patents that are weak (invalid or excessively broadened) and most of the other half are strong valid patents but where there is no infringement. In fact, case statistics show that the majority of cases that make it to summary judgment, JMOL or trial result in findings of non-infringement while a minority find patents invalid (see patstats.org for statistics).

    Third, the reason that cases with little or no merit are pursued is to get settlement payments and the reason this works is due to the high cost of litigation and virtually no penalty for such behavior. As noted from the American College of Trial Lawyers in 2009

    http://www.abajournal.com/files/Survey_Press_Release_Final.pdf

    83% of respondents believed that “Litigation costs drive some cases to settle that should not settle on the merits”.

    Sanctions and fee shifting are very rare though the situation started to improve with a series of cases in 2011-2012. Also, such penalties against plaintiffs will be pointless since, as you point out, they are shell companies with no assets, other than the patent being asserted, and no revenues. Joinder rules to parent companies will also become pointless by simply setting up a foreign shell company to own the domestic shell at which point one creates a jurisdictional corporate veil.

    Fourth, even when a defendant goes to the mat and spends millions of dollars to go to trial to prove their case, the plaintiff can simply drop the case at the last minute before the trial begins with no penalty. See the following two cases against Kapersky Labs as an example:

    http://en.ria.ru/business/20120626/174253507.html
    http://eugene.kaspersky.com/2013/10/02/the-patent-trolls-can-be-defeated-just-never-give-up/

    Fifth, the problem with civil litigation abuse is not unique to patent law, though that is the current hot button. See the following for how some lawyers in Texas moved from Personal Injury (PI) to Intellectual Property (IP) after legislation was passed in 2003 to cap pain and suffering awards in medical malpractice cases to $250,000.

    http://www.kaiserhealthnews.org/Daily-Reports/2002/April/09/dr00010523.aspx
    http://mcsmith.blogs.com/eastern_district_of_texas/files/IP.pdf
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1878966

    The current proposals for legislation of patent litigation parallel that of the Private Securities Litigation Reform Act of 1995 (PSLRA) that focussed on securities class action lawsuit abuse. Patent marking was another area of abuse until the America Invents Act (AIA) of 2011. There is also civil litigation abuse in California in the areas of ADA, section 17200 and Prop. 65. If one only focuses narrowly on patent litigation abuse, then the problem will simply pop up elsewhere as in the game of Whac-A-Mole®.

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  2. I strongly disagree with many claims and assumptions made in this article.

    First, what a patent is, and designed to do.
    ====
    Jeff, you said “Enough is enough. It’s time for Congress to reject the trolls’ basic premise … Nervous law makers can take comfort in the fact that the measure would only create a way to challenge bad patents — not all patents — and that innovators have plenty of other methods such as trademark, trade secrets and copyright to protect their inventions.”

    In no way do trademarks, trade secrets, or copyrights protect any invention or offer any protection to inventors. Per any standard law dictionary, inventions are new, useful processes, machines, improvements, etc., that did not exist previously and that are recognized as the product of a unique intuition, being distinguished from ordinary mechanical skill or craftsmanship.

    But trademarks only protect brand names and appearance (think “Coca-cola”). Trade secrets are not protected. Ever. (Cough. Winklevoss v. Facebook?) Copyrights protect works of art, like text in a book, musical art, or a painting.

    PATENTS are the only way to protect new, useful processes, machines, improvements from others. Otherwise, it would be a free-for-all in the stealing of innovation away from real entrepreneurs.

    Jeff, then you say this in your effort to diminish the US patent system: “Real entrepreneurs already confront myriad obstacles to succeed in a tough economy. The least we can do is to take away a government-issued tool that gives parasites a legal way to bleed them.”

    No, the least we can do is continue to encourage our government-issued tool (the US patent system) that gives real entrepreneurs a way to legally protect their inventions from infringers who steal inventions from inventors and put them in their products.

    I’ve said it to you once before Jeff, and I’ll say it again: Patent “trolling” exists only because patent infringing exists. No infringement => no infringement lawsuit. It is as simple as that, and you’ve yet to counter this argument. You’ve only disagreed, but you have yet to provide any logical argument against my claim that, if you rid of patent infringment, then you also rid of patent trolls.

    Why will this work? Frivilous lawsuits don’t pay off, and attorneys will only spend time on lawsuits if it is discovered that infringement is actually happening. Stop the crime — infringement — and you’ll stop the trolling.
    How will this work? Well, potential infringers either need invent around an invention, or they need to license and/or pay royalties to the real, original inventors for using their inventions.

    Remember, innovation, and its legal protection, is what has made the USA the country with the best ideas, and provided the best protection against monopolistic powers from stealing inventions.

    See my comments on your other article here: http://gigaom.com/2014/02/20/white-house-invites-the-crowd-to-fight-patent-trolls-but-it-wont-solve-the-problem/

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  3. People who are benefiting from Patents are Trolls & Patent Lawyers

    They promote patenting so they can increase their profits

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  4. Mike, your statement that “frivolous lawsuits don’t payoff” is missing the point entirely. The trolls also don’t “want” to sue, they want to extort using the threat of a suit as leverage. It is the demand letter with the very thinly veiled threat of a follow-on lawsuit that is their tool of choice. If they can get a few dozen startups to pony up $50,000 each to “license” the patent, or a few big companies to pony up $250,000 each for the same purpose, they have won. In either case the cost to the extortionee is less than defending the suit in terms of lawyers fees and management distraction. This is the economic “logic” of the troll business. This is plain as day. Stay tuned for the cure for malaria.

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  5. For every successful “extortion” by so-called patent trolls, how much patent technology is stolen by the big boys whose successful defense is that the little inventor simply can’t afford to take them through the years-long litigation process? I’m guessing the ratio is something like 100-to-1 in favor of the big Google-type thieves!

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  6. Great article.
    Thank you for sharing it.

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  7. ‘Momentum is building in Washington to finally fix the country’s patent system’

    Can you say ‘dissemble’?

    Property rights and jobs in America are now hanging from a frayed thread. Congress and the White House continue to follow the lead of their multinational campaign donors like lambs…pulling America along to the slaughter.

    Just because they call it patent “reform” doesn’t mean it is.

    All this patent ‘reform’ talk is mere dissembling by China, huge multinational thieves and their paid puppets -some in Congress, the White House and elsewhere in the federal government, and some masquerading as reporters. They have already damaged the American patent system so that property rights are teetering on lawlessness. Simply put, their intent is to legalize theft -to twist and weaken the patent system so it can only be used by them and no one else. Then they can steal at will and destroy their small competitors AND WITH THEM THE JOBS THEY WOULD HAVE CREATED. Meanwhile, the huge multinationals ship more and more American jobs to China and elsewhere overseas.

    Do you know how to make a Stradivarius violin? Neither does anyone else. Why? There was no protection for creations in his day so he like everyone else protected their creations by keeping them secret. Civilization has lost countless creations and discoveries over the ages for the same reason. Think we should get rid of or weaken patent rights? Think again.

    Most important for America is what the patent system does for America’s economy. Our founders: Jefferson, Franklin, Madison and others felt so strongly about the rights of inventors that they included inventors rights to their creations and discoveries in the Constitution. They understood the trade off. Inventors are given a limited monopoly and in turn society gets the benefits of their inventions (telephone, computer, airplane, automobile, lighting, etc) into perpetuity and the jobs the commercialization of those inventions bring. For 200 years the patent system has not only fueled the American economy, but the world’s. If we weaken the patent system, we force inventors underground like Stradivarius and in turn weaken our economy and job creation. For a robust economy America depends on a strong patent system accessible to all -large and small, not the watered down weak system the large multinationals and China are foisting on America.

    For the truth, please see http://www.truereform.piausa.org/
    http://piausa.wordpress.com/
    http://www.hoover.org/publications/defining-ideas/article/142741
    http://cpip.gmu.edu/2013/03/15/the-shield-act-when-bad-economic-studies-make-bad-laws/

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