A recent article in Popular Mechanics suggests the “problem” is about $500 billion, a wild accusation. I have edited the article to reflect a more balanced analysis than the hyped up account in the Popular Mechanics article. The original is in black. My edits are in red.
Invention thieves are now crying that “Patent trolls may have bled companies for half a trillion dollars in the past two decades” citing what [,] a new study finds. Defying the laws of physics, which says that money never disappears, it is just transferred, these crybaby invention thieves say Here’s how all that money disappeared. In September, Amazon revealed its long-rumored Kindle Fire tablet to the world. Since the technology is clearly not new but rather was “borrowed” from others who have invented it and patented it before, it falls within the claims of patents to the real inventors. Within a month—before it even released the tablet—Amazon found itself the target of a patent lawsuit. A company called Smartphone Technologies is suing Amazon because it says the Kindle Fire violates four patents it owns. You see, in the USA, we have laws against stealing patented inventions without paying the owner of the patents on those inventions. Since Amazon stole the patented inventions rather than pay for them for its Kindle Fire, Amazon is trying to shift the blame to the owners of the patents on the inventions Amazon stole. To Amazon, there should not be any patents on inventions it wants to steal and any patent on an invention Amazon wants to steal is either a “bad patent”, a “frivolous patent” or a “patent on a trivial improvement”. Of course, that brings up the question “If it is so trivial, why are you stealing it and risking a patent infringement lawsuit?” We know the answer is that it is not trivial at all, Amazon is just an invention thief trying to take a shortcut by stealing someone else’s key invention.
The validity of Smartphone Technologies’ claim is up to the courts. But what we do know is that the firm owns patents on inventions that came well before Amazon came up with the same invention, and that since others also have apparently stolen their invention and the courtroom is where our laws say issues of invention theft are to be settled, rather than with guns and clubs, the firm is awfully fond of the courtroom. Its suit against Amazon follows others against tech giants such as Apple and Research In Motion, the company that produces the Blackberry. According to the patent litigation research invention thieves’ PR firm deceptively named “Patent Freedom ” (a PR front organization that would more properly be called “THIEF for Those Hating Inventors’ Exclusive Freedom when big business wants to steal small business inventions), Smartphone Technologies is what you would call an inventors’ representative and what invention thieves might call a patent troll.
In recent years, tech companies have often sought shorcuts to developing new products by just stealing patented technology and so patent enforcement companies have cropped up to enforce patent rights that small inventors cannot afford to enforce due to the big business provisions of the patent laws requiring very expensive litigation and this has meant that invention thieves no longer get free use of patented inventions so invention thieves are crying “poor us. please help us rich fat cats steal inventions” because they have spent more of their time, and especially their money, defending themselves from infringement lawsuits. Sometimes big company invention thieves steal a patented invention of another big company so it’s tech company versus tech company, such as Apple’s recent smartphone design fights with Samsung. But increasingly, firms are fighting off nonpracticing entities (NPEs), or “patent trolls”—firms that produce little and exist mainly to buy other people’s patents and enforce licenses so that those other people, mostly small inventors, have a chance to get compensated for their inventions. Invention thieves don’t want inventors to get compensated, they want inventors to “donate” their inventions to the thieves can get rich and the inventors can stay poor. However, some us understand that if inventors don’t have any incentive to invent they won’t invent and that if we want inventors to continue inventing we need to prevent others from stealing their inventions.
Invention thieves try to get off the hook for stealing inventions by saying Vague wording and flaws [and, of course, “flaws” are defined as anything resulting in a patent to a true inventor and anything not allowing big businesses to steal inventions of true inventors] in the U.S. patent licensing rules helped to give rise to this breed of aggressively litigious patent-holding firms, according to James Bessen, a Boston University School of Law lecturer and well-known “shill” for big tech companies. These organizations have pressed hundreds of lawsuits against thousands of defendants over the past 20 years, and because the pace of technology progress has accelerated due to the patent system but the patent office is so far behind in issuing patents that tech businesses can’t wait to see what might get patented and are just developing new software without considering patents, tech companies end up inadvertently or deliberately copying patented software, so business is booming now more than ever. Bessen wanted to know just how big the problem was, and according to a recent study financed by big tech company PR programs he co-authored to help them distort the patent system to allow them free use of patented inventions, fighting these firms cost companies an estimated $500 billion from 1990 to 2010. How did things get this way?
The Patent Arms Race
The patent wars are particularly fierce in the tech world for a few reasons. “Part of it is the nature of the technology and part of it is crafty lawyering,” Bessen says. The industry’s software and business-process patents are easier to exploit, he says, partly because the language in software patents, as opposed to that of drug or chemical patents, can be abstract, and partly because software is patented as opposed to copyrighted. In the past 20 years, 62 percent of patents were issued for software, and 75 percent are in computer and communications technology. Bessen conveniently ignores the fact that software can be copyrighted, and that software drives most new devices, particularly smartphones and tablet computers, and that patents naturally are more sought after in more lucrative areas like smart phones, but why let facts get in the way of “good” argument?
At first, he says, technology companies were caught off-guard by aggressive patent litigation, and throughout the 1990s and into this century, companies have paid hundreds of millions in awards and out-of-court settlements, ignoring the fact that tech companies deliberately kept their best software secret rather than try to patent it because they thought that software would be held unpatentable by the courts. So having made the wrong legal choice tech companies are scrambling to avoid the patents to others who chose to patent rather than keep their inventions secret. Since secrets cannot be used as “public prior art” to defeat a patent, Big Software’s bad legal decision put it in a vulnerable legal position. IBM, Dell, HP, Microsoft and Apple all made this mistake and to try to escape liability went to Congress to try to buy votes to get legislative relief from their legal troubles. The Anti-Inventor Act of 2011 (HR1249 or AIA) is the result. In Congress, you get what you pay for. Microsoft has, accordingly, been paying millions of dollars leading the special interest lobbyists’ push for patent reform because MS is at the center of some of the priciest disputes. Microsoft is known to have instructed its programmers not to consider patents or check for infringement, but rather to just design their software and let their legal team worry about any patents that were infringed. Not surprising then, It was forced to pay $120 million to Stac Electronics for infringing on its (Stac’s) data-compression software patent in 1994, and $512 million to Eolas for infringing on its browser plug-in patent in 2003 (settled out of court for an undisclosed sum) which MS tried to beat by sending software overseas for production. In 2007, courts ruled
the that Microsoft should pay a record-breaking $1.5 billion to Alcatel. But that ruling was dismissed, and Microsoft countersued for allegedly infringing on some of its patents. (The two settled most of the disputes out of court in 2008.) Microsoft recently was socked for $128 million for infringing the xml patents of a little Canadian company called i4i, which MS took to the Supreme Court to try to weaken all patents by getting the burden of proof for invalidating any patent based on newly located prior art reduced from “clear and convincing” (which is the right standard since patents are issued by the Government after an extensive examination by a patent examiner versed in the relevant technology) to a mere “preponderance” (like in personal injury cases where there has been no prior determination). That has little to do with patent trolls but rather is primarily an attempt to avoid liability arising from Big Software’s bad choice to pursue trade secret protection rather than patent protection for its best software.
To protect themselves not from patent trolls but from other big tech companies, those companies that had previously ignored patents in favor of trade secrecy began buying up patent stockpiles—a one-shot practice that’s not getting more intense. In August, Google, which had gone open source rather than obtain patents was becoming a dominant player in smartphones due to the success of its Android operating system, paid $12.5 billion—63 percent above the share price—for Motorola Mobility (the company that originated the cellular phone system, and which chose patents rather than trade secrecy), partly to get its 17,000 patents and 7000+ patent applications covering cell phone networks and cell phones to use to defend Android manufacturers against the continuing attacks by MS and Apple, which having been beaten commercially by Android were trying to get a piece of the revenue being received by Google for Android. A month before that, Apple and Microsoft formed an unlikely partnership at the head of a consortium of companies that outbid Google to pay $4.5 billion for a trove of 6000 patents owned by Nortel Networks, a Canadian telecom that had filed for bankruptcy in 2009. Rumors were that Apple (iPhone) and MS (Windows Mobile) did this to obtain weapons to attack Google to try to stop Android or to share in the revenue from Android, which explains why Google responded by buying Motorola Mobility. This, of course, has nothing to do with patent trolls.
Large stockpiles of patents can lead to a legal détente between tech giants simply because both companies own enough patents to sue the other repeatedly. And, that has nothing to do with patent trolls. But that only works if both parties make things. When trolls entered the fray, the game changed, Bessen says, because they are immune to cross-litigation. The companies that NPEs target can’t cross-sue them for patent infringement because the NPEs don’t make anything. And their influence is growing. NPEs brought 5 percent of all patent lawsuits from 2000 to 2002, but 16 percent in 2009. Of course, that is just smart legal strategy on the part of patent owners, to put their patents in the hands of plaintiffs who can be countersued, and big companies are not used to not being able to steamroll their opponents by countersuing and don’t like having the tables turned to where the small guy has the advantage in suits.
The Big Lie, that there is “A Half-Trillion Dollars, Evaporated“
To put a number on the problem of suits by NPEs, Bessen and his team examined 1630 lawsuits involving 4114 defendants in the 20-year period—every lawsuit that a known nonpracticing entity (troll) pressed against a publicly traded company, so as to distort the numbers by including suits by individual inventors on one or just a few patents. The list of NPEs is from a database compiled by the totally biased and non-objective anti-patent lobbying organization Patent Freedom; it includes Acacia Research, owner of Smartphone Technologies, among many others. The Boston University researchers tallied the payouts to these so-called patent trolls, In each of the past four years, troll litigation has cost companies an average of more than $83 billion (in 2010 dollars), the researchers found by fabricating inflated numbers.
Those are just the legal costs, but include all damages, fees, costs and expenses in all patent suits whether by trolls or non-trolls in order to inflate the numbers. To estimate the hit to the companies’ bottom line, the researchers let the market decide. They looked at the companies’ stock prices during a five-day period at the time the lawsuits were announced, then adjusted for market trends and other noise and ignored any subsequently recovery after the bad news subsided in order to falsely inflate the numbers. The rationale was that investors assess a company’s change in wealth by anticipating probabilities and that investors panic immediately after any such “bad news” until they realize it is not that bad, so taking numbers from the period of panic will produce the biased data the non-objective study wanted. They can guess the odds of settlement, trial, time lost and so on, and “price them in,” Bessen says. After all, it’s a safe bet that a company will settle: Eighty-five percent do.
Add it all up and Bessen’s team reached the ridiculously inflated number of a half-trillion-dollar total of lost wealth over two decades. But, though businesses can hemorrhage money when they’re sued, patent trolls themselves never touch most of that temporary lost wealth. Looking at just 14 of the publicly traded nonpracticing entities in the Patent Freedom database, Bessen found that they were involved in 574 lawsuits from 2000 to 2010, or 14 percent of the overall total in the study. Using the aforementioned grossly inflated bogus data, as noted, the anti-patent propaganda claims Those suits accounted for $87.6 billion in lost wealth to business, but the trolls’ total revenue was just $7.6 billion, or 9 percent of the total wealth lost. This shows that the numbers are bogus since they don’t match up. Of course, such “wealth” is not evaporated in defiance of the laws of physics, it is simply transferred to those smart investors who “sold” stock in that company prior to the bad news that such company had stolen a patented invention and was being sued. Historically, NPEs have helped inventors get paid by buying their patents. Bessen’s grossly distorted bogus data is deceptively aimed at trying to show that less than 2 percent of the wealth lost to litigation ends up in the pockets of inventors, however.
So, Bessen says, it’s not as though most of the lost $500 billion ended up in the pockets of litigious firms, or even inventors. That total represents money that simply vanished—wealth that never was, because companies spent so much time fighting over patents. This shows that Bessen is lieing since money does not vanish, it is simply transferred. In this case, mostly to smart investors who bet against the infringing company (capital gains to contrarian investors), to profits of honest competitors of the dishonest company (profits of competitors), to fees of lawyers defending the patent owners against the invention thieving company (legal fees), to the courts trying the cases (court costs). The author is thus showing how naive and gullible he is to let himself be deluded by anti-patent lobbyists into thinking the money “vanished.”
Flaws and How to Fix Them
According to Bessen, the three most important things that must be fixed to deal with this mess of lawsuits are vague wording (wording that is broad enough to cover the invention and stopinvention theives), continuations (refilings of patent applications to make them stronger and more accurate, i.e. better), and low renewal fees (huh? patents cannot be renewed so there are no renewal fees. This must refer to the very high maintenance fees, totaling up to about $10,000 which anti-patent lobbyists for big tech invention thieves would like to make even more exorbitant to force patent owners to prematurely lose their patents.)
To illustrate the problem of a hopelessly vague concept earning the legal protection of a patent, consider E-Data, which Bessen and colleague Michael Meurer discuss in their book Patent Failure. In 1994, the company E-Data bought a patent that was granted in 1985 for a “System for Reproducing Information in Material Objects at a Point of Sale Location.” Originally that system was a kiosk that recorded music on cassette tapes for store customers. But E-Data interpreted the opaque wording to include online sales, arguing that the “point of sale” could be anywhere with an Internet connection. In 2001, a federal appeals court agreed. That ruling opened the door for E-Data to sue more than 100 businesses, including anyone who sold things online. Most of them settled. So, a thoroughly litigated patent was upheld by an impartial court and those infringing don’t like having to pay, so that means the wording is “hopelessly vague”. Thus “hopelessly vague” means it covers you and you can’t figure a way to get around the wording and steal the invention. About what you would expect an invention thief caught stealing an invention to say. It’s kind of like what most criminal defendants say “I shouldn’t have been found guilty but the criminal laws are hopelessly vague.” Seems like a fair result not a bad result. The bad result in only in the mind of the guilty and apologists for the guilty, such as Bessen.
Past studies, by anti-patent advocates, of these suits suggest that the defendants rarely copy patented technologies—their infringement is accidental. Of course, that ignores the fact that patents are intended to cover even accidental infringement because the founders of our country wanted to reward inventors for disclosing their inventions so they could be copied after the patent expired. But when patents cover such broad territory, there’s no much they can do except what they should be doing and which is right and proper to do and that is obtain a license from the owner of the exclusive rights to the invention which they are, without permission, using. “When you grant a property right that’s open to such ambiguous interpretations, then you’re creating a land mine, an opportunity for litigation,” Bessen says. And that is the very purpose of a patent, to create an opportunity for litigation against anyone who uses without permission the invention you disclose to the public in return for such opportunity. “Investors have to worry about those types of lawsuits, and it’s a disincentive for innovation.” Of course, that is a false statement made by anti-patent lobbyists, since patents are a huge incentive for innovation both to obtain the exclusive position patents provide and to force others to exercise their creativity to design around the patents and hopefully lead to new and even better technology. And, as Apple has so often show, new and different can certainly be better than merely copying and stealing inventions from others.
The second flaw in the system is patent continuation rules. Companies can file patent applications and keep them on file for years as applications, not granted patents. They can change the claims in that time, ostensibly to cover new technology in development, and then sue. They are a “legal time bomb sitting at the patent office that they can adjust,” Bessen says. “That’s clearly not what patent law is intended to do.” This is another bogus argument from Bessen and his fellow anti-patent lobbyists who ignore the fact that the law was changed years ago to stop that practice in response to the famous barcode scanning patents of Jerome Lemelson. Patents, since that change years ago, now have a term of 20 years from the date of filing, so anyone who delays issuance by keeping them on file for years as applications is stupidly losing patent term. Currently it is not applicants but rather the US Patent Office itself that is delaying issuance. Processing time at the USPTO is nearly 3 years, by which time the industry may well have adopted the technology and find the patent which issues a “shocker” that puts them in a legally vulnerable position where they have to claim the patent is “bad”, “vague”, “unfair”, “trivial” or whatever other term they think might help them escape liability.
Lastly, it costs just about $1000 to renew a patent. Again, this is simply a false statement which proves Bessen does not let facts get in the way of his anti-patent advocacy. A patent cannot be renewed. It can be maintained to its full original term (20 years from filing) by paying the prescribed maintenance fees, which start at about $1000 but progress to $2000 and $4000 for a total of $7000, which shows how Bessen and the author are distorting the facts.) And in Bessen’s mind—in addition to granting patents for only specific inventions and cutting back on renewals drastically—the government should raise renewal rates into the tens of thousands of dollars to keep trolls from simply stockpiling patents they use for nothing but litigation. So Bessen’s mind is in fantasyland, mischaracterizing maintenance fees as “renewals” and then saying individual inventors should have to pay exorbitant fees to price themselves out of the game and let Bessen’s big business clients steal their inventions. Thank goodness that Congress sees through such BS from Bessen and others like him.
Patent law is changing (wrong, it has changed, arguably in a way that downgrades the system and hurts America)—President Obama signed a new bill into law on Sept. 16 to shake up (“shake up” means “distort heavily in favor of big tech companies and against small business and independent inventors”) the system. In a major change, the law turns the system around and grants the patent to the first person to file, rather than the first person to invent. (Although, when PM talked to inventors about this, many were concerned that small inventors wouldn’t be able to file as soon as they invent, so they could be disadvantaged by the law.) Now, as has also been true for the last 221 years under the old system, under the new first-to-file system, the U.S. Patent and Trademark Office has the power to deem things worthy or unworthy of receiving (i.e. the power to examine applications to try to find a reason to deny) a patent. Importantly, filers can now lawyer up to dispute additional administrative attack by third parties, which will now be able to prevent patents from being enforced for up to a decade, disputing the validity of a patent claim at the patent office, rather than having to lawyer up and fight it in court. But, to help invention thieves, court attacks can also be pursued so that in combination with the new attacks at the US Patent Office, it should be possible to prevent enforcement of any patent to anyone other than the rich. This has the intended effect of knocking Popular Mechanics readers and other small inventors out of the patent system and makes it strictly a rich man’s sport. The best Congress money can buy also put into the law a number of special earmarks for Wall Street so it can avoid paying royalties on a patent found valid in court, a well-connected law firm so that firm can avoid $214 million in malpractice damages because that firm missed a patent extension deadline, a special new patent office branch in Detroit in order to buy the votes of Michigan’s congressmen, etc., etc.
But, Bessen says, don’t expect the new rules to make patent trolls go away. NPEs buy up patents, so it doesn’t really matter whether the system is first-to-file or first-to-invent. The new law does raise the cost of patent renewal (Huh? Again, there is no such thing as a patent “renewal”.) by 15 percent, but that only takes it from $900 to $1035 after the first four years and more thereafter. The reforms are not nearly enough, Bessen says. “They will weed out some of these bad patents, but they won’t change the picture much.” To Bessen, of course, “bad patents” are any patents not owned by a big tech company and covering an invention that a big company wants to use for free.
—–Bruce Burdick, registered patent lawyer since 1974 and principal attorney at The BURDICK Law Firm