Wynne: Patent Wars, Trolls, and Privateers: Killing Innovation, Death by 1,000 Lawsuits

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Patent Wars, Trolls, and Privateers: Killing Innovation, Death by 1,000 Lawsuits
W ILLIAM W YNNE*
ABSTRACT
Sweat on the brow, slight tremors in the hand, a frantic pang of desire for the next fix. This is not a description of a drug addict, but of a person who has lost his or her smartphone. America is addicted to technology and its drug of choice is smartphones. Mobile technology has a binding control over Americans, but who has control over mobile technology? The answer is being decided like any other drug control dispute, through an all-out war. Prolific worldwide litigation determines the victor, and to the victor goes the spoils. Yet like most wars the battling parties are not the only ones suffering losses. There will be civilian casualties consumers and innovation. Patent Wars are killing innovation by averting costs from the inventors through meaningless litigation, depriving society of any innovative good. This Note argues for the elimination of this wasteful practice in the future though a combination of changes in the America Invents Act, a more flexible obviousness standard, and the proper use of an emerging, transparent public licensing exchange.
* Candidate for Juris Doctor, New England Law | Boston (2013). B.A. Political S cience, cum laude, Providence College (2010).
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INTRODUCTION
eroin. Methamphetamine. Cocaine. Cell Phones?1 Conventional wisdom dictates that one of these is not like the others. With a closer look, however, it seems they might be more similar than you thought.2 America is addicted to technology, and the drug of choice is smartphones.3 Sixty-six percent of Americans admit that they sleep in bed with their smartphones.4 Seventy percent of Americans would rather give up drinking alcohol than their smartphone. 5 Thirty-three percent of Americans would even forgo sex, as long as they could still play Words with Friends on their digital drug.6 It is clear that mobile technology has a binding control over Americans.7 What is not clear is who has control over mobile technology.8 The answer is currently determined like any other drug control disputethrough war.9 Instead of drive-by shootings, technology firms file lawsuits.10 Instead of flashing colors, they make satirical commercials
1 See Andrew Hough, Student Addiction to Technology Similar to Drug Cravings, Study Finds, TELEGRAPH (Apr. 8, 2011, 7:30 AM), http://www.telegraph.co.uk/technology/news/8436831/ S tudent-addiction-to-technologysimilar-to-drug-cravings-study-finds.html. 2 See Douglas Idugboe, 1 in 3 are Addicted to Smartphones, SMEDIO (June 3, 2011, 12:40 PM), http://smedio.com/2011/06/03/1-in-3-are-addicted-to-smartphones/ (showing strong similarities between the activities of junkies to drugs and those of Americans to smartphones).
See id. Survey Finds One-Third of Americans More Willing to Give up Sex Than Their Mobile Phones : TeleNav Survey Examines Americans' Attachment to Mobile Phones; Finds iPhone Users Are Least Willing to Let Go of Their Devices, TELE NAV , INC. (Aug. 3, 2011), http://www.telenav.com/about/pr-summer-travel/report-20110803.html.
4
Id. Id.; see also WORDS WITH FRIENDS, http://www.wordswithfriends.com (last visited S ept. 5, 2013).
6
See supra notes 2-6 and accompanying text. See Estimated Patent Arsenals, PC M AG., http://www.pcmag.com/ image_popup/0,1740,iid=325525,00.asp (last visited S ept. 5, 2013) (depicting a diagram of all the mobile technology patent owners, their current patent portfolios, and who they are enforcing them against).
8
Compare Randal C. Archibold, Mexicos Drug War Bloodies Areas Thought Safe, N.Y. TIMES (Jan. 18, 2012), http://www.nytimes.com/2012/01/19/world/americas/mexico -drug-warbloodies-areas-thought-safe.html, with Eric Mack, Mobile Patent Wars: A Closer Look at How Everyone Loses, TECHHIVE (Nov. 6, 2011, 9:00 PM), http://www.techhive.com/article/239873/mobile_patent_wars_a_closer_look_at_how_everyon e_loses.html.
10
See Mack, supra note 9.
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about each other.11 Despite these differences, one thing remains the same: this is an all-out war over who will control mobile technology by patent law.12 Prolific worldwide litigation will determine the victor, and to the victor goes the spoils.13 The problem is that like most wars there will be collateral damage; here it will be consumers and innovation. 14 Innovation is the backbone of American society and the driving force of the American patent system.15 The Patent Wars and prolific litigation by Patent Trolls and Privateers are killing this innovation. This Note argues for the elimination of these wasteful practices in the future through a combination of changes in the America Invents Act, a more flexible obviousness standard, and the proper use of an emerging transparent public licensing exchange. Part I of this Note discusses the historical origins and innovative roots of the American patent system. Part II explains the unique tension that competition presents in the patent system, specifically its ability to spur or annihilate innovation. This Part also describes the Patent Wars and Patent Privateering Non-Practicing Entities that serve as its mercenaries. Part III describes the recent statutory, case law, and private sector changes that will dictate the conditions of future patent wars. Part IV argues that the Patent Wars, Trolling, and Privateering are killing innovation by averting costs from the inventors through meaningless litigation while depriving society of any innovative good. Part V argues that the recent statutory changes of the America Invents Act combined with a flexible approach to obviousness and a transparent system of licensing patents will help avert the need, and deter the incentive, for any future patent conflict. I. Incentive to Innovate: Origins of the Patent System
Innovation is the lifeblood of America.16 It is the drive that brought the United States from thirteen fledgling colonies to a world superpower in less than two hundred years.17 America has experienced the greatest growth of any nation in the world, even against those with larger
See id. See Estimated Patent Arsenals, supra note 8. 13 See id. 14 See David Cardinal, The Patent War: Is it Killing Innovation? , E XTREMET ECH (Oct. 31, 2011, 11:52 AM), http://www.extremetech.com/computing/101939 -the-patent-war-is-it-killinginnovation.
12
11
See infra Part I. See BRUCE A. M CD ANIEL , ENTREPRENEURSHIP AND INNOVATION: A N ECONOMIC A PPROACH 239 (2002). 17 See generally FRED WARSHOFSKY, T HE P ATENT WARS : T HE B ATTLE TO O WN THE WORLDS TECHNOLOGY 31-52 (1994).
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populations, land, and natural resources.18 This innovation did not occur accidentally, but rather through the American Patent System s incentivebased framework of exclusion.19 An incentive-based framework has always been at the center of patents in America, even if the patents weren t always for novel invention.20 The earliest patents granted in America were meant to incentivize immigration rather than invention.21 These patents were granted by the individual colonies to business entrepreneurs to secure a source of supplies, population, and new industries in the brave new world. 22 In short, patents were the tools to create a nation.23 This motivation resulted in the granting of patents for processes widely known in Europe but desperately needed in America.24 An example of this is a patent issued in 1641 to Samuel Winslow for a process to make salt. 25 Winslow could retain the exclusive right to produce salt in Massachusetts for the next ten years , provided he could begin manufacturing within one year of the patent grant.26 In essence, an individual who could produce a steady supply of a certain product could become a very rich man in the colonies because he received a monopoly that excluded all others from making this [product] except in a manner different from his.27 Although this system had the danger to promote cronyism over innovation, it did present the early underpinnings of the quid-pro-quo system in place today.28 After the American Revolution, the bedrock ideas of the conflict equality and opportunity became pervasive in the fledgling nation s public policy.29 The founders extended these maxims to the patent system. 30 Monopolies were considered abhorrent to a country founded upon these ideals.31 This is evidenced by Thomas Jefferson s call for an addition to the
See id. at 31-35. See A LLEN L. D URHAM , P ATENT LAW ESSENTIALS: A CONCISE G UIDE 1 (1999). 20 See WARSHOFSKY, supra note 17, at 31. 21 See id. 22 Id . at 31-32. 23 See id. 24 See, e.g. , E RNEST B AINBRIDGE L IPSCOMB III, L IPSCOMB S WALKER ON P ATENTS 52 (3d ed. 1984).
19 18
Id. See id. 27 See O UTLINE OF THE HISTORY OF THE UNITED S TATES P ATENT O FFICE 35 (Patent Office S ociety 1936). 28 See WARSHOFSKY, supra note 17, at 42-45. 29 See G ORDON S . WOOD, T HE RADICALISM OF THE A MERICAN REVOLUTION 233-34 (1991). 30 See FLOYD L. VAUGHAN, T HE UNITED S TATES P ATENT S YSTEM 16-19 (Greenwood Press 1977) (1956).
26 31
25
WARSHOFSKY, supra note 17, at 32.
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Bill of Rights that would provide clearly and without the aid of sophism . . . for the restriction of monopolies.32 But as an inventor himself, Jefferson understood the profound need for economic incentive for invention: [c]ertainly an inventor ought to be allowed a right to the benefit of his invention for some certain time. . . . Nobody wishes more than I do that ingenuity should receive liberal encouragement. 33 Article I, Section 8, Clause 8 of the United States Constitution provides this compromise between incentive and monopoly.34 The Patent Clause, as it is known today, gives Congress the power [t]o promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.35 In America, the patent is not considered a monopoly, but instead a contract between the inventor and the government for the mutual benefit of both parties. 36 The inventor gives the government, as consideration for the contract, the disclosure of hi s invention in such plain and full terms that any person skilled in the pertinent art could practice it.37 In exchange, the government confers upon the inventor an exclusive right to his or her invention for the limited statutory period.38 In this limited time, the inventor, or whomever the inventor may sell or
32 FRANCIS NEWTON T HORP, T HE CONSTITUTIONAL HISTORY OF THE UNITED S TATES 17651895: V OLUME II 212 (photo. reprint 1970) (1901). 33 L IPSCOMB III, supra note 24, at 58. But see M ERRILL D. P ETERSON, T HOMAS JEFFERSON AND THE NEW NATION 450 (1970). 34 See U.S . CONST. art. I, 8, cl. 8; see also F. S COTT KIEFF ET AL ., P RINCIPLES OF P ATENT L AW 35 (Robert C. Clark et al. eds., 4th ed. 2008). 35 U.S . CONST. art. I, 8, cl. 8. The term s cience actually refers to the copyright portion of the clause, while useful arts is in reference to patentable inventions. See KIEFF ET AL ., supra note 34, at 17 n.67. 36 See S eymour v. Osborne, 78 U.S . 516, 533 (1870) ([L]etters patent are not to be regarded as monopolies, created by the executive authority at the expense and to the prejudice of all the community except the persons therein named as patentees, but as public franchises [or grants] granted to inventors of new and useful improvements, for the purpose of securing to them . . . the exclusive right and liberty to make and use. . .); see also LIPSCOMB III, supra note 24, at 43.
LIPSCOMB III, supra note 24, at 43. WILLIAM C. ROBINSON, THE LAW OF P ATENTS 35 (Dennis & Co., photo. reprint 1972) (1890). Thomas Jefferson was particularly keen on the limited times provision as a necessary evil to incentivize innovation and that anything that was more permanent would embarrass society with monopolies for every utensil existing and in all the details of life. WARSHOFSKY, supra note 17, at 40. It was said that, working in the capacity of patent examiner, Jefferson scrupulously guarded the privilege and investigated every claim to satisfy the statutory test of originality as to not stifle innovation and needlessly hand out monopolies to those who were not holding up their side of the bargain. See KIEFF ET AL ., supra note 34, at 19 n.74 (quoting P ETERSON, supra note 33, at 450).
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license his or her invention to, is ensured that no one else can practice his or her invention.39 It is important to note that unlike its colonial predecessor the new constitutional mandate was not the right for inventors themselves to practice their invention, but rather to exclude others from making, using and vending the invention. 40 In this system the patent owner can only enforce his or her right through litigation, but litigation is war.41 II. Competition: A Double-Edged Sword The granting of patents is a potent force in [a] competitive free enterprise system like that of the United States.42 The exclusionary right was designed to encourage competition among inventors by giving a patent to the ingenious individual who wins [the] race to discovery. 43 The right is therefore granted not only to incentivize the original patent holder, but also those inventors who think they can make the invention faster, cheaper, or more efficient.44 This process is known as designing around a patent where an inventor, often the patent holder s competitor, tries to create the same product in a different manner to compete with the patent holder in the market.45 The competitor hopefully accomplishes this goal and creates an improvement on the original patented invention, which allows the competitor to receive an exclusionary interest in his or her invention.46 In a perfect system, this process of competitive improvement would continue forever and thereby perpetually increase innovation, the size of the inventor s wallet, and the number of contributions to the public welfare.47 Yet, this is not how the system operates in the real world.48 The problem usually occurs because of the very market competition
See CHESTER H. BIESTERFELD, P ATENT LAW 2-3 (3d ed. 1943). LIPSCOMB III, supra note 24, at 43. 41 See KIEFF ET AL ., supra note 34, at 866; James W. Gould, Litigation as War, 17 L ITIG. 31, 31 (1991).
40
39
See LIPSCOMB III, supra note 24, at 54. Potts v. Coe, 145 F.2d 27, 31 (D.C. Cir. 1944); see also Mazer v. S tein, 347 U.S . 201, 219 (1954) (The economic philosophy behind the clause empowering Congress to grant patents and copyrights is the conviction that encourag ement of individual effort by personal gain is the best way to advance public welfare through the talents of authors and inventors in S cience and useful Arts.).
43
42
See LIPSCOMB III, supra note 24, at 54. See What does Design Around Mean?, WISE GEEK, http://www.wisegeek.com/what-doesdesign-around-mean.htm (last visited S ept. 6, 2013). 46 See id. 47 See L IPSCOMB III, supra note 24, at 55 (quoting Charles E. Lucke, Engineering and Patents, in S YMPOSIUM ON P ATENTS (1939)).
45 48
44
See WARSHOFSKY, supra note 17, at 245-47.
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that was meant to drive innovation in the first place. 49 Consider the following hypothetical: Inventor Matt creates a widget and patents it, thereby receiving an exclusionary interest in the widget, which he then exploits by commercializing the widget and bringing it to market. 50 His competitor Nick sees the success of Matt s invention, and makes his own widget that he claims is an improvement over Matt s original.51 Ideally, Nicks competition would incentivize Matt to create another improved widget to gain an advantage.52 But Matt has a second option stop Nick from selling his widget as a piece of stolen intellectual property. 53 Prior to the early 1980s, most judges and the general public saw patent holders as monopolists.54 This view created weak enforcement of Patent Rights, which left patent holders without a viable litigation option.55 Only thirty percent of cases that went to trial upheld the pat ents validity despite the large number of patents issued during this time period.56 Consequently, a patent owner in this climate would rather invest his or her resources in research and development ( R&D) rather than the costly, stressful battles of litigation.57 In the 1980s, a dramatic change in perspective and law occurred to combat the invasion of foreign products.58 The publics perception of patent holders changed from evil monopolists to altruistic protectors of American innovation.59 In this context, Intellectual Property Rights ( IPRs ) were strengthened to better defend against this new foreign invader.60 The best example of this change was the formation of the Court of Appeals for the Federal Circuit in 1982. 61 The creation of this specialized court meant to streamline the litigation and appeal of patent infringement cases was a clear sign of patent s new place in the American economy.62
See id. See LIPSCOMB III, supra note 24, at 54-55. 51 See id. 52 See id. ; see also KIEFF ET AL ., supra note 34, at 70 (describing designing around using the model of the mousetrap).
50 49
See KIEFF ET AL ., supra note 34, at 865. See WARSHOFSKY, supra note 17, at 8. 55 See id. (noting the low probability of winning a patent lawsuit prior to the early 1980s). 56 Id. 57 See id. (noting the abysmally low rate of success for patent holders in trial). 58 Id. 59 See id. (discussing the alliance of industry and labor to protect against foreign competition). 60 See WARSHOFSKY, supra note 17, at 9. 61 See KIEFF ET AL ., supra note 34, at 26 (noting the importance of the Court of Appeals for the Federal Circuit).
54 62
53
See, e.g., Warner-Jenkinson Co. v. Hilton Davis Chem. Co., 520 U.S . 17, 21 (1997)
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Patent litigation increased by nearly three-hundred percent in the decade following these changes.63 In these cases patents were upheld eighty percent of the time.64 In this environment, Matt may find it more effective to sue Nick for infringement and enjoin Nick from practicing the invention, rather than invest more money in resear ch and development.65 In strengthening IPRs, courts initially intended to protect American innovation from foreign knock-offs, but it has led to widespread abuse that cuts against the innovation it was meant to protect. 66 A. Abuse of a New Regime: Trading the Shield for the Sword In the new pro-patent era, IPRs are considered the economic bedrock of international trade and national wealth and viewed by American businesses as their primary asset.67 Patent applications doubled since 1991.68 Between 2004 and 2009, patent infringement suits increased by seventy percent, and licensing fee requests increased by six hundred and fifty percent.69 Accordingly, it seems that as the value of a company s patent portfolio increases; so too does their desire, litigate, rather than innovate.70 1. The Super Powers
In the aftermath of World War II, tensions among the world s militaristic elite were strong.71 With their enemies vanquished and boundaries protected, the Allied nations were left with spoils to split, armories to maintain, and new agendas to advance.72 The downfall of the Axis powers left a power vacuum. The Allied forces believed they were the ones to fill it, and did so as they saw fit. 73 To deter overreaching, these
(involving the process of removing impurities in dyes). 63 WILLIAM M. LANDES & RICHARD A. P OSNER, T HE E CONOMIC STRUCTURE OF INTELLECTUAL P ROPERTY LAW 349 (2003). Id. at 338-39. See Bruce Rubenstein, Intellectual Property Profit Center Beckons, CORP. LEGAL TIMES , (March 1992).
65 64
See infra Part I.3.a. WARSHOFSKY, supra note 17, at 3. 68 See Paul Belleflamme, What to think of Patent Trolls? The Return, IP DIGIT (Oct. 31, 2011), http://www.ipdigit.eu/2011/10/what-to-think-of-patent-trolls-the-return/. 69 Id. 70 See id. (noting the patent war reaching new levels of intensity as companies expand their patents porfolios).
67 71 72 73
66
See M ARTIN WALKER, THE COLD WAR ix (1995). See id. at 33. See id. at 10.
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nations stockpiled massive amounts of weaponry that could be used at a moments notice against a perceived threat.74 This militaristic, macho posturing kept the peace only because it averted mutually assured destruction, creating the most uncomfortable international relations in the worlds history the Cold War.75 Prominent academics analogize the pro-patent era of the modern industrial age to the Cold War age, when American companies found themselves in a similar situation as the Allied forces.76 The major domestic corporations were left with massive weapons stockpiles in the form of defensive patent portfolios after defeating the onslaught of foreign products.77 These corporations began using their IPRs in ways that were impracticable in a weak-patent age.78 Instead of focusing primarily on innovation of new technologies, companies began asserting their IPRs to control or protect their market from foreign products. 79 The first shot of the no-holds-barred Patent War was not fired from a secret nuclear silo in Nebraska, or a machine gun in Vietnam, but by a complaint filed in California in August 2010. On that fateful day, the techgiant Oracle sued Google for the use of Oracle s newly acquired Java operating system on Googles Android Tablet.80 The current mobile technology Patent Wars are entirely about competition to control what consumers use when they are on the go.81 Many well-known mobile-tech superpowers are at the center of these conflicts, namely: Motorola, Apple, Google, Samsung, Amazon, Barnes & Noble, HTC, LG, Nokia, Microsoft, Qualcomm, RIM, and Sony.82 These companies are currently filing myriad suits against one another in an effort to gain market supremacy over the mobile technology people use everyday. 83 Their weapon of choice is overlappingand seemingly innocuous claims over technology integrated into various mobile products throughout the industry. 84 To show the vast array of weapons on hand, a single smartphone may involve
See id. at 120-45. See id. 76 See infra notes 78-80 and accompanying text. 77 See Tom Ewing, Indirect Exploitation of Intellectual Property Rights by Corporations and Investors, 4 HASTINGS S CI. & TECH. L.J. 1, 35 (2012) [hereinafter Ewing, Indirect Exploitation].
75 74
Compare WARSHOFSKY, supra note 17, at 9, with supra , notes 54-58 and accompanying text. See WARSHOFSKY, supra note 17, at 9 80 Patent Wars 2012: Meet the Players, WASH. P OST, http://www.washingtonpost.com/national/on-innovations/patent-wars-2012-meet-theplayers/2012/01/04/gIQANkLpcP_gallery.html#photo=1 (last visited S ept. 5, 2013).
79 81 82 83 84
78
See id. Belleflamme, supra note 68. See Patent Wars 2012: Meet the Players, supra note 80. See Belleflamme, supra note 68.
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as many as 250,000 potential claims. 85 These claims stem anywhere from the shape of the device, the way it schedules appointment s, and even the method by which it is unlocked.86 All these superpowers claim their IPRs were swiped by competitors.87 A successful patent claim must allege that the competing party used an infringing piece of technology in their product. 88 These companies main objective is to gain injunctions against the use of an infringed patent in a competitor s device and thereby force the foe to withdraw from market competition.89 To assure this occurs, these companies purchase any relevant patent available, creating a technological arms race that is costing all parties involved billions of dollars. 90 2. Arms Race and Proliferation
The mobile-technology companies are stockpiling to ensure they are properly armed for combat.91 Instead of purchasing nuclear missiles like the Cold War nations, these companies purchase patents. 92 Throughout the pro-patent era, companies followed a defensive patenting strategy , investing massive sums of money to acquire patents. 93 In defensive patenting, a company limits the assertion of their IPRs to protect their product revenues, or more simply, their ability to practice their product.94 This was the strategy used by American companies to exclude foreign products from the domestic markets.95 The amount of resources invested in this arsenal of patents necessitated creating a way to strategically manage these new IPRs, such as competitive tools through offensive patent strategy.96 A company using offensive patenting strategy asserts their patents
85 86
Id. See Francis Bea, Apple Files Preliminary Injunction to Block Sale of Galaxy Nexus in US , D IGITAL TRENDS (Feb. 12, 2012), http://www.digitaltrends.com/mobile/apple -files-preliminaryinjunction-to-block-sale-of-samsung-galaxy-nexus-in-us/. 87 See id. 88 See id. 89 See, e.g. , Lily Lim & S arah E. Craven, Injunctions Enjoined; Remedies Restructured , 25 S ANTA CLARA COMPUTER & HIGH TECH. L.J. 787, 793 (2009). See Patent Wars 2012: Meet the Players, supra note 80. See Colleen Chien, From Arms Race to Marketplace: The Complex Patent Ecosystem and Its Implications for the Patent System , 62 HASTINGS L.J. 297, 318 (2010).
91 90
See Ewing, Indirect Exploitation, supra note 77, at 35. See, e.g., Michael Rose, Nortel Patent Auction Goes to Apple/Microsoft/RIM Consortium , TUAW (Jul. 1, 2011, 6:45 AM), http://www.tuaw.com/2011/07/01/nortel-patent-auction-goes-toapple-microsoft-rim-consortium/.
93 94 95 96
92
See Ewing , Indirect Exploitation, supra note 77, at 16, 46. See supra notes 92-95 and accompanying text. See Chien, supra note 91, at 311.
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against a party to directly obtain revenues from third parties through licensing or damages.97 Unlike the defensive model, where a company acquires patents to protect their ability to commercialize a product, offensive patenting realizes a direct monetization without any need for a company to make or commercialize a product .98 Following this strategy, a company would use the patents it acquired to sue any number of potential entities to elicit high damages or licensing fees, without the costs or risk of developing new products.99 Offensive patenting strategy is a profitable venture for pro-patent era companies.100 Studies show that U.S. patent-licensing revenues increased from under $15 billion in the 1990 s to approximately $100 billion annually in 2002.101 Between 2004 and 2009, patent infringement cases increased by 70%, and licensing fee requests have increased by 650%. 102 The majority of offensive patenting strategies practiced by operating companies similar to Matt s use abovecan be defined as direct uses, where a company focuses on maximizing the effectiveness of IPRs that originated through their own research and development.103 Companies that use this strategy realize an IPR monetization through licensing and damages. 104 This creates revenue that could previously only be achieved through commercialization of a product.105 This new method of monetization created a market for IPRs where companies can purchase third party IPRs. 106 This market allows a company to pursue either an offensive or defensive strategy against a competitor without using any of their own IPRs by simply purchasing them on the market. 107 A recent real world example of this type of stockpiling event occurred in July 2011, when the
See, e.g., id. at 311-13. See supra notes 93-99 and accompanying text. 99 See supra notes 93-100 and accompanying text. 100 See James Bessen et al., The Private and Social Costs of Patent Trolls 3, 7-8, 18-19 (Boston U. S ch. Of L. Working Paper No. 11-45, Nov. 2011), available at http://www.bu.edu/law/faculty/scholarship/workingpapers/documents/Bessen-Ford-Meurerno-11-45rev.pdf.
98
97
Ewing, Indirect Exploitation, supra note 77, at 15. Belleflamme, supra note 68. 103 See, e.g. , WARSHOFSKY, supra note 17, at 3 (discussing examples of direct use such as that by Honeywell collecting over $300 million off of one group of patents).
102 104 See Tom Ewing & Robin Feldman, The Giants Among Us, 2012 S TAN. T ECH. L. REV . 1, 1 n.1 (2012). 105 See id. at 1. 106 See Anne Kelley, Practicing in the Patent Marketplace, 78 U. CHI. L. REV . 115, 116-17 (2011). 107
101
See id. at 118-21.
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tech company Nortel went bankrupt.108 As part of the required liquidation of assets, Nortel put its 6,000 patents up for auction; a feeding frenzy ensued.109 Google was the first company interested in purchasing the patents to pad its defensive portfolio, and offered $3 billion to do so. 110 Instead, an alliance formed between Apple and Microsoft usually embittered rivals to purchase the Nortel portfolio.111 The duo paid almost $4.5 billion for the portfolio, five times the opening bid and more than double what most people had predicted, making it the largest patent auction in history.112 Another example of such actions is Googles May 2012 purchase of Motorola Mobile for an astonishing $12.5 billion. 113 A purchase that was driven by a few considerations, it was reported that Google was most interested in Motorola s rich trove of patents, which could help it fend off rivals like Apple and Microsoft in the legal arena. 114 3. The Rise of Trolls and Privateers: Dirty Deeds, Done Dirt Cheap a. Trolls
As the practice of patent protection began to gain popularity and patent prosecution began to rise, so too did the existence of Non-Practicing Entities or Patent Trolls.115 A Troll are IPR owners that do not make or practice their inventions.116 This broad classification could encompass many non-abusive entities.117 The typical Troll is a small shell company that buys failing companies patent portfolios and subsequently uses those patents to sue large and small companies for infringement. 118 As previously noted, the pro-patent era created a stockpile of patents
See 441: When Patents Attack! , THIS A M . LIFE (Jul. 22, 2011), available at http://www.thisamericanlife.org/radio -archives/episode/441/transcript. Id. See id. 111 See id. 112 Id. 113 See Jenna Wortham, Google Closes $12.5 Billion Deal to Buy Motorola Mobility , N.Y. T IMES BITS BLOG (May 22, 2012, 6:29 PM), http://bits.blogs.nytimes.com/2012/05/22/google-closes-125-billion-deal-to-buy-motorola-mobility/.
110 109
108
Id. See Belleflamme, supra note 68. 116 Id. 117 See Christopher A. Cotropia, The Individual Inventor Motif in the Age of the Patent Troll , 12 YALE J.L. & TECH. 52, 63-64 (2009).
115 118 Joe Mullin, CES Looks for Solutions to the Patent Troll Toll, ARSTECHNICA (Jan. 8, 2013, 7:25 PM), http://arstechnica.com/tech-policy/2013/01/ces-looks-for-solutions-to-the-patent-troll-toll; see Belleflamme, supra note 68.
114
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in company portfolios. Unfortunately, the prolific patenting of incremental improvements meant these portfolios were of marginal commercial utility.119 These portfolios, like any large ar senal, are costly to maintain.120 Like a defunct Soviet Satellite State, many operational companies turned to auction houses to liquidate their aging IP stockpile. 121 For example, in the Ocean Tomo auctions held from 2006 to 2009, half of the patent lots for sale originated from large operating companies. 122 As with any market for surplus weapons, the auction of aging IPRs provides bidders with discounted prices and has created a massive buyer -side demand in Trolls.123 For this reason several academics and companies advocate refusing to sell to their IPRs in the market, believing it is akin to arming terrorists.124 It seems as if this analogy is not that far off: at least six of the patent lots sold in the Ocean Tomo auctions have already been asserted in patent litigation.125 [T]rolls bring infringement suits based on a patent that was not enforced previously but is being used by others as if the [technology] is in the public domain. 126 Trolls are in a unique position to file suits because they are not susceptible to the same defenses as practicing entities.127 The primary deterrent to such actions is the potential for reciprocating suits and invalidation of that entity s own patents in commercialized products.128 For example, Matt may avoid filing suit against Nick because Nick might end up invalidating one of his own patents or the danger of doing so would inhibit making arguments; Trolls have no deterrent because they do not actually care about making the
See Incremental Patenting , P AT. P ROSPECTOR (June http://www.patenthawk.com/blog/2005/06/incremental_patenting.html.

120 121
119
26,
2005),
See Ewing, Indirect Exploitation, supra note 77, at 22. See id. at 22; Economy and Privatisation, EMBASSY OF THE CZECH IN O TTAWA, http://www.mzv.cz/ottawa/en/general_information_on_the_czech/economy_and_privatisatio n/index.html (last visited S ept. 5, 2013). 122 Ewing, Indirect Exploitation, supra note 77, at 22. 123 See Chien, supra note 91, at 313-15. 124 See Matthew Fawcett & Jeremiah Chan, March of the Trolls: Footsteps Getting Louder, 13 INTELL . P ROP. L. BULL . 1, 10, 19 (2008). Ewing, Indirect Exploitation, supra note 77, at 22-23. Gerard N. Magliocca, Blackberries and Barnyards: Patent Trolls and the Perils of Innovation, 82 NOTRE D AME L. REV. 1809, 1814 (2007). This business model is known as patent trolling. Jennifer Kahaulelio Gregory, Comment, The Troll Next Door, 6 J. M ARSHALL REV. INTELL. PROP. L. 292, 292-93 (2007). Patent trolling has been defined as the act[] of hunting down and acquiring unused patents to enforce against [other companies] using similar technology, as well as threatening injunction to extort licensing fees . Id. 127 Anna Mayergoyz, Note, Lessons from Europe on How to Tame U.S. Patent Trolls , 42 CORNELL INTL L.J. 241, 242 (2009).
126 128 125
See id.
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product.129 Trolls do not practice their patents, so they do not hav e to be worried about the possibility of their own patents being invalidated. 130 Trolls wait for a particular time to strike.131 The Troll does not assert its patent rights immediately, but rather waits until the target is deeply invested in the piece of technology or invention and thus needs to quickly settle or suffer massive losses.132 Troll behavior has been poorly received. 133 Trolls have been called a tax on the system, a block to innovation, and tapeworms crawling through the nutrient-rich belly of American innovation, full of bile and [expletive], slowly starving us to death. 134 The average cost of defending a patent infringement case through trial is $2.5 million.135 The cost of defending a patent suit prior to trial is only $1 million.136 Therefore, it is more efficient for a company being sued by a Troll to settle prior to trial even if no infringement has taken place. 137 Patent Trolls count on this strategy and have done so with great success. 138 Patent Trolls now earn seventy-seven percent of the total damages awarded in United States patent lawsuits with a medium sum of $12.9 million per suit.139 The battle that occurred between NTP and RIM in 2006 is a prime example of Patent Troll activity.140 NTP is a shell company that acquired a patent for technology that was allegedly used in RIM s flagship product the Blackberry.141 NTP filed suit against RIM in district court and subsequently requested approximately $1 billion to drop the suit . RIM faced a possible injunction from selling their main product anywhere in the
See id. Id. 131 Gregory dIncelli, Has eBay Spelled the End of Patent Troll Abuses? Paying the Toll: The Rise (and Fall?) of the Patent Troll, 17 U. M IAMI BUS. L. REV . 343, 346 (2009).
130
129
Id. at 347 (explaining why a companys safest and most efficient option is to settle). See Emi Kolawole, Is U.S. Innovation Experiencing Death by Patent? , THE WASHINGTON P OST (Jul. 27, 2011, 6:00AM), http://www.washingtonpost.com/blogs/innovations/post/is -usinnovation-experiencing-death-by-patent/2011/07/26/gIQANnAubI_blog.html.
133
132
Id. Belleflamme, supra note 68. 136 Id. 137 See supra notes 135-136 and accompanying text. 138 See Gerard N. Magliocca, Blackberries and Barnyards: Patent Trolls and the Perils of Innovation, 82 NOTRE D AME L. REV . 1809, 1814-17 (2007).
135
134
See Belleflamme, supra note 68. Lucille Nyembwe Ngomba, Comment to What to Think of Patent Trolls? The Return, IP DIGIT (May 12, 2012, 11:53PM), www.ipdigit.eu/2011/10/what-to-think-of-patent-trolls-thereturn.
140 141
139
See NTP, Inc. v. Research in Motion, Ltd., 418 F.3d 1282, 1287 (Fed. Cir. 2005).
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United States, a pretty strong motivator to pay the hefty ransom NTP demanded.142 Eventually RIM paid NTP $612 million to settle the suit. 143 Shortly after the settlement was signed, the Patent Office issued its second and final rejection of the patent in suit. 144 That means that RIM was held up by a patent that was almost completely invalid when asserted. 145 b. Patent Privateers In a capitalistic society individuals are encouraged to look for opportunities by which profit can be achieved. 146 The industrious spirit of eighteenth century sea-faring capitalists, like Blackbeard and Sir Francis Drake, practiced this concept through privateering. 147 Privateering was in essence state-sponsored piracy, where a nation would use the normally repugnant practices of pirates against enemy nations. 148 A nation-state would sponsor a privateer with a letter of marque and reprisal that allowed him to seize the property of the Nation s enemies.149 Under this letter the privateer was able to capture ships flying the enemy s flag, sell the ships and cargo at auction, and keep the proceeds for his effort. 150 This method of waging war was effective and cheap. 151 The privateer s actions cost the sponsoring government nothing, while it benefited them immensely by hurting the enemy s ability to compete.152 This method allowed governments to pursue policy objectives with no impact on their coffers and plausible deniability against retribution.153 Privateering was an innovative example of turning a former scourge into a competitive tool. 154 The operating companies involved in the modern patent war have learned
Id. Carlo Longino, RIM, NTP Settle Their DifferencesFor $612.5 Million, TECHD IRT (Mar. 3, 2006, 2:47 PM), http://www.techdirt.com/articles/20060303/1446243.html.
143 144 Carlo Longino, Patent Office Gives Final Rejection to NTP Patent, With Interesting Timing, TECHD IRT (Feb. 22, 2006, 11:56 AM), http://www.techdirt.com/articles/20060222/1155242.html. 145 See id . 146 JOSEPH A. S CHUMPETER, CAPITALISM , S OCIALISM , AND D EMOCRACY 83 (3d ed., Harper and Brothers 1950) (1942). 147 See D ONALD A. P ETRIE , T HE P RIZE G AME : L AWFUL L OOTING ON THE HIGH S EAS IN THE D AYS OF FIGHTING S AIL 2 (1999).
142
See id. at 2-3. See id. 150 See id. 151 See id. 152 See id. 153 See P ETRIE , supra note 147, at 2-3. 154 See Tom Ewing, Practical Considerations in the Indirect Deployment of Intellectual Property Rights by Corporations and Investors, 4 HASTINGS SCI. & TECH. L.J. 109, 111-14 (2012) [hereinafter Ewing, Practical Considerations].
149
148
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from their seventeenth-century predecessors and have adopted a similar practiceturning Trolls into Privateers.155 Under IP privateering, an operating company or sponsor incentivizes another company or privateer to make an IPR assertion against a target company, usually a sponsor s market competitor.156 The privateer s rewards, like that of their seventeenth-century counterparts, are directly realized through a litigation damage award or settlement. 157 The sponsor, like previous warring nations, receives several ancillary rewards from the suit, such as the distraction of their enemy from competing in the market.158 This model transforms the traditional monetization of IPRs because now an operating company does not even need to own a specific IPR to benefit from its exploitation.159 Instead, a company or investment group may benefit from an IPR by simply encouraging the owner to take action in the marketplace, while reaping the benefits of a changed competitive landscape.160 This practice allows large operational companies to employ offensive IPR campaigns against targeted competitor s while remaining completely detached from the conflict , thus avoiding legal retaliation or reputational damage.161 The key to retaining these benefits is secrecy.162 To ensure this secrecy and discretion, companies needed a specific breed of Trolls to do their bidding, primarily those in which they have already invested.163 This secrecy and discretion is slowly being brought down by academics and intent vigilantes who try to publicize these activities.164 An often-cited exemplar of such a company is Intellectual Ventures ( IV ).165 Former high-level Microsoft executives, Nathan Myhrvold and Edward Jung, founded IV in 2000. 166 The funding behind IV
See id. Id. 157 Id. at 113. 158 Id . 159 See id. 160 See Ewing, Practical Considerations, supra note 154, at 112-13. 161 See id. 162 See Ewing, Indirect Exploitation, supra note 77, at 11-12. 163 See Ewing & Feldman, supra note 104, at app. b. 44. 164 See generally id. at 44-46; see also, e.g., Mike Masnick, Intellectual Ventures: Dont Mind Our 2000 Shell Companies, Thats Totally Normal , TECHD IRT, (Dec. 20, 2012, 2:15 PM), http://www.techdirt.com/articles/20121220/02365821447/intellectual-ventures-dont-mind-our2000-shell-companies-thats-totally-normal.shtml.
156
155
See 441: When Patents Attack! , supra note 108. Nathan Myrvold , INTELL . V ENTURES (last visited S ept. 5, 2013), http://www.intellectualventures.com/index.php/about/leadership/nathan-myhrvold; Edward Jung , INTELL . V ENTURES (last visited S ept. 5, 2013),
166
165
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came from several legitimate organizations: Apple, eBay, Google, Intel; University of Pennsylvania, Notre Dame; and even the World Bank and William and Flora Hewlett foundation.167 IV claims to be an invention capitalist[], applying concepts from venture capital and private equity to develop and commercially exploit new inventions.168 It does this by purchasing vast arrays of IPRs from different fields of endeavor and licensing them to or asserting them against companies in the various markets.169 IV claims that in doing so it is efficiently facilitating licensing agreements between innovators and producers. 170 IV has 35,000 patents in its war chest to assert, which it does with pleasure.171 The firm s massive portfolio is approximately the fifth largest patent portfolio in the United States, and fifteenth worldwide. IVs sole business is patent litigation.172 IV has earned $2 billion in its existence as a company and $700 million in 2010 alone. 173 Large operating companies use IV s patent portfolio to their advantage.174 First, Operating companies use IV as an Anti-Troll defense fund or IP for Defense.175 In this capacity, IV offers operating companies access to its massive patent portfolio to use in litigation. 176 IV takes requests from its investors and subsequently purchases IPRs from the specified fields.177 This way the patents that Trolls would normally utilize as weapons against the company are not available on the open market. 178 The cost of the patent, approximately $148,966, is far cheaper than potentially settling a suit with a Troll, which could cost millions.179 Further, if a member of the group finds itself under attack or wishing to mount an
http://www.intellectualventures.com/index.php/about/leadership/edward-jung. See Ewing & Feldman, supra note 104 at app. b. 44-46. See Nathan Myhrvold, The Big Idea: Funding Eureka , HARV . BUS. REV ., Mar. 2010, available a t http://hbr.org/2010/03/the-big-idea-funding-eureka/ar/1. 169 See Mike Masnick, Intellectual Ventures Claims Its Misunderstood: Its Really Just Trying to Help Everyone Sift Through and Find Good Patents, TECHD IRT, (Dec. 19, 2012, 7:28 AM), http://www.techdirt.com/articles/20121218/13395521429/intellectual-ventures-claims-itsmisunderstood-its-really-just-trying-to-help-everyone-sift-through-find-good-patents.shtml. 170 Id. 171 See Belleflamme, supra note 68. 172 See id. 173 See id. 174 Ewing & Feldman, supra note 104, at 1-10. 175 See id. 176 See id. 177 See id. 178 See id. 179 See Ewing, Indirect Exploitation, supra note 77, at 23; see also Ewing & Feldman, supra note 104, at 5 n.22, 22.
168 167
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attack, but does not have the proper IPR in their portfolio, they can find the perfect weapon in IV s, and purchase it just in time.180 A second use of IV is as a privateer.181 In this capacity a client informs IV of a particular target.182 IV then sells or licenses a target specific IPR to one of its 1,300 more litigious shell companies, with the restriction that the IPR cannot be used against any of the IV investors. 183 These shell companies then go out and sue whoever they can with the IPR collecting damages and settlements along the way, as the original operating company collects the ancillary benefits now twice removed from the conflict. 184 A more recent example of the use of an NPE as a privateer is the relationship between Unwired Planet and Ericsson. In January 2013, Ericsson entered into a Master Sale Agreement for 2,185 patents to Unwired Planet.185 Unwired Planet is a publically traded patent licensing company that does not actually produce a product.186 According to the deal, Ericsson will continue to transfer 100 patents a year to Unwired Planet until 2018. It has been reported that Unwired Planet will be paying Ericsson 20% of the first $100 million, 50% of revenue between $100 million and $500 million, and 70% for all amounts above $500 million. 187 Ericsson has also agreed to a buy-out provision if at any time Unwired Planet is purchased by an Ericsson competitor and at that time receives a cash payment rather than the agreed upon revenue sharing.188 III. The Rules of War War is hell, but hell has rules.189 Throughout the history of armed conflict there have always been actions that rival nations can and cannot do.190 The converse would be assured chaos: leaderless armies engaging
See Ewing & Feldman, supra note 104, at 21. See id. at 13. 182 See id. at 13-14. 183 See id. at 2, 13-14. 184 See id. 185 Eric S avitz, Litigation Ahead! Unwired Planet Buys 2,185 Ericsson Patents, FORBES (Jan. 14, 2013, 7:30 AM), http://www.forbes.com/sites/ericsavitz/2013/01/14/litigation-ahead-unwiredplanet-buys-2185-ericsson-patents/. 186 See Ingrid Lunden, Unwired Planet Has Bought 2,400+ Wireless Patents from Ericsson to Beef Up Its Patent Fights Against Google, Apple and RIM, TECHCRUNCH (Jan. 10, 2013), http://techcrunch.com/2013/01/10/unwired-planet-has-bought-2400-wireless-patents-fromericsson-to-beef-up-its-patent-fights-against-google-apple-and-rim/. 187 Id. 188 S avitz, supra note 185. 189 B.H. L IDDEL HEART, S HERMAN: S OLDIER, REALIST, A MERICAN 310 (1993) (quoting General William T. S herman).
181 190
180
See, e.g., Qualification of Armed Conflicts, G ENEVA ACAD. OF INTL HUMANITARIAN L. AND
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civilians in combat and utilizing chemical weapons at a whim. 191 To quell this type of behavior, nations have agreed to treaties and conventions that define the acceptable rules of war, which dictate everything from conduct and weapons to how they are utilized. 192 The Patent Wars are no different.193 Although the pro-patent age had different rules, the introduction of new case law and a new Patent Act may change America s patent battlegrounds for the future.194 A. American Invents Act On September 16, 2011, President Barack Obama signed a pivotal piece of Patent Reform in the Leahy-Smith America Invents Act ( AIA).195 The AIA makes several changes to the former patent structure. 196 The most pertinent of which is that the AIA changes the ability of a plaintiff to join parties in an action for patent infringement. 197 A plaintiff, who once was able to easily bind one hundred separate defendants to a single action, now must file one hundred separate suits against those defendants where the defendant is subject to jurisdiction.198 This becomes especially pertinent when viewed in the context that there has been a significant rise in contingent fee representation in patent litigation. 199
HUM . RTS. (June 13, 2012), academy.ch/RULAC/qualification_of_armed_conflict.php.
http://www.geneva-
191 But cf. id. (discussing established rules and laws governing armed conflicts between state and non-state actors). 192 See, e.g. , Interaction Between Humanitarian Law and Human Rights in Armed Conflicts, G ENEVA A CAD. OF INTL HUMANITARIAN L. AND HUM . RTS., http://www.genevaacademy.ch/RULAC/interaction_between_humanitarian_law_and_human_rights_in_armed_c onflicts.php (last visited S ept. 5, 2013). 193 See infra Part IV. 194 See infra Part IV. 195 See President Obama Signs America Invents Act, Overhauling the Patent System to Stimulate Economic Growth, and Announces New Steps to Help Entrepreneurs Create Jobs , WHITEHOUSE O FFICE OF THE P RESS S ECRETARY (S ept. 16, 2011), http://www.whitehouse.gov/the -pressoffice/2011/09/16/president-obama-signs-america-invents-ac t-overhauling-patent-system-stim. 196 See Implementation of the America Invents Act, P ATENTLY-O (S ept. 22, 2011, 11:56 AM), http://www.patentlyo.com/patent/2011/09/implementation-of-the-america-invents-act.html.
See 35 U.S .C. 299 (2011). See R. David Donoghue, 4 Key Provisions of the Patent Reform Act for Patent Litigators, CHI. IP LITIG. BLOG (Sept. 9, 2011), http://www.chicagoiplitigation.com/2011/09/articles/legalnews/4-key-provisions-of-the-patent-reform-act-for-patent-litigators/. 199 See David L. S chwartz, The Rise of Contingent Fee Representation in Patent Litigation , 64 A LA. L. REV . 335, 350-52 (2012).
198
197
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B. Non-Obviousness Granting patent protection to advances that would occur in the ordinary course without real innovation retards progress and may, in the case of patents combining previously known elements, deprive prior inventions of their value or utility.200 Patents are given to new, useful, and non-obvious inventions. Courts, academics, and practitioners alike have struggled with finding a workable answer to What is obvious? Section 103(a) defines the term by refusing a patent when the differences between the subject matter sought to be patented and the prior art are such that the subject matter as a whole would have been obvious at the time the invention was made to a person having ordinary skill in the art to which said subject matter pertains.201 This requirement has developed through extensive litigation in the area. Most recently the United States Supreme Court has weighed in as well in KSR International Company v. Teleflex Inc.202 In KSR the Supreme Court rejected the Federal Circuit s strict application of its Teaching, Suggestion, or Motivation Test ( TSM).203 The TSM test dictated that a claimed invention could not be held obvious in the absence of some proven motivation or suggestion to combine the prior art teachings from the prior art, the nature of the problem, or the knowledge of a person of ordinary skill in the art to combine the relevant prior art teaching in the manner claimed.204 The Court reasoned that the obviousness determination could not be limited to simply a teaching, suggestion, or motivation, but that a more expansive analysis was required to consider what a person having normal skill in the art would find obvious. 205 The Court broadened this test so far as to state that the fact that a combination was obvious to try might show that it was obvious under 103 .206 The obvious to try standard stated in KSR was made in an effort to promote the idea that the results of ordinary innovation are not the subject of exclusive rights under the patent laws. Were it otherwise patents might stifle, rather than promote, the progress of useful arts.207
200 201 202 203 204 205 206 207
KS R Intl Co. v. Teleflex Inc., 550 U.S . 398, 419 (2007). 35 U.S .C. 103(a). 550 U.S . 398 (2007). Id. at 407. Id. at 421. Id. at 419-20. Id. at 421. Id.
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C. Intellectual Property Exchange International Over the course of American history, the typical mode for engaging a competitor in licensing was to sue the competitor and use this as leverage for the licensing agreement.208 An alternative to this costly process has recently been developed in the United States in the form of the Intellectual Property Exchange International ( IPXI).209 The IPXI was created to facilitate the efficient licensing and trade of monetized IPRs .210 The IPXI will provide this service by creating offerings of patents as Unit License Rights ( ULRs ).211 A ULR gives the purchaser the one-time, nonexclusive, licensed right to use the piece of patented technology in a single product or instance.212 For example, if Matt wanted to use a particular patented technology in his new cellular phone, Matt could go to the IPXI and purchase a ULR that would give him the right to do so. 213 If Matt wanted to make 10,000 phones, he would then purchase 10,000 ULRs at the stated price.214 The IPXI claims that this process facilitates non-exclusive licensing and trading of intellectual property (IP) rights with market -based pricing and standardized terms.215 The IPXI will provide a service similar to the Copyright Clearinghouse Commission ( CCC), by connecting patent holders with those persons who wish to license their IPRs.216 This environment would be dissimilar from the current context, where two parties engage in a bilateral negotiation for the terms of the licensing agreement under the threat of
208 See e.g. , Mary Bellis, History of Edison Motion Pictures Litigation and Licensees, A BOUT.COM , http://inventors.about.com/library/inventors/bl_Edison_Motion_Pictures4.htm (last visited S ept. 5, 2013). 209 Luis Milan, Licensed to Know: An Unproven Model Offers Opportunities for Patent Buyers and sellers, as Well as Law Firms, NATIONAL (S ept. 2012), http://www.nationalmagazine.ca/Articles/S eptember-2012-Issue/Licensed-to-know.aspx. 210 See HOME , INTELL . P ROP. E XCHANGE INTL , INC., http://www.ipxi.com/home (last visited S ept. 5, 2013).
Id. See e.g., Ian D. McClure, New IP Exchange Offers Transparent and Efficient Alternative to Litigation, S WISS D ERIVATIVES REV ., Autumn 2012, at 8 (citing examples of one -time use tec hnologies, such as click-through on a website, manufacture or sale of an end-product, or single-user software license).
212
211
See supra notes 212-14 and accompanying text. See McClure, supra note 212 and accompanying text. 215 The Exchange, INTELL . P ROP. E XCHANCE INTL , INC., http://www.ipxi.com/insideipxi/the-exchange.html (last visited S ept. 5, 2013).
214 216 Cf. Pay-Per-Use Services, COPYRIGHT CLEARANCE CENTER, http://www.copyright.com/content/cc3/en/toolbar/productsAndS olutions/payPerUsePermissi onS ervices.html (last visited S ept. 5, 2013).
213
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litigation.217 These negotiations tend to drive the price of the license up to avoid that litigation.218 It is also a process that has been criticized for increasing the already high transaction costs, which discriminates against small companies, leaves patents unused on the shelf and hampers innovation.219 The IPXI, in the alternative, will provide a price that has been developed in an open market environment likely developing a more accurate fee to the actual utility or need of the technology. 220 The transparency, efficiency, and cost effective price determination of the IPXI also comes with a variety of predetermined rules and dispute resolution provisions.221An example of such a provision is an agreement to arbitrate all disputes relating to the IPR. 222 Thus, the IPXI provides for transparent and efficient pricing and trade of IPRs while at the same time insulating the costs of disputes among participants. 223
ANALYSIS
IV. The Present Regime Is Untenable For Innovation. A. War. . ., Huh,What is it good for? 224 Spending lots of Money Lawsuits are not cheap.225 The funds companies sink into prolific patent litigation and amassing stockpiles of patent portfolios are wasted resources that will never be used on innovation for the betterment of society.226 The costs of these wars are spread to the consumers of the products through increases in product pricing.227 Of the ten largest lawsuits
See supra Part II.A.3.a. See supra Part II.A.3.a. 219 An Intellectual-Property Exchange: Market Place of Ideas, E CONOMIST, (May 12, 2012), available at www.economist.com/node/21554540.
218
217
See McClure, supra note 212. See Intellectual Prop. Exch. Intl Announces Exch. Rules, INTELL . P ROP. EXCHANGE INTL, INC., http://www.ipxi.com/media/newsreleases/Intellectual-Property-Exchange-InternationalAnnounces-Exchange-Rules. 222 See Frequently Asked Questions, INTELL . P ROP. EXCHANCE INTL , INC., http://www.ipxi/com/inside-ipxi/faq.html (last visited S ept. 5, 2013).
221
220
Id. EDWIN S TARR, WAR (Gordy 1970). 225 See supra Part II.A.3.a. 226 See 441: When Patents Attack! , supra note 108. 227 Cf. Lisa S cott, Liability Concerns About Implanted Material May Hurt Device Availability , M ODERN HEALTHCARE , June 28, 1993, reprinted in ECONOMIC A NALYSIS OF TORT AND P RODUCTS LIABILITY LAW 294 (Jenny B. Wahl ed., 1998) (discussing the impact of suits against major silicone manufactures on the market availability).
224
223
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filed in the last ten years, six were tech patent cases.228 These six cases netted a total of $6 billion in damages.229 The mean wealth lost per lawsuit is $122 million, in 2010 dollars, and the median loss is $20.4 million.230 By October 2011, over 270 Mobile Tech Patent lawsuits had been filed in the United States.231 Corporate spending on the litigation of IPRs as a competitive tool is simply corporate waste.232 It perpetually wastes resources that could, and should, be used to design around its competitor s inventions making improved products for the betterment of society. 233 The Nortel patent frenzy is a prime example of this behavior. 234 Microsoft and Apple spent $4.5 billion on patents that they never intend to use commercially. 235 Those patents will not make a better iPhone or Windows software, but will instead be used as cannon fodder in one costly suit after another. 236 These companies would be more profitable, and more beneficial to their consumers, if they better invested these funds in innovation not intimidation.237 B. NRE s, Trolls, Privateers: A Rose by any other Name is Still Bad for Innovation The patent framework envisioned by our founding fathers and immortalized in our Constitution was to serve as a catalyst for invention for the benefit of society.238 It was meant to provide consideration to the lone inventor for his or her countless hours dedicated to providing society with useful inventions.239 A system that promotes the use of patents as a
See Belleflamme, supra note 68. See id. 230 See Bessen et al., supra note 100. (These estimates are, of course, much larger than the direct costs of legal fees. They also include the costs of lost business, management distraction and diversion of productive resourc es that might result from the lawsuit, possible payments needed to settle the suit, and the reduction in expectations of profits from future opportunities that are forestalled or foreclosed because of the suit.).
229
228
See Belleflamme, supra note 68. Benjamin H. Diessel, Trolling For Trolls: The Pitfalls of the Emerging Market Competition Requirement for Permanent Injunctions in Patent Cases Post-EBAY, 106 MICH. L. REV . 305, 333-35 (2007). 233 Id. at 334. 234 See 441: When Patents Attack! , supra note 108. 235 See Belleflamme, supra note 68. 236 See 441: When Patents Attack! , supra note 108. 237 See S tijepko Tokic, The Role of Consumers in Deterring Settlement Agreements Based on Invalid Patents: The Case of Non-Practicing Entities, 2012 S TAN. TECH. L. REV . 2, 2 (2012).
232 238 239
231
See KIEFF ET AL ., supra note 34, at 18 & n.70, 19 & n.74. See id.
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weapon to do the bidding of large operational companies or make a select few Invention Capitalists rich is a perversion of this noble goal.240 It denies the public the benefit of innovation by purposefully suppressing invention for the benefit of a select group of individuals to use as leverage to pad their wallets one way or another.241 1. Privateering is used for Anti-Competitive Behavior.
Competition is at the heart of the innovative framework that drives the patent system.242 The objective is to force individual innovators to design around their competitor s patents eliciting better improvements in technology for the common good.243 IP privateering can instead be used for a wide range of anti-competitive motivations from bringing lawsuits aimed at scaring off a competitor s customers or suppliers, to completely eliminating a lesser company from the market. 244 This type of activity allows market-dominant companies to illegally expand their control over a market without fear from the authorities.245 If Matt dominates and has dominated a particular market and Nick breaks into the market with a novel, innovative next -generation technology, then Matt s first instinct is to crush Nick.246 However, American Anti-trust laws stop Matt from doing this.247 In America being a large company is not illegal, however using a company s size to stop others from entering a particular market that the company currently dominates can be.248 The use of Privateers removes any fear of retribution for this type of behavior.249 Matt can use an offensive strategy to directly sue Nick, but this would likely bring Anti-trust scrutiny from the Department of Justice or potentially poor press from the media portraying Matt as a Goliat h to
See Chien, supra note 91, at 310-11. See Erik Belt & Keith Toms, The Price of Admission: Licensee Challenges to Patents After Medimmume v. Genentch , 51 BOS. BAR J. 10, (May/June 2007) (stating that some believe that the patent system allows invalid patents to be asserted against innovative companies). 242 See Jonathan Rothwell, The Patent System: Mend, Dont End, B ROOKINGS (Feb. 11, 2013, 4:00 PM), http://www.brookings.edu/blogs/up-front/posts/2013/02/11-mend-patents-rothwell (stating that the patent system will generate innovation as long as it allows individuals to offer competing products). 243 See supra notes 36-46 and accompanying text. 244 See Ewing & Feldman, supra note 104, at 26-27. 245 See id. at 28. 246 See id. at 27. 247 See id. at 27-28. 248 See id. at 26. 249 See Ewing, Indirect Exploitation, supra note 77, at 79-81; Ewing, Practical Considerations, supra note 154, at 153.
241
240
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Nicks David.250 Privateering allows Matt to circumvent Anti-trust laws and the court of popular opinion while still preventing Nick from entering the market.251 Matt simply informs a company like IV of his problem and an obscure shell company suddenly appears to sue Nick with a marginal patent, diverting Nicks capital from commercialization to litigation. 252 This type of behavior should be stopped because it is bad for business, breaks Anti-trust laws, and ultimately has adverse effects on innovation. 253 Instead of society benefiting from Nicks new and useful invention, it is stuck with the status quo.254 Matt is able to control the type of technology that society has access to in that particular market without adding anything new, completely oppressing innovation and cutting against the foundation of the patent system.255 2. Weve Created a Monster: From Troll to Privateer to Racketeer
IV and its investors like to tout the beneficial qualities of Invention Capitalism.256 These entities point to the potential of IP for Defense and helping inventors realize the true worth of their invention through licensing as evidence that IV and other NPEs are good for the patent system.257 But what might be a beneficial defense pool to others can be analogous to a mafia like shakedown to others.258 Most would think that protection rackets only occur on television or in a stereotypical New York, but most would be wrong. 259 It is a simple fact that many of the investors in Invention Capital[ist] companies are invested not to access the firm s patents, but to collect revenue.260 RPX, an investment capital firm specializing in IP for Defense earns revenue by
250 See Tony Dutra, DOJ/FTC Meeting on Patent Assertion Entities Blurs Antitrust, Patent S ystem Problem Roots, 85 BNAS P AT., TRADEMARK, & COPYRIGHT J. 273 (2012) (discussing the recent joint DOJ-FTC meeting on patent litigation, which included a panel specifically designated to the acquisition of Nortel Networks Corp. patent portfolio); Ewing, Indirect Exploitation, supra note 77, at 16. 251 See Ewing, Indirect Exploitation, supra note 77, at 79-81; Ewing, Practical Considerations, supra note 154, at 152, 157. 252 253 254 255 256 257 258 259 260
See Ewing, Practical Considerations, supra note 154, at 150, 152. See Ewing & Feldman, supra note 104, at 26-28. See supra notes 246-51 and accompanying text. See supra Part I. See Ewing & Feldman, supra note 104, at 3. See id. at 5-6. See id. See infra notes 261-66 and accompanying text. See Ewing & Feldman, supra note 104, at 3-4.
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enrolling companies in an IP protection program.261 RPX clients typically pay a fixed membership fee, and are then free from litigation for any of the patents owned or acquired by the group. 262 The client who agrees to the protection would be like the storeowner who agrees to protection on the mobster s first offer.263 Critics have noted that it is not unimaginable that an IP for Defense firm like IV or RPX wouldn t simply create the danger they claim they are trying to protect against to persuade the client. 264 For example, if Matt offers Nick IP for Defense what is a more persuasive method of getting Nick to join than to actively encourage the very behaviors that the business was intended to curtail?265 Matt simply sponsors a Privateer to sue Nick for the IPR that Matt wishes to provide defense, sending Nick directly to Matt for protection.266 The racketeering business model followed by these capital investment firms has been likened to trolls on steroids.267 Trolling behavior is undesirable because it is a tax on the innovative system.268 Trolls do not produce a product; they merely monetize patents through litigation.269 These companies do not add anything to society. 270 They merely make the process of commercialization of useful inventions more expensive, creating higher prices for consumers and impeding innovation.271 If Trolls are so detrimental to the innovative system, then a corporate-backed troll with sophisticated business structures and decisive patents is worse.272 These Super-Trolls do everything that a Troll would and more.273 Privateers sue on a more sophisticated level and have agreements with various university R&D departments to get patents at their source.274 These agreements almost assure that innovation will never
261 See Reducing Patent Risk , RPX CORP., http://www.rpxcorp.com/index.cfm?pageid=9 (last visited S ept. 5, 2013).
Id. See supra notes 257-61 and accompanying text. 264 See Patent Aggregator RPX Accused of Extortion, Racketeering & Wire Fraud , G AMETIME IP (May 31, 2011), http://gametimeip.com/2011/05/31/patent-aggregator-rpx-accused-ofextortion-racketeering-wire-fraud. 265 See id. 266 See id. 267 Ewing & Feldman, supra note 104, at 25 n.132. 268 See Fawcett & Chan, supra note 124, at 7-9. 269 See Magliocca, supra note 138, at 1813-16. 270 See Tokic, supra note 237, at 3. 271 See Magliocca, supra note 138, at 1813-16. 272 See Ewing, Indirect Exploitation, supra note 77, at 24. 273 Id. 274 See Ewing & Feldman, supra note 104, at 7-8; Mark A. Lemley & Carl S hapiro, Patent Holdup and Royalty Stacking , 85 TEX. L. REV . 1991, 1995-98 (2007).
263
262
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occur, because the firms will only find value in suppressing these patents by waiting for another company to bring the patent, or something that incorporates it, to market.275 C. Patents should be used for Innovation, not Intimidation The rush to protect even minor improvements in products . . . is overburdening patent offices . . . . [This] slows the time to market for true innovations and reduces the potential for breakthrough inventions. 276 A recent study conducted by Boston University Law Professors gives more concrete examples of the resources wasted and innovations missed. 277 Over the last four years, the loss of wealth by publically traded companies was over $83 billion.278 Between 1990 and 2010, those same companies have lost nearly half of a trillion dollars.279 In a case study of fourteen lawsuits that were filed by NPEs, the defendant companies lost $87.6 billion in value. 280 Of that loss only $7.6 billion approximately nine percent went to these NPEs.281 The actual inventors of the patents that were used in the suits received only two percent of the nine percent won by the NPEs.282 This study shows the opposite of the direct investment model touted by IV.283 The loss of tens of billions of dollars does not seem like a more efficient manner of licensing, and a model by which the inventors receive only two percent of the eventual spoils does not seem as if it is helping inventors realize the worth of their inventions.284 Conversely, these losses are taken from the budgets that Operating Companies use on R&D. 285 This means less investment in inventors and less innovations being used by society.286 In this model it becomes rather clear that among all the losers one remains supremeinnovation.287
See Lemly & S hapiro, supra note 274, at 2010 . See Mike Masnick, Even the OECD is Noting How Dreadful Patent Quality is Negatively Impacting Innovation, TECHD IRT (S ep. 22, 2011, 3:45 AM), http://www.techdirt.com/articles/20110920/11074216029/even-oecd-is-noting-how-dreadfulpatent-quality-is-negatively-impacting-innovation.shtml.
276 277 278 279 280 281 282 283 284 285 286 287
275
S ee Bessen et al., supra note 100, at 1-2. See id. at 4. See id. at 17. See id. at 18-19. See id. at 19. See id. at 19-20. See supra text accompanying notes 165-86. Compare Myhrvold, supra note 168, at 41-42, with Bessen et al., supra note 100, at 17-20. See Ewing & Feldman, supra note 104, at 25. See id. See id.
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NPE Litigation Causes Massive Loses to Operating Companies.
Whether a Troll or Privateer, these entities all still have a similar business model with essentially the same goal regardless of their underlying motivations: sue an operating company to receive the spoils of litigation.288 This model has an inverse reaction on innovation. 289 Studies have shown that the more an operating company spends on R&D, the more likely it is to be sued for patent infringement.290 When these companies are eventually sued it is detrimental because of NPE tactics. 291 The infringement usually inadvertently occurs because the operating company is actually developing a pr oduct and markets it commercially.292 NPEs purposefully wait until the product is in full commercial production because it gives the NPE a better leveraging advantage in negotiations. 293 The operating companies have to take this risk into account when conducting R&D, because the company will usually be less willing to develop an expensive innovative product that will eventually be used against them in litigation.294 2. NPE Litigation Actually Proves a Disincentive to True Innovation
The NPE business model claims to be the champion of innovation, but their actions actually hurt innovation more than they help. 295 NPEs claim that they are champions of innovation because they purchase patents directly from research universities and inventors. 296 However, in the NPE model the patent is not being used as an important technical breakthrough to drive the progress of science but as cannon fodder. 297 The value of these
See dIncelli, supra note 131, at 345-46. Diessel, supra note 232, at 333, 339-40. 290 See Bessen et al., supra note 100, at 21. 291 See Magliocca, supra note 138, at 1814-15. 292 See Colleen V. Chien, Of Trolls, Davids, Goliaths, and Kings: Narratives and Evidence in the Litigation of High-Tech Patents, 87 N.C. L. REV . 1571, 1579 (2009).
289
288
See Magliocca, supra note 138, at 1814. See, e.g., Charles Duhigg & Steve Lohr, The Patent, Used as a Sword , N.Y. TIMES (Oct. 11, 2012), http://www.nytimes.com/2012/10/08/technology/patent-wars-among-tech-giants-canstifle-competition.html?pagewanted=all&r=0; In Digital War, Patents Are the Weapon of Choice, NPR (Oct. 11, 2012, 12:57 PM), http://www.npr.org/2012/10/11/162717373/in-digital-warpatents-are-the-weapon-of-choice. 295 Compare Myhrvold, supra note 168, at 42, 46-47, with Bessen et al., supra note 100, at 2-3. 296 See e.g. INTELLECTUAL VENTURES 1 (2012), available at http://intellectualventures.com /assets_docs/IV_Corporate_Fact_S heet.pdf.
294 297
293
See Ewing, Indirect Exploitation, supra note 77, at 31-32.
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patents is how likely the patent s claims are to be inadvertently integrated into a target s product, not how they can benefit society or compete as a commercial product.298 This promotes the filing of patents that overlap several different technologies simply on the principle of supply and demand; these are the types of patents that NPEs purchase.299 Operating companies have to take into account the risk of NPE litigation when they look to purchase or license IPRs.300 In doing so, they will avoid investing heavily in a true innovative breakthrough because it could turn into a bigger loss than competitive advantage, which leads to a lower price offered to the inventor for their effort.301 V. The Combination of Statutory Reform, a Flexible Obviousness Standard, and Increasing Transparency in IPR Transactions Will Clear the Way for Innovation. A. The AIAs New Joinder Provisions Removes NPEs Ability to Reap Massive Rewards With Little Effort One of the best ways to stop an undesirable economic behavior is to make the behavior unprofitable for the actor. 302 The most profitable aspect of NPE litigation is its ability to efficiently file a single lawsuit in a proplaintiff jurisdiction, usually the Eastern District of Texas, against a large pool of defendants.303 A prospective NPE could join as many defendants as possible to make a claim against, cheaply filing suit. 304 The cheapness being especially easy in the context that a large number of suits were being filed by contingent-fee attorneys who would not be paid until after the case. 305 This easy joinder complicated the preparation and trial of a case and, more
See id. at 32. See Gregory , supra note 126, at 295; Adi Kamdar & Daniel Nazer, Deep Dive: Software Patents and the Rise of Patent Trolls, EFF.ORG (Feb. 28 2013), https://www.eff.org/deeplinks/2013/02/deep-dive-software-patents-and-rise-patent-trolls. 300 See Kelley, supra note 106, at 135. 301 See id. 302 Contra WYATT M. ROGERS , T HIRD M ILLENNIUM CAPITALISM 93 (2000). 303 Tracie L. Bryant, The America Invents Act: Slaying Trolls, Limiting Joinder, 25 HARV . J.L. & TECH. 687, 688 (2012); see also Yan Leychkis, Of Fire Ants and Claim Construction: An Emperical Study of Meteoric Rise of Eastern District of Texas as a Preeminent Forum for Patent Litigation, 9 YALE J.L. & TECH. 193, 209-10 (2007). 304 See Mark Liang, The Aftermath of Ts Tech: The End of Forum Shopping in Patent Litigation and Implications for Non-Practicing Entities, 19 TEX. INTELL. P ROP. L.J. 29, 31 (2010); infra note 316 and accompanying text.
299 305 See S chwartz, supra note 199, at 343-44. It has recently become a very lucrative practice to become a contingency-based patent attorney; some attorneys report earning more than $150 million in one year. See id. at 338.
298
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importantly, prejudiced each defendant s access to a fair trial.306 The complications this joinder scenario poses only further drives the already astronomical costs of defending a patent infringement suit. 307 The AIA has sought to remedy this issue.308 Section 19 of the AIA restricts the joinder of parties in a patent infringement suit.309 Under the AIA, a defendant may be joined for trial only if the accused infringing products or methods are essentially the same.310 A Troll may now only join related parties to the action, such as: manufacturers, retailers, and distributors of an identical product.311 A Troll may no longer assert a vague patent that overlaps several different industries and wait for the settlement offers. 312 This provision provides a financial and strategic impediment to Troll Litigation.313 Financially, a Troll now has to file as many complaints as there are individual defendants.314 Before the AIA, if Nick wanted to sue sixty defendants he would file a single complaint for $350 and join the other parties.315 Under section 19 however, Nick will now be forced to file a complaint against each defendant separately, inflating his initial costs from $350 to $21,000.316 It is true that even this massive increase is not likely to make much of a difference on its own when consider ed in relation to the exorbitant settlement arrangements the Trolls anticipate. 317 However, the extra financial considerations drive different strategic considerations. 318 The extra hassle and expense of filing individual suits is likely to eliminate certain smaller fish from the Troll s prospective net.319 The proceeds that could be retrieved from the smaller companies may no
306 See Charles Gorenstein, America Invents Act Exercises Con- Troll Over Patent Litigation, IPWATCHDOG (S ept. 19, 2011, 3:50 PM), http://www.ipwatchdog.com/2011/09/19/con-trollover-patent-litigation/id=19279/.
See id. See id. 309 Leahy-S mith America Invents Act, Pub. L. No. 112-29, 19, 124 Stat. 284, 332-33 (2011) (as codified 35 U.S .C. 299).
308
307
See Donoghue, supra note 198; Gorenstein, supra note 306. Donoghue, supra note 198. 312 Contra Magliocca, supra note 138, at 1827. 313 See infra notes 317-36 and accompanying text. 314 See Donoghue, supra note 198. 315 See id. 316 See id. 317 See id. 318 Contra Edward Hsieh, Note, Mandatory Joinder: An Indirect Method for Improving Patent Quality , 77 S . CAL . L. REV . 683, 684-85 (2004). 319 See Caroline Coker Coursey, Battling the Patent Troll: Tips for Defending Patent Infringement Claims by Non-Manufacturing Patentees, 33 A M . J. TRIAL A DVOC. 237, 240 (2009).
311
310
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longer be worth the increased effort, allowing more start -ups to avoid targeting by NPEs.320 This is especially true if the NPE is using a contingency-based attorney.321 A contingency attorney in this situation will have to pay for most of the costs up front. 322 Most of these attorneys will likely find a financial disincentive to chasing hundreds of cases across the United States.323 The action only puts the attorney further in debt while potentially chasing a company with little to no real assets. 324 The second strategic advantage applies to large corporations. 325 As individual defendants, operational companies will have better chances of receiving venue transfers.326 This is a two-fold improvement over the older process.327 First, operational companies may now bring the legal battle to their home jurisdiction.328 This change will likely provide the advantage of litigating in a more pro-defendant jurisdiction and therefore promote easier dismissal or lowered settlement agreements. 329 Second, the change in venue requires the NPE to travel to each individual defendant, which will substantially increase the costs of litigation. 330 Instead of employing one legal team in a specific jurisdiction, the NPE will now be forced to possibly employ as many teams as there are individual defendants and litigate in those jurisdictions.331 Essentially, by changing the joinder rules, the AIA has turned the proverbial tables on NPEs.332 The hassles and inconvenience that once benefited Trolls while suing several defendants in one jurisdiction now will prove a rather costly endeavor. 333 The changes in venue and legal expenses will substantially multiply the overall costs of litigation for NPEs on a broad scale.334 Thus, by implementing section 19 of
See Chien, supra note 292, at 1592-93. See S chwartz, supra note 199, at 343-46. 322 Id. at 343-44. 323 See id. at 344. 324 See id. 325 See Dennis Crouch & Jason Rantanen, Of Immediate Concern: Best Mode and Joinder, P ATENTLY-O (S ept. 14 2011, 10:48 AM), http://www.patentlyo.com/patent/2011/09/ofimmediate-concern-best-mode-and-joinder.html.
321
320
See Donoghue, supra note 198. See infra notes 331-37 and accompanying text. 328 See Donoghue, supra note 198. 329 See David Wanetick, How Sun Tzu Would Outflank Patent Trolls, 45 L ES NOUVELLES 75, 80-82 (2010). 330 See id. at 82-85. 331 See id. 332 Contra Leychkis, supra note 303, at 206-15. 333 See Bessen et al., supra note 100, at 15-16. 334 Cf. id. at 7, 15, 17 (noting that [m]any [NPE] lawsuits involve multiple defendants because the potential payoff of winning is much greater when a patent is interpreted broadly
327
326
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the AIA, Congress has made broad patent litigation by NPEs a fiscally unsound tactic, disincentivizing the practice. 335 B. Non-Obviousness Standards Must Be Flexibly Applied to Invalidate Trolling Patents. An invention being patented is supposed to be non-obvious to a person having ordinary skill in the art.336 Simply, patents should not be granted for a common sense, good idea.337 It must be a breakthrough improvement, true innovation.338 Unfortunately, this often is not the case.339 David Martin, a patent quality assessor, has testified before congress that 30% of patents are for something that has already been invented. 340 A prime example of this is patent number 6080436 (436 ), issued in 2000 for thermal refreshing of a bread product.341 Toast.342 The quality of patents around the world has fallen over the past two decades, essentially throughout the pro-patent era.343 Many of the patents that were created in this period were made over minor, incremental changes to fend off foreign competition leading to one result low-quality patents of a dubious nature.344 Of the patents used in NPE litigation, fiftyfour precent of them were completely invalid, while another fourty-four percent had at least some invalid claims.345
so that it reads on the business of multiple large companies). 335 See supra Part V.A. 336 See 35 U.S .C. 103(a) (2006). 337 See Graham v. John Deere Co., 383 U.S . 1, 16 (1966). 338 See id. 339 See infra notes 355-46 and accompanying text. 340 441: When Patents Attack! , supra note 108. 341 Id . A method of refreshing bread products, comprising: a) placing a bread product in an oven having at least one heating element, b) setting the temperature of the heating elements between 2500 F. and 4500 F., and c) ceasing exposure of the bread product to the at least one heating element after a period of 3 sec. to 90 sec. U.S . Patent No. 6,080,436 (filed June 14, 1999).
342
441: When Patents Attack! , supra note 108; see also U.S . Patent No. 6,080,436 (filed June 14,
1999). See id. Brad Plumer, Innovations Down, but Patent Trolls Are Thriving , WASH. P OST WONKBLOG (S ept. 21, 2011, 1:10 PM), http://www.washingtonpost.com/blogs/wonkblog/post/innovations-down-but-at-least-patenttrolls-are-thriving/2011/09/21/gIQABGdKlK_blog.html; see Motokai S uzuki, Powerful and Overwhelming IP Activities in the Pro-Patent Era , 88 NKK TECHNICAL REVIEW 176, 176 (2003) ava ilable at http://www.jfe-steel.co.jp/archives/en/nkk_giho/88/pdf/88_20.pdf.
344 345 343
Plumer, supra note 343. Bessen et al., supra note 100, at 8.
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The Properly Applied Flexible Obviousness Standard of KSR International v. Teleflex, Inc. Will Stop the Patenting of Minute, Incremental Advances.
The technological equivalents of 436 are those patents currently being used by operating companies and NPEs alike to attack one another in litigation.346 Examples include the patent on how to unlock your phone via swiping your finger across the screen and the application of an algorithm that provides the auto-correct function on iPhones.347 Both of these examples have been patented, litigated, and have slowed the progress of innovation.348 In KSR International v. Teleflex, Inc.,349 the United States Supreme Court set out a flexible test that was meant to stop the wave of marginal patents being produced in the pro-patent era.350 Prior to KSR , the United States Court of Appeals for the Federal Circuit applied a strict obviousness interpretation that rarely invalidated patents. Under the KSR analysis, a patent is obvious, and therefore invalid, if a person of ordinary skill in the art at the time of the invention would have found the invention obvious as compared to the prior art available. 351 Further, this obviousness requirement might be met if the particular combination or invention would have been obvious to try.352 That is, would a hypothetical inventor in that specific field view the invention as obvious or obvious to try?353 It seems that since thirty percent of all patents relating to something already invented, the number of patent applications denied based on an obviousness basis would be high, however, this has only been true after the KSR decision in 2007.354 The five-year period between 2004 and 2008 saw a steady rise in the number of patent applications filed, typical of the pro-patent era.355 During this period the number of patent applications filed increased thirty-one percent.356 Despite the increase, the total number of patents rejected
See infra note 363 and accompanying text. See Bea, supra note 86. 348 See id. 349 550 U.S . 398 (2007). 350 Id. at 415-16. 351 See, e.g ., In re Dembiczak, 175 F.3d 994, 999 (Fed Cir. 1999). 352 KSR Intl, 550 U.S . at 421. 353 See id. at 417. 354 See infra notes 356-60 and accompanying text. 355 See U.S. Patent Statistics Chart: Calendar Years 1963-2011, U.S . P ATENT & T RADEMARK O FFICE (May 21, 2012, 11:53 PM), http://www.uspto.gov/web/offices/ac/ido/oeip/taf/us_stat.htm.
347 356
346
See U.S . P ATENT AND TRADEMARK O FFICE: PERFORMANCE AND A CCOUNTABILITY REPORT:
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following the KSR decision also increased.357 Pre- KSR , the percentage of affirmed rejections was approximately thirty-seven percent compared to the post- KSR fifty-five percent.358 In fact, in 2008 the number of patent applications disposed was more than twice the number of patents allowed.359 This is a positive trend toward eliminating marginal IPRs from the tech industry.360 The combination of an alert PTO and st ricter dedication to a flexible obviousness approach will serve as an important tool against trolling patents.361 Using these tools to invalidate patents prior to issuance or shortly thereafter will decrease the amount available to be used in NPE litigation, saving time and money.362 Most importantly a flexible obviousness standard promotes innovation because it requires more effort to gain a patent.363 The adage you need to go a long way to make a better mousetrap is the standard we should strive for.364 An increased adherence to a flexible obviousness standard will help achieve that goal by forcing inventors to go a long way to make a better smartphone. 365 C. Companies Should Be Forced to Record the Transactions of Patents to Deter Corporate Privateering. The element of surprise is crucial to Hold Up litigation.366 Surprise allows a plaintiff to wait until a target puts an invention into production without knowing that there is a potential patent in the market that could be used to derail the entire product.367 This secrecy benefits NPEs twofold. First, the secrecy allows the NPE to wait until a potential defendant has
FISCAL YEAR 2008, at 116 (2008), available at http://www.uspto.gov/about/stratplan/ar/US PTOFY2008PAR.pdf [hereinafter P ERFORMANCE AND A CCOUNTABILITY REPORT].
357 See BPAI Receipts and Dispositions by Technology Centers Ex Parte Appeals , U.S . P ATENT & TRADEMARK O FFICE , http://www.uspto.gov/web/offices/dcom/bpai/docs/receipts/index.htm (last visited S ept. 5, 2013) (displaying annual reports from 2004 to 2008 that show the affirmance rates for appeals heard by the Board of Patent Appeals and Interferences ( BPAI)). 358 See id. 359 See P ERFORMANCE AND A CCOUNTABILITY REPORT, supra note 356, at 115. 360 See supra notes 356-60 and accompanying text. 361 S ee Chien, supra note 91, at 339. 362 See id. 363 See supra notes 42-47 and accompanying text. 364 See J.T. Eaton & Co., Inc. v. Atl. Paste & Glue Co., 106 F.3d 1563, 1572 (Fed. Cir. 1997) (Rader, J., dissenting). 365 366 367
See supra notes 42-47 and accompanying text. See infra notes 367-76 and accompanying text. See Ewing & Feldman, supra note 104, at 6.
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invested to a point that it would be financially devastating to alter the product.368 In doing so, the NPE is able to achieve the most advantageous settlement by using the threat of injunction to leverage a higher payout. 369 Second, the stealth nature of patent licensing helps operating companies who wish to indirectly attack competitors using privateers. 370 Many of the current doctrines in corporation and agency law allow NPEs to shield their identities from government view as well as competitors. 371 NPEs take full advantage of these laws by creating thousands of independent shell companies that are used as IPR hitmen. 372 This secretive behavior allows NPEs to conduct blindside litigation, sometimes in an anticompetitive nature, outside the watchful eye of the Department of Justice or the public media.373 This also allows NPEs to conduct Hold Up litigation on behalf of operational companies against competitors because the competitors are unaware of who the real threat is, thus they are unable to retaliate.374 Therefore, transparency in IPR transactions is one of the simplest ways to stop the nefarious activity of privateering.375 1. The Creation of the Intellectual Property Exchange International Eliminates Any Need for the Beneficial Uses of NPEs.
The use of the IPXI and their ULR model takes away all underlying credibility to NPEs so-called benign characteristics of efficient licensing, by providing it at a fraction of the cost. The IPXI will allow individual inventors or large operational companies to directly monetize their IPRs through ULR contracts, rather than litigation. 376 The ULR Contract model allows for licensing fees to be set at a commens urate price that is proportional to the IPR s actual worth, rather than a reflection of its use as a leverage point in litigation.377 This true worth is derived from the fact that purchasers are doing so at a price based on the value of the IPR as reflected by the market.378 The IPXI eradicates a great deal of the inefficiencies of the
See Ewing, Indirect Exploitation, supra note 77, at 95-96. See id. 370 See Ewing, Practical Considerations, supra note 154, at 119. 371 Id. at 120. 372 See Ewing & Feldman, supra note 104, at 6. 373 See id. 374 See Kelley, supra note 106, at 133-34. 375 See Ewing & Feldman, supra note 104, at 29. 376 See Unit License Right Contracts, INTELL . P ROP. EXCHANGE INTL , INC., http://www.ipxi.com/offerings/ulr-contracts.html (last visited S ept. 5, 2013).
369 377 378
368
See id. Compare Part IV.C., with Part III.C.
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patent system that NPEs use to their advantage, simultaneously ridding any need of the NPEs themselves.379 NPEs like IV claim that they provide the needed service of efficient licensing of IPRs from inventors to operating companies. 380 As discussed, the NPE model is anything but efficient. 381 The IPXI actually achieves the goal of the NPE because it provides public direct licensing. 382 This public aspect allows more companies searching for a particular type of license for their product to preemptively go to one place and acquire it, instead of putting the product into production and waiting to be sued. 383 Further, because it will be publically traded, the assets will be given accurate values.384 This eliminates the massive settlement payouts for valueless or invalid patents common in NPE litigation. 385 Finally, the use of public ULR contracts also eliminates the secret behavior of operational companies with privateers. 386 By keeping a publictrading record of IPR licensing, operational companies will not be able to secretly arm privateers with patents to use against their rivals, limiting illegitimate and anti-competitive litigation, saving money, and promoting R&D.387
CONCLUSION
The Constitutional framework of the American patent system is meant to drive innovation. It is the only legitimate basis upon which patents are granted in America. The current patent wars waging across the United States, and the globe, are cutting against that keystone concept. These litigious battles are being fought not for the inventor, or even to protect commercialized products. Companies and their soldiers are fighting these patent wars, for the sole purpose of controlling a market. They do not add to innovation or the discovery of new or useful inventions, but instead deprive R&D departments with much needed resources, forever lost to pointless litigation. The newly implemented AIA joinder rules, combined
379 See IPXI Announces 2012 Launch for Worlds First IP Exchange , A RTICLE O NE P ARTNERS (Dec. 13, 2011), http://info.artic leonepartners.com/ixpi-announces-2012-launch-for-worldsfirst-ip-exchange. 380 381 382 383 384 385 386 387
See Myhrvold, supra note 168, at 43. See supra notes 281-85 and accompanying text. See IPXI Announces 2012 Launch for Worlds First IP Exchange , supra note 379. Contra Lim & Craven, supra note 89, at 813. Contra id. See Ewing & Feldman, supra note 104, at 37-40. See supra Part V.C. See Kelley, supra note 106, at 129-30.
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with the flexible standards of obviousness from KSR , and the development of the IPXI will bring about a three-pronged attack on this type of wasteful behavior. The AIA will render the broad litigation that has made patent trolling and privateering so profitable, a fiscally unsound practice. The trend after KSR will be to continually apply a flexible approach to obviousness: rejecting marginal and useless patents, depleting operational companies, trolls, and privateers of their precious weapons in these useless battles. Finally, the IPXI will provide the open IPR licensing exchange that Intellectual Ventures and its compatriots claim to provide. This will eradicate the need for the IP middlemen that have formed on the market collecting patents and secretly enforcing them on the behalf of others. The IPXI will allow inventors and operational companies alike to enjoy the public and direct monetization of their IPRs. By doing so, the IPXI will bring about publicity, regulation, and funding to this practice, allowing inventors to properly receive the incentives they deserve. These changes in isolation may not have been enough to stem the tides of prolific patent litigation. But, combined they will prove a powerful front against the corporate waste that is slowly killing American innovation, one thousand lawsuits at a time.

Wynne: Patent Wars, Trolls, and Privateers: Killing Innovation, Death by 1,000 Lawsuits

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See Mack, supra note 9.

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WARSHOFSKY, supra note 17, at 32.

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See WARSHOFSKY, supra note 17, at 245-47.

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See id. at 118-21.

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See Incremental Patenting , P AT. P ROSPECTOR (June http://www.patenthawk.com/blog/2005/06/incremental_patenting.html.

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HUM . RTS. (June 13, 2012), academy.ch/RULAC/qualification_of_armed_conflict.php.

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NPE Litigation Causes Massive Loses to Operating Companies.

See Ewing, Indirect Exploitation, supra note 77, at 31-32.

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Plumer, supra note 343. Bessen et al., supra note 100, at 8.

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See id. Compare Part IV.C., with Part III.C.

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