Recently, the Application Developers Alliance held a Google+ Hangout session with FTC Commissioner Maureen Ohlhausen. Abusive patent demand letters was a hot issue during the discussion. Some of the app developers conveyed their unsettling experiences with receiving threatening, bogus patent demand letters and asked that the FTC get more involved in the issue.
Commissioner Ohlhausen said the FTC receives a high volume of complaints on the issue and that it has the authority to go after companies who build a business on abusive patent demand letters. In fact, the FTC is currently doing a study on demand letters.
We at Conversant applaud the FTC’s move to tackle the issue. Our position is that the patent licensing industry should forthrightly condemn the practices of bad actors that are victimizing the innocent– just as responsible members of other industries condemn the predatory practices of bad actors in their fields. We can’t ignore the mounting anecdotal evidence that demand letters are harming one of the most critical job creation sectors.
That’s why we in July 2014 we launched “Stand Up to the Demand”, a campaign designed to help small businesses identify and respond to extortionist patent demand letters.
For its part, the FTC is now moving ahead on its study of Patent Assertion Entities (PAE) activities. Known in government parlance as a 6(b) study, more information is available here: http://www.ftc.gov/policy/studies/patent-assertion-entities-pae-study
Conversant is pleased to be participating in the FTC’s PAE study. We share the belief of former USPTO director David Kappos, who once described the U.S. patent system as “our country’s investment plan – a giant 401k through which we pay a little extra now form more great innovations in the future.” As a vital guarantor of our nation’s future, the patent system certainly warrants that description. Let’s not forfeit our future by allowing patent trolls to corrupt it today.
Last week Georgetown University Law School in Washington, D.C., hosted its annual Global Antitrust Enforcement Symposium. Despite its name, this is largely a trans-Atlantic event, bringing together lawyers and key government officials from North America and Europe.
The conference opened with remarks by Bill Baer, the U.S. Assistant Attorney General for the Antitrust Division, who directs antitrust matters for the U.S. Department of Justice. Mr. Baer was followed by Joaquín Almunia, Vice President of the European Commission and its Commissioner for Competition – he directs antitrust/competition matters in Europe. You can find Commissioner Almunia’s complete remarks here (http://europa.eu/rapid/press-release_SPEECH-14-588_en.htm), but I wanted to share a passage which is of primary interest for readers of this blog:
Finally, we have also seen in recent years an increasing interaction between competition and intellectual property rights, especially in the context of standards and, more specifically, in the so-called “smartphone wars”. Last April, the Commission adopted two decisions involving the smartphone manufacturers Samsung and Motorola. The decisions establish that a company can always use injunctions to fight back patent infringements. However, such injunctions may be abusive when the holder of a standard-essential patent has given a commitment to licence it on FRAND terms and when licensees are willing to respect them. These principles strike a good balance between the interests of patent holders and those of the companies that need those patents to produce their devices. The former should be fairly remunerated for the use of their intellectual property. The latter should get access to standard-essential technology without the threat of anti-competitive injunctions. I hope our decisions will bring clarity to the market and help avoid the protracted patent disputes we have seen in the smartphone industry.
Edith Ramirez, the Chairwoman of the U.S. Federal Trade Commission, gave the luncheon address, which focused on licensing standard essential patents and antitrust enforcement. You can find Chairwoman Ramirez’ address here (http://www.ftc.gov/public-statements/2014/09/standard-essential-patents-licensing-antitrust-enforcement-perspective-0), and they are worth a read, not least for Commissioner Ramirez’ take on enforcement policy concerns with China.
The final highlight of the conference was a panel on “IP, High-Tech and Antitrust” that included Renata Hesse, Deputy Assistant Attorney General for Criminal and Civil Operations at the U.S. Department of Justice’s Antitrust Division, and Josh Wright, the newest Commissioner of the U.S. Federal Trade Commission. The panel focused on patent/antitrust issues and was notable for the evident disagreement between Ms. Hesse and Commissioner Wright on the basis of governmental patent policy. Commissioner Wright emphasized his view that patent policy debates had an “intolerably high ratio of theory to evidence” while Ms. Hesse held the view that the DOJ policy was appropriately grounded.
You can find the conference agenda, participant biographies, and materials here (http://www.law.georgetown.edu/continuing-legal-education/programs/cle/antitrust/Course-Materials.cfm), including several documents related to the patent/antitrust panel.
Once you know something about a subject, you can’t help noticing how the popular media gets basic facts wrong. Police officers have a hard time keeping a straight face when watching police dramas on TV and real computer programmers laugh when hackers take 30 seconds to break into a system on the big screen. I recently had the same experience, watching a new TV commercial from Mitsubishi.
Naturally, Mitsubishi highlights their vehicle’s technical innovations, and I smiled when they mentioned their patent on an all-wheel traction control system. But I laughed when the commercial showed two armed guards outside a door marked “Top Secret” and said “this is where we keep it”. Mitsubishi’s engineers certainly know better, but apparently the ad agency doesn’t understand that a filing a patent is equivalent to renting a billboard in Times Square and buying a full-page color ad in the Wall Street Journal.
The whole point of the patent system is to encourage inventors to willingly share their ideas with the world, and not lock them away in secret rooms. When a patent is filed the idea is available to everyone and all of society benefits from the sharing of new ideas. The challenge, then, is how to reward innovators and protect them from having their ideas copied without any compensation. The patent system accomplishes this by granting the owner a temporary monopoly to either “practice” the invention himself, or license others who wish to use it. During this entire period, the patent itself is a matter of public record, as far from Top Secret as you can get.
Mitsubishi’s armed guards were a nice theatrical touch, but they’re superfluous. Guards don’t keep the patents secret and they don’t protect them from infringement, either. The judicial system of the country which granted the patent is available to defend the patent owner’s rights, whether through import injunctions or damage awards. The patent owner may need to hire a lawyer, but not a gunslinger.
My point isn’t to make fun of Mitsubishi or their ad agency, but rather to state that if a fundamental mistake such as this makes it all the way onto the TV screen, it shows there’s a great deal of popular misunderstanding about what a patent really is – or a willingness to promote a mistaken notion. But as calls for “patent reform” grow ever louder, all of us in the intellectual property field must do a better job of explaining how patents really work.
Innovation and start-ups go hand in hand. So it’s not surprise that the Internet of Things (IoT) ‘Start-up Showcase’ was a highlight at Semicon West 2014. This session featured five start-ups whose technology demonstrated not only the exciting products that are driving the IoT wave, but also the importance of R&D and patent-protected inventions.
Pellucid GPS: This early stage start-up is promising a potentially disruptive, low-power GPS device. The technology is based a much simpler circuitry (no multipliers and adders, for example), enabling it to process GPS data very quickly. As a result, the device only needs to be switched on for a very short time, thereby using minimal power. Pellucid claims its ’Zero Energy’ technology increases talk time on the iPhone 5 by 15%, and increases the Nike Fuel Band from six hours to an incredible 92 hours. Based on two US ’defendable’ patents, the technology can be implemented with today’s technology and offers an almost too-good-to-be-true best performance, lowest cost and smallest footprint GPS device that is especially suitable for IoT devices. Personally, I would appreciate not having to worry about the battery sapping smartphone GPS app during my weekend long runs!
Lumiode: Lumiode is developing emissive LED microdisplays that are 10x more efficient and 30x brighter than existing technologies such as organic light emitting diodes (OLEDs) and digital light processing (DLP). Founder and CEO Vincent Lee invented the core technology while completing his studies at Columbia University. In turn, Columbia has given an exclusive license of the patented technology to Lumiode. Lumiode’s microdisplays are low power, compact (less than an inch diagonal) and are easily readable in bright daylight, making them ideal for head-mounted devices such as glasses and helmets. With these displays, real-time information and graphics from IoT devices would be delivered to the user to provide for a truly interactive augmented reality experience. Ironman should definitely get Lumiode to upgrade his heads-up display.
CHIRP Microsystems: This fabless start-up provides a low-power micro-electromechanical systems (MEMS) ultrasonic 3D-sensing solution. Traditional approaches which use light to detect objects in 3D are computationally intensive and use a lot of power. CHIRP’s technology, originally developed at the Berkeley Sensor and Actuator Center, uses ultrasonic transducers to generate sound waves and determine the location of an object from the echo of the waves. An early demo of the technology shows how users can control a tablet with gestures – similar to how you interact with the Xbox Kinect. Other applications that could use this ultrasound technology include medical and industrial imaging, and automotive collision detection. The solution uses only microwatts of power and has an extremely small footprint, making it a great enabling technology to interface with the always-on connected devices of the IoT.
ChemiSense: This wearable company is developing a personal air quality monitoring device and companion app that provides real-time alerts on the harmful chemicals and pollutants in the air you breathe. With the data collected from users, the app provides a real-time crowd-source map showing the air quality of applicable areas. ChemiSense is initially targeting a segment of the asthma market, but there are huge opportunities in healthcare and other industries such as mining, oil & gas, defense – essentially any industry that involves dangerous and toxic working environments. Their product and $150 price point are comparable with other popular personal fitness wearables, and therefore should ease user adoption.
Arrayent: describes their Connect Platform as an IoT operating system in the cloud. Their approach is to shift the complexity from IoT devices to their own software platform, thus helping manufacturers develop IoT devices quicker, cheaper, more reliable, and easier for consumers to install and use. Arrayent’s platform offers tools and services to support disparate wireless local area network protocols, a comprehensive device management, data analytics and application framework for enterprise and consumer application development. At core, Arrayent is helping solve issues – such as security, disparate connectivity technologies and lack of standardization – that must be resolved if the IoT is to be fully implemented. Impressively, they have developed partnerships with leading silicon device vendors, and their solution has been incorporated in consumer electronics and appliances from some of the top vendors. Not surprisingly, providing IoT platform solutions is a very crowded space, but Arrayent appears to have traction.
The products from these five companies exemplify the innovation and diversity of the ’very different’ things of the IoT. It will take time before clear leaders emerge from the inevitable shakeout. Fortunately, the sheer size and diversity of IoT should allow for far more technology companies to thrive than in the increasingly monopolistic smartphone and tablet market. To everyone who loves technology, it’ll be fun to watch start-ups and established companies alike push the envelope with new technology and intellectual property as they clamor to ride the next big wave.
That’s why I enthusiastically agree with Kevin Ashton, who coined the term IoT, that “the Internet of Things has the potential to change the world, just as the Internet did. Maybe even more so. “
There are a host of reasons to love San Francisco. Great food, picturesque vistas – and inspirational technology. That’s why for so many engineers, Semicon West is a like a hot-spot tourist destination. And at this year’s show, the sun was shining on the Internet of Things (IoT).
Mark Adams, President of Micron Technology, kicked off Semicon with a keynote on Innovation and Partnership. He emphasized the accelerated adoption of technology and discussed the five big trends driving the semiconductor industry: Networking, Machine to Machine (M2M), Mobile, Cloud, and Big Data. Semiconductor companies and their suppliers will need to collaborate more than ever before – while continuing to innovate – to handle mounting challenges and be successful in diversified end-market segments.
While Adams was one of the few speakers who didn’t explicitly call out the IoT, the trends and themes of innovation, partnership and market diversity are suitably applicable to the topic that dominated many of the conference sessions.
There’s certainly a buzz on connected devices, driven by the release of smartwatches like the Pebble that was crowd funded on Kickstarter, the Samsung Galaxy Gear, fitness trackers like Fitbit and Jawbone UP24, and the just-announced Apple Health app and HealthKit for health and fitness hardware vendors and iOS app developers. But it’s confusing to know how these categories relate to the IoT. Adding to the category blur is M2M, which some in the cellular industry use interchangeably with the IoT. It’s best to think of M2M as the incumbent category of IoT, whose devices are connected via cellular technology and used in end markets such as asset management (inventory tracking) , automotive (think OnStar), and energy & utilities (diagnostics monitoring of pipelines).
The term Internet of Things is not new. It was coined in 1999 by Kevin Ashton in his presentation linking RFID to the internet in Procter & Gamble’s supply chain. Research giant Gartner defines the IoT as “The network of physical objects that contain embedded technology to communicate and sense or interact with their internal state or the external environment.” But this definition focuses on the devices – the everyday things that can be connected to the internet – and not enough on the networking and interaction among devices.
The scope of the IoT and its potential value gets clearer when reviewing Gartner’s outlook of the market opportunities for the “Things” and the different levels of the IoT stack.
This graphic is intended to show semiconductor companies where they can position their computing, sensing and connectivity solutions and partake in the market opportunity in each of the different levels.
But this stack of building blocks may also be thought of as the IoT ecosystem, where individual “Things” can intelligently interact with other “Things” interfacing with the different levels of the IoT stack. Control of the different Things in the IoT could be based on user-defined rules and collected data in a far more meaningful way than the results achieved by individual connected devices. This is similar to how the web service IFTTT can simplify your life by automating interactions among different web applications.
Before the tech industry can unlock the true potential of the IoT, there’s a lot of work to be done to deal with the diversity of devices, heterogenous connectivity protocols, multiple standard bodies, security and privacy concerns, competing platforms, and so on. These challenges can be mind boggling, and the solutions will require innovation in each level of the IoT stack, and collaboration among hot startups and established giants. If the IoT Startup Showcase (the topic of my next post) is any indication, I’m bullish that the full value of the IoT will be unleased sooner rather than later.
Jeff Robertson – July 22, Final – 735 words. Posted Aug 6-7/14.
Communication theory gave us the concept of the signal to noise ratio as a measure of the useful information in a message. I propose a new metric: buzzwords per square meter. The highest values seem to be found at trade shows and industry conferences. Semicon West 2014, held in San Francisco in July, was no exception. It was hard to find a presentation which didn’t reference the Internet of Things (IoT). It’s easy to see why: with analysts sizing the market at $30 billion annually ($5 billion for semiconductors alone), everyone wants a piece. Or, as was the case at Semicon, they want to persuade you that you’ll get your piece if you use their product.
The premise of the IoT is that anything that could be connected to the Internet will be, whether it’s a wearable (a Bluetooth-enabled running shoe evaluating your stride), your thermostat, or even a mundane FedEx package. The only way to get to billions of connected devices, compared to merely millions of smartphones, is to find a way to make these devices much more cheaply. Luckily, they don’t have to be as powerful as a smartphone, so that helps.
Now, when you gather engineers at a conference, they naturally want to talk about the latest “hero” demonstration. In the optical transport business, it’s sending the most bits down the longest piece of optical fiber. With sports cars, it’s top speeds and zero-to-sixty times. At Semicon, it was all about who’s got the smallest semiconductor manufacturing process geometry, and who’s going to be first to the next one. But it’s at the older, larger geometries that the IoT is really going to happen. There are two main reasons for this.
First, devices made at 65 nanometers (nm), 45nm, or even 28nm are much less expensive. The yield problems being experienced at leading-edge sub-28nm nodes are not going away any time soon, and costs appear poised to stay high. (Moore’s law seems to fraying around the edges – we haven’t hit the physics wall yet, but the economic advantages of the die shrinks don’t seem to be as reliable as they were in every past transition.) Luckily, we don’t need the most powerful ARM processor in our Bluetooth sneaker; a simple 90nm microcontroller is sufficient even for the Samsung Gear Fit.
Second, the desire for compact, integrated designs motivates the use of embedded SRAM and Flash, and embedded SRAM isn’t scaling well below 28nm. Heroes may capture the spotlight, but there’s plenty of work left for the everyman to do.
On the chip packaging side, the future isn’t so easy to read. Engineers are a pragmatic bunch, and they’ve tried pretty much every packaging technology for mobile chips, particularly for wearable applications, and there’s no clear winner. Cost will again be the primary driver, but IoT applications can have some pretty demanding environmental requirements, so the cheapest solution may not be the right one.
Finally, we have sensors. Sensors are the raison d’etre for IoT devices, particularly medical/fitness wearables. A big part of the reason we’re able to even able to conceive of the IoT is that the cost of sensors has fallen through the floor in recent years, thanks to the enormously competitive environment of the smartphone market. That means that margins are pretty poor. When asked who was going to profit from the IoT, Kurt Peterson, speaking at the Silicon Innovation Forum, would only say that it wouldn’t be the sensor makers. But as they advertising saying goes, “How do we do it? Volume!” According to Gartner, the sensor market grew at 6% in 2013, and is expected to grow 10% annually through 2018, so those manufacturers who are able to scale and find innovative cost reduction opportunities will succeed.
As an analyst, it’s fun going to trade shows and trying to separate fact from spin. One thing that can’t be spun is that Semicon was smaller than in past years. This is likely due to ongoing consolidation, which is a sign of a mature industry. One cynic called consolidation the enemy of innovation– opining that big sclerotic companies favour the status quo – but I saw no shortage of innovating start-ups offering everything from new FinFET architectures to silicon nanowires. Every one of those start-ups made a point of emphasising their patent portfolios. Innovation is alive and well, and the innovators are relying on their patents to protect and reward them.
Xerox has announced a delay in its auction of 239 patents, planned for July 24-29, citing “numerous requests” from potential bidders for additional time. The company also increased the number of patents to 546. While a skeptic may claim the delay is really due to a lack of interest, I think it’s more likely that there’s a great deal of genuine interest – but the interested parties are struggling to determine exactly how much they should bid. Patent valuation is always part science, part (prior) art, and never easy.
According to numerous reports, these Xerox patents, which “came out of research work at its various global R&D centres”, are to be auctioned in lots valued at between $1 million and $10 million each. The auction web site suggests initial bids for each lot, ranging from “low six figures” to “low seven figures”. There are 27 lots covering technology fields such as audio communication, touchscreens, image compression, networking, and print systems. This means that Xerox is hoping to rake in between $27 million and $270 million. Even at the low end of the range, that’s not chicken feed.
The bidders have to weigh the up-front purchase cost ($27 million plus, in this example) against what they reasonably believe they can obtain in licensing fees from operating companies that are infringing the patents – and that do not already have a license from Xerox.
Naturally, it’s essential for the bidders to scrutinize the patents to confirm that they are well drafted, and not likely to be overturned by an invalidity challenge. Furthermore, they’ll want to look very carefully for evidence of use of these patents in the products of prospective licensees. A diligent licensing company does not want to skimp on either step, regardless of the seller’s timetable.
Now, the corollary is that this analysis can end quickly if the patents are not of high quality. Mark Peterson, CEO of Robinwood Consulting, has expressed doubt that the patents are particularly good. But I believe this delay proves the opposite. A rigorous valuation can take weeks or months, depending on the breadth of the portfolio. Xerox’s original schedule gave less than four weeks. The extension to September 11-16 is much more realistic; it could even be extended again – we’ll see.
Selling excess patents is good business
What’s notable about patent sales from major companies is the huge range of values, such as Kodak’s (at a disappointing $94 million) and Nortel’s (at an eye-popping $4.5 billion). But unlike Kodak and Nortel, Xerox is not bankrupt. Why would a profitable company like Xerox be selling its patents? First of all, these 546 patents represent only 4% of the approximately 12,000 patents owned by Xerox. This sale is better understood as an act of responsible asset management than one of desperation.
Senior management at many public companies are learning that their fiduciary responsibility includes proper use of patent assets. This is leading companies to look for licensing opportunities – by starting their own licensing programs or in partnerships with companies such as Conversant – or the outright sale of parts of their patent portfolio.
In fact, Xerox has sold patents in the past, although this is their first auction. They will doubtless continue to do so in the future, just as its engineers will continue to file patents on new inventions – currently at a rate of about 1,000 per year. A functioning secondary market for patents, and a strong legal framework for their enforcement, ensures that companies will be able to generate additional returns on their R&D investment, even for inventions which they do not themselves practice.
We’ve all heard of the apocryphal art gallery visitor who confidently asserted, “I don’t know if it’s art, but I know what I like.” When it comes to patent licensing, the prevailing mood seems to be, “I don’t know what a patent troll is, but I know what I hate.” The Congress, several dozen state legislatures, and even the President of the United States are wrestling with the “troll problem”, untroubled that there is no consensus or precise definition of what a troll is or exactly what they do.
Worse than trying to solve the wrong problem is denying that there is one. Yet too many in the patent licensing industry continue to hew to the “what troll problem?” position. This is clearly folly. The world is convinced that something is wrong, and is ready to [over] react. It’s no good pretending that the patent licensing industry can continue as it has for the past two centuries. Bad actors have crept in, and they run a very real risk of damaging the innovation engine of our economy. We should also give up complaining about the label “troll”. It’s marvellously evocative and firmly entrenched. Once we agree to apply this name to the true bad actors, we can concentrate on answering the question, “What is a patent troll?”
In an article in TechCrunch, Leonid Kravets of InterDigital Communications Inc. wrote that what makes a company a troll is not whether it practices the invention itself, or whether they filed the patents themselves, but whether they are “abusing” the system. Quite so. Kravets identifies low quality patents and “enforcement without a reasonable basis for assertion” as the hallmark of an abuser of the patent system – a troll. Yet this falls short of identifying what is probably the most widely agreed upon characteristic of a troll: the assertion of a patent to force a quick, nuisance-value settlement, ideally without the expense of a trial.
Many other elements of trollish behaviour flow from this basic strategy. If you’re only hoping to collect a few thousand dollars from each licensee, you’re going to need a lot of them make serious money. So a troll will place a lot of companies on notice. The corollary is that a troll cannot simply target manufacturers (e.g., of Wi-Fi chips, such as Broadcom, or of wireless access points, such as D-Link) but must descend to the bottom of the value chain, and target the product company’s individual customers, whether small companies or even individuals. For example, Innovatio IP Ventures has made a practice of suing hotels for patent infringement.
Now, if you’re a big scary troll, you need a club to intimidate people. But an extensive collection of cudgels, maces, warhammers, and goupillons actually provides little additional benefit. This is particularly true if you are a cowardly troll who prefers intimidation to combat. And because those weapons are expensive to buy and maintain, you’d actually prefer not to have too many. This brings us to the second hallmark of a troll: they own and assert a very limited number of patents – sometimes as few as one.
These two characteristics probably apply to every troll out there: They seek nuisance-value settlements for a small number of asserted patents. But there are other telltale behaviours and signs that should factor into our evolving definition of a patent troll.
Trolls are unwilling or unable to clearly identify the supposed infringement. This can be attributed to a desire to cast as wide and threatening a net as possible, but is also an unavoidable side effect of sending hundreds of notice letters: you can’t put a lot of effort into any single assertion.
A particularly aggressive species of troll will sue first and hold discussions later. This is attributable to two root causes: a desire to intimidate (a lawsuit is scarier than a demand letter) and a need to cast a wide net (with many targets in the crosshairs, one cannot spend a lot of time talking to each).
In addition, a troll often hides behind a smokescreen of shell companies and obscurely named subsidiaries, partly to conceal the widespread nature of its activities. This is sometimes an unavoidable consequence of the structure of the business deal which lay behind the sale of the patents, and should not be considered irrefutable proof of a troll.
Finally, there’s the notion of patent quality, which is referred to not only in Conversant’s Patent Licensing Principles, but also by Kravets and many others. A troll doesn’t really care about the quality of the patents. Even a low quality patent, certain not to survive re-exam, can be sufficient to frighten the recipient of a demand letter into paying. Poor quality patents are doubtless a problem for the entire patent system, but in my opinion are a red herring in this context. If it were easy to agree that a given patent is over-broad, or even invalid, the troll would obviously be toothless. Patent quality can only be proven by a time-consuming review; we’d like to spot trolls ahead of time. (Also, the review process is only a little less fallible than the original filing process. What were widely believed to be solid patents can founder.) Thus, using patent quality to identify a troll can at best be applied only retroactively, and thus is of limited use.
So here’s our seven-point guide to spotting a patent troll:
1. Seeks nuisance-value settlements
2. Targets individual customers or end-users
3. Owns and asserts a very limited number of patents
4. Unable/unwilling to clearly identify infringement
5. Sues first and holds discussions later
6. Hides behind shell companies and subsidiaries
7. Asserts poor quality patents.
The next time you hear someone accuse a company of being a troll, it may be instructive to see how it measures up against this list. But to return to the point made earlier, it may be that worrying about an exact definition is a distraction. What we really want is ways to make it harder for them to operate.
Adam Carolla, one of the most popular podcasters in the U.S., is sued by a patent troll. The story goes viral. Across the country, state Attorneys General are using consumer protection laws to guard their small businesses from the predacious patent trolls. And here’s something previously unthinkable: the President of the United States, in the 2014 State of the Union address (“It’s the country’s most valuable political real estate,” noted one D.C. veteran), urged Congress to “pass a patent reform bill that allows our businesses to stay focused on innovation, not costly and needless litigation.” Our industry is under fire.
Yet former USPTO director David Kappos has described the U.S. patent system as “our country’s investment plan – a giant 401k through which we pay a little extra now form more great innovations in the future.” As a vital guarantor of our nation’s future, the patent system certainly warrants that description. Let’s not forfeit our future by allowing patent trolls to corrupt it today.
So what are our politicians doing about the issue? They are listening… and acting.
The National Federation of Independent Businesses (NFIB) and many other retail business groups and trade associations have demanded that the government act. Washington is listening. Only several years ago, very few members of Congress ever gave any thought at all to patent issues. Today, anti-patent sentiment is rampant and Congress seems determined to enact some sort of anti-troll legislation, having been besieged over the last couple of years by thousands of very angry Main Street constituents to do something.
In December 2013, the House of Representatives easily passed the Innovation Act. This act targeted the use of shell companies, required greater details about infringement allegations, and included a “loser pays” provision. However, the Senate’s companion bill, the Patent Transparency and Improvements Act, stalled repeatedly and was ultimately withdrawn by Senator Patrick Leahy (D-Vermont) owing to justifiable concerns that it would have severe unintended consequences on legitimate patent holders.
The enthusiasm for new laws curbing patent trolls hasn’t waned. In June 2014, only two weeks after Sen. Leahy withdrew his bill, the House of Representatives launched another attempt. Rep. Lee Terry (R-Nebraska) unveiled a draft demand letter bill that would clarify the power of the Federal Trade Commission (FTC) and state Attorneys General to regulate patent demand letters sent in bad faith. The bill is winning broad support.
At the state level, meanwhile, a dozen states have already enacted laws to curb abusive patent demand letters, and 14 other states are actively considering legislation to do the same. In addition, the Attorneys General of several states have brought suit against trolls who send these letters using existing consumer protection laws against making false claims to extort money.
One of the most successful suits took place in New York, where in January 2014 state Attorney General Eric Schneiderman forced MPHJ Technologies, LLC to sign a consent decree requiring it to repay all the money it received from businesses in the state. MPHJ, using various shell companies, had falsely claimed in demand letters it sent to businesses that it had analyzed each target company’s scanning systems and determined these to be in violation of its patents. In fact, MPHJ had merely sent form letters to hundreds of companies of a certain size and industry classification without investigating or uncovering any evidence whatsoever of infringement.
What is this if not outright extortion? This is what so many ordinary citizens and small business owners are so furious – and with good reason.
If they know history, they will be wondering, “Where is the patent system of Thomas Edison? What happened to a patent system that helped transform a largely agrarian United States in the 19th century into the global leader of the Industrial Revolution, and in the 20th and 21st centuries, into the world’s most prosperous and economically powerful nation?
Have patent trolls now turned it into little more than a protection racket and a tax on small businesses?
As an industry and as professionals, we should forthrightly condemn the practices of bad actors that are victimizing the innocent– just as responsible members of other industries condemn the predatory practices of bad actors in their fields. Then we must do our part to root them out. Only by doing so can we revitalize and reaffirm the demonstrable truth that the American patent system plays a vitally important role in the innovative process and the economic strength we all enjoy.
But instead, many in our industry sit silently on their hands, fearful of getting embroiled in controversy or of giving opponents of the patent system more ammunition with which to criticize and attack it. At the recent Global IPBC industry conference in Amsterdam, many speakers condemned patent trolls, yet no action plans were proposed. Some licensors even continue to write about “the so-called” patent troll problem, as if thousands of small business victims were somehow merely imagining it all. Denial should not be tolerated in our industry.
That’s why we’ve launched a “Stand Up to the Demand” campaign designed to help small businesses identify and respond to extortionist patent demand letters. The first phase of our campaign features a web site with an infographic quiz that helps business owners distinguish a bad demand letter from a legitimate notice letter, and view sample demand and notice letters as well as a video. We’re inviting the public to share their stories of how they are dealing with patent trolls. We’re also linking to other resources, such as the website, operated by the U.S. Patent and Trademark Office (USPTO), that’s designed to offer advice to small businesses that believe they have been the victims of abusive demand letters. And there’s a link to a free web-based tool launched by RPX, a provider of patent risk management solutions, that helps small business owners research the background and litigation history of the senders of demand letters, to the extent these are known.
To access the resources, visit www.standuptodemand.com.
The greatest long-term threat to the U.S. patent system does not come from its professional opponents – those large businesses and their political allies who stand to profit from enfeebled patent rights. A deeper harm is caused by unscrupulous patent trolls who use extortionist “demand letters” to victimize small businesses. This practice, we believe, is wrecking public confidence in the U.S. patent system – and by extension, profoundly weakening the bedrock belief in the great economic benefits conferred by patent-protected inventions.
Yet even as damage caused by demand letters spreads, most legitimate patent licensors whose businesses depend upon continued legislative and public trust stand idly by, doing little or nothing to address it. Well-insulated within the patent industry’s cozy professional bubble, we are, in effect, fiddling like a modern-day Nero while innovation’s Rome burns.
Why the disconnect? Most people in the patent licensing industry understand that patent troll demand letters are a significant economic problem for U.S. small business community, costing millions of dollars in settlement fees and legal costs annually. What’s not grasped is that phony demand letters are an even greater political problem for our industry and for the patent system as a whole. Let’s quickly review the problem.
Patent trolls, typically operating through shell companies, send form letters to dozens, hundreds, or even thousands of apparently random small businesses at a time, claiming with little or no evidence that they are “infringing” the troll’s patents. The senders demand so-called “licensing fees” ranging from $1,000 to $50,000 or more (depending on the size of the business) to avoid a patent infringement lawsuit that could cost these businesses far more to defend against in court – even if the business owner is innocent of any infringement.
It’s true that comprehensive, nationwide data on the extent of the demand letter problem and its economic impact is hard to come by or doesn’t exist. But there is mounting anecdotal evidence that the deluge of demand letters is at the very least harming one of the nation’s most critical job creation sectors, small businesses and startup companies. The reported impact usually takes the form of hiring delays, reduced R&D spending, or a negative change in product or business strategy. One study reported that 70 percent of 200 venture capitalists surveyed had invested in startup companies that later received extortionist demand letters.
Simply looking at the aggregate economic impact of patent troll demand letters, however, or advocating for more study of the issue before acting, misses their fundamental emotional impact – the intense popular rage that they generate. To understand that, you’ve got to put yourself in the shoes of a small business owner who is victimized by a patent troll.
At Conversant, we believe it’s time to step up and help deal with the scourge of patent troll demand letters. So we’ve launched a “Stand Up to the Demand” campaign designed to help small businesses identify and respond to extortionist patent demand letters. We’re not doing this for practical business gain, because small businesses are not our partners or licensees. Rather, we have launched this campaign because it’s the right thing to do, and we hope it will help restore public trust in our industry and in our patent system as a national engine of economic progress and competitiveness.
To learn about it and help us advocate against patent trolls, visit www.standuptodemand.com.