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MGT 6895 - Patent Trolling

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Michael Slade

on 17 March 2014

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Transcript of MGT 6895 - Patent Trolling

The Conventional Argument
The Key Players
Does not make or sell any products or services

Organization designed for the distribution and enforcement of patent licensing
Non-Practicing Entity (NPE)
Companies That Produce Products & Services
Companies That Enforce Patents They Are Not Using
Companies That Purchase Patents, Make a Product, and Assert Patents Against Competitors
Privateers: Companies that enforce Patents on behalf of product making companies
Patent Assertion Entity (PAE): Only Purchase and Assert Patents
University Research Laboratories
Research & Development Firms
Independent Inventors
A Definition of Sorts
"A patent troll...is a person or company who enforces patent rights against accused infringers in an attempt to collect licensing fees, but does not manufacture products or supply services based upon the patents in question, thus engaging in economic rent-seeking"
What Qualifies As A Troll?
Source: Wikipedia
"Patent troll is currently a controversial term, susceptible to numerous definitions, none of which are considered satisfactory from the perspective of understanding how patent trolls should be treated in law."
Source: Framing the patent troll debate
Where Do Troll Patents Come From?
Primarily Software and High Tech Patents
Failing/Bankrupt Company Patent Acquisitions
Provided by Tech Companies
General Patent Purchases/Acquisitions
Source: Framing the patent troll debate
Recent Federal Actions
Pending: Innovation Act (Passed House on Dec 5, 2013)
Heightened Pleading Standards (detailed infringement analysis required)
Licensing Obligations Continue Through Bankruptcy
Manufacturer Can Intervene in Suit Brought Against Customer
Can Award Costs and Attorney's Fees to the Prevailing Party
Post Grant and Inter Partes Review for Invalidity Defence in Civil Action
Source: WhiteHouse.Gov
Industry Impact
Source: PWC - 2013 Patent Litigation Study
Holdup Theory
NPEs obtain remedies that far exceed the value of the patents by suing inadvertent infringers who are locked in and face high design around costs, which may also reduce ex ante incentives to invest
This could be compounded by waiting until multiple organizations are infringing to amplify litigation potential
Problems with theory:
Lack of empirical data to understand what is actually happening in this scenario. Manufacturers have incentives to hold out, optimal allocations of licensing are unknown, and its difficult to tell who is actually in the wrong (manufacturers (un)knowingly infringing or inventors hiding the patent).
NPE Breakdown
Source: PWC - 2013 Patent Litigation Study
Setting The Record Straight
Source: IPWATCHDOG - A Factured Fairytale
Patent Quality & Litigation Outcomes
Some argue that NPEs assert inferior patents to those owned by producing organizations
When individual inventor and individual inventor company suits are excluded, NPEs actually fair better than producing organizations.
This makes sense because NPEs are acquiring a strong collection of patents that were created by producing entities
Individual inventors and inventor companies do not have the legal resources of large producing firms, so logically they would have inferior patents
Majority of Frivolous Lawsuits
Based on the PWC data, we know that, of NPEs, individual inventors file the majority of the suits and have the lowest success rates
Setting The Record Straight
Source: IPWATCHDOG - A Factured Fairytale
High Volume of Inter Partes Review Requests
Small producer companies, not NPEs, actually generate the majority of these requests
Bad Actors (Trolls)
Some argue that there has been a major rise in the number of troll NPEs since the America Invents Act (AIA) was implemented in 2011
These arguments are based on misrepresented data. The AIA requires separate cases to be filed against each defendant, even though it is regarding the same infringement. Prior to the AIA, these would have been consolidated into a single case.
When unique NPE filers are examined pre and post AIA, the percentage remains the same.
Setting The Record Straight
Source: IPWATCHDOG - A Factured Fairytale
Patent Age Impact to Suits
The argument that NPEs are predominantly using old patents against their victims is false
Most cases are tried within 3 years, with no significant variance between producing and non-producing entities
Source: PWC - 2013 Patent Litigation Study
What's The Real Problem?

Larson, M., & Long, D. (2013, December 9). House Passes Patent Reform Bill: A Summary of the Innovation Act’s Essential Provisions. Retrieved from http://www.essentialpatentblog.com/2013/12/house-passes-patent-reform-bill-a-summary-of-the-innovation-acts-essential-provisions/
Leahy-Smith America Invents Act. (n.d.). Retrieved from Wikipedia: http://en.wikipedia.org/wiki/Leahy-Smith_America_Invents_Act
Moore, S., & Drye, K. (2013, July 31). A Factured Fairytale Part 3: More Patent Troll Myths. Retrieved from http://www.ipwatchdog.com/2013/07/31/a-factured-fairytale-part-3-more-patent-troll-myths/id=43755/
Moore, S., & Drye, K. (2013, August 1). A Factured Fairytale Part 4: More Patent Troll Myths. Retrieved from http://www.ipwatchdog.com/2013/08/01/a-factured-fairytale-part-4-more-patent-troll-myths/id=43758/
Moore, S., & Drye, K. (2013, July 29). A Fractured Fairy Tale: Separating Fact & Fiction on Patent Trolls. Retrieved from http://www.ipwatchdog.com/2013/07/29/a-fractured-fairy-tale-separating-fact-fiction-on-patent-trolls/id=43697/
Moore, S., & Drye, K. (2013, August 2). Patent Troll Epilogue – A Fractured Fairy Tale Part 5. Retrieved from http://www.ipwatchdog.com/2013/08/02/patent-troll-epilogue-a-fractured-fairy-tale-part-5/id=43630/
Moore, S., & Drye, K. (2013, July 31). Probing 10 Patent Troll Myths – A Factured Fairytale Part 2. Retrieved from "http://www.ipwatchdog.com/2013/07/30/probing-10-patent-troll-myths-a-factured-fairytale-part-2/id=43754/
Office of the Press Secretary. (2013, June 4). FACT SHEET: White House Task Force on High-Tech Patent Issues. Washington, D.C. Retrieved from http://www.whitehouse.gov/the-press-office/2013/06/04/fact-sheet-white-house-task-force-high-tech-patent-issues
Patent troll. (n.d.). Retrieved from Wikipedia: http://en.wikipedia.org/wiki/Non-practicing_entity
PWC. (2013). 2013 Patent Litigation Study. Retrieved from http://www.pwc.com/en_US/us/forensic-services/publications/assets/2013-patent-litigation-study.pdf
Risch, M. (2014). Framing the patent troll debate. informa healthcare. Retrieved from http://informahealthcare.com/doi/pdf/10.1517/13543776.2014.873406
Troll Image. (n.d.). Retrieved from http://betanews.com/wp-content/uploads/2012/12/Troll-300x291.png

The Root of the Problem
Trolls Are a Problem, but Not to the Extent that We Have Been Led to Believe
When there is an opportunity in the marketplace, people and organizations will quickly take advantage and try to maximize profits
A primary root of the problem is the general failure of the US Patent and Trademark Office to scrupulously examine and vet patent applications, especially in the high tech and software arena.
Another area of failure is a marketplace issue that likely stems from the increasing complexity of the global economy and technical advances; there are major inefficiencies in the distribution and communication of patents and licensing across industries.
Major Ethical Issues at Stake
Patent Trolling
Obama's Executive Decries
Making “Real Party-in-Interest” the New Default
Tightening Functional Claiming
Empowering Downstream Users
Expanding Dedicated Outreach and Study
Strengthen Enforcement Process of Exclusion Orders
Source: Essential Patent Blog
Patent Holders
Patent Developers
Patent Users
Market Effects
Cost of Inaction?
Cost of Legislation?
Full transcript