Another Patent Litigation Study: Patent reform or ulterior motives?

Ever wondered who is the most responsible for flooding the US courts with frivolous patent litigation suits over the past decade? While most fingers will inevitably point towards the so called “patent trolls”, the recent study proposed by Nathan Myhrvold in collaboration with the Stanford University Law Professor Mark Lemley is determined to bring the truth to the surface.  The reason why this study has already drawn a lot of scepticism is because Myhrvold, a former high-ranking Microsoft Corp. executive, is also a co-founder of Intellectual Ventures, a company labelled as a “non-practising entity (NPE)”, or a “patent troll”.

Patent troll is a term used for those companies or individuals who are patent holders but do not manufacture or use the patented invention. Such entities often purchase a patent from a bankrupt firm, among others, and later sue other companies by claiming that one of their products infringes on the purchased patent. The common criticism of “patent trolls” focuses attention on the potential of these entities to negotiate license fees that are grossly out-of-alignment with their contributions to the alleged infringed product.  Many view this as a cause for stunted innovation and unnecessary patent litigation.

One of the excellent illustrations of this criticism is the Virginia based ‘NTP Incorporated’ lawsuit against ‘Research in Motion’ in 2000.  NTP Inc. is a patent holding company with the current asset of 50 US patents in its portfolio. With absolutely no intentions to put that patent into any product, NTP Inc. later settled with RIM for $US 612.5 million. On one hand, NTP Inc. sets a desirable precedent by discouraging large companies from poaching innovation from small companies or individual inventors. On the other hand, however, some argue that antagonistic to Article 1, s. 8 of the US Constitution, such NPE entities stifle innovation by threatening companies with lawsuits.

Understandably, the common reaction to the proposed study thus far has been of cynicism and disregard. While many IP attorneys and CEOs are willing to go so far as to merely acknowledge the need for such a study, there is still widespread disagreement with respect to the scrutiny the results of the study will undergo.  This is despite the fact that the study is in collaboration with Stanford Law. Before the credibility of the study is questioned, it is worth reflecting on the market effects of the results.

If the results favour the common perception that the NPEs are responsible for the most number of frivolous lawsuits, it might not make any difference to the currently standing situation. Arguably the patent troll population may remain unmoved by the findings of the study and maybe it will take more than an independent study to alter their viewpoint. There is a possibility that this crossing over can only be accomplished by legislative measures or judicial precedents. Alternatively, if the results of the study indicate otherwise, there will inevitably be a lot of scepticism and finger pointing on the credibility of the results. In addition, the NPEs may now be able to cite statistics to justify their activities.

What is probably required then is the answer to the inquiry about the objective behind such a study. Although Professor Lemley suggests that the results will enhance patent reform, it is not entirely clear how such a reform will progress. Furthermore, PatentFreedom has already undertaken an extensive study of litigation in an effort to keep tabs on NPEs, and the Myhrvold-Lemley study is not a novel idea.  Therefore, before proceeding, it might be a good idea for the duo to ensure that the results from the study will not be disregarded with a grain of salt and instead will contribute to the purpose of enhancing an innovation driven economy.  Additionally, if patent reform is what is being sought, why not spend time, money and efforts in strategizing and drafting measures that might minimize the number of patents issued by the USPTO or delineate some guidelines in terms of access to injunctions.  

  1. Regardless of the motives of the study, and whether or not the study ultimately shows that non-practicing entities are causing a large portion of the litigation, it may still not justify the belief that NPE’s should in principle be supported. One of the reasons why many in the IP field are not particularly fond of NPE’s is because they have a problem with the basic concept of their means of existence. Some see this type of venture capitalism as exploitive, when the purchasing of these patents is from dying companies or from those who for other reasons simply cannot afford to get protection for their bright ideas. Recently speaking with a Canadian practitioner who does a lot of U.S. patent prosecution, I was told that due in large part to the misunderstandings of the law’s nuances in the patent office, many smaller companies must unfairly weigh the costs and benefits of whether to proceed with their applications when they are returned for invalid reasons. By seeking other means of reforming the patent system, starting with the patent office, companies such as Intellectual Ventures may not as often find themselves in the position of having greater bargaining power in relation to those who have put in the intellectual effort.

  2. I understand the disdain some may feel towards a company who uses a patent as an investment vehicle with no intention of practicing its subject matter but, simply as a possible counter-perspective, isn’t that the nature of the right a patent provides? Isn’t a patent a right to exclude others, not a right (or responsibility) to practice? In response to those who argue that NPEs stifle competition, what about companies who are required to design around patents that block their own market entry – would/should we categorize companies with the blocking patents as stifling competition just because they have chosen not practice the subject matter of their patent? I would wonder whether the presence of a patent blocking market entry forces a company to exercise inventive ingenuity in a way that wouldn’t otherwise be required.

  3. Regarding the lack of use of a patent’s subject matter, this would bother me much more if the necessity of the specific subject matter was high enough. As with real property, I would argue that one’s right to exclude should not be absolute, and there may be circumstances where the harm caused by preventing the use by others outweighs the property right. I think this is especially true when upholding that right is not really yielding any material benefit to the holder of the right, such as when they choose not to make use of the subject matter in the case of a patent. Though it’s unlikely that RIM’s technology, which was the issue of NTP’s claim, can be considered to be urgently necessary (even though a recent survey has shown the importance of cell phones to some:, the same might not be said of a promising treatment for a new disease, for example.

    But personally, my problem isn’t so much that the subject matter of these patents isn’t made use of, or that there is potential stifling of competition, but rather I don’t like the fact that some of these smaller companies have to sell their patents because they are almost bankrupted by the process of prosecution, and can’t see their ideas come to life. I think that the power imbalance that sometimes exists between NPE’s and original rights holders will matter less if reform is made in the correct places within the patent system.

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