The Potential Unintended Consequences of Fee Shifting after the Supreme Court Decisions in Octane Fitness and Highmark

POSTED BY Andrew Beckerman-Rodau | Professor of Law & Co-Director of the Suffolk University Law School IP Concentration, e-mail: arodau@suffolk.edu), website: www.lawprofessor.org


Yesterday (April 29, 2014) the U.S. Supreme Court handed down two unanimous decisions in the Octane Fitness case and the Highmark case. Both cases addressed the standard for awarding attorney fees in patent infringement cases to the prevailing party in accordance with the patent law statute which provides that a “court in exceptional cases may award reasonable attorney fees to the prevailing party.”

Prior to these cases the U.S. Court of Appeals for the Federal Circuit made it very difficult for U.S. District Courts to award attorney fees in patent cases. The Supreme Court decisions make it significantly easier for district court judges to award attorney fees. The decisions put patent law more in synch with other areas of law by placing the discretion to award attorney fees with the district court judge; And, in limiting the standard for the Court of Appeals for the Federal Circuit to review and reverse a district court judge’s discretionary decision to deny or allow attorney fees. The Federal Circuit will now be required to allow the district court’s decision to stand unless it is shown on appeal that the district court judge abused his or her discretion in deciding to award or deny attorney fees. This is a high standard that will typically prevent the Federal Circuit from reversing the district court’s decision in most cases.

These Supreme Court cases have been heralded by some who think it will improve the patent system by preventing or reducing patent infringement suits by non-practicing entities that neither make nor sell any products. Such entities – often derogatorily referred to as “patent trolls” – will be less likely, according to some people, to bring patent infringement suits if they face the potential of paying attorney fees for the other party.

I think these cases will be unlikely to significantly impact patent trolls because the business model for many trolls is only based on threatening to bring lawsuits as a tactic for forcing settlements rather than actually bringing law suits.

More significantly, these decisions are likely to have some unintended consequences. For example, a patent on a key technology developed by a tech startup may be the only thing preventing a large established company from “stealing” the technology. Having a patent levels the playing field. It has also spawned patent attorneys who are willing to handle patent infringement suits for small startups on a contingency basis. The monetary risk in bringing an infringement is substantial with attorney fees often being in the millions of dollars. Making it easier for judges to award attorney fees to the prevailing party increases the risk calculus and may actually deter many tech startups from bringing an infringement action. It is also likely to make it more difficult to find a patent attorney willing to handle a case on contingency in light of the increased monetary risk. Ultimately, this may benefit large established companies who have sufficient resources so that the potential risk of paying attorney fees if they lose will not be a deterrent to bringing actions. This might also make it more difficult for smaller tech startups to raise money and that could reduce technological advances which is the opposite of the goal of patent law.

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Reducing Smartphone Patent Litigation

POSTED BY Hillary Cheng

Common technologies in wide use such as the USB and Bluetooth are patented, and thus, market participants are required to acquire licenses should they want to use these patented technologies in their innovative pursuits.  In the field, these are known as standard-essential patents (SEPs).

According to a recent Forbes article, “[s]tandards bodies often act as regulators, setting rules in order to prevent the owners of SEPs from abusing their newfound power. But the rules tend to be surprisingly nebulous, especially considering the precise technical specifications of the patents at hand. In part because of the potential profits at stake, SEPs have been at the center of several recent multibillion-dollar lawsuits that impede industry innovation.”

Furthermore, “[t]he issue has prompted a new research paper that starts to investigate ways to make these patents less volatile and more efficient—and makes the case for increased government involvement.  ‘Standards are ubiquitous and necessary,’ says Josh Lerner, the Jacob H. Schiff professor of investment banking at Harvard Business School and coauthor (with Jean Tirole of the Toulouse School of Economics) of the paper Standard Essential Patents.”

Major litigation has arisen regarding the reasonableness of the licensing royalties, and the debate raises concerns about the Constitution’s Progress Clause.  Theoretically, Congress implemented the patent system in order to protect inventor’s hard work and allow them to reap the benefits of their hard work.  However, the patent system was still supposed to allow for the development of ideas, innovation, and progress.  It seems that the overregulation of idea protection may be stifling creativity, and perhaps it is time to reconsider the high degree of protection afforded by our current patent system.

Healthcare Software Companies Subject to Patent Suits but Relatively Safe from Trolls

POSTED BY Rebecca M. Ferrante

In light of the controversy surrounding the less than elegant release of the federal government’s healthcare website in October 2013, there is much current discussion on the topics of both healthcare and technology.  Where these topics intersect resides a host of issues concerning software durability, patient privacy, and big data.  For those software companies engaged in the development and implementation of related electronic health and health record systems (EHRs), “Non-Practicing Entities” (NPEs) or “Patent Assertion Entities” (PAEs), otherwise known as patent trolls, pose an additional challenge.  However, according to the U.S. Government Accountability Office (GAO), the risk of patent infringement suits is much more likely to be levied by another company rather than by an NPE.

The U.S. Government Accountability Office (GAO) released a report this summer reviewing factors that affect patent infringement which presented an analysis of 500 lawsuits between 2007 and 2011.  The GAO found that while patent infringement lawsuits increased by 129% during the period, suits were 95% more often brought by other producing companies as opposed to NPEs.  That being said, the GAO’s report did announce that lawsuits involving infringement of software related patents represented 89% of the increase.  As electronic health record systems are one of the fastest growing yet highly fragmented industries, representing $8.2 billion of the $40 billion in healthcare IT spending forecasted this year, these companies are simply more exposed.

The GAO’s report becomes less applicable in instances where the question is whether a business is actually a producing company or not.  Patent trolls by definition hold patents and enforce related intellectual property rights, but do not practice invention.  In late 2012, MMR Global, Inc. announced that it had obtained its fifth patent pertaining to EHRs, contacted and offered licenses on their patents to more than 1,000 hospitals and group practices, and signed license agreements valued at more than $30 million.  MMR claims that the patents are part of its core products.

3D Printing: A New Challenge To Intellectual Property Law

POSTED BY Nicholas Hasenfus

3D printers can be used to created objects out of materials such as metal, plastic, and nylon.  With a 3D scanner or 3D blueprints and a 3D printer, homeowners are able to create common household objects.  3D printers work differently than traditional machining techniques because printing is achieved using an additive process, adding layers of material, while traditional machining works by removing material.  Although the first working 3D printer was manufactured in 1984, recently prices have dropped for 3D printers and could be a nightmare to existing intellectual property (IP) laws as an Inside Counsel story has reported.

Traditionally, manufactures have been able to protect their products by copyrights, trade protection, and patents.  3D scanners and 3D printers have the potential to make this protection irrelevant especially to smaller companies who are unlikely to have all of these protections in place.  Even if they did have protection, if a person only infringed on one or two items at a time, it will make little economic sense.   3D printers may also pose a threat to the public.  Plans were developed by a United Stated group to provide a 3D blueprint of a working plastic firearm.  After they were posted online, the U.S. State department forced the group to take them down.  3D printing of firearms would allow unauthorized possessors of firearms across the United States and in countries where all firearms are illegal.

There are several ways IP owners may still be able to find protection.  Some of these include keeping the innovation cycle far ahead of the time it would take to develop 3D blueprints, therefore making consumers eager to have the newest items.  Another way to find protection is to offer an authorized blueprint so owners of 3D printers can created the end product and the IP owner would still be receiving revenue.   Copyright owners may also be able to use the Digital Millennium Copyright Act (DMCA) against people offering to 3D print goods.

It seems like these solutions would still not protect the public from unauthorized use of 3D plans.  People who were unable to legally obtain a firearm could likely go online and illegally find 3D blueprints of firearms just as easily as they can download music of videos illegally.  Congress will need to be extremely forward thinking and try to come up with a solution to these issues before they become a massive problem.

What to Expect with “Minority Report” Technology

POSTED BY Bridget Sarpu

Industrial Technology Research Institute (ITRI) is a nonprofit research and development organization located in Taiwan engaged in applied research and technical services.  Globally, ITRI has 23 international collaborations with major companies like IBM, Nokia, Microsoft, and Motorola.  ITRI has played a vital role in transforming Taiwan’s economy from a labor-intensive industry to a high-tech industry.  ITRI has developed numerous technologies including WIMAX wireless broadband, solar cells, and light electric vehicles.   ITRI has also had extensive involvement with the intellectual property business and is devoted to making Taiwan manufacturing a competitor internationally.  Currently, ITRI holds more than 19,709 patents that they have licensed to companies.  Their newest technological advancement is a floating augmented-reality touch-screen system and ITRI is ready to license the technology to an interested buyer.

The product called i-Air Touch (iAT) Technology is a floating augmented-reality touch-screen system.  Very similar to the computer screens seen in the movie “Minority Report,” the technology basically “projects a virtual touch-based interface outward and within the user’s field of vision.”  Not only does this screen appear to float in the air, but the software can accurately measure the placement of your hands and fingers so it can respond to being “touched.”  Watch a video here: Video of technology in use for a better understanding of how the technology would work.

iAT was officially introduced last week and will receive a 2013 R&D 100 Award in November.  ITRI says the technology is available now          for licensing by mobile companies and anyone else.  Google might have a real interest in trying to acquire a license for the patent considering it could potentially be added software to Google’s upcoming technology of Glass.  Instead of controlling the wearable computer with head movements, voice commands, touching the glasses or entering commands into the app on a smartphone, i-Air Touch users can type on the “floating” keypad, keyboard, mouse or touch panel allowing for flexibility, privacy, and convenience as the user wears them.  So what if Google or any other company wanted to use the technology? What does it take for them to use the invention?  The companies would need to seek to license the patent from ITRI.

Licensing occurs when the owner of a patent grants exploitation rights over a patent to an interested third party.  A license is a legal contract, and so it contains terms the licensee must comply with.  Because ITRI wants to license their iAT Technology, they are looking to form a contract, seeking royalties as a repayment.     With Google Glass ready to be released in Spring 2014, with users directing the wearable computer with head nods and vocal commands, Google might be interested in a license agreement with ITRI.  If Glass could work with the ITRI technology, they debatably would revolutionize the wearable computer and continue to change how society will function.  ITRI could benefit off the license because although the technology is amazing in its own right, the glasses they advertise with are too big and bulky, unlike Google Glass sleek and trim glass model.  Google Glass is ready to be worn for every day use.

What we can expect within the month is the iAT floating augmented-reality touch-screen system to make a statement in the intellectual property world.  With the R&D 100 Award and the company ready to license, who knows what major technological company will try to use ITRI’s software for the latest industry.  Within the IP world, in the near future, I am sure we will see valid licensing of the ITRI patent, along with some intense patent infringement litigation.  With this advancement in technology, like the reaction with Google Glass, legislatures and lawmakers will want founded policy on all issues relating to the technology: privacy law, bans in certain places, driving safety, etc.  We can also assume to see this technology sooner rather than later and then we all may be living  “Minority Report.”

 

What’s Left for Nokia? Patents, Patents, Patents!

POSTED BY Bridget Sarpu

Earlier this month Microsoft and Nokia struck a deal unlike any other.  Microsoft will obtain Nokia’s devices and services unit and license the company’s mapping services in a deal worth $7.2 billion.  Specifically, the two-part transaction included Microsoft spending $5 billion on Nokia’s mobile phones unit, in hopes to compete with companies like Google and Apple in the smartphone market, and then it spent another $2.18 billion to license Nokia’s patent portfolio.  What is included in that patent portfolio?  The deal gives Microsoft use of more than 8,500 Nokia design patents, as well as a 10-year license to around 30,000 feature patents and patent applications, intellectual property that is estimated to be worth about $6 billion.  So what is left for Nokia?

For years, patents have been a vital part of the technology business.  A patent is an intellectual property right granted to an inventor “to exclude others from making, using, offering for sale, or selling the invention.”  Patents allow companies to protect ideas, however, companies are also able to buy and sell patents to other companies, as well as profit by licensing them out to others for use.  Patents have recently become hot topics since big tech companies like Apple and Samsung continually sue one another for billions of dollars over the technologies found in smartphones, computers, tablets, and other gadgets.  With the rights of licensing patents, persons or companies can enforce patent rights against accused infringers who do not acquire the necessary patent license.  Unfortunately, some companies dedicate all of their resources to enforce patent rights in order to collect licensing fees, however they do not manufacture products or supply services based on the patent in question.  These companies, known as patent trolls or patent assertion entities, exist solely to exploit and intimidate competitors by threatening litigation for overly broad patents.  This in turn hurts businesses and stifles innovation.

So what is left for Nokia? To be clear, Nokia is keeping most of its patent portfolio.  All Microsoft is gaining are the design patents, along with licenses to the patent portfolio, not complete ownership of the portfolio.  Selling Microsoft its smartphone business could make way for Nokia to enforce its patents more aggressively.  Having sold all their physical devices and equipment, Nokia is now free to pursue any company they feel is “infringing” their patents.  Best of all they can threaten litigation on infringers without worrying about counter attacks against their own technologies (they have no real technologies that could be violating other patents).  This setup leaves Nokia as potentially an unlikable patent troll, most likely seeking to pursue infringers who rival Microsoft.

Because the patent licenses are nonexclusive, Nokia can use them any way it wishes and they will presumably use them as a profit center.  For example, Nokia is the holder of the only patents known to read Goggle’s video compression format software (VP8).   Nokia has already made clear that it has no intention of licensing to Google to use its patent thus leaving Google with a blocked technology with little hope to progress.  In the past, Google could retaliate by attacking Nokia’s infringement of its own patents.  However, because all of Nokia’s products belong to Microsoft, that line of defense is no longer available.  Nokia can now analyze EVERYONE’S business and identify and challenge all potential infringements.  With access to a substantial budget, Nokia can afford lengthy litigation and seek substantial fees from any industry that competes with Microsoft.

In sum, Nokia has ample opportunity to join the patent troll business, threatening not only big competitors like Apple, Google, and Samsung, but also threatening the progression of all future innovations.  For a company that seemed to be on the downfall for selling the majority of their products, Nokia now has a newfound and concerning power in the tech world.

Could this be the Downfall of “Patent Trolls”?

Posted by Kevin Tan at 11:55 AM

Over the past several years, Patent Trolls have been targeting small businesses with the hope of scaring these small businesses with threats of costly litigation by alleging that these businesses have infringed their patents. By avoiding litigation, these businesses could settle by paying a fee. According to Professor Bessen, there has been an increasing amount of lawsuits filed against these small firms: 800 lawsuits were filed in 2005; 2,900 lawsuits were filed in 2011.

But what are Patent Trolls? The term, coined by Peter Dektkin, is defined as people or companies who purchase old patent rights with no intent to sell or endorse the patent product. The purchasers would then sue or demand royalties from companies that are allegedly infringing on patents owned by the troll. Many have criticized this practice because it shifts the manufacturer’s resources from developing the products to defending the lawsuits.

In response to the trolling, many businesses have complained about these activities by meeting with other businesses to discuss about how to deal with patent trolls and to promote various reforms to limit their attacks. These companies include tech, software, advertising agencies, retailing, banking, grocery industries, and more, who have begun addressing their concerns to their government officials. Given the fact that these small companies are considered the new sleeping giant, some officials have acted on their behalf by introducing legislation that deals with patent trolls.

President Obama has also announced several executive orders “to protect innovators from frivolous litigation”, and have ordered the Patent and Trademark Office to require all companies to be more specific about what their patent covers and how it may be infringed. Furthermore, Obama has asked the Patent and Trademark Office to be more cautious of frivolous and broad claims.

Vermont has recently passed legislation protecting these small businesses from bad faith patent claims. Under this new law, passed this past May, patent trolls can be sued by businesses, customers, and by the attorney general, and could be forced to pay all of the victims’ legal fees and damages of up to $150,000.00. Several state Attorney Generals have initiated special investigations to determine whether the claims brought by plaintiffs of the patent infringement cases are considered unfair, deceptive, and frivolous.

Although there seems to be a lot of activity going on throughout the nation that is trying to limit patent trolling, the act of purchasing a patent and then claiming that it has been infringed is not new. In fact, as Profession Bessen notes, this sort of activity has been practiced since the late 1800s, where “patent sharks asserted dubious patents on mechanical devices. Then, as now, the problem arose because large numbers of poorly defined patents were granted, making it difficult for businesses to avoid inadvertently infringing.” Time will tell if what we are doing, will actually limit patent trolling.