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Why don’t companies with huge compliance departments have anyone looking at patents?

Late last year this blog reported on the disturbing case of Soverain v Newegg, which saw a panel of judges at the CAFC overturn patent rights held by the former which had been validated at both the district court level and twice by the USPTO after re-examination procedures. Soverain has now appealed this decision to the Supreme Court and a number of amicus briefs have been filed to support its case. Among them is one put together by i4i, the Canadian company that in June 2011 won a pivotal judgment at the court in a dispute in which Microsoft had sought to lower the standards by which a US patent grant can be considered invalid.  

As we wait to find out whether the Supreme Court will agree to hear Soverain’s appeal, Loudon Owen, who as chairman of i4i led the company’s fight with Microsoft, has put together an opinion piece exclusively for the IAM blog. In this he explains what he sees as the profound dangers to the future of American innovation and invention in lobbying by some big technology companies designed to diminish the patents rights which enable smaller businesses to compete with them.  

I chair i4i, a software company and patent owner. We had to brawl for years, and at every level of the judicial system and patent office, to secure justice from the Federal Circuit and the Supreme Court in a David and Goliath victory over willful infringer Microsoft. We prevailed, but the overwhelming majority of patent owners are not so fortunate.

The patent world is replete with intimidating complexity, although its principles are simple. Article One of the US Constitution formulated the world’s first democratic patent system providing exclusive rights, for limited times, for inventors. Innovators disclose all the details of their invention in exchange for a limited period of exclusivity to commercialise it. America has led the world in innovation ever since. Patentee Abraham Lincoln pointed out: “The patent system added the fuel of interest to the fire of genius.”

Since then, there have been two opposing sides. One group lives and breathes innovation and needs patent protection to survive (including life sciences, biotech, chemicals, materials, and venture capital).

The other, typically monopolies or oligopolies along with their distributors, seek to crush patent owners who dare to compete or simply demand fair payment for innovations they developed and own.   This is similar to the fat cat aristocracy and land owners who for generations forcefully suppressed any challenge to their smug, privileged lifestyle.

As a passionate defender of the patent system, it is hard not to be astonished at the current and ongoing gutting of one of the nation’s greatest assets. Common sense is a surprising casualty; as big business allegedly protects innovation by destroying the rights of innovators. The entire infrastructure of American innovation is being aggressively, and publicly, eviscerated, through lobbyists with unlimited budgets backed by America’s wealthiest corporations.

In the market, using someone else’s property is now being elegantly referred to as “efficient infringement”. You only pay if you get caught.  This is akin to robbing an innovation bank. In fact, the more successful the innovation that is appropriated, the more profit with which to denounce and crush the owner.

Should a CEO encourage this theft? Economically yes. Underpinned by the legal system there is almost no serious consequence for infringers, so the theft imperative is easy to understand. Fatcat steals 100 patented innovations. Out of the 100, perhaps 10 will be profitable. But the dispossessed owner usually has no funds to pursue an infringement claim.  Only a tiny fraction of patent owners whose rights are infringed ever pursue those rights. Fatcat is better off simply using the invention and not paying for it.  Fatcat’s chances of being caught and made to pay are miniscule.

As chair of one such infringed company, we fought hard to be paid what we were due. The legal compensation principle is if you win a patent infringement litigation, you are paid at least what you should have been paid had a fair licence been negotiated in the first place. In some extremely rare circumstances, increased or enhanced damages are awarded but they are usually modest. Injunctions are extraordinarily difficult to obtain, and are usually ‘too little, too late’ because the underlying business has already been destroyed. Accordingly boards of directors and investors are usually terrified of even contemplating asserting an infringement case. They’re hard to fight and even harder to win.

A rational infringing fat cat CEO will, in the current parlance, “infringe efficiently”. Imagine consistently and regularly stealing from a bank because you didn’t think you would be caught; and knowing that if you are found out the only penalty is having to return what you stole.

Should ethical investment funds hold companies that universally infringe? Why have I never seen a seminar at an intellectual property conference about how to avoid infringing? Why don’t companies with massive compliance departments have a single employee addressing third party patent compliance?

Does it really matter if the property owner runs a business or makes product? It should not. This type of prejudice reminds me of appalling and entirely discredited historical property laws that used to disenfranchise owners based on race, colour and creed. As with other property rights, like land or shares, the scope of entitlement runs with the ownership, irrespective of who the owner may be. Ownership is ownership, except, it seems, when it’s a patent.

The playing field is far from level. It is stacked against innovators and strongly in favour of infringers. A patentee asserting its rights faces overwhelming odds and has to win at every single point in the process, which is risky, lengthy and expensive. An infringing defendant just has to win once at any stage to kill the claim, and effectively kill the value of having a patent. The result: innovation genocide. If you cannot protect your innovation, why develop it in the first place? Faced with these challenges, it is increasingly difficult to fund innovation, inspire inventors and protect the vital engine of creativity.

On 11th October 2013, United States District Judge Otis D Wright, II, said: “A party seeking protection of constitutionally granted patent rights is not automatically the villain simply because it brings infringement allegations against multiple defendants.” He’s right. Rather than vilify innovators, America should celebrate and protect them. The destructive trend against doing so is ominous. I would sooner brave the derogatory accusations of defendants than turn a blind eye or actively encourage calculated, systematic theft.

The IAM blog is always keen to hear from individuals and companies that would like to contribute. If you are interested, please contact Joff Wild explaining what it is that you would like to write about and why you think it would be of interest to IAM blog readers. We will consider all request, but will not enter into correspondence about reasons for deciding against publication. Please note that we will not accept contributions of over 1,000 words. All published contributions will be edited into IAM house style (essentially British English spelling and grammar with a few points to do with things like dates, job titles etc on top).


Joff Wild
IAM Magazine
05 January 2014

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IP management, IP politics, IP litigation, Patents, IP business

Comments

RE: Why don’t companies with huge compliance departments have anyone looking at patents?

This is why we have the Troll "deflection" by Patent Gorillas.

"The other, typically monopolies or oligopolies along with their distributors, seek to crush patent owners who dare to compete or simply demand fair payment for innovations they developed and own. This is similar to the fat cat aristocracy and land owners who for generations forcefully suppressed any challenge to their smug, privileged lifestyle."

Efficient Infringement is only efficient for the infringer. For everyone else and most of all the consumer it is a massive cost.

The US system has yet to wake up to this threat. It is a cancer that is eating away at the very core of the US way and it's innovation culture. When we have Americans thinking being a small innovator is not worth the candle you know there is a major problem.

The Patent Gorilla's won't save America.

Nicholas White, Tangible IP on 06 Jan 2014 @ 15:07

RE: Why don’t companies with huge compliance departments have anyone looking at patents?

I fully agree with the above statement:

"As with other property rights, like land or shares, the scope of entitlement runs with the ownership, irrespective of who the owner may be. Ownership is ownership, except, it seems, when it’s a patent."

Especially in the field of software we see little respect for the ownership of other parties.

However, the comparison with land property or shares is critical in the sense that those property systems have clear notice functions. You may simply check the respective register and you can exactly determine who owns what. In the field of patents - at least in the field of software - it seems to be almost impossible to identify the no-go area in view of a granted patent claim. The patent system lacks a clear notice function and, as a consequence, the scope of ownership of a patent claim is continously only identified by a last instance court.

Unless the practice of patent offices does not change towards a higher focus on clarity of claims it seems to be impossible for any third party to systematically avoid infringement at a reasonable cost in view of the unclear boundaries of intellectual property defined by patent claims.

Peter Bittner, President of I3PM International Institute for IP Management

IAM & WTR Subscriber, International Institute for Intellectual Property Management on 14 Jan 2014 @ 12:28

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