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Despite potential flaws proposed US patent transparency legislation is worth supporting

Legislation introduced in the US House of Representatives yesterday by Democrat Congressman Ted Deutch aims to greatly increase transparency of patent ownership. The End Anonymous Patents Act would, explained a press release, “require any sales or transfers of patents to be disclosed to the Patent and Trade Office [sic], along with a notice of the real party in interest filing by the purchasing entity. The same disclosure requirements would apply to new patents at the time they are awarded, and for currently held patents at the next scheduled maintenance fee payment”.

Explaining his decision to put the act forward Deutch stated: “The process of uncovering the ultimate owner of a patent can be truly burdensome … Patent trolls go to great lengths to conceal the relevant ownership and interests involved. This total lack of transparency by people seeking to game the system unfairly disadvantages businesses honestly seeking to license patents and those targeted in frivolous lawsuits brought by trolls. The End Anonymous Patents Act will benefit our economy by putting an end to these secretive practices and establishing a more accountable and efficient patents system.”

Under the legislation, ultimate ownership would have to be recorded at the following times:

NEW PATENTS.—Upon the issuance of a patent under this title, the entity to which the patent is issued shall file with the Office a disclosure of the owner of the patent and any real party in interest in the patent.

PAYMENT OF MAINTENANCE FEES.—Upon the payment of the maintenance fee required under section 41(b), the owner of the patent shall file with the Office a disclosure of the identity of the owner of the patent and any real party in interest in the patent.

NOTICE OF TRANSFER OF OWNERSHIP.—Whenever any patent, any application for patent, or any interest therein, is sold, granted, or conveyed, the entity to which the patent, application, or interest is sold, granted, or conveyed shall, within 90 days after the date of the sale, grant, or conveyance, file with the Office a disclosure of the sale, grant, or conveyance, and any real party in interest in the patent, application, or interest.

The director of the USPTO would set out the way in which disclosures should be made. Those required to make the disclosure would include:

(A) any entity that has the legal right to enforce the patent through an infringement action;

(B) any ultimate parent entity of an entity described in subparagraph (A); and

(C) any entity that has a controlling interest in the enforcement of the patent, including any ultimate parent entity not included under subparagraph (A) or (B).

The legislation defines ‘ultimate parent entity’ as “an entity that is not controlled by any other entity”.

All that said, my reading of the legislation is not that it actually requires the ultimate owner of a patent to be disclosed in all circumstances. Instead, it looks as if there is a de facto requirement only if the patent owner may want to actively enforce the patent at some stage:

Any entity that fails to comply with any of the requirements under this subsection with respect to a patent or application for patent may, in any action brought by the person or entity for infringement of the patent, only collect damages from the date on which such requirement is met. The Director shall by regulation specify what constitutes noncompliance for purposes of this paragraph.

This may actually be a significant flaw in the legislation if its aim is to deter bottom feeding trolls that seek to collect what is effectively nuisance money. Their purpose is not to go to court to get damages, but to persuade the companies they target to pay a relatively low sum to make a suit go away before litigation ever gets serious and big money starts to be spent on building a defence case. However, I am not a lawyer so may have got this completely wrong.

If I have not, though, there may be a relatively simple fix. In the next issue of IAM, which goes to press next week and will publish at the end of the month, we run an in-depth interview with John Veschi, the CEO of Rockstar, the NPE which now manages the majority of the Nortel patents bought at that famous auction back in June 2011. Veschi comes out strongly for transparency, saying that “those with good portfolios should be very comfortable” with it and that “more of it makes a lot of sense”. He suggests that a licence to a patent might only be enforceable if the identity of the ultimate owner is known. It seems to me that this would be a far more effective way of reeling in the bottom feeders, as they would have to be clear who they were even if getting damages were not their aim.

But whichever way you look at it, there is no surprise that this legislation has been tabled. Transparency of ownership is an idea whose time has come. The USPTO announced last year it wanted to do something about it and since then various companies – including Microsoft (which has already endorsed Deutch’s move), Google and BT – have also begun to take steps towards opening up their portfolios (some more extensively than others, it should be added).

There are some arguments against transparency on the grounds that it may open up companies to potentially expensive re-exams and post-grant oppositions, and for smaller businesses this could be problematic; but in the great scheme of things this is less of an injustice, surely, than not knowing who it is you are being sued by or who you may need to seek a licence from. In any case, you could deter frivolous re-exam and opposition requests by introducing a rule which states that should you ask for one and fail to get a patent overturned you have to meet not only your own costs but those of the other side too. As this blog has previously argued, there may also be national security issues relating to patent transparency.

The End Anonymous Patents Act is the third piece of anti-troll legislation introduced in the first few months of the 113th Congress, which met for the first time at the start of this January. The other two are the SHIELD Act and the Patent Quality Improvement Act. Of the three, this latest initiative seems to be the most deserving of support. But as more proposed legislation is introduced and more noise is made about trolls/NPEs/PAEs and so on, the greater the odds that something concrete is going to happen sooner rather than later. The hope has to be that if this is the case, the action is based on validated fact and empirical evidence, rather than anecdote and questionable research.


Joff Wild
IAM Magazine
18 May 2013

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

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