President Obama Comes Out Strongly Against Patent Trolls; Here Are The Details

Patents

from the well-that's-nice dept

Back in February, we were a bit surprised during President Obama’s “Fireside Hangout” when he appeared to speak out against patent trolls. Historically, most politicians had always tiptoed around the issue, in part because the pharma industry seems to view any attack on patent trolls as an existential threat — and, frankly, because some small time patent holders can also make a lot of noise. However, it’s become exceptionally clear that there’s political will to take on patent trolls. We’ve noted five different patent law bills introduced in Congress, all targeting patent trolls in one form or another.

And now, it’s been reported that President Obama is going to come out strongly against patent trolling, directing the USPTO and others to fix certain issues, while also asking Congress to pass further laws to deal with patent trolling. The President will flat out note that patent trolls represent a “drain on the American economy.” The announcement will directly say that “patent trolls” (yes, they use the phrase) are a problem, while also talking about the problem of patent thickets like the infamous “smartphone wars.”

The plan is scheduled to be released later today, but we’ve got a preview of the specific plan, and let’s take a look at each of the suggestions quickly. I’m sure we’ll be discussing the concepts in much more detail for the near future. The plan is split into two different parts: legislative actions (i.e., asking Congress to do something) and executive actions (i.e., ordering administration agencies/departments to do things). Let’s start with the executive actions, since those are likely to have the more immediate impact.

Making “Real Party-in-Interest” the New Default. Patent trolls often set up shell companies to hide their activities and enable their abusive litigation and extraction of settlements. This tactic prevents those facing litigation from knowing the full extent of the patents that their adversaries hold when negotiating settlements, or even knowing connections between multiple trolls. The PTO will begin a rulemaking process to require patent applicants and owners to regularly update ownership information when they are involved in proceedings before the PTO, specifically designating the “ultimate parent entity” in control of the patent or application.

We were just discussing this issue because of the This American Life episode where Intellectual Ventures was able to hide behind a shell, something it’s been accused of doing many, many times. This is also one of the proposals we’ve seen in Congress. The details here will matter, and note that, with this, it will only apply to patents that are involved in proceedings before the PTO. It’s a step in the right direction, but clearly could go much further — though, much of that needs to be done legislatively (see below). Also, the definition of “in control of” may need to be specific here. In the TAL story, IV got 90% of the profits but argued that it had no actual control over the patent.

Tightening Functional Claiming. The AIA made important improvements to the examination process and overall patent quality, but stakeholders remain concerned about patents with overly broad claims — particularly in the context of software. The PTO will provide new targeted training to its examiners on scrutiny of functional claims and will, over 3 the next six months develop strategies to improve claim clarity, such as by use of glossaries in patent specifications to assist examiners in the software field.

This is a big one, and everyone, if you get a chance, go thank Mark Lemley for campaigning strongly on this point over the last year. Lemley has been pointing out for quite some time that the broadness of software patents almost certainly violates the 1952 Patent Act’s prohibition on so-called “functional claiming.” In short, these are claims to a general function, rather than a specific solution. So… claiming a patent on “podcasting” rather than a very specific way of doing podcasting. Telling the USPTO to retrain examiners to recognize functional claims as ineligible for patent protection could be very helpful in knocking out a lot of bad patents in the future.

Empowering Downstream Users. Patent trolls are increasingly targeting Main Street retailers, consumers and other end-users of products containing patented technology — for instance, for using point-of-sale software or a particular business method. End-users should not be subject to lawsuits for simply using a product as intended, and need an easier way to know their rights before entering into costly litigation or settlement. The PTO will publish new education and outreach materials, including an accessible, plain-English web site offering answers to common questions by those facing demands from a possible troll.

This is an increasing problem, which we’ve discussed a bunch of times, with the various patent lawsuits against podcasters, cafes offering WiFi and networked scanners. Of course, providing them “education and outreach materials” seems like a weak response, but that may be all that’s possible at the exec level on that front. The legislative side (which we’ll get to) tries to tackle this problem more broadly.

Expanding Dedicated Outreach and Study. Challenges to U.S. innovation using tools available in the patent space are particularly dynamic, and require both dedicated attention and meaningful data. Engagement with stakeholders — including patent holders, research institutions, consumer advocates, public interest groups, and the general public — is also an important part of our work moving forward. Roundtables and workshops that the PTO, DOJ, and FTC have held in 2012 have offered invaluable input to this process. We are announcing an expansion of our outreach efforts, including six months of high-profile events across the country to develop new ideas and consensus around updates to patent policies and laws. We are also announcing an expansion of the PTO Edison Scholars Program, which will bring distinguished academic experts to the PTO to develop — and make available to the public — more robust data and research on the issues bearing on abusive litigation

Yes, more outreach is important. While some may brush this off as meaningless, those who don’t spend any time around actual innovators facing regular patent shakedowns really just don’t realize how big a problem this is.

Strengthen Enforcement Process of Exclusion Orders. Once the U.S. International Trade Commission (ITC) finds a violation of Section 337 and issues an exclusion order barring the importation of infringing goods, Customs and Border Protection (CBP) and the ITC are responsible for determining whether imported articles fall within the scope of the exclusion order. Implementing these orders present unique challenges given these shared responsibilities and the complexity of making this determination, particularly in cases in which a technologically sophisticated product such as a smartphone has been successfully redesigned to not fall within the scope of the exclusion order. To address this concern, the U.S. Intellectual Property Enforcement Coordinator will launch an interagency review of existing procedures that CBP and the ITC use to evaluate the scope of exclusion orders and work to ensure the process and standards utilized during exclusion order enforcement activities are transparent, effective, and efficient.

This is a specific issue specifically related to the ITC efforts (more on that in a bit), which would be helpful, but won’t move the needle for most patent disputes.

So, the executive actions represent a recognition of the nature of the problem, and have some good ideas on how to deal with it under existing law (the functional claiming bit could be huge), but there are still limitations from the law. And that’s where Congress comes in. Here are the President’s suggestions:

Require patentees and applicants to disclose the “Real Party-in-Interest,” by requiring any party sending demand letters, filing an infringement suit or seeking PTO review of a 2 patent to file updated ownership information, and enabling the PTO or district courts to impose sanctions for non-compliance.

Above, we noted that he’s already telling the PTO to require this for issues before the PTO, so this is asking Congress to extend that mandate to cover all the other situations, down to sending a demand letter. Without this, the orders to the PTO above are a lot less helpful, since owners could still hide behind a patent until it went up before the PTO. Having Congress add this component would, hopefully, severely minimize the shell companies and hidden owners issues with patents.

Permit more discretion in awarding fees to prevailing parties in patent cases, providing district courts with more discretion to award attorney’s fees under 35 USC 285 as a sanction for abusive court filings (similar to the legal standard that applies in copyright infringement cases).

This is similar to the proposal first floated in Congress last year. Basically, this will allow those who are hit with a bogus patent lawsuit to seek legal fees. The “legal standard” here is a bit too high, as we’ve seen that it’s still quite rare (though not unheard of) to see fees awarded in copyright cases. Still, it could weed out the worst of the worst.

Expand the PTO’s transitional program for covered business method patents to include a broader category of computer-enabled patents and permit a wider range of challengers to petition for review of issued patents before the Patent Trial and Appeals Board (PTAB).

This is basically Senator Schumer’s bill, and we’re all for it. Making it easier and faster to get the USPTO to dump bad patents? Yes, please.

Protect off-the-shelf use by consumers and businesses by providing them with better legal protection against liability for a product being used off-the-shelf and solely for its intended use. Also, stay judicial proceedings against such consumers when an infringement suit has also been brought against a vendor, retailer, or manufacturer.

As mentioned above this is a relatively new, but quickly growing issue. Of course, the details here mater quite a bit. Better legal protection against liability sounds great, but the wording and the specifics will matter. Still, this brief description sounds right. Using a WiFi network you bought in a store for exactly what it says it will do shouldn’t lead to you facing a patent troll suit. Same with using the “scan to email” function on your office scanner.

Change the ITC standard for obtaining an injunction to better align it with the traditional four-factor test in eBay Inc. v. MercExchange, to enhance consistency in the standards applied at the ITC and district courts.

This is important. We’ve talked for years about the ITC loophole that trolls have been exploiting lately. Basically, this gives patent holders two cracks at anyone they’re going after, once in the courts and once at the ITC. Even worse, the ITC is not (currently) bound to follow the rules set out by the Supreme Court. This proposal would try to make the ITC process aligned with what the Supreme Court said in the very important MercExchange ruling. Prior to MercExchange, courts would commonly issue an injunction, barring the production or sale of products found to be infringing. So, say your smartphone was infringing on a single patent for a tiny little bit. The patent holder could cause the entire product to be blocked from sale if you’re found to infringe. That’s crazy.

Under the MercExchange ruling, the courts were told to take a more reasonable view of things, and to see if other remedies might be less harmful to innovation. Of course, with the ITC, the only power they have is to issue an injunction. That is, they can’t require royalty payments or anything like that. So, if they have to follow MercExchange, it could just mean that even if they find a product infringing, they could still decide not to issue an injunction.

Use demand letter transparency to help curb abusive suits, incentivizing public filing of demand letters in a way that makes them accessible and searchable to the public.

This is another good one. We’ve written a few times about the practice of some trolls to try to even keep their demands secret, such that many who receive demand letters don’t know that they’re one of a group — and a group that might team up to fight back against bogus threats. Basically, it sounds like this might help lead to a “Chilling Effects” website for troll demands. That sounds quite useful

Ensure the ITC has adequate flexibility in hiring qualified Administrative Law Judges.

Further to the ITC point above — though this seems more specific to just making the ITC feel a little less overwhelmed with all the cases coming its way lately.

All in all, it’s a pretty comprehensive proposal with a lot of good ideas — nearly all of which have been discussed or proposed in Congress already. So there really aren’t any “shockers” other than the fact that the White House really seems to be taking this issue seriously, and that should lead to some action in Congress.

That said, get ready for the pushback. Pharmaceutical companies, giant patent trolls like Intellectual Ventures (and some other legacy tech companies who are long past their innovation days) and a gaggle of people claiming vaguely to represent “small inventors” are about to go ballistic over these proposed changes, and will seek to block any real progress, while simultaneously looking to water down the proposals as much as possible. It’s what they did the last time, and it worked. Of course, the problem has only gotten progressively worse since then, so hopefully people realize that their complaints are really more about protecting their own chosen business models, rather than innovation as a whole.

Finally, it’ll probably come as no surprise that I think there are many other proposals that would have been nice to see. A couple years ago I wrote a post suggesting what real patent reform should entail, and I still think many of those suggestions would be useful, including a real independent inventor defense, the use of independent invention as a sign of obviousness, and having patent examiners in the PTO include talking to actual people skilled in the art (i.e, people in the field working) to explore whether or not a patent application passes the “non-obvious to those skilled in the art” test. I’m still hopeful that eventually these suggestions will be picked up, but until then, the suggestions above are definitely a good start.

Filed Under: congress, itc, patent trolls, patents, president obama, reforms, uspto