The patent system is broken. Barnes & Noble alone has been sued by "non practicing entities"—a/k/a patent trolls—well over twenty-five times and received an additional twenty-plus patent claims in the last five years. The claimants do not have products and are not competitors. They assert claims for the sole purpose of extorting money. Companies like Barnes & Noble have to choose between paying extortionate ransoms and settling the claim, or fighting in a judicial system ill equipped to handle baseless patent claims at costs that frequently reach millions of dollars.

In the current system, patent trolls overwhelm operating companies with baseless litigation that is extremely costly to defend. Patent cases generally cost at least $2M to take through trial, and frequently much more. Litigating, even to victory, also entails massive business disruption. Companies are forced to disclose their most sensitive and top-secret technical and financial information and must divert key personnel from critical business tasks to provide information and testimony. The process is exceptionally burdensome, especially on technical staff. Document discovery and depositions seem endless.

Patent trolls know this and as a result, they sue companies in droves and make settlement demands designed to maximize their financial take while making it cheaper and less painful to settle than to devote the resources necessary to defeat their claims. The current system lets them do so even with claims that are unlikely to prevail on the merits. That is because, whether win lose or draw, the rules effectively insulate trolls from negative consequences except perhaps a lower return than expected from any given company in any given case. They can sue on tenuous claims and still come out ahead. And so the broken system with its attendant leverage allows trolls to extract billions in blackmail from U.S. companies and, in the final analysis, consumers.

The Patent and Copyright Clause grants Congress the power "[t]o...promote the Progress of Science and useful Arts," not science fiction and litigious arts. (Article 1, Section 8, Clause 8 (emphasis added)). But the current system allows trolls to pursue fantastic allegations—claims that would be laughed out of the room in actual scientific or technical circles—in endless litigation that taxes and taxes true innovators while making no meaningful contribution to society. Barnes & Noble's experience exemplifies this and industry data confirms it. See, e.g., James Bessen & Michael J. Meurer, "The Direct Costs from NPE Disputes" at 2, Boston Univ. School of Law Working Paper No. 12–34 (June 28, 2012) (available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id= 2091210) (estimating direct costs of troll litigation on economy at $29 billion for 2011 based upon study that included data from 82 companies and finding additional empirical support for earlier conclusion that "much of the cost borne by technology companies as they defend against NPE lawsuits is a social loss and not a mere transfer"). The system has lost its true north.

Even the most plainly baseless lawsuits are expensive and can take years to defeat. In at least four cases, Barnes & Noble has faced litigation by patentees asserting the same theories on which they previously lost. In one case, for example, Barnes & Noble is alleged to infringe patents because BN.com uses the HTML language and returns search results other than exact matches. The patentee asserted these allegations against Barnes & Noble despite having tried and lost a case against other ecommerce retailers based on the same functional allegations levied against their websites. In two of these four cases, the patentees ceased pursuing claims against Barnes & Noble once the United States Court of Appeals for the Federal Circuit affirmed their earlier losses. But in two others, the appeals are not yet final and although Barnes & Noble has filed dispositive motions, the litigations have carried on actively for years.

In two other recent cases, Barnes & Noble achieved victory at the district court level on summary judgment. In one such case, the Court awarded Barnes & Noble its costs—but the total awarded was less than $50K. The company expended millions to achieve that victory, but attorneys’ and expert fees are not recoverable as a matter of course.

Appeals routinely follow summary judgment victories, and Barnes & Noble's experience has been no exception. The Federal Circuit now has a mandatory mediation program. In that program, Barnes & Noble has received demands for substantial settlement payments—even in cases that it won below. One such demand, for example, exceeded $3M. The settlement demands that patent trolls make on appeal, particularly in the wake of complete defeat, have nothing to do with the merits. They underscore the uncertainty and expense that accompany appeals and potential retrials in patent cases.

In a growing number of cases, patentees sue Barnes & Noble on multiple patents only to drop one or more of them before trial. This practice underscores that many patent claims are not made in good faith. Rather, plaintiffs frequently assert patents for additional leverage to force companies to expend significant resources mounting a defense on multiple fronts even when they know they will not ultimately prevail.

Barnes & Noble and other technology companies see countless lawsuits in which the asserted patents purport to cover products and technologies common to the entire industry. We face repeated allegations that anyone using Wi-Fi, anyone using 3G, anyone using MP3, anyone with an e-commerce website, anyone using Ethernet, and, recently, anyone using InfiniBand technology, to name a few, is infringing and must pay a hefty price to license purportedly essential patents. The allegations sweep far beyond specific innovations to which a patent might legitimately lay claim.

Require Losing Patentees to Pay Costs and Expenses, Including Attorneys' Fees

Require Actual Reduction to Practice and Commercialization

Cap Damages at the Amount Paid to Acquire a Patent

Require Clear and Convincing Proof that an Invention is New and Non-obvious for a Patent to Issue

Keep Trolls Out of the ITC

There the Supreme Court will be examining the practise in the case of Federal Trade Commission v. Actavis, Inc. As a long and helpful post on the SCOTUS Blog previewing this case explains:

The basic issue before the Court, for all of the complexity of the laws, can be stated simply: does a brand-name manufacturer, faced with a potential generic competitor, act illegally if it pays money -- sometimes a quite sizable sum -- to the generic in a deal that postpones for a period of years the substitute version's marketing. Popularly, this practice is known as "pay for delay." It also has been called a "reverse payment agreement." The FTC has been opposed to such deals for years under antitrust law, but until the Obama administration, the Justice Department did not share its opposition; it now does.

One analyst has suggested that the legality of such deals is "the most important unresolved problem in antitrust policy today."

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According to the FTC, Serdar Danis and Aaron Foss will each receive $25,000 for their proposals, which both use software to intercept and filter out illegal prerecorded calls using technology to "blacklist" robocaller phone numbers and "whitelist" numbers associated with acceptable incoming calls. Both proposals also would filter out unapproved robocallers using a CAPTCHA-style test to prevent illegal calls from ringing through to a user.

I am concerned that the majority's apparent position that scraping is a violation of Section 5 of the FTC Act will put the FTC in the position of becoming the enforcer of the copyright laws on the Internet—a task for which it has neither the resources nor expertise, and was surely not envisioned by Congress. As any casual user of the Internet knows, many websites make use of other websites' content; indeed, the business model for many popular websites is based on aggregating or summarizing the content of other websites. As a result of the majority's apparent condemnation of scraping, the legality of these aggregators may be called into question, and the Commission may be inundated with rent-seeking complaints from firms like the alleged 'victims' here.

Based on the evidence gathered in this investigation, I saw no factual or legal basis for pursuing... a standalone FTC Act Section 5 claim premised on the so-called scraping conduct.... In particular, there is no viable theory of harm ... for bringing a case....

I am not aware of any evidence that the alleged scraping resulted in either a decline in traffic from Google to the parties complaining about the scraping or any reduction in innovation by existing or potential rivals of Google. In fact, some of the complainants in this matter demonstrated significant growth both during and after the alleged scraping took place. Further, the investigation revealed that most websites appear to approve of Google's use of their content in Google's vertical properties because it leads to increased traffic to their sites. Moreover, the likelihood of possible future harm to competition or consumers from such conduct appears highly remote, particularly given the enormous growth of the use of apps to access rivals' sites or services directly.

“I've been doing this almost 40 years, and I've done dozens if not scores of government investigations on both sides, and I have never seen a more unprofessional, incomplete, incompetent investigation,” said Gary Reback, a Silicon Valley lawyer who represented some of Google's complainants before the FTC.

“The FTC's decision to close its investigation with only voluntary commitments from Google is disappointing and premature, coming just weeks before the company is expected to make a formal and detailed proposal to resolve the four abuses of dominance identified by the European Commission, first among them biased display of its own properties in search results.

The FTC’s settlement is by no means the last word in this case, leaving the FTC without a major role in the final resolution to the investigations of Google's anti-competitive practices by state attorneys general and the European Commission. The FTC’s inaction on the core question of search bias will only embolden Google to act more aggressively to misuse its monopoly power to harm other innovators.

State attorneys general who reportedly disagreed with today's announcement by the FTC have an important role to play in ensuring both that Google is not allowed to continue practices that hurt every American business through artificially high advertising costs, and to demand that whatever changes Google is forced to make in Europe also apply for U.S. consumers who risk losing innovation because of Google's aggressive abuse of its dominance.

The FTC conducted an extensive investigation into allegations that Google had manipulated its search algorithms to harm vertical websites and unfairly promote its own competing vertical properties, a practice commonly known as “search bias.” In particular, the FTC evaluated Google’s introduction of “Universal Search” – a product that prominently displays targeted Google properties in response to specific categories of searches, such as shopping and local – to determine whether Google used that product to reduce or eliminate a nascent competitive threat. Similarly, the investigation focused on the allegation that Google altered its search algorithms to demote certain vertical websites in an effort to reduce or eliminate a nascent competitive threat. According to the Commission statement, however, the FTC concluded that the introduction of Universal Search, as well as additional changes made to Google’s search algorithms – even those that may have had the effect of harming individual competitors – could be plausibly justified as innovations that improved Google’s product and the experience of its users. It therefore has chosen to close the investigation.

...we are concerned that the updated definition of when a website is “directed to children” could expand COPPA's reach to general audience sites and confuse website owners as to whether these new rules apply to them. This uncertainty will likely prompt more sites to take advantage of the Commission’s new age-screening safe harbor, which could lead to many more sites demanding age or identifying information from all users before allowing access. Requiring age verification from every user runs counter to the First Amendment right to access information anonymously and increases the collection of potentially sensitive information generally. The new rule's uncertainty is magnified for third party plug-in operators, who may now be liable for the decisions of publishers to embed their plug-in on sites directed to children

To start, by deeming persistent identifiers as personal information per se, the FTC's new rule runs contrary to established U.S. privacy law: federal courts have unanimously decided that IP addresses do not allow the contacting of a specific individual.

Further, as Commissioner Ohlhausen's dissent notes, the COPPA statute does not allow the FTC to impose liability on sites that do not collect children's information merely because the operator may somehow benefit from an ad network or plug-in operator collecting information—provided the third party neither targets children nor shares information with the site operator.

If a third party becomes liable once a single employee "recognizes the child-directed nature" of a website—whatever that means—COPPA will become the worst kind of notice-and-takedown system: Would a single complaint—or tweet—from a parent or activist group create "knowledge?" Faced with the impossible task of predicting how the FTC might characterize each of the millions of sites on which ads or plug-ins might appear, operators will have to try to block advertising or plug-ins on sites that appears to be child-oriented. If they can't do that effectively, this potential liability may effectively kill behavioral advertising on any site that can't prove it isn't child-oriented—in other words, on small sites.

Thus, COPPA will now impact adult sites, denying publishers revenue and adult users the functionality that is increasingly provided by embeds. Thus, the FTC invites not only a statutory challenge but also a constitutional challenge similar to that which led the Child Online Protection Act (COPA) to be struck down.

Yesterday, the U.S. Federal Trade Commission (the FTC) promulgated new rules (effectively July 1, 2013) interpreting the Children’s Online Privacy Protection Act (COPPA), and the new rules are a real mess. They are riddled with innumerable ambiguities and questionable policy choices, and I could spend a decade or two trying to figure out how the new rules apply to different factual situations.

The FTC wanted to crack down on these COPPA workarounds, but in typical FTC fashion, it did so in a ham-fisted and marble-mouthed way.

"There's a possibility of competitive harm here," said Joseph Wayland, who served as the Justice Department's acting antitrust chief until last week, when he stepped down to return to private practice. Mr. Wayland said officials are devoting "huge energy, particularly at a senior level" to this and other antitrust issues surrounding patents.

“At the FTC, Rachel from Cardholder Services is public enemy number one,” said FTC Chairman Jon Leibowitz. “We’re cracking down on illegal robocalls by bringing law enforcement actions and pursuing technical solutions to the problem.”

In the robocall cases announced today, the FTC alleges that the defendants place automated calls to consumers, typically with a prerecorded message from “Rachel” or someone else from “Cardholder Services.” The calls purport to have an “important message” regarding an opportunity to reduce high credit card interest rates. Consumers are urged to “press 1” to connect with a live representative, or “press 2” to discontinue getting such calls. Consumers who press 1 are connected to live telemarketers. Most consumers have no way to screen the calls using Caller ID, as the incoming number allegedly is often “spoofed,” or displayed as a false number. In many cases, the name displayed on the Caller ID is so generic, such as “Card Services,” that it provides little information about who is calling.

According to the FTC, consumers who reach a live telemarketer are then pitched allegedly deceptive offers to have their credit card interest rates substantially reduced, sometimes to as low as 6.9 or even zero percent. The telemarketers allegedly guarantee that lowering card interest rates will save the consumers thousands of dollars in finance charges in a short period of time and will allow them to pay off the balances more quickly. Some telemarketers allegedly claim that consumers will save at least $2,500 in finance charges and will be able to pay off their balances two to three times faster, without increasing their monthly payments.

In some cases, according to the FTC, the telemarketers claim to be calling from the consumer’s credit card company. In other cases, they use “Cardholder Services” to suggest a relationship with a bank or credit card company. If the consumer expresses an interest in the rate reduction offer, the telemarketer sometimes conducts a purported “audit” to determine whether the consumer qualifies. Consumers provide their financial and personal information, and are then put on hold while the “audit” is completed. According to the FTC, the “audit” typically is used only to determine whether consumers have enough credit available on their credit cards to pay the company’s fee.

Current technology still allows shady telemarketers to cheaply autodial thousands of phone calls every minute and display false or misleading caller ID information. Among these are the famously annoying calls from “Rachel From Cardholder Services.”

“We think this will be an effective approach in the case of robocalls because the winner of our challenge will become a national hero.”

At a time when the national economy continues to stagnate, it's not clear to me why the FTC should be focusing on a product that consumers seem very happy with, search engines. While Google is surely a big company and an important service in peoples' lives, my constituents also use a variety of competing services, including Amazon.com for shopping, iTunes for music and movies, Facebook for social networking and recommendations, and mobile apps like Yelp for finding local businesses. Competition is only a click away and there are no barriers to competition; if I create a better search algorithm I could set up a server in my garage and compete globally with Google. To even discuss applying anti-trust in this kind of hyper-competitive environment defies all logic and the very underpinnigns of anti-trust law itself.

I have never heard one of my constituents say that they don't feel like they have enough choices online, or that they feel locked in to using any one of these services. Competition among these services is leading to lots of great services for consumers -- and consumers aren't asking Congress or the FTC to protect them.

The FTC should tread carefully when reviewing Google, Facebook, Twitter or any other tech company, given the dynamism of our tech industry and the potential for making things worse through regulation. Today's giants can be tomorrow's failures without any government intervention; market forces drive obsolescence at a break neck pace which should only further abrogated the need for government intervention. I believe that application of anti-trust against Google would be a woefully misguided step that would threaten the integrity of our anti-trust system, and could ultimately lead to Congressional action resulting in a reduction in the ability of the FTC to enforce critical anti-trust protections in industries where markets are being distorted by monopolies and oligopolies.

The companies captured screenshots of confidential and personal information, logged keystrokes and took webcam pictures of people in their homes. Their aim was to track the computers belonging to costomers who were behind with their payments.

"An agreement to rent a computer doesn’t give a company license to access consumers’ private emails, bank account information, and medical records, or, even worse, webcam photos of people in the privacy of their own homes," says FTC chairman Jon Leibowitz. "The FTC orders today will put an end to their cyber spying."

The rent-to-own companies are Aspen Way Enterprises, Watershed Development, Showplace, JAG Rents, Red Zone, B Stamper Enterprises and CALM Ventures. They've got off lightly, agreeing to stop using the data-collection software and to stop deceiving customers.

The FTC plans to put COPPA obligations on plugin developers if they “know or have reason to know” that their plugin has been installed on a children’s site. “Plugins” include analytics providers, advertising networks, social media plugins, embedded videos, or anyone else who provides third-party code for websites. Under the FTC's proposed change, if plugin developers receive a user’s IP address through a plugin that’s been installed on a children’s site, they could face legal liability for collecting children’s personal information.

It’s unclear how a plugin or platform like Twitter is supposed to “know or have reason to know” that someone has cut and pasted a line of their code into a children’s site. The FTC says that plugin developers “will not be free to ignore credible information brought to their attention.” But the FTC doesn’t say what counts as “credible.” Would developers have to assume every random e-mail is a credible tip that could saddle them with legal liability? Even if the FTC did provide clarity, though, it would still be extraordinarily burdensome to place legal obligations on plugin developers based on the actions of others.

Things get worse with the FTC’s second major proposal: expanding the scope of sites deemed “directed to children” from sites aimed primarily at a very young audience to include sites and services that are “likely to attract an audience that includes a disproportionately large percentage of children under 13 as compared to the percentage of such children in the general population.”

This convoluted standard raises a number of serious issues. Not only is it difficult for site operators to gauge what proportions of their audience fall into arbitrary age buckets, but the FTC also gives operators no sense of what it means for an audience to be “disproportionately” composed of children in comparison to the general population. If a site’s audience is 20 percent children, is it disproportionately composed of children? What about at 30 percent? It’s not clear from the language, and it won’t be clear to website operators trying to run their sites while staying within the bounds of the law.

We appreciate and value you as one of Joyent's lifetime Shared Hosting customers. As this service is one of our earliest offerings, and has now run its course, your lifetime service will end on October 31, 2012

Having co-founded two companies that ultimately became Joyent, growing from a tiny startup to where we are today has had its ups and downs, and this is one of the toughest decisions I’ve made. In particular because I've always been the biggest advocate for pushing a shared hosting product forward, and then here I am, the only remaining "founder" that is active.

It's ironic that our biggest advocates are the ones most affected by this and I know many of you are disappointed in me. I’ve received many questions and comments about why the service is being discontinued and I'm listening and will continue to listen. And like the past, this response won't be my last.

Making the decision to discontinue the service was extremely difficult. It was driven by some simple things: the hardware is simply old (6-8 years old), it's failing, there isn't an upgrade path from it, there's more than many of you likely realize and oddly enough it's more expensive with time (while not being used much). The rest of the Joyent's business has been paying for that, and I can't make the argument as to why it can continue.

Yet, we're only here because of the initial community that trusted us, and I'm genuinely grateful for the support. I’m sorry that I've lost that trust and I've upset you. You have a right to be upset. This was a tough decision with some nuance to it and none of this is lost on me.

"This unfairness harms the affected companies and their employees, as well as consumers and the broader economy," the senators wrote. "It also stifles innovation by forcing law-abiding American businesses — large and small — to compete against those businesses that reduce their operating costs through the use of pirated IT."

As part of his new job, Mr. Long will likely continue those efforts before the FTC and other agencies, a person familiar with the matter said.

Except as provided in this section, or otherwise specifically authorized by the Commission, no former member or employee (“former employee” or “employee”) of the Commission may communicate to or appear before the Commission, as attorney or counsel, or otherwise assist or advise behind-the-scenes, regarding a formal or informal proceeding or investigation...

Antitrust is for consumer welfare, not competitor welfare.

In the Reagan years, we were always suspicious of whining competitors. We were suspicious because our view of antitrust law, shaped by Robert Bork and other scholars, was, and still is, that antitrust law should maximize the welfare of consumers, not of competitors.

Has anyone heard consumers complaining about Google? We have not, probably because consumers are under no pressure to use Google. They do so because they get what they want from Google, and they get it for free.

When Google was started in 1998, Yahoo was the dominant search engine -- by far. Today Yahoo struggles to survive. Only a few years ago, Microsoft seemed a giant, standing astride the digital world. Today its business model is threatened, the competitive marketplace shifting under its feet from licensed software to cloud-based computing. Last year's hot IPOs -- Yelp, LinkedIn, and Groupon -- didn't even exist five years ago.