I was surprised to see VCs supporting this bad bill. But then, it makes a weird kind of sense. If you’re financing startups that develop new, difficult technologies, you need patents to keep from being ripped off. That’s what VCs did from about 1970 up to the dot-com boom in 2001. Then they switched to fast-time-to-market, agile, heavily promoted, but unoriginal ideas. Facebook and Twitter, not CMOS and GPUs. Go to VC presentations today – most of the ideas involve some new social thing or some “app”. I’ve been to a presentation on a social network for cats. This isn’t technology; just marketing.

The “war on patent trolls” has turned into a war on inventors. Universities just realized that they’re now considered patent trolls – they don’t manufacture or run businesses, they just create intellectual property. So the Association of American Universities has come out against HR 3309. Other opposition is from big companies including 3M and Caterpillar.

Where’s the push from this bill coming from? Advertising. The American Association of Advertising Agencies, the Direct Marketing Association (the junk mail lobby), and the trade groups for travel agencies and hotel booking services. They’re running into some business method patents related to ways to get people to buy online. There are four specific patents that bother the advertising agencies. This isn’t a huge problem. That’s also why the PR for HR 3309 is so good – it’s being pushed by the PR industry. HR 3309 was being railroaded through Congress with a heavy PR and lobbying push. Full committee hearings were held within two weeks after the bill was introduced. Usually that takes months.

The opposition is getting organized, but is playing catch-up. (Visit their slow-loading Save the Inventor web site. I’ve been bugging them about this.)

The US has had patents for over 200 years, and there have been “patent trolls” in the past. But there more of them since 2006. Why? Three court decisions and one law made it much harder for inventors:

(2006) “eBay v. MercExchange ” The patent holder can’t get an injunction against infringement any more, except in extreme cases. This destroyed the concept of a patent as property that only the patent holder could use.

(2007) “In re Seagate” The patent holder can’t get triple damages unless there is “reckless infringement”, which means the worst that can happen to an infringer is that they have to pay a royalty, the same royalty they might have negotiated. So infringement by a big company is risk-free.

(2007) MedImmune, Inc. v. Genentech, Inc. If a patent holder writes to an infringer asking them to pay royalties, they can be sued for a judgement that the patent is invalid, in a court of the infringer’s choosing. So, as a patent holder, you have to file suit before you can negotiate. This is why “patent trolling” became necessary.

(2011) The “America Invents Act” The “America Invents Act” added “post-grant opposition” proceedings, so now infringers can harass patent owners and stall infringement claims in multiple forums. Note that one of the “features” of HR 3309 is to limit estoppel so that similar issues can be raised once in a post-grant opposition and then re-raised in an infringement case. This makes it clear it’s all about raising the cost of enforcing a patent by wearing down the patent holder.)

That’s why we have companies which enforce patents in bulk – it’s now too expensive and too risky for the inventor to do it.

HR 3309 makes it worse. With “fee shifting”, you can get stuck paying the bills of the other side, and there is no limit on how much they can run up their bills. In patent infringement suits, the plaintiff only wins about 40% of the time. There are lots of little mistakes a plaintiff can make. Most losses are not on the merits of the claim.

We do need some changes to patent law, but they’re minor:

– A patent small claims court. The USPTO was pushing this until last summer, but since Kappos, the USPTO director, and Knight, the USPTO general counsel, left, the ball has been dropped. This would provide a cheap way to settle little patent claims like the ones the ad agency lobby is complaining about.

– Congress needs to override Medimmune, so you can talk before suing. We’re seeing more lawsuits because you can’t talk to someone about patent infringement without risking a counter-suit. You have to sue first. That sucks.

– There’s an argument for raising the “obviousness” bar. This is tough to define. There’s much criticism of some software patents being “obvious”. But often, it’s because they’re obvious in retrospect. They weren’t obvious until someone invented them. The Amazon one-click patent is a classic example. Once you know about it, it’s obvious. But it wasn’t obvious until someone thought of it. That’s invention.

Most of the trouble with obvious patents came from weak patent examination back in the 1990s. The USPTO has toughened up since then, and the acceptance rate is way down. That problem got solved.

(There’s a side problem with obviousness. Big Pharma would like to lower the obviousness bar to allow more “me too” drugs and minor variations on existing drugs to be patented. You can see their wish list in the IP provisions of the Trans-Pacific Trade Agreement.)

Some problems are already being solved:

– Business method patents are on the way out already. The America Invents Act two years ago put a damper on new ones. The ones still causing trouble are old, and will time out. Broadening the definition of “business method” may be desirable, but the definition is tough.

– There’s trouble where patents, standards, and antitrust meet. MPEG-LA, which controls video compression patents, is the big offender there. But the last of their key patents runs out in Q1 2014. The ones that remain are mostly for features you don’t really need in an MP4 decoder, like interlacing (died with analog TV.) We should see patent-free MP4 decoders soon.

So that’s an overview of the situation. It’s more complex than “patent trolls are bad”, but not all that complex.

John Nagle
Animats