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Posted on Techdirt - 31 January 2019 @ 8:09pm

Stupid Patent Of The Month: IBM's Software Patent On Texting And Driving

from the distracted-patent-approvals dept

In the smartphone era, "distracted driving" is a serious, and well-known, problem. Official warnings about poor driving habits are as old as the automobile itself. The New York Times published a Pulitzer-winning series on distracted driving back in 2009.

Increasingly, technological assists are available for those seeking to manage their smartphone's distractions while in the car. Apple integrated a "do not disturb while driving" mode into iOS 11, and Google has long had similar functionality in its Android Auto app. Multitudes of third-party smartphone apps exists to address the issue. Finally, more than 50 companies are working on what may be the ultimate solution to distracted driving: autonomous vehicles.

Unfortunately, the U.S. patent system creates warped incentives for emerging software fields like road-safety features. Rather than competing in a challenging space, some players are seeking broadly-worded patents, then hope to sit back and extract profits later.

That may be the strategy of the International Business Machine Corp., which has acquired more U.S. patents than any other company for decades now. This week, IBM was awarded U.S. Patent No. 10,191,462, describing a "Vehicle electronic receptionist."

IBM likely has the resources to make technology to manage communications while driving. But the '462 patent describes nothing of the sort. Instead, IBM's patent simply describes a computerized decision-making process.

The patent's Claim 1 describes a computer system that determines the "driving context" of a vehicle; analyzes an incoming communication; and then determines an "electronic action" in response, considering various weights and risk factors. The electronic action could be "taking a message, providing a silent or audible notification… [or] providing an automated response."

Other claims add more layers to the analysis, like considering road conditions, doing voice analysis on a voicemail, or considering whether a passenger is sleeping before deciding to put a call through.

Essentially, IBM has described a futuristic car computer system that will analyze the driving conditions and the context of an incoming text or call, then use some unspecified type of AI to decide what to do about the communication. The specification is filled with empty platitudes typical of software patents, like "[t]he computer system may be described in the general context of computer system executable instructions, such as program modules, being executed by a computer system." Aside from hand-waving like this, the patent has essentially no information about how one would actually create the claimed system.

IBM: Ignore the "Troll Scare"

Some of the claims describe good ideas that could be useful parts of automotive software in the future. But the patent is just that—a list of ideas, not instructions for executing the ideas or creating anything. IBM's patent offers no code, no algorithms, not even a vague description of how the rules might work.

We've seen this problem before, in which the Patent Office awards a patent not to the first proven inventor, but to the first applicant who describes a task using technological and legal jargon that patent professionals respect. The Patent Office and the Federal Circuit have been far too willing to approve patents that merely state the idea of applying rules without even specifying what those rules are. The public gains nothing from companies getting patents on the mere idea of using an algorithm to solve a particular problem. Patents like the '462 patent leave all of the hard work—actually writing, debugging, and deploying software that solves the problem under real-world conditions—as an exercise for the reader. And they allow IBM to exclude the public from making or creating any of the wide range of algorithms that these broad patent claims could ensnare.

In our view, IBM's new patent should fail under the Supreme Court's Alice v. CLS Bank decision, which holds that you can't patent basic decision-making processes by adding references to generic computer hardware and software. Given that, it may come as no surprise that IBM is lobbying to throw out the Alice precedent. In a recent interview, top IP executives from IBM explained their plans to demolish Alice by getting Congress to re-work Section 101 of the patent laws, which bars abstract patents. "Every time we try to enforce a patent, we get a 101 defense that comes back at us," said IBM Chief Patent Counsel Manny Schecter. IBM VP Mark Ringes said he's hearing "positive messages from Congress" about changing Section 101 to better suit big patent owners.

Ringes went so far to claim that the "troll scare is largely just noise now." That assertion flies in the face of the patent litigation landscape. By one estimate, about 90 percent of patent lawsuits filed last year in the tech sector were filed by non-practicing entities. IBM appears to be downplaying the damage done by patent trolls because its business interests have become aligned with them. IBM collected more than 9,000 patents in 2017 alone. It uses that massive storehouse of IP to fuel a licensing business that earns more than $1 billion per year

In some cases, that means IBM can let other companies battle for dominance in a particular sector, then step in and demand licensing payments when it's clear who can pay. There's less need for IBM to build new social media apps, when the company can use a patent threat to collect $36 million from Twitter right before its IPO. There's less need to build an e-commerce business, when IBM can sue Amazon over an "electronic catalog" patent that dates back to 1994.

Make no mistake: IBM has an incentive to pile up overly broad patents like this one because these patents might allow it to extract revenues from other companies' future products. A broken patent system encourages companies to use patents, rather than products, to assure dominance in key sectors like driving communications and autonomous driving. Getting rid of Alice would only make the system worse and lead to another flood of do-it-on-a-computer patents. We hope Congress agrees.

Reposted from the EFF's Stupid Patent of the Month series.

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Posted on Techdirt - 27 December 2018 @ 7:23pm

Stupid Patent of the Month: Trading By Tweet

from the uspto-messing-up-again dept

We've written many times about how the patent system is a poor fit for software. Innovation in the U.S. software industry happens despite, not because of, the thousands of software patents that are granted each year.

But software is not the only industry where patents make very little sense. In the 1990s, the Federal Circuit opened the door to patents on methods of doing business. While the Supreme Court tried to undo some of that damage, financial institutions are still hit with patent lawsuits. Many of these suits come from trolls that don't produce anything. And yet, just as in the tech sector, there are some financial companies that keep heading back to the U.S. Patent and Trademark Office seeking a 20-year monopoly on some tactic or another.

This month, we're highlighting U.S. Patent Number 10,147,140, which was recently granted to BNY Mellon Bank. The first claim of the '140 patent uses a lot of financial jargon to describe an extremely simple process: checking social media for a particular event or statement, then making a trade based on that "investment triggering content." One example of that: making a trade because someone put a hashtag in a tweet.

Even if this was a new product idea or investment strategy, it is not a new invention. The trend of stock market trading has been clear now for decades: automated trading has become faster and more computerized each year. BNY Mellon Bank did not invent computerized trading, social media, or anything else remotely technical. Rather, its patent proposes the idea of trading based on a social media event.

In the patent prosecution documents, the patent examiner even starts out by admitting that "the concept described in claim 1 is not meaningfully different than the economic concept… found by the courts to be an abstract idea." Appropriately, the examiner cited Alice v. CLS Bank, which forbids "do it on a computer"-type patents. Similarly, Alice should clearly forbid patents on very old practices, like trading stocks, and simply adding in "social media monitoring.

But then the examiner goes on to agree with the applicant's specious argument that just because the claim has additional limitations—such as "using a processor to withdraw[] funds from a customer financial account and then purchase shares," and an interface that shows social media information—it becomes eligible. "When viewed as an ordered combination, the additional limitations amount to significantly more than the abstract idea," the examiner concludes, "[t]he idea is patent eligible."

Adding generic computer processes shouldn't have made this patent eligible. So how does it happen? One big problem is that incentives in the patent application process line up to favor the granting of patents. Patent examiners are graded through a "count" system that gives them progressively less credit as persistent applicants file new amendments, arguments, requests for continued examination, and continuation applications. This system makes it impossible for the Patent Office to ever finally reject an application. There is only one way for the Patent Office to get rid of a persistent applicant: give them a patent.

In this case, the BNY Mellon's lawyers essentially just pounded their fists on the table. They offered nothing more than the bare insistence that the patent included an "ordered combination," and that should negate the Alice rules. "There was no showing that the combination as a whole failed to provide an inventive concept," wrote the applicants. The examiner simply gave up and issued a patent that is plainly ineligible under Alice and many other cases.

We've written before that the Patent Office needs to do a better job applying Alice. Unfortunately, the new Director appears to want the opposite. Other lobbyists are pushing for legislation to undo Alice entirely. If they get their way, we can expect another flood of silly patents on business methods and software.

Reposted from the EFF's Stupid Patent of the Month series.

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Posted on Techdirt - 31 July 2018 @ 7:44pm

Stupid Patent Of The Month: Upaid Sues 'Offending Laundromats' For Using Prepaid Cards

from the offending-laundromat? dept

When patent trolls threaten and sue small businesses, their actions draw the public's attention to the worst abuses of the patent system. In 2013, a company called MPHJ Technology got called out in a U.S. Senate hearing as a "bottom feeder" engaged in "garden-variety extortion" after it sent out thousands of demand letters demanding payments from small businesses that dared to use printers with "scan-to-email" functions. Lawmakers, understandably, found it incomprehensible that broad, stupid patents were being used to sue burger stands and grocery stores.

There's a good reason for that concern. It's hard to see how lawsuits against small businesses using basic technology do anything to "promote the progress of science and the useful arts." By contrast, it is easy to see how these lawsuits harm companies and consumers by increasing the costs and risks of doing business.

But the intermittent public attention hasn't stopped this most basic abuse of the patent system. Upaid Ltd., a shell company based in the British Virgin Islands, has been filing patent infringement lawsuits throughout 2018, including 14 against laundromats—yes, laundromats—from California to Massachusetts.

Upaid says that laundromats are infringing U.S. Patent No. 8,976,947. Claim 1 of the patent describes a computer system that performs "pre-authorized communication services and transactions," after checking an account to see if a user "has a sufficient amount currently available for the … transaction." It's essentially a patent on having a prepaid account for—well, anything.

Right now, Upaid lawyers are focused on systems run by Card Concepts, Inc., a service provider that markets a system called Laundry Card to laundromats. Many of the Upaid's complaints simply point to online photos of the laundromats and the relevant card dispensers as evidence of infringement.

This incredibly broad patent was granted in 2015, but dates to a series of applications stretching back to 1998. Even in 1998, a prepaid account was not an inventive concept. It's a basic and longstanding idea, that isn't improved by adding verbiage about a "plurality of external networks" and a "computer readable medium."

And that's exactly the argument that lawyers for Card Concepts Inc. made [.pdf] when they got sued by Upaid last year. CCI has rightly argued that the patent should be invalidated as abstract under the Alice decision. CCI's motion may well succeed in defending their customers—at some point.

Meanwhile, though, Upaid has unleashed 14 lawsuits against laundromats in different states, and has promised more. Faced with the prospect of paying a lawyer, even if just to buy time, some of those small businesses are likely to pay unjustified licensing fees for this patent.

In fact, it has begun to happen. Last week, UPaid put out a press release boasting that a Houston-based facility called 24 Hour Laundry had agreed to pay them. Laundromats in Kansas, Massachusetts, and Monterey, California are next up on the list.

"When required, we will strenuously enforce our rights through litigation against offending laundromats," warned Upaid CEO Simon Joyce. "Our recent settlement reveals that many parties are not aware that the card equipment critical to their successful laundry business infringes our patents."

Upaid's behavior is brazen, but it is not an anomaly. Other patent trolls have waged campaigns against small businesses that merely use off-the-shelf technology. For example, Innovatio IP Ventures sent thousands of letters targeting hotels and cafes that provide Wi-Fi for customers. In Upaid's case, the company's website doesn't list any products or services, but states that it is engaged in "ongoing development" of "intellectual property related to mobile commerce systems."

Lawsuits against small, non-technology business show how trolls exploit the patent system. The costs to challenge a wrongly granted patent are high—defending a patent lawsuit through a jury trial can cost millions of dollars. Faced with the possibility of that kind of "winning," small businesses will often fold.

Yet this year, patent maximalists are actually talking about rolling back the key changes to patent law that give small businesses a fighting chance. The Alice Corp. v. CLS Bank decision has stopped hundreds of "do it on a computer" style patents in their tracks. Meanwhile, inter partes review, a process that can get wrongly issued patents thrown out at a lower cost, are also under attack.

Instead of considering patent bills that move in exactly the wrong direction, like last year's STRONGER Patents Act, Congress should consider legislation focused on how to help the smallest businesses from being roped into unjustified and expensive patent disputes.

Reposted from EFF's Stupid Patent of the Month series.

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Posted on Techdirt - 29 June 2018 @ 3:31pm

Stupid Patent of the Month: Alleged Cult Leader Wants to 'Improve Performance'

from the can-we-improve-the-performance-of-the-uspto dept

In April, Mexican federal police arrested Keith Raniere, taking him from the $10,000-per-week villa where he was staying and extraditing him to New York. According to the NY Daily News, Raniere, leader of self-help group NXIVM (pronounced "nexium"), is now being held without bail while he awaits trial on sex-trafficking charges. Through NXIVM, he preached "empowerment," but critics say the group was a cult, and engaged in extreme behavior, including branding some women with an iron.

This was not the first controversial program Raniere was involved in. In 1992, Raniere ran a multilevel marketing program called "Consumer Buyline," which was described as an "illegal pyramid," by the Arkansas Attorney General's office. More recently, he has collected more than two dozen patents from the U.S. Patent Office, and has more applications pending—including this one, which is for a method of determining "whether a Luciferian can be rehabilitated."

The USPTO has granted Raniere protection for a variety of curious inventions, including a patent on "analyzing resonance," which eliminates unwanted frequencies in anything from musical instruments to automobiles. Raniere also received a patent on a virtual currency system, which he dubbed an "entrance-exchange structure and method." He applied for a patent on a method of "active listening," and received patents on a system for finding a lost cell phone, and a way of preventing a motor vehicle from running out of fuel. NXIVM members reportedly identified their levels with various colored sashes, which helps explain Raniere's design patent on a "rational inquiry sash."

Today, we're going to focus on Raniere's U.S. Patent No. 9,421,447, a "method and apparatus for improving performance." The patent simply adds trivial limitations to the basic functioning of a treadmill, like timing the user and recording certain parameters (speed, heart rate, or turnover rate.) Since most modern treadmills allow users to precisely measure performance on a variety of metrics, the patent is arguably broad enough that it could be used to sue treadmill manufacturers or sellers.

Given Raniere's litigation history, that's not such a remote possibility. NXIVM has sued its critics for defamationenough that the Albany Times-Union called NIXVM a "Litigation Machine." And Raniere sued both AT&T and Microsoft for infringement of some patents relating to video conferencing. The latter suit ended very badly for Raniere, who was ordered to pay attorneys' fees after he couldn't prove that he still had ownership of the patents in question. So it's worth taking a look at how Raniere got the ‘447 patent.

Raniere's Law ™

Raniere has never been shy about proclaiming how special he is. His bio on a website for Executive Success Programs, a series of courses run by NXIVM, explains that he could "construct full sentences and questions" by the age of one, and read by the age of two. Raniere was an East Coast Judo Champion at age 11, recruits are told, and he entered college at Rensselaer Polytechnic Institute by age 16. The honorifics continue:

He has an estimated problem-solving rarity of one in 425,000,000 with respect to the general population. He has intellectual patents pending in the areas of human potential and ethics, expression, voice and musical training, athletic performance, commerce, education and learning, information processing and human modeling. He also holds several technological patents on computer inventions and a sleep guidance system.

Raniere may be able to convince NXIVM followers that he is a one-in-425 million level genius. A new article from Vanity Fair explains that, inside NXIVM, Raniere's patents were often used as evidence of his brilliance. But how did Raniere convince the US Patent and Trademark Office of his inventing abilities?

Ultimately, he didn't really have to. Taking a close look at the history of Raniere's patent application shows how the deck is stacked in favor of a determined, well-funded applicant. For someone who's determined to prove they're a great inventor, and is reasonably well-funded, the patent office can ultimately be cowed into compliance.

In this case, Raniere's original patent application claimed a "performance system" with a "control system" and a sensor for monitoring "at least one parameter." His examples went beyond exercise: he intended to patent humans making mathematical calculations at increasing speed, or a weightlifter decreasing the time between repetitions.

Appropriately, the examiner rejected all 13 of his proposed claims. But nothing stops patent applicants from coming back and trying again—and again—and that's exactly what Raniere did. To his bare-bones description of a "performance system" he added this dose of jargon:

Wherein said control system includes a device to determine a point of efficiency, said point of efficiency occurring when the linear proportional rate of change in [] at least one parameter of the subject being trained varies rapidly outside of the state of accommodation and the range of tolerance.

Whew! That's a lot of verbiage just to explain that the same "performance system" is measuring how fast changes occurs. The patent would be infringed by any treadmill that could measure a changing variable. Even though earlier patents had described essentially the same thing—Raniere's lawyers insisted that his idea of measure the "rate of change" was "completely different" from a system that used a "precalculated range."

The examiner rejected Raniere's application again, noting that an older patent for an exercise bike attached to a video game still fulfilled all the elements of Raniere's new, jargon-filled patent.

But Raniere simply paid $470 to file a "request for continued examination," and kept pounding his fist on the proverbial table. Raniere, or his lawyers, bloated Claim 1 up with yet more language about the point of efficiency occurring "just prior to the subject no longer being able to accommodate additional stress" and entering a state of exhaustion, and claimed now that it was this more narrow description that was his stroke of genius.

"Nowhere in [earlier patent] Hall-Tipping is it suggested that the user be exercised to the point of exhaustion," pointed out Raniere's lawyers, this time around.

Rejected again, they had an interview with the examiner before coming back with yet another $470 "continued examination" request. Then Raniere loaded up Claim 1 with almost twice as much language about the system repeating itself, and re-measuring new "points of efficiency."

This went on and on [PDF], with Raniere continuing to change language and add limitations. Eight times, the examiner threw out every single one of his claims. Finally, after he added language about the "range of tolerance" being plus or minus two percent, his claims were allowed.

In his specification, Raniere was typically un-self-effacing. He crowed that he had created "Raniere's Maximal Efficiency Principle™" or "Raniere's Law™." (The guy is clearly into branding.)

Unfortunately, this is par for the course. Determined patent applicants get an endless number of chances to create a piece of intellectual property that just barely avoids all the other patents and non-patent art that overworked patent examiners are able to find. The strategy is: find a basic process, and slowly add limitations until you get a patent. That's how we get patents on filming a yoga class and Amazon's patent on white-background photography. The fault lies not so much with the examiner here, but with the Federal Circuit for interpreting patent law's obviousness standard in a way that effectively prohibits the Patent Office from relying on common sense.

So what's the solution? We need the Federal Circuit to apply the Supreme Court's decision in KSR v Teleflex more faithfully and allow the Patent Office to use common sense when faced with mundane claims. We also need to defend the Alice v. CLS Bank ruling so that examiners can reject patents that claim abstract ideas implemented with conventional tools (like treadmills). Patent law should also be changed so that applicants don't get an endless number of bites at the apple.

Reposted from the EFF's Stupid Patent of the Month series.

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Posted on Techdirt - 29 May 2018 @ 3:31pm

Stupid Patent Of The Month: Facebook Joins The Online Dating Arms Race

from the social-dating-is-patent-protected dept

Earlier this month, Facebook announced that it will wedge its way into an already-crowded corner of online commerce. The social networking site plans to use its giant storehouse of personal data to create a dating service, promising to help users find "meaningful relationships," not just "hookups," as Facebook CEO Mark Zuckerberg put it.

It remains to be seen whether Facebook's new service will be a "Tinder-killer" that users flock to, or a flop for a company that's long been beset with privacy concerns. But there's one thing Facebook, its competitors, and its detractors should all be able to agree on. When a new dating service launches, it should rise or fall based on whether it can win the trust of users—not an arbitrary race to the Patent Office.

Unfortunately, well before it built and launched an actual dating service, Facebook engaged in just such a race. The company applied for a stupid patent on "social dating" back in 2013, and earlier this year, the Patent Office granted the application.

Take Established Methods, Add One "Social Graph"

Online dating is a perfect example of a software-based business that truly doesn't need patents to be innovative. Companies have built such services based on what they hope will be useful or attractive to different groups of users, rather than engaging in arguments over who did what first. Patent tiffs are particularly pointless in a space like online dating, which builds on a long history of pre-digital innovation. Placing personal ads in newspapers has a history that dates back more than a century.

The first claim of Facebook's US Patent No. 9,609,072 describes maintaining a "social graph" of user connections, then allowing one to request "introductions" to friends-of-friends. Subsequent claims are variations on the theme, like allowing users to include "preferences" and rank their possible matches.

This application should have been rejected under the U.S. Supreme Court's 2014 decision in CLS Bank v. Alice. In that case, the high court made it clear that simply adding "do it on a computer"-style jargon to long-established ways of doing business wasn't enough to get a patent. Unfortunately, here, the Patent Office allowed Facebook to pull a similar trick. The company essentially took the idea of introducing available singles through friends-of-friends, added graphics, profiles and the "social graph," and then got a patent on it.

The idea of finding good matches is positively ancient, whether people have been looking for the right lover, the right product, or the right business partner. It doesn't warrant a patent, and when patent trolls have claimed otherwise, they haven't fared well in court.

"Having two or more parties input preference data is not inventive," wrote U.S. District Judge Denise Cote in 2013, as she dismantled the patent of a shell company called Lumen View Technology LLC. "Matchmakers have been doing this for millennia."

Patently Pointless

To be fair to Facebook, the company may have felt compelled to get its own stupid patent because there are so many other stupid online dating patents out there. In a phenomenon that's the patent equivalent of "mutually assured destruction," many tech companies have stockpiled poor-quality Internet patents simply to have a threat to fight off other companies' poor-quality Internet patents. This arms race, of course, costs many millions of dollars and benefits no one other than patent system insiders.

In the world of online dating, wasteful, anti-competitive patent litigation isn't just theoretical. Earlier this year, Match Group sued up-and-comer Bumble for patent infringement. The suit was brought shortly after Match reportedly tried to purchase Bumble. And in 2015, Jdate sued Jswipe, accusing their competitor of infringing U.S. Patent No. 5,950,200, which tried to claim the idea of notifying people that they "feel reciprocal interest for each other." It was a basic patent that sought to encompass just about the whole concept of a dating service.

This growing web of stupid patent claims won't stop Facebook from getting into online dating. It won't stop Facebook's giant competitors, like Match Group or IAC. But for an entrepreneur who wants to start a new business, the costly dueling patent claims will be a barrier. The battle to win the hearts and minds of online daters should be won with apps and code, not with patents.

Republished from the EFF's Stupid Patent of the Month series.

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Posted on Techdirt - 27 April 2018 @ 7:39pm

Stupid Patent Of The Month: Suggesting Reading Material

from the how-about-reading-the-alice-decision? dept

Online businesses—like businesses everywhere—are full of suggestions. If you order a burger, you might want fries with that. If you read Popular Science, you might like reading Popular Mechanics. Those kinds of suggestions are a very old part of commerce, and no one would seriously think it's a patentable technology.

Except, apparently, for Red River Innovations LLC, a patent troll that believes its patents cover the idea of suggesting what people should read next. Red River filed a half-dozen lawsuits in East Texas throughout 2015 and 2016. Some of those lawsuits were against retailers like home improvement chain Menards, clothier Zumiez, and cookie retailer Ms. Fields. Those stores all got sued because they have search bars on their websites.

In some lawsuits, Red River claimed the use of a search bar infringed US Patent No. 7,958,138. For example, in a lawsuit against Zumiez, Red River claimed [PDF] that "after a request for electronic text through the search box located at www.zumiez.com, the Zumiez system automatically identifies and graphically presents additional reading material that is related to a concept within the requested electronic text, as described and claimed in the '138 Patent." In that case, the "reading material" is text like product listings for jackets or skateboard decks.

In another lawsuit, Red River asserted a related patent, US Patent No. 7,526,477, which is our winner this month. The '477 patent describes a system of electronic text searching, where the user is presented with "related concepts" to the text they're already reading. The examples shown in the patent display a kind of live index, shown to the right of a block of electronic text. In a lawsuit against Infolinks, Red River alleged [PDF] infringement because "after a request for electronic text, the InText system automatically identifies and graphically presents additional reading material that is related to a concept within the requested electronic text."

Suggesting and providing reading material isn't an invention, but rather an abstract idea. The final paragraph of the '477 patent's specification makes it clear that the claimed method could be practiced on just about any computer. Under the Supreme Court's decision in Alice v. CLS Bank, an abstract idea doesn't become eligible for a patent merely because you suggest performing it with a computer. But hiring lawyers to make this argument is an expensive task, and it can be daunting to do so in a faraway locale, like the East Texas district where Red River has filed its lawsuits so far. That venue has historically attracted "patent troll" entities that see it as favorable to their cases.

The '477 patent is another of the patents featured in Unified Patents' prior art crowdsourcing project Patroll. If you know of any prior art for the '477 patent, you can submit it (before April 30) to Unified Patents for a possible $2,000 prize.

The good news for anyone being targeted by Red River today is that it's not going to be as easy to drag businesses from all over the country into a court of their choice. The Supreme Court's TC Heartland decision, combined with a Federal Circuit case called In re Cray, mean that patent owners have to sue in a venue where defendants actually do business.

It's also a good example of why fee-shifting in patent cases, and upholding the case law of the Alice decision, are so important. Small companies using basic web technologies shouldn't have to go through a multi-million dollar jury trial to get a chance to prove that a patent like the '477 is abstract and obvious.

Republished from the EFF's Stupid Patent of the Month series.

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Posted on Techdirt - 28 February 2018 @ 7:38pm

Stupid Patent Of The Month: Buying A Bundle Of Diamonds

from the assignor-estoppel dept

This month's Stupid Patent shows what happens when the patent system strays outside its proper boundaries. US Patent No. 8,706,513 describes a "fungible basket of investment grade gems" for use in "financial instruments." In other words, it's a rating and trading system that attempts to turn diamonds into a tradeable commodity like oil, gold, or corn.

Of course, creating new types of investment vehicles isn't really an invention. And patents on newfangled financial techniques like this were generally barred following Bilski v. Kappos, a 2008 Supreme Court case that prevents the patenting of purely financial instruments. Since then, the law has become even less favorable to abstract business method patents like this one. In our view, the '513 patent would not survive a challenge under Bilski or the Supreme Court's 2014 decision in Alice v. CLS Bank.

Despite its clear problems, the '513 patent is being asserted in court—and one of the people best placed to testify against the patent may not be allowed to.

The public's right to challenge a patent in court is a critical part of the US patent system, that has always balanced the exclusive power of a patent. It's especially important since patents are often granted by overworked examiners who get an average of 18 hours to review applications. 

But there are two types of persons that, increasingly, aren't allowed to challenge problematic patents: inventors of patents, and even partial owners of patents. Under a doctrine known as "assignor estoppel," the Federal Circuit has barred inventors from challenging patents that they acquired for a former employer. Assignor estoppel was originally meant to cover a narrow set of circumstances—inventors who engaged in fraud or bad dealing, for instance—but the nation's top patent court now routinely applies it to prevent inventors from challenging patents.

Patent scholar Mark Lemley flagged this problem in a 2016 paper, noting assignor estoppel could be used to control the free movement of employees or quash a legitimate competitor. "Inventors as a class are put under burdens that we apply to no other employee," he wrote. "If they start a company, or even go to work for an existing company in the same field, they will not be able to defend a patent suit from their old employer."

In this case, the Federal Circuit's expansive view of assignor estoppel may prevent a person who owned just a fraction of a patent from fighting back when that patent gets used in an attempt to quash a competing business.

Despite the fact that this gemological trading system should never have been granted a patent, so far, it's being successfully used by its owner to beat up on a competitor—and the competitor could be barred from even challenging the patent by assignor estoppel.

Competing Diamond Companies

GemShares was created in 2008 to market "diamond investment products." The original partners were joined in business by a man named Arthur Lipton, who bought 20% of GemShares in 2013. He struck a deal not to compete with GemShares.

GemShares says [PDF] Lipton broke that deal in 2014, when he started working on his own project, a "secure diamond smart card," and filed for patents related to it. But in addition to breach of contract, GemShares sued for patent infringement. They said Lipton's new business violated the '513 patent.

The litigation also involves breach of contract claims, and allegations of fraud from Lipton's former partner. Without getting into the weeds on all that, the defendant in this case may not even be allowed to argue that the "gem financial product" patent is invalid. Earlier this month, the judge overseeing the case issued an order [PDF] noting that "the Federal Circuit has upheld the doctrine of assignor estoppel, which precludes an inventor-assignor of a patent sued for infringement from arguing the patent's invalidity."

The Federal Circuit has made assignor estoppel so powerful, in fact, that Lipton's 20% ownership contract with GemShares may be enough to stop him and his lawyers from mounting an invalidity defense.

It's bad policy to stop the public from challenging bad patents, and assignor estoppel should only be used in narrow cases, like outright fraud. As it's been applied by the Federal Circuit, it's destined to be used in exactly the way that Lemley warned it would—as an anticompetitive cudgel.

We agree with the brief signed by Lemley and more than two dozen other law professors [PDF] in EVE-USA, Inc. v. Mentor Graphics Corp., arguing that the Supreme Court should take up this issue and keep assignor estoppel within the narrow limits it originally intended.

Reposted from EFF's Stupid Patent of the Month series.

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