Wednesday, April 20, 2005

TROLL OR NO TROLL? David Barker, a JD candidate at Duke University School of Law published a good article, titled "Troll or No Troll? Policing Patent Usage With an Open Post-Grant Review" in the latest edition of the Duke Law & Technology Review. The article discusses the recent phenomenon of "patent trolling" and briefly touches upon the FTC's recent proposal to bolster reexamination practice as an alternative to litigation.

One of the more interesting propositions put forth in the article is to establish an "open review" process, instituted each time a a patent is sold or a patent holder is required to pay maintenance fees to retain his patent rights. The party who purchases the patent would be responsible to pay for the review and the patent holder would have the initial burden of coming forth with some evidence showing active use and enforcement of the patent:

If the patent holder or purchaser does not satisfy the burden of coming forth with some evidence of valid enforcement, the patent would be declared invalid and the technology would enter the public domain. If, however, the patent holder or purchaser satisfies the burden of production, the PTO would issue a public notice and allow third parties, for a limited time period, to submit contrary evidence which the PTO would review. If the PTO decides the evidence is sufficient to challenge the assertion of active enforcement, it would give the challengers the option to initiate an adverse proceeding between the patentee and any challengers. Only then, if the challengers decide to proceed, would the identity of the challengers be made known to the patentee.

The proceeding would be similar to a declaratory judgment action of invalidity and the challengers would have the burden of proof. The challengers would be required to prove elements similar to those of laches and estoppel discussed above. However, instead of being elements of an affirmative defense, they would become the elements of the challenger’s cause of action. The two factors for laches and the
three factors for estoppel would be taken into account; yet, the claims would retain their equitable nature and allow the judge to consider all elements of the case.

Similar to other proposed third-party reviews, the proceeding would be held in front of an administrative patent judge who would have greater legal training than most patent examiners. The FTC and the National Research Council of the National Academies have written detailed descriptions of the procedural aspects of such an open review.

I think this is a great idea in principle, but it would never work for a couple of reasons. First and foremost, the described review process would be horrifically expensive, and would likely place such a great financial burden on patentees, that it would effectively weaken the whole purpose of patent protection.

When one gets a patent, it provides you with the right to exclude - it does not mean that you have to exercise that right. Patents aren't just legal instruments - they're business tools as well. A company's patent portfolio can provide a great boost to a company's valuation without necessarily resorting to litigation or engaging in an active licensing program. When you want to affirmatively introduce your patent to the business world, you want to do it on your terms (i.e., when your calculated revenue streams would be at their highest), and not just at any time because you have to "do something" to avoid a subsequent equitable challenge.

Furthermore, such a review process would undoubtedly include some forms of discovery (the financial albatross of litigation). How would discovery be limited in such cases? Presumably, most of the information regarding potential litigation and licensing is privileged or subject to work-product immunity. It would seem that patentees would thus be subject to a Hobson's choice of sacrificing privileged information to preserve the patent, or maintain any privilege and risk losing patent protection.

Also, how would the review be applied to cases like mergers or bankruptcy? If company A, who has 500 patents, is being bought out by company B, would A be liable for costs if a third party (who wants to spoil the merger) requests review of the entire portfolio? Would trustees have to deal with this as well when assets are sold off?

Now, proving laches and estoppel is a difficult thing to do, except under the most egregious cases. But that doesn't mean that the process isn't open to abusive tactics by third parties.

- PHOSITA Blog has additional comments on the article here.

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