Thursday, May 24, 2007

Should Standardization Groups Form "Patent Busting" Entities?

In an interesting move, Novell issued a statement saying that the company would work with the Electronic Frontier Foundation (EFF) to lobby governments and national and international organizations to develop patent legislation and policies that promote innovation. Notably, Novell has agreed to "contribute significant resources" to EFF's "Patent Busting Project" which collects prior art that can invalidate patents that are perceived to unfairly threaten software developers and Internet users.

Love them or hate them, public interest patent groups like EFF and PubPat have taken upon themselves the task of "protecting the public" against patents deemed to be over-broad or unwarranted. Since 2004, the EFF and PubPat have filed numerous reexamination requests on specific patents and have a fair share of success stories to their credit.

While these public-interest groups aren't necessarily technology-specific, there appears to be little that would prevent the formation of such an organization to benefit a specific group. With the surge of tech companies supporting post-grant oppositions, the climate seems right for forming "patent-busting" groups within industry segments to protect its members.

Take, for example, the case of standardized technologies (MPEG, JEDEC, UMTS, ITU, etc.). In most, if not all cases, the standardization group pools together patents from its members, and attempts to arrange licensing agreements that are on “fair, reasonable, and nondiscriminatory terms.” The ultimate goal is to have a cohesive IP environment where innovation will presumably flourish. In other words, by joining a standardization group, the members tacitly agree to "play nice" with their patent portfolio.

Standardization groups have traditionally enjoyed exemption from anti-trust violations. Section 2 of the Sherman Act forbids not monopoly, but “monopolization.” Monopolization is the acquisition or maintenance of monopoly by unlawful methods, not just the possession of a monopoly. As long as you fairly obtain your monopoly (i.e., through superior business acumen, first to enter a market, etc.), it is not the product of monopolization, and it is perfectly lawful in itself.

In the Qualcomm/Broadcom anti-trust case, the district court found no monopolization in the UMTS standard, because "[i]t is the natural consequence of the standard-setting process.” Thus, according to the court, any standard-setting agreement “promotes interoperability, but at the expense of competition” (the court's 47-page opinion is available here - link).

While standardization groups have been focused on pooling member patents to promote cooperation, the groups, as a whole, rarely (if ever) threaten invalidating actions against non-member patents. In this regard, each company is typically left to fend for itself when problematic patents arise. Predictably, few patents are challenged on reexamination, due to the "free rider" effect (i.e., "why should my company bear the burden and expense, if my competitors will equally benefit?"). To be sure, patent-busting efforts by the EFF and PubPat at least partially owe their existence to the reticence of companies to engage in this type of conduct.

So why shouldn't standardization groups form their own patent-busting arm, or create a shell organization that attacks non-member patents? By-laws could be written so that members can (anonymously) vote to determine which patents are worthy of reexamination, and the pooled resources and efforts could save each member from expending time and money in challenging "bad" patents. Even non-patent holding members could participate meaningfully in removing outside litigation threats. The patent busting efforts could also be used to keep patent-holding members in check, should they become belligerent down the road.

It makes strategic sense, if an industry is serious about minimizing the most disruptive outside patent threats (a "most wanted" list, as it were).

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