Friday, May 15, 2009

Judge Michel Speaks About "Junk Patents", Damages, Trolls, and the PTO

Last December, Chief Circuit Judge Michel gave the keynote address at the FTC hearings on "The Evolving IP Marketplace", where Judge Michel addressed the state of patent law and patent reform. Frankly, it's one of the most sober and rational patent reform speeches in recent years, and I thought it would be worthwhile to help distribute a transcript of the speech. While the FTC has a transcript available here (link), I cleaned up the FTC version and made it available at the link provided below.

Some key "highlights" from the speech:

Addressing the oft-cited contention that too many "junk" patents are issued:

But I suggest that as we move forward . . . that it's worth pausing to consider for just a minute what do we really mean when we're talking about more patent quality. Certainly lay people and maybe some lawyers could be forgiven if they take that as a suggestion that a very large number of patents are just flat-out invalid. That is, the entire patent is a piece of junk, worth nothing, illicitly granted.

I've been on the court for twenty years and eight months, and I cannot ever remember seeing a single patent, I'm sure they're out there, but I can't remember seeing one where every single claim was invalid. I've seen innumerable patents where some of the broader claims either were indefinitely broader or were damn close, but in all of those cases, the narrower claims seemed to me equally clearly to be plainly valid. So what we really have is a problem of some over-broad claims getting through the system, slipping through the sieve that in the ideal world would catch them.

On the "litigation explosion" and "wasteful litigation":

I keep hearing that we have a ‘litigation explosion’ in patent infringement cases. I keep hearing that we have lots of ‘wasteful litigation.’ I keep hearing we have excesses and abuses of certain types of defendants or maybe plaintiffs in some of these cases. I also read that for quite a number of decades now, the percentage of extant patents sued on has remained almost exactly the same, at about percent, so if you have a lot more patents out there, you would expect more lawsuits, and that's exactly what you get.

Now, of course you can say, yeah, but they're all bad patents. Well, maybe or maybe they're partly bad and partly good, so a little hard to be sure. I'm a skeptic about whether we have an excess amount of wasteful litigation or a crisis or a patent litigation explosion.

Now, as you may have heard me already throw out the number, about 3,000 patent suits filed a year, but the more interesting numbers that start to reduce that is that about 90 percent settle voluntarily. Now, of course now you may say, but yeah, only under coercion and under threats, under a gun at your head. All those kind of arguments. Well, maybe. Maybe. But 90 percent never go to trial, so when we're talking about trial expense, trial delay, not minor matters, we're not talking about 90 percent of the lawsuits. We're talking about 10 percent of the lawsuits. What happens to the 300 that don't fall out on voluntary settlements between the parties?

Well, over two-thirds of them get resolved on summary judgment. Now, summary judgment isn't cheap. I'm not trying to make that argument, but it's a lot less expensive than a full trial, lots less, and much faster almost always, not in every case, but normally.

So now we're down to about a hundred trials per year, ball park figure. (All these figures are just ball park figures). If we step back and we say, all right, we're a nation, highly developed, high technological, fully industrialized advanced nation of 300 million people. We have something like a million and a half patents in force, and we have what, 30,000 companies in the marketplace? I don't even know the exact number, but accept the notion that it may be somewhere like 30,000 players. Are a hundred trials excessive in a country of that size and that vitality with that many patents extant? And what happens when there are trials? Most of them get affirmed on appeal. Of course, that also means some get reversed, but the numbers again are kind of instructive.

On the PTO, and it's ability to deal with patent reform:

So, of course, the magic bullet is a new kind of reexamination in the Patent Office. That's what everybody says will solve the problem. Why? It will be faster and cheaper than court trials. Well, maybe. In the real world, we've got a Patent Office that struggles to keep up with its current work. What basis would we have for confidence, particularly if it doesn't have a tripled budget, that it can run in-house what amounts to a court system with cross examination and discovery rules and a Judge presiding and making fact findings or Administrative Patent Judges even trained for this? How hard would it be to get them up to speed to function just the way District Court Judges do or ITC administrative judges in patent cases? I think these are hard questions, and I don't think the answers are too obvious, but they certainly give me a lot of pause.

* * *

Now, certainly the existing reexamination process has been less than a stellar success, and it certainly doesn't look faster than the courts, as slow as the courts are, compared to how they should be. I can't testify about how much cheaper it is, but the stories I've heard don't sound too encouraging, and then there's a big question of: Is it adequately accurate? Is it more accurate than what would happen in a well-run district courtroom? I'm not sure.

* * *

I'm told that the average examiner has been in the corps less than three years. Less than three years! That's a horrible fact in this country, even for our ongoing system of ex parte examination. If you try to lay on top of that a new beefed up litigation-like re-exam process, are there people there who can do it? Can the examiners do it? Can the supervisors do it? Even the board is also drowning in cases. They've greatly expanded in recent years. I think it's somewhere up to in the neighborhood now of 80 Administrative Patent Judges. What do they need, 160, 390? No one even knows what they would need to run these trials.

On "excess" damages:

Now, of course when you talk about the courts, their awards, people talk about excess damages. Everyone can cite some example of what they consider a horrendously excess damage award. A fair number of what I've read in print turn out to be nonexistent cases. I kept reading about the windshield wiper case where the cost of the car was used as the metric of damages, but I haven't been able to find such a case.

And Professors Jaffee and Lerner, who are very highly qualified economists, wrote in their book, which many of you read, that the courts often give double damages and actually cited a case that I was involved in as an example of double damages, and they said that I gave both lost profit damage and reasonable royalty damages to the winning patentee. Well, yeah, the Court did. Of course it did, because it was for different products and different time ranges, two different forms of damages, but they weren't -- but that's not double payment. That's paying once, so there's a lot of misunderstanding out there.

There are a lot of apocryphal cases that turn out to not really exist, and there are certainly some very large damage numbers; no question about that. On the other hand, most of those large damage amounts involve very large markets, very large profits, so we shouldn't be surprised, I wouldn't think. In any event, a few examples, if they're not very representative, hardly prove that excesses are common, but that's the charge, that half the time the damages are wildly out of proportion to anything that would be sustainable in common sense. It's easy to use words like ‘appropriate.’ The FTC talks about whether damages are ‘appropriate.’ Well, it's a little bit in the eye of the beholder. What you might think was appropriate I might think was way too little or way too much, but it's a pretty inexact yardstick.

On "trolling" and NPEs:

Then the argument keeps shifting. Well, it's not so much the number of infringement suits filed every year, it's who's filing. Well, why should we assume that a non-manufacturing patent owner shouldn't be allowed to enforce its patent? What is wrong with a university owning patents based on research of its faculty scientists or research institutes or small inventors or small innovative companies that either can or don't want to try to manufacture products themselves but license their inventions so others can make them?

Well, are these patentees really illegitimate somehow? I mean, after all, at least up until now a patent has given its owner the right to exclude, not the obligation to make. Then some say, well, it's not so much the non-practicing entities, it's certain companies that don't invent at all, but merely acquire and enforce patents, and of course calling them ‘trolls’ just confuses the analysis because obviously a troll is a bad thing.

It's a pejorative label. (Some people who used to complain about trolls allegedly have become trolls). But I don't think that it's helpful -- it's a slogan. It's a label. It's an excuse to not think carefully about the problem, as far as I'm concerned. It's like talking about ‘questionable patents.’ It's an excuse to not think carefully about the problem as far as I'm concerned. It's like talking about questionable patents. It's not helpful if we're going to try to diagnose the real illness and prescribe a useful medicine.

Besides, patents, like any other form of property, the essential element of property is it is alienable. You can sell it. You can sell it to anybody you want to for whatever price you want to sell it. Why should that be prohibited? Why should I be prohibited from buying patents if that's what I want to do, whether I invented them or not, whether I am going to practice them or not, whether I'm a research institution or a university or not? There might be some reasons. Maybe some of them are good, but it's not self-evident, at least not to me.

Then there's certainly the debate about motives. Well, they just want to acquire patents so they can squeeze royalties out of infringers. Well, yeah. Hey, this is commerce. This is about money. This is not an altruistic system. The whole constitutional idea was that the incentive of monetary gains would motivate innovation at a greater rate and to better ends than if the lure of money wasn't there, so I'm a little dismayed when I see it even creep into footnotes of Supreme Court opinions, that certain patentees were just trying to squeeze money out of the accused infringer. Well, all kinds of patentees are trying to squeeze money out of the accused infringer. That's what the lawsuit is all about, so come on. Let's be a little more adult about it than to worry about the greedy motive of the patentee. Of course the patentee is greedy.

There's much more in the speech, and it's a very informative and entertaining read - download a (cleaned-up) copy of the transcript here (link)

1 Comentário:

Unknown said...

Kudos to Judge Michel! He is right on the money about the NPE argument. I sat in a webinar this week where Dan McCurdy of Allied Security Trust made the argument that only those making a product should be able to sue for damages. This effectively means that only his colleagues (that is, those large companies who fund AST) should be allowed to sue for patent infringement. This is an viewpoint that is in opposition to the public policy with which the patent system is imbibbed.

As Judge Michel properly asserts, there are many patentees, such as universities, that never intend (nor do they have the wherewithall) to ever make a product covered by the patent claims. Rather, their objective from patenting is to sell or license to another. If another entity chooses not to buy or license their rights, that entity is effectively "stealing" from the university etc. and should be sued.

I think what is almost always lost in the "patent troll" argument is the fact that patents exist to disseminate information and promote innovation through public disclosure. People will not do so unless their self-interest is served by giving them exclusive rights to that innovation for a limited term in return for this disclosure.

Corporations, along with their lawyers, have long considered patents first and foremost be a legal right to protect their products from compeitition. This is a perspective of a monopoly right (that is, an affirmative right to sell something) as opposed to a broader exclusionary right. It is the exclusionary aspect of patents that allows the public policy of innovation promotion through patents to succeed, but it is this exclusionary aspect that provides universities and other NPE's to sue corporations. Put simply, and as implicit in Judge Michel's words, the battle against NPE's is at its core a battle against the public policy that serves as the foundational basis of our patent system.

Those of us who believe that NPE's are not inherently "evil" must begin to reframe the argument and communicate the societal benefits of patent publication to those who set public policy.

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