Patent examiners misrepresenting their work hours

In my last post, I discussed a recent study that suggested that time constraints cause patent examiners to grant more patents, particularly by decreasing the rate for time-intensive tests like obviousness. On a related note, the patent office recently released an investigative report on patent examiners which alleges systemic abuse of work hours.

The report names four abuses. Summarized, they are:

1. Time fraud: misrepresentations of time and attendance
2. End-loading: sudden increase in productivity/work at end of the quarter
3. Mortgaging of work: claiming work before actually done
4. Performance plan issues

A Washington Post article reports:

Some of the 8,300 patent examiners, about half of whom work from home full time, repeatedly lied about the hours they were putting in, and many were receiving bonuses for work they didn’t do...More than 70 percent of the 80 managers interviewed also told investigators that a "significant" number of examiners did not work for long periods, then rushed to get their reviews done at the end of each quarter...[this] practice "negatively affects" the quality of the work.

Patent examiners, unlike most federal employees, are allowed to work from home, even full-time. I think work flexibility is good, but not at the cost of abuse of course.

In my last post the study suggested that time-constrained higher-ranking examiners performed worse at obviousness rejections. This report of abuse could demonstrate another problem. With end-loading abuse, is there a sudden rush to grant patents at the end of the quarter? If the application backlog was shorter, would it be beneficial to time my application for less scrutiny?

Could this abuse lead to "stupid patents" being granted or inconsistent examinations that are unfair to patent applicants? With the high cost of patent litigation and risk, and concerns over the quality of granted patents, abuse should be taken seriously.

From the report:

...approximately 20 percent of examiners (roughly 1,600 examiners) completed 50 percent or more of their total annual balanced disposals in the last two pay periods (or four weeks) of the quarter (typically six or seven bi-weeks), and approximately five percent of examiners (roughly 450 examiners) completed 70 percent or more of their total balanced disposals in the last two pay periods of the quarter.

End-loading work will create a quality control problem. It only takes one granted "stupid patent" to fall into the hands of a troll to impose large economic and legal costs. According to a Boston University study, the lost U.S. capital attributable to patent trolling was $29 billion in 2011.

I have sympathy for patent examiners, however. They have a difficult job that requires both tedious work and intellectual judgment. It's not their fault that courts change interpretations of patent-eligible subject matter, for example with software patents. It's unfair to use them as a scapegoat for patent abuses that reform (through laws or court precedent) could solve.

Pressed for time, examiners grant more patents

A recent study from the University of Illinois (UI) suggests that time constraints imposed on patent examiners is allowing more "on the margin" patents to be be granted, likely because they receive less scrutiny. This makes sense. If patent examiners are alloted less time, they are unable to reject patents under Section 102 (novel) and especially Section 103 (non-obviousness), which require tedious search for prior art and judgment, as I discussed in another blog post (and in class).

It's no surprise that faster work means poorer results, especially for patents. I mentioned in a previous blog post that during David Kappos's tenure as director of the patent office, the backlog of patent applications decreased but the approval rate for patent applications increased by 20 percent, suggesting that the patent office may have lowered its standards to process the backlog.

Moreover, the study claims that this trend impedes the performance of promoted examiners, who are expected to spend less time reviewing and work faster. Thus, higher-ranking examiners are more lenient at granting patents than are lower-ranking examiners.

From the UI press release:

The researchers found that an examiner’s promotion to each subsequent step-up in pay equated to a 10- to 15-percent decrease in the number of hours allocated to review a patent application...as an examiner is given less time to review an application, they become less inclined to search for prior art, which, in turn, makes it less likely that the examiner makes a prior art-based rejection.

On the plots of examiner rank level and grants, the grant rate consistently increases with increasing rank, from GS-7 (mid-level) to GS-14 (top-level). Likewise, the share of obviousness rejections consistently decrease with increasing rank.

While I suspect that the grant rate increases could be due to another factor, like greater confidence, the consistency with the obviousness rejections is particularly damning. All other things equal, I would assume that an experienced examiner would be more adept at creating a claim to obviousness from prior art, and in fact make more obviousness rejections. Thus, I think that the decrease in obvious rejections is more likely caused by time constraints.

I assume the examiner could change during the application process. Does the study account for patent applications that were originally objected to by one examiner and then accepted after changes by another examiner? Is it possible that the patent office would assign these responses to higher-ranking examiners? If so, the higher-ranking examiner might appear to be more lenient while the persistence of the applicant is the underlying cause. However, I think the patent examiner doesn't change frequently, and assume that the study would have otherwise controlled for it (hopefully).

Regardless, the inconsistency alone between grant rates and obviousness rejections among different examiner levels suggests that patent examination is unfair. If my patent application is assigned to a lower-ranking examiner, according to the study, I will be less likely to be granted a patent than a hypothetical competitor whose patent application is assigned to a high-ranking examiner.

Scanner troll sued by states and FTC

In a previous blog post, I mentioned an (in)famous "long tail" patent assertion entity called Project Paperless. Project Paperless, along with its shell companies, targeted business offices with scanners on their network, claiming what appears to be patents on scanning paper documents and viewing images.

Project Paperless later sold its patents to another troll, MPHJ Technology, owned by a Texas attorney Mac Rust (no surprise there). Apparently, Rust's job is to calm down "really irate" letter recipients to get them to pay from $900 to $1,200 per worker. MPHJ typically sends notices to small businesses demanding payment for each employee or risk an impending lawsuit. As I understand, the notices are harsh but indiscriminate. MPHJ does not investigate infringement. It probably assumes that every business office owns a scanner with an infringing scan-to-email feature.

With such tactics, it's no surprise that politicians are reacting. Congressman Peter DeFazio (from Oregon) mentioned MPHJ when advocating for his SHIELD bill, which would require some losers of patent litigation to cover the other side's costs. (The SHIELD act might create problems of its own.) Legal action was also taken against the troll in several states, including Vermont, Minnesota, New York, and Nebraska. Minnesota's attorney general was able to convince a judge to force MPHJ out of the state entirely. New York's attorney general reached a settlement, requiring MPHJ to return money it had received from businesses in the state, but allowing it to send out "toned down" demand letters in the future.

MPHJ is trying to strike back. During an investigation by the Federal Trade Commission (FTC), the U.S. regulator for consumer protection and business practices, MPHJ unexpectedly sued the FTC. In turn, the FTC filed a motion to dismiss the lawsuit, claiming:

[MPHJ] improperly seeks to impede an ongoing investigation by the FTC...The FTC's investigation centers around whether Plaintiff [MPHJ] violated, or is violating [the FTC Act]...by falsely threatening thousands of small businesses with imminent patent infringement litigation when, in truth, Plaintiff did not intend to take and did not take such action.

In Nebraska, MPHJ claimed that its demand letters were constitutionally protected free speech. The judge agreed, but the state attorney general has appealed.

Like with other states, Vermont's attorney general sued claiming that MPHJ violated consumer protection laws. However, MPHJ called the case "sham litigation" that sought to illegally restrict free speech and "usurp federal patent law". It requested that the state attorney general be sanctioned and that state pay its legal fees.

Thankfully, it appears that saner heads will prevail. MPHJ attempted to get the case heard in a federal district court and then appealed to the Federal Circuit. Both times the judges pushed the case back to state court. A Vermont venue makes a victory for MPHJ unlikely.

I'm glad to see that startups and small businesses are not alone in the battle against trolls. But it's unfortunate that an abusive business with a patent (that I assume/hope has prior art) is able to run a legal circus. One wonders how much lost time/money is imposed on small businesses, bureaucrats, and the judiciary alike.

Tesla's true intentions?

In my last blog post, I discussed Tesla Motors opening up its patent portfolio. I mentioned that this generosity is not completely unusual in the tech industry. However, it's still surprising for a public-traded company (i.e., answerable to shareholders) with research in not just software, but also more tangible items like vehicles and their batteries.

Akshay wrote a blog post asking whether Tesla had other motives? He questioned the meaning of CEO Elon Musk's statement that Tesla would "not initiate lawsuits against anyone who, in good faith, wants to use our technology". In his words:

With other, larger companies getting in on the electric car market, Elon Musk hopes they will help him in the building of these super-chargers...Tesla is currently by far the leader...they don't see a significant threat to sharing their technology with other companies because they already have a huge head start, both in brand-recognition in the EV market as well as in quality of product.

I agree. I also agree that Tesla would benefit from competitors using compatible "supercharger" charging station technology, which is currently restricted by the most important Tesla patents.

Later on, Musk himself writes:

We believe that Tesla, other companies making electric cars, and the world would all benefit from a common, rapidly-evolving technology platform

I'd also, however, like to also point out that Tesla probably views their patents defensively (deterrent to opposing patent lawsuits from potential competitors), not commercially. They don't see patent licensing as an important source of revenue, as Nokia does, or a competitive advantage, as Apple does. So, the disadvantages to opening up their patents are minimal. As it stands, they don't really have competitors.

Tesla actually tried and failed to monetize their patents. In 2011, Tesla partnered with Toyota to supply its battery, gearbox, power train, and battery-management software for Toyota's RAV4 EV. At the time, the deal was projected to be worth $100 million. But the deal ended sourly in May 2014. (In fairness, Tesla was more successful in a similar contracts with Daimler's Mercedes-Benz.)

Furthermore, according to Blattberg of VentureBeat, Musk's "good faith" qualifier and lack of legally-enforceable patent license means that nothing legally has changed:

Tesla's patents are not available under some automative [sic] equivalent of an Apache license...It doesn't matter how nonchalant Musk acts -- Toyota, Ford, Honda, and the rest would never knowingly infringe on Tesla's patents without legal documentation that everything is cool.

I suspect this leaves Tesla with flexibility to change its mind or deny the "license" to a particular competitor. In short, Tesla would benefit from encouraging competition that expands the market and charging infrastructure, but isn't completely committed.

Tesla is making a positive step for electric vehicles, though not solely out of goodwill.

Tesla opens patent portfolio

Tesla Motors, the electric vehicle manufacturer based here in the Bay Area, known for its Roadster and Model S cars, announced that it "will not initiate patent lawsuits against anyone who, in good faith, wants to use our technology." In the announcement, CEO Elon Musk writes:

Technology leadership is not defined by patents, which history has repeatedly shown to be small protection indeed against a determined competitor, but rather by the ability of a company to attract and motivate the world’s most talented engineers. We believe that applying the open source philosophy to our patents will strengthen rather than diminish Tesla’s position in this regard.

The exact details haven't yet been announced, but it certainly looks generous. Tesla has 203 patents on its batteries and electric vehicles. Another 280 patent applications have been filed. The earliest patent expires in 2026.

I think this is a surprise to a tech world with patent trolls and smartphone patent wars. However, it's not completely unusual.

I suspect that by "good faith", Musk means that the patents will be used for defensive purposes. In other words, the patents would be a deterrent. If an entity sues Tesla, they open themselves to a counter-lawsuit by Tesla. Tesla, like many other tech companies, might not see significant value in their patents "offensively", but rather as protection against lawsuits from competitors or trolls.

Along similar lines, Twitter, through its Innovator's Patent Agreement, promises its employees not to use patents they develop for the company offensively without their permission.

Or perhaps Tesla is trying a strategy similar to Google with Android. By giving away Android, Android gained market share faster, and Google expanded the market for its core product, advertising. Tesla would benefit from more charging stations, for example. Aaron Levie, CEO of cloud storage company Box, observed:

By opening its patents, Tesla rightly realizes it’s better to be the best product in a large industry than the only product in a niche one.

Section 101 vs. Section 103

Norman wrote a blog post that discussed patent validity tests using Section 101 or Section 103 (from Title 35 of the U.S. Code, which is about patents). He mentioned that groups Google and Netflix prefer a Section 101 test, while groups like IBM prefer a Section 103 test.

These different sections correspond to the requirements for patent-eligible subject matter:

• Section 101: not abstract or law of nature
• Section 102: novel
• Section 103: non-obvious

So what are the differences between a test that emphasizes section 101 as compared to one that emphasizes 102 or 103? Section 101 is the easy way to kill a patent. To invalidate a patent, Section 102 requires an expensive search for prior art. Similarly, Section 103 requires expensive expert opinions, which can be contested by the patent applicant.

This case at hand, Alice v. CLS Bank, concerns the patentabilty of software patents. I discussed the case and the larger debate about software patents in an earlier blog post.

I also believe that a stronger Section 101 test would specifically target many software patents, which can be seen as abstract. As I discussed in a blog post, in a number of Supreme Court cases, from Gottschalk v. Benson (1972) to Bilski v. Kappos (2010), the Court has consistently held that an abstract process or transformation cannot become patent-eligible subject matter simply by including a computer.

I think your preferred test reflects your opinion on software patents. If you oppose software patents, you will want a strong Section 101 test that makes it easy to invalidate patents. If you are a proponent of software patents, you will want more flexibility with a Section 102 or Section 103 test that makes it harder to invalidate patents. It's hardly surprising that the briefs filed by software companies, which usually oppose software patents (or seek to restrict them), advocate for a stronger Section 101 test. Conversely, IBM, the largest patent holder, and AIPLA, an IP lawyers' group, advocate for Section 103 and against Section 101, respectively.

The Supreme Court ultimately invalidated the patents under Section 101.

EFF stupid patent of the month

The Electronic Frontier Foundation (EFF), a technology-related civil liberties group that also advocates for patent reform and "eliminating stupid patents" is running a new monthly blog series:

[W]e're introducing a new blog series, Stupid Patent of the Month, featuring spectacularly dumb patents that have been recently issued or asserted. With this series, we hope to illustrate by example just how badly reform is needed -- at the Patent Office, in court, and in Congress.

Stupid patents are nothing new, of course. I previously discussed a bizzare Amazon patent on taking pictures with particular photo settings. EFF is known for its Patent Busting Project, which seeks to invalidate or narrow high-priority "bogus software patents". Still, I like their method of advocating for (stalling) patent reform by example.

I like how they address their concerns in the blog post by specifically discussing the first claim of the patent. The blog post includes the first claim in verbatim and in a more human-readable form (by claim element), to support the argument that this is simply a patent on a "doctor's computer-secretary".

I am also intrigued that, according to the file history, the claim was originally rejected as abstract. The claim was, however, accepted after an element "g" was appended to elements "a"-"f":

(g) providing a computer, the computer performing steps “a” through “f”. 

In other words, by simply adding a computer to the claim, it became eligible for a patent!

As I understand it, in a number of Supreme Court cases, from Gottschalk v. Benson (1972) to the recent Alice v. CLS (2014), the Court has consistently held that an abstract process or transformation cannot become patent-eligible subject matter simply by including a computer.

If so, this patent appears to blatantly violate that ruling. It looks too obvious to be overlooked.

Trolling the consumer

Amy discussed long tail patent trolling that target consumers. One such troll is Lodsys, which targeted iOS and Android app developers. Another troll (Project Paperless and its at least eight shell companies) targeted business offices with scanners on their network, claiming what appears to be patents on scanning paper documents and viewing images.

I agree with Amy that Lodsys and other hated patent trolls are a symptom of a problem in our patent system -- a problem that patent reform will hopefully solve. It will be an uphill battle, however.

In another blog post, I explained that our patent system has the difficulty of reconciling the interests of a pro-patent pharmaceutical industry with opposing or ambivalent views in the tech industry. And in the follow-up post, I quoted from testimony by Philip Johnson (who was nominated a few months later to direct the patent office) against the recent patent reform bill (a bill which was later killed):

...it is critical that Congress not [address troll abuse]...at the expense of the vast majority of innovation stakeholders for whom the patent system is working. Proposals that deprive patent owners of free access to the courts and/or delay or make less certain the availability of relief from the harms caused them by infringers should be avoided even, if necessary, at the expense of accepting less than a complete solution for troll abuse.

If patent owners are unwilling to make any compromises, it may be difficult to combat abusive trolls. Even though Apple attempted to intervene on behalf of its developers, the East Texas judge let Lodsys proceed and dismissed Apple's motion. And although many of these patents are of poor quality, as I mentioned when discussing studies on patent litigation, the majority of defendants are small businesses who would rather settle than risk bankruptcy.

In the case of Lodsys, the company was finally challenged after it targeted Kaspersky Lab. Eugene Kaspersky was happy to take revenge, even if it meant paying more to lawyers. As Americans in the 19th century vowed, "Millions for defense, but not one cent for tribute."

Joe Mullin of Ars Technica wrote:

In Kaspersky's view, patent trolls are no better than the extortionists who cropped up in Russia after the fall of the Soviet Union, when crime ran rampant. Kaspersky saw more and more people becoming victims of various extortion schemes. US patent trolls seemed very similar. "Kaspersky's view was that paying patent trolls was like paying a protection racket," said Kniser [Kaspersky's lead lawyer]. He wasn't going to do it.

Until strong patent reform is enacted, victims of trolls are best defended by organizing together to share legal costs and invalidate bogus patents. For example, against Lodsys, the Application Developers Alliance helped organize app developers.

MIT patent litigation study

A study by MIT business school professor Catherine Tucker claims that litigation by patent assertion entities is hurting innovation, particularly with tech startups. Tucker writes that over the last five years, venture capital investment "would have likely been $21.772 billion higher" if not "for [patent] litigation brought by frequent litigators."

"Frequent litigators" are defined as entities that file twenty or more patent lawsuits (per year?). They are supposed to represent patent-assertion entities (trolls), which are hard to identify by name because they often act under shell companies. According to a study on the patent quality of frequent litigators, the "most litigated" (eight times or more) non-practicing entity patents lose more than 90% of the time in court.

The study claims to be conservative because, according to another study, some patent assertion entities, which are more selective at litigating or more successful at licensing, file less lawsuits. However, frequent litigators would probably include a few litigious entities that are not patent assertion entities. I'm unsure about whether this includes universities, but I suspect that universities do not file as many patent lawsuits.

The study used regression analysis to find a strong negative correlation between litigation by frequent litigators and venture capital investment. The lost investment was determined to fall within a 95% confidence interval of $8.1 billion to $41.8 billion.

An earlier study concluded that the lost U.S. capital attributable to patent trolling was $29 billion in 2011 and over $500 billion in the 1990-2010 period. A VentureBeat article summarizes some statistics. For example, patent trolling cost the economy $69 billion in 2010 according to another study.

As I understand it, these studies together suggest that frequent litigators (who are likely patent trolls) often hurt the economy (in legal costs and in lost investment or capital) with litigations over poor patents (that lose more than 90% of the time in court).

While we wait for Congress to act with patent reform, it's important to see that the numbers match anecdotal evidence from news articles reporting startups being sued by trolls.

Alice v. CLS ruling

On June 19, the Supreme Court released its ruling in the Alice v. CLS Bank. I had discussed the case and the larger debate about software patents in an earlier blog post. I won't go into the details of the case that have already been discussed.

The Court affirmed the Federal Circuit decision and invalidated the claims under Section 101. I explained in an earlier blog post that Section 101 (patent cannot be abstract) is the easy way to kill a patent because it does not require expensive search for prior art (novel) or expert testimony (non-obvious).

Justice Thomas wrote, for the Court opinion:

We hold that the claims at issue are drawn to the abstract idea of intermediated settlement, and that merely requiring generic computer implementation fails to transform that abstract idea into a patent-eligible invention.

This interpretation is well-established by Court precedent dating back to the patent trilogy of Gottschalk v. Benson (1972), Parker v. Flook (1978), and Diamond v. Diehr (1981), as well as in the Court's more recent decisions in Bilski v. Kappos (2010) and Mayo v. Prometheus (2012). Thus, Thomas concludes:

These cases [Mayo, Flook, Benson, and Diehr] demonstrate that the mere recitation of a generic computer cannot transform a patent-ineligible abstract idea into a patent-eligible invention. Stating an abstract idea "while adding the words 'apply it'" is not enough for patent eligibility.

Interestingly, despite this case being a landmark in the software patent debate, not once is the word "software" mentioned in the decision! I assume the Court is deliberately refraining from banning "software patent" outright. This may limit the impact of the decision as it gives more flexibility to the lower courts (e.g., the Federal Circuit). Nonetheless, for opponents of software patents and those who seek to limit them, this decision is great news.

Gene Quinn of IPWatchDog, a patent lawyer that I debated against, and vocal proponent of software patents, angrily wrote in response:

In what can only be described as an intellectually bankrupt opinion...[the decision] will render many hundreds of thousands of software patents completely useless....On first read I don’t see how any software patent claims written as method or systems claims can survive challenge...What this means is that companies like Apple, IBM, Microsoft, Google and others have had the value of their patent portfolios nearly completely erased today...their patent portfolios have been decimated...Most already issued software patents will not be able to be saved.

I think that's a little far-fetched. The decision only invalidates patents of the same form, namely abstract idea + "on a computer", such as the "stupid patent" I discussed earlier. It less clear regarding patents that "improve the functioning of a computer" -- some interpret that as allowing those patents, while others interpret that as not taking a stance.

The End Software Patents wiki has an article that cites and discusses different interpretations of the decision.

International patent conference

Norman discussed the Licensing Executive Society (LES) conference that will be held in Moscow. In short, a number of prominent international figures, including the Chief Judge of the Federal Circuit and Direct General of WIPO, are meeting in Russia with a particular focus on "making the world a better place through patent licensing".

I wanted to respond because I thought the choice of venue was odd. Wouldn't it make more sense to have this conference in the U.S. or somewhere else where patent lawsuits are a well-known problem? To be honest, I couldn't find an explanation other than that LES International appears to rotate the location of its conference, with member societies in different countries.

There are many different countries listed next to the speakers. As one would expect, they have different perspectives. For example, Qoros Automotive from China appeared to be interested in licensing to minimize infringement risk. Siemens suggested that patent litigation and enforcement was rapidly increasing in China.

MIT was interested in patent licensing and takes startup equity instead of cash. However, over the last 20 years, on average 87% of universities did not make enough money from patent licensing to covering their licensing administrative and legal expenses. I suspect that MIT and other top research universities are in the top 13% that do.

Compared to expensive litigation, I think it's obvious that licensing is better for society. I think the benefits are especially apparent for large companies that can cross-license with little burden.

However, I wonder if aggressive licensing could be a problem for startups that cannot afford licenses. I doubt many patent owners, MIT and other universities that encourage startups excluded, would be willing to negotiate equity investment in place of cash. And from the perspective of startup, is it fair to permanently give up equity early on when the business model is in flux and future use of the patented technology uncertain?

Microsoft sues Samsung

Microsoft is suing Samsung over breach of its 2011 patent cross-licensing agreement (the so-called "Microsoft tax"). Microsoft is claiming that Samsung wrongfully used Microsoft's Nokia acquisition as an excuse to break the contract. According to court documents, Samsung delayed payment after learning about the Nokia acquisition and has asked the Korean anti-competitive regulator to eliminate the need to pay fees. Microsoft wants interest on the delayed payment and claims that regulatory has no authority to break the contract.

This case will be closely watched by other Android manufacturers who pay the "Microsoft tax". Although Microsoft has not disclosed how much money it makes from Android patent licenses, analysts expect the amount to be between $1 billion and $2 billion per year. If Samsung is allowed to break its contract, other Android manufacturers will likely follow.

Samsung's profits have been decreasing each year as a result of increased competition from lower-priced Chinese competitors such as Xiaomi. Breaking free from the contract would save money.


The outcome at stake goes beyond financial compensation, however. Currently, Microsoft (quite ironically) receives royalties for each Android device sold, but gives away Windows Phone for free. To device manufacturers, Windows Phone is royalty-free, but Android has a "Microsoft tax". If Samsung succeeds and other Android manufacturers follow, Windows Phone will lose its free license advantage. Furthermore, to compensate for lost revenue, Microsoft might charge a license fee for Windows Phone.

I think we're seeing a recurring trend, similar to the Apple-Samsung lawsuits. Smartphone patent claims aren't necessarily about receiving direct monetary compensation, but often about protecting one's market share or harming that of a competitor.

Apple and Samsung drop some patent disputes

After over 40 expensive lawsuits around the globe, and as I discussed, bogus speculation that Apple and Samsung would resolve their disputes, the two companies have agreed to drop their lawsuits against each other outside of the US. In a joint statement:

Samsung and Apple have agreed to drop all litigation between the two companies outside the United States. This agreement does not involve any licensing arrangements, and the companies are continuing to pursue the existing cases in US courts.

In 2012, the presiding District Court judge told both companies:

If you all had wanted is to raise awareness that you have IP on these devices, messages delivered...On many respects, mission accomplished. It’s time for peace. If you could have your CEOs have one last conversation, I’d appreciate it.

Hopefully Jobs's thermonuclear smartphone patent war will soon end. As I previously discussed, Apple and Google have already dropped their lawsuits.

However, the biggest fights have taken place in the US and will continue to do so. Apple and Samsung did not sign a cross-licensing deal that would settle their lawsuits permanently. In 2012 and 2014, Apple was awarded $1 billion and $120 million in damages, respectively. Samsung is still appealing those decisions.

Samsung is also facing another lawsuit from Microsoft, which claims that it is owed money as part of their patent-sharing agreement.

The smartphone patent wars are far from over, but things appear to be cooling down.

Are patent regulators too patent friendly?

It's easy to criticize Johnson's nomination to the patent office. He opposed the recently-killed patent reform bill. He worked in an industry (pharmaceuticals) that disproportionately benefited from patents. And the tech community is against him. I mentioned these points in my last blog post.

However, there are at often at least two sides to a story. I want to discuss the other perspective, and include my own opinion.

Gene Quinn of IPWatchdog writes:

Johnson is extraordinarily qualified, he is willing to take the position, he has seen the patent system from virtually all vantage points...It seems that Johnson’s major flaw may be that he strongly supports the patent system, which is a very sad commentary. In fact, there are some starting to believe that the only candidate that may be acceptable to certain political forces is one who opposes the patent system on a fundamental level. Of course, such a candidate would be unacceptable to a great many other powerful industry interests, so this could mean that the USPTO will indefinitely be without a politically appointed and confirmed leader, at least unless the White House is willing to step up and make a nomination.

Once again, this points out the dilemma that I've discussed in my last two blog posts: how to reconcile the opposing interests of different industries, for example tech and pharma.

Quinn goes on to point out that Johnson was a proponent of previous patent reform, e.g., the American Invents Act (AIA). I would counter that the AIA was a different kind of reform. As discussed in class, it replaced first-to-invent with first-to-file, in line with other countries, and established micro-entity status. It would not prevent or mitigate patent troll abuse.

Quinn also interviews Judge Paul Michel, former Chief Judge of the Court of Appeals for the Federal Circuit (CAFC). Regarding Johnson, Judge Michel says:

I can’t think of anybody better qualified by experience. He was an extraordinarily effective, skillful patent litigator for 20 years. And now he’s been in industry for almost as long. And he has extensive scientific training. He has proven management skills in a huge organization. J&J [Johnson & Johnson, Johnson's employer] isn’t just a pharmaceutical company, it’s dozens of companies in many different industries. Highly diversified. He’s an ideal choice by experience, by intellect, by temperament.

Similarly, in an older post, Quinn cites praise from other high-ranking public officials, including a former Acting Director of the USPTO and Commissioner for Patents.

I think this raises another dilemma for the patent system. From a technical standpoint, Johnson's experience would make him well-qualified. But is an "industry insider" perhaps too biased? Is this a problem with many patent lawyers who are now regulating patents, not just the USPTO but also the Federal Circuit?

In 2012, At a Princeton University conference about the AIA, the same former Chief Judge Michel said:

If software is less dependent on patents, fine then. Let software use patents less as they choose. If other industries are terribly dependent on patents, then let's not wreck the system just because software people are unhappy.

But, software developers can't choose to opt out of the patent system!

Moreover, Michel directly contributed to the present debate with software patents. He was Chief Judge of the Federal Circuit from 1988 to 2010. This includes the period in which the Federal Circuit opened the floodgates to software patents in the first place, most notably with State Street (1998).

Timothy Lee writes:

Rader [current Chief Judge of the Federal Circuit] and Michel's perspectives are likely skewed by the fact they spent their time on the bench surrounded by patent lawyers (who by definition work with firms that have the resources to hire patent attorneys).

Backlash against patent office nominee

In my last blog post, I discussed some reasons why the USPTO, and patent reform in general, have difficulty reconciling conflicting interests.

In June, the White House proposed Phil Johnson as the new director of the USPTO, but backed down under pressure from the tech community.  Johnson is the senior vice-president of intellectual property at Johnson&Johnson, the pharmaceutical and consumer goods company.

After news broke out, outrage emerged. Johnson had testified against the recent patent reform bill, which was later killed, writing (on pg. 2):

The innovation ecosystem in the country is extremely sensitive to changes in our patent system. While troll abuse is a problem that should be addressed, it is critical that Congress not do so at the expense of the vast majority of innovation stakeholders for whom the patent system is working. Proposals that deprive patent owners of free access to the courts and/or delay or make less certain the availability of relief from the harms caused them by infringers should be avoided even, if necessary, at the expense of accepting less than a complete solution for troll abuse.

Johnson even opposed portions of the bill that were generally seen as innocuous or uncontroversial, such as requiring patent litigators to file more detailed allegations (as we discussed in class, this is not the case in the Eastern District of Texas) and to be more transparent about the ownership of the patent.

To the tech industry and proponents of patent reform, President Obama's choice  was seen as hypocritical. From a Techdirt story:

...it appears that President Obama is poised to appoint a long-time pharma industry patent-maximalist who has spent years fighting against patent reform, to take over as the director of the USPTO.

As I mentioned in the last blog post, the tech and pharmaceutical industries generally have opposing opinions on patents. Many in the tech industry see patents as an inconvenience, perhaps a lesser evil, while pharmaceuticals depend heavily on patents.

I think it's worth mentioning that the previous director of the USPTO, David Kappos, was from the tech industry. However, during his office, the approval rate for patent applications increased by 20 percent, suggesting that the patent office may have lowered its standards to process the backlog.

Patent Office without a boss

After more than 16 months, the USPTO still does not have a director. I think this points to the difficulty of reconciling conflicting interests.

I think an analogy can be made to copyright. Copyright, with the fair use doctrine, balances the constitutional right to free speech with the constitutional right of Congress to "promote the progress of science and useful arts".

With patents, the right balance is even more murky. What is obvious? What is eligible subject matter? The Supreme Court and Court of Appeals for the Federal Circuit (CAFC) have a history of contradicting themselves and each other, especially when it comes to software patents.

How do we discourage patent assertion entities without harming entities that we believe benefit the public interest, like universities. What about companies that license university patents to others, as discussed in the guest lecture?

From a potential perspective in the tech community:

As a software developer, I might believe that patents are inherently evil. By simply writing code, I can accidentally infringe. And I will have no way of knowing for sure whether I infringe because reviewing every claim of every granted patent - let alone patents that have been filed but not yet granted - is virtually impossible. If the software is my hobby or an open source project, I might be deterred by fear and risk alone.

From a potential perspective in the pharmaceutical industry:

As an entity investing in expensive research and development, I might believe that patents are too weak. Litigation is difficult and uncertain. Years later, my patents can be "retroactively" challenged and invalidated. When I fund research, I risk losing my investment to a future patent challenge.

Conspiracy theories aside, I suspect a similar dilemma killed patent reform.

Thinking like a patent troll

Luke wrote a "best-practices guide for successful [patent] trolling". It's an amusing read. With my respect for trolls in mind, I wanted to expand on the guide with some more points.

• Purchase patents from bankrupt companies attempting to liquidate their assets.
• Get funding from big companies that want you to sue their competitors. It helps to be the CTO of Microsoft.
• Get funding from hedge funds and other investors.
• Form thousands of shell companies and sue through them. Until a patent reform transparency law is enacted, embrace your disguise from criticism and counter-suits.
• Lobby against patent reform in the name of protecting small inventors from greedy tech companies that don't want to pay up. Argue that you are creating a secondary economy to monetize their hard work.
• Delay enforcement until the market is ripe for the picking.
• Spread Fear, Uncertainty, and Doubt. If victims want certainty, pay up.
• Leave the angry anti-troll people alone. They bite.

Aero TV streaming

Norman mentioned Aereo and their legal difficulties with cloud-based TV antennas. I wanted to elaborate on their case, which mostly concerns copyright, and explain how Aereo's patents fall into the picture.

Aereo is a tech company that allowed subscribers to view free-to-air television over the Internet by leasing an individual "cloud" antenna, about the size of a dime, to each subscriber for a low monthly cost. Ordinarily, one must pay for a license to stream a television channel, similar to the retransmission fee paid by cable and satellite television providers. Aereo, however, claims that they are merely providing a service to rent a remote antenna, not legally different from one physically at your home.

Television broadcasters sued Aereo, claiming copyright infringement. The lower court ruled in favor of Aereo. However, in a 6-3 decision, the Supreme Court ruled against Aereo. The majority opinion decided that Aereo was similar to a cable provider, "not simply an equipment provider". The dissenters expressed distaste for Aereo but claimed that Aereo was exploiting a loophole that Congress, not the Court, should fix. Aereo ceased to operate its service.

The role of Aereo's patents in a copyright case is a bit peculiar. At a lower court in New York, the plaintiffs wanted to question Aereo over conflicts between statements written in their patent applications and statements argued in court:

In opposing a preliminary injunction, Aereo offered up experts who stated that its internet retransmission capability was not substantially different from what consumers could accomplish with off-the-shelf components..."In their patent application, however, in an apparent effort to establish novelty, the inventors state that broadcast 'content is generally only available for display on a traditional television. There is generally no simple way for a user to have this content available to their other video-capable devices.' Although the two positions are not irreconcilable, there is a certain tension between them sufficient to warrant examination."

Aereo claimed that disclosure of its patent strategy could harm it in a future patent litigation case interpreting the scope of claims. Aereo also claimed that its communication is protected from disclosure because patent applications are product of privileged consultation with legal counsel. The judge disagreed with both claims and allowed the broadcasters to examine Aereo's patents.

In a broadcast television trade journal, Pete Putnam looked at Aereo's patent. Based on his analysis, Putnam claimed:

...it’s overly clever engineering, attempting to re-define the term “antenna” and parse legal terminology. Their entire argument for getting away with retransmitting broadcast TV content rests on those thousands of individual antennas, which...unquestionably interact with each other and are separate antennas in name only.

In short, it looks like Aereo's patent was used against them. From the perspective of the broadcasters, statements made in the patent hurt Aereo's legal credibility and demonstrated knowledge of harm. Similarly, technology disclosed by the patent served as evidence of copyright infringement and intent to circumvent the law.

I wonder whether restricting the technology by a trade secret, instead of by patent, would make it more difficult for the broadcasters to claim copyright infringement?