The international patent framework

I have family who live outside the US, and was curious how their patent system compares to ours. Most countries in the world are parties to the Patent Cooperation Treaty (PCT) and many are also parties to the Patent Law Treaty (PLT).

As I understand it, these international treaties make it easier to file for patents in different countries by formalizing initial steps, like searching for prior art and the application format. They do not lead to an international patent grant --one must still follow through with each nation for a patent grant. They also do not standardize the requirements for patents that we learn about from our US context, including novelty, non-obviousness, utility, and enablement.

This is a little confusing at first, because the World Intellectual Property Organization (WIPO), a UN agency, refers to the Patent Cooperation Treaty as "the International Patent System", when there is in fact no such thing as an international patent:

A patent is awarded by the government of a country and is valid only within its territorial boundaries. To obtain a patent that is valid in a particular country, a request must be made in that country's patent office.

Given the complexity of interpretations on ideas like obviousness and software patents, the difficulty of reconciling these differences between countries becomes more clear. For example, Supreme Court cases have established case law for the patent system in the US, like KSR v. Teleflex did for obviousness and "person having ordinary skill in the art". I assume other nations have their own legal codes and legal doctrine, which would make it impossible to standardize an idea like enablement or obviousness without rewriting legal codes and possible invalidating existing patents in a country.

fixpatents.org

Engine Advocacy, a group for technological entrepreneurs (or in slightly less sympathetic words, a lobby group for startups), has published a website, fixpatents.com, that promotes anti-patent troll reform.

The website includes a humorous Youtube video, which I've embedded above. I think the pleasing, funny, and easy-to-understand video makes their argument more effective. The video describes, in simple terms, software patents and them being exploited by an emerging patent troll business model. For example, it suggests that software patents can be overly broad and that trolls prey on vulnerable end users. I agree with both ideas, and talked about them in my last posts on Startups and patent trolls:

Patent trolls target smaller companies more than larger ones. Smaller companies lose more in time, money, and operational impact relative to their size. Startups do not have the financial and legal resources available to larger companies. They prefer settling, to the uncertainty and expense of the courts, even if a ruling would likely be favorable.

and Alice Corp. v. CLS Bank International:

Software patents are a tricky issue. A study from the Government Accountability Office found that a disproportionate share of patent cases concern software patents. James Bessen claimed that this is because software is more likely to have fuzzy boundaries and particularly prone to broad and vague patents. He also claimed that "the patent troll crisis is really a software patent problem".

Non-practicing entities are portrayed as an epidemic, with statistics like them accounting for two-thirds of new patent suits and costing defendants $1 trillion. I'm not sure if the "trillion" number is realistic, but as we've learned in class with the NTP vs. RIM case, the settlements while high, pale in comparison to the (potential) lost revenues associated with injunctions and delayed product development.

The Innovation Act passed in the House last December, but still needs to pass in the Senate.

Innovation Act

No one agrees on the definition of a "patent troll". To some, a patent troll is any non-practicing entity, which would include a university. To others (including the non-practicing entities themselves), a patent troll is an entity that collects "bad" patents overlooked by the patent office and (ab)uses them to extort money. In the latter definition, the troll's patents would likely be invalidated or severely narrowed on re-examination.

However, almost everyone agrees that there is a patent troll problem. Patent trolls exist, are taking advantage of the legal system, and are imposing a real cost on innovative companies and end users.

Here are some ways, in my opinion, that the Innovation Act could (probably) (at least partially) alleviate the patent troll problem:

• Patent litigation against customers of a product (e.g., lawsuit against the owner of a wifi router) can be stayed if there is simultaneous litigation against the manufacturer. Patent trolls currently have an incentive to target customers because they are more likely to pay a relatively small settlement (or avoid the product, putting additional burden on the manufacturer).
• Patent holders must provide more information (list of products that are infringing specific claims of their patents) when filing a lawsuit. This allows defendants to be better prepared and would probably discourage some frivolous lawsuits.
• The court can require the losing party in a patent infringement case to pay the legal costs of the other party. This discourages patent trolls from filing frivolous lawsuits which they would likely lose.

Of course, the Innovation Act might not go far enough and the patent troll problem could continue in spite of it. It could also have unintended consequences. For example, fee-shifting could increase the risk and expense of patent lawsuits or discourage smaller patent holders. Overall, however, the bill appears to be positive step forward.

Startups and patent trolls

In my last post, I discussed startups applying for and asserting patents. Some startups do but many don't.

The scenario can be inverted: patents can be asserted against startups. Generally, many startups do not need to worry about patent licensing or infringement initially because they are not yet successful. They are not big targets for a lawsuit.

However, startups are vulnerable to "patent trolls". Patent trolls target smaller companies more than larger ones. Smaller companies lose more in time, money, and operational impact relative to their size. Startups do not have the financial and legal resources available to larger companies. They prefer settling, to the uncertainty and expense of the courts, even if a ruling would likely be favorable.

Professor Colleen Chien at Santa Clara Law surveyed venture capital investors with patent experience:

75 percent said that an NPE had made a demand on their portfolio. For tech-focused VCs, that number reached 90 percent.

For successful or growing startups, they may be sued by larger competitors as well. The larger competitor may seek an injunction, legitimate or not, in order to push the startup out of business.

In a twist of fate, startups have actually partnered with patent trolls in order to litigate against larger competitors.

Recent reform (fee shifting to curb frivolous lawsuits, improved patent quality, and education on responding to patent demands) could have a positive effect in the future.

Startups applying for patents

Do startups, particularly high-tech startups, consider applying for patents? Is applying for patents common among startups? And why?

In the past several years, the average popularity of patents has steadily declined among funded technology startups.

The likelihood that a startup will apply for a patent is largely dependent on the startup's industry and investors. Semiconductor and biotech ("hard tech") startups are over three times as likely to apply for patents than "soft tech" startups. In fact, although patents are declining in popularity overall, startups that have applied for patents in the past are applying for more patents. This suggests a desire but a minority of startups to build a patent portfolio.

Software startups are apparently  much less likely to apply for patents. Many startup founders and investors are ideologically opposed to software patents. Competitors are less likely to sue for patent infringement in software than in other industries. Intellectual property lawyers advise against applying for patents because it is a poor investment of resources for a startup. Here are a summary of some commonly cited reasons:

• Software startups don't have specific ideas that are worth patenting. Their ideas are often a combination of existing ideas.
• Applying for a patent is often expensive, when you include time and attorney fees, especially if the patent application is initially rejected. It is also a distraction.
• Software patents can be engineered around, unlike pharmaceutical patents.
• Patent infringement is hard to detect and expensive to investigate. It isn't clear if the "secret sauce" of competitors infringes.
• Competitors may find prior art in order to invalidate or narrow the patent.
• Patent litigation is expensive and consumes time which is valuable for a startup. The startup may succeed, fail, or pivot long before the case is settled.
• Patent litigation in Silicon Valley can be bad for publicity and reputation.
• Startups are a risky business: three out of four startups fail to return investor capital. Patents are a last concern.

However, "hard tech" startups in the semiconductor and biotech have good reasons to apply for startups. They have higher upfront research and development costs and a specific, novel idea which is not merely a creative combination of existing ideas put to practice. To them and their investors, a patent portfolio is a valuable asset that may encourage large companies to acquire them.

Apple overly aggressive in patent litigation?

A Fordham Law School study wrote:

The most frequent plaintiff in the dataset [is] Apple. Apple has a uniquely aggressive litigation history when compared to the rest of the market leaders and Apple's stance may have effected a more general increase in litigation within the market. First, Apple has filed more lawsuits than other market share leaders. Second, Apple began asserting its design patents related to its smartphone in 2011 and prior to these lawsuits, design patent suits were vary rare in the market. Finally, patent infringement litigation saw a substantial increase after Apple's broad patent litigation was filed in 2011. Apple's aggressive litigation posture may be spurring litigation throughout the market and may be motivating competitors to acquire additional patents in order help them strengthen their defensive position.

Another study agreed that Apple has an aggressive approach. Apple has famously sued Samsung, Motorola, HTC, and other competitors around the world.

According to Mitchell Hall in PC Magazine:

This whole patent war is one that Apple, and Steve Jobs in particular, started, upending a long-standing "gentleman's agreement" between U.S. mobile phone companies; all had competing patents but were generally happy to license them to each other

There is some truth to this. Nokia, once the largest manufacturer, licensed its numerous patents to competitors as part of its day-to-day business. Apple, on the other hand, preferred to keep its technology under closed doors.

In 2010, when Apple filed lawsuits against HTC, then-CEO Steve Jobs stated:

We can sit by and watch competitors steal our patented inventions, or we can do something about it. We’ve decided to do something about it. We think competition is healthy, but competitors should create their own original technology, not steal ours.

I can think of two explanations for Apple's aggressive patent litigation.

First, Apple (especially Steve Jobs) wanted to distinguish their product from the competition. They did not want their competition to use their technology, even if they received royalties as Nokia had. They wanted their technology to be exclusive to their branded product. To be honest, I suspect that this was more for ideological or philosophical reasons than for profit.

Second, Apple is losing market share to Android manufacturers. Apple has cash and legal resources on hand. Litigating slows down the competition and gives Apple a competitive edge. After all, Nokia, which had itself been losing market share to Apple, triggered the smartphone wars by suing Apple.

ITC veto: protectionism or free-trade

Last August, The US Trade Representative (USTR), delegated authority by the Obama administration, vetoed an ITC ban on the importation of older iPhones and iPads into the United States market over a Samsung patent that was deemed standards-essential. This was the first veto of an ITC ruling in decades.

Many people, including The New York Times editorial board, a group of bipartisan Senators, and antitrust lawyers, advocated for the veto. To them, the ITC ruling was anticompetitive and would have set a precedent for owners of standards-essential patents to abuse the system with an overly aggressive ITC ruling. Unlike a case at a district court, decisions can be made relatively quickly at the ITC. The Obama administration recommended that the ITC standard for obtaining an injunction be changed.

However, since Samsung is a South Korean company and Apple is a US company, the decision can be seen as protectionism. Samsung and Korean news agencies suggested that it could be. Korea's leading newspaper wrote "this is effectively admitting that there was intense lobby within the U.S. political and business circles...the Obama administration's veto exercise makes outsiders to doubt Washington’s very commitment to free trade."

Then Apple won an import ban on older Samsung devices. The ITC ruled that Samsung violated Apple's patent on swiping a finger across the display of a device to unlock it. This time, the USTR did not veto the ban. Samsung alleged protectionism.

But is it protectionism? Florian Mueller called the allegations propaganda because "there's a difference between standard-essential patents (SEPs) such as the patent at issue in Samsung's offensive case and non-SEPs such as the ones underlying the import ban Apple won against Samsung".  He also claims that if a protectionist agenda existed, it could have been pursued earlier and with much greater force by having the Department of Justice investigate the standards-essential patents. The European Commission had issued a preliminary antitrust ruling that led to Samsung dropping its requests for sales bans on Apple products claimed to infringe its standards-essential patents.

I don't think it is protectionism. But if South Korea thinks so, then there may be harmful political repercussions regardless of whether protectionism was intended.

Today, Samsung is claiming that the veto was not broad enough to prevent another import ban, however.