FTC Takes Aim at Patent Trolls

Patent trolls, beware - the Federal Trade Commission is watching.

The agency today released a 300-page report examining the effect that patent trolls – or as the FTC more tactfully dubs them, "patent assertion entities" - have on competition.

The FTC noted increased activity in the information technology industry by patent-owning entities focused “on purchasing and asserting patents against manufacturers already using the technology, rather than developing and transferring technology.” The practice, said the FTC, “can deter innovation by raising costs and risks without making a technological contribution.”

In preparing the report, the FTC held eight days of hearings beginning in December 2008; cosponsored a workshop with the Patent and Trademark Office and the Department of Justice in May 2010; and received more than 50 written submissions.

One fundamental problem, according to the FTC, is notice – “how well a patent informs the public of what technology is protected.”

The difficulties begin with patent claims, where the language “is inherently imprecise,” the agency found. Additionally, it said, “Some applicants may have incentives to draft ambiguous claims that might be viewed narrowly by the PTO and then construed broadly in litigation.”

The FTC suggested that the PTO adhere to “an indefiniteness standard that weeds out claims reasonably susceptible to multiple interpretations.”

Also, the FTC recommended establishing undisputed claim term definitions, noting that “litigants disputing claim interpretation may turn to different dictionaries to find a favorable definition.”

The FTC urged that patent examiners be encouraged “to build a record that improves claim scope clarity,” and to “make greater and more informative use of statements of reasons for allowance and for withdrawing indefiniteness rejections.”

Another recommendation was for legislation requiring publication of patent applications 18 months after filing, whether or not the applicant also sought patent protection abroad. Under current law, applications filed in the United States alone can be kept secret until the patent issues.

As for the courts, the FTC urged judges to rein in infringement damages by grounding calculations and injunction analysis in “economic principles that recognize competition among patented technologies.”

This includes capping royalty damages “at the amount a willing licensee would pay, which may be determined by the value of the invention over alternative technologies,” as well as increasing the role of district courts in excluding unreliable expert testimony on damages.

The FTC said courts should incorporate concerns “about the leverage that an injunction may give a patentee to obtain royalties exceeding the economic value of an invention.”

Comments

[Thomas Zaslavsky]

I would expect restrictions on trolling to help small companies or inventors against large corporations, at least as much as the reverse. The phenomenon of patent trolling, meaning claiming patent rights without actually having invented the product at issue, is well known. A famous example is the estate of Jerome Lemelson.

I also disagree that an idea is an invention (@Michael Shore). An invention has to be a working thing. Not necessarily a material thing, but it has to be functional. Ideas are a dime a dozen; it's the implementation of the idea that takes hard work and should be patentable.

[Jeff Spangler]

This approach seems to afford unequal protection of the law to patent owners who do not practice the invention and is therefore arguably unconstitutional. A property "right to exclude others" becomes hollow if the right varies depending on who owns it.

[Pete Austin]

@Dissapointed, @Gabe, @Michael, @t.a.trolls
You are criticizing the spin, not the substance. Please read the report, at the following URL. I think you will find its recommendations pretty good.
http://www.ftc.gov/os/2011/03/110307patentreport.pdf

[Dissapointed in FTC]

The patent system was shaped by large corporations to keep out competition from small companies. It seems that equal access to the same patent system for small companies (which are all called "trolls" regardless of their history) to then sue large companies is intolerable. It is a sad day when the FTC's stance on competition is being dictated by known anti-competitive companies like Microsoft, Google and Intel.

[Gabe]

Populism at its finest. Glad to see my taxpayer money is being leveraged by large corporations to push the FTC to drive their agenda under the guise of “good for the American people.” The patent system is not perfect, just as any other system is not—and patent trolls are just part of the ecosystem and play a small but vital role.
While a [very lucky] patent troll may “sting” a corporation slightly, making them pay a premium for the exclusive rights to use technology (which the corp. can then turn around and use to their advantage against their competition), corporations exercise much wider, institutional “abuses” of IP rights which affect innovation on a much larger scale. Silly little examples: Facebook suing some teachers’ social network for using the word “book” in their name (go figure, a real obscure English word clearly invented by Facebook) …or Apple rejecting developers’ apps (say 6 months of dev work which Apple did not pay for) for including an objectionable word like “droid” as part of some minor funny text in the app…Or Microsoft patenting all sorts of obscure, tangential aspects of computing which are not aligned with any active projects/products—just because some creative engineer thought about it and they have unlimited legal resources—and, just in case someone ever happens to step on it say in the next 20 years…
The IP world is infinite and wide-open. Any creative individual (reading this post) with money and patience can write and fight for a patent. Very, very few ever recover their money. Imagine the Wild West 150 years ago. Any individual can go into the wilderness and stake a claim and look for gold. You never hear of the 95%+ who died penniless. Large corporations today would be analogous to a large mining operation that bellyaches about 1 lucky miner who happened to find gold in an area that has, over the years, turned to be along the path in which the large corp was expanding its mining operation. Instead of paying a premium and hiring the enterprising/lucky miner, the corp. is complaining that that miner’s intransigence is hurting global price of gold (while the corp itself, aligned with other corps, is in much better monopolistic position to influence gold price…)

[Michael W. Shore]

The idea that non-practicing entities stifle or curtail innnovation violates some very fundamentala principles of economics. Firt, the report assumes that only practicing entities are innovators because they want to make and sell products. Ideas themselves are products. An inventor's ability to sell his ideas is itself motivatio to invent. If the law were changed so that an inventor could not receive adequate compensation for his idea -- regardless of whether he practices the idea himself -- the motivation to create and reduce such ideas to practice is dissipated or eliminated. That stifles innovation by making it less rewarding.
The statement that "the FTC noted increased activity in the information technology industry by patent-owning entities focused 'on purchasing and asserting patents against manufacturers already using the technology, rather than developing and transferring technology'" is on its face nonsensical. The focus should not be on the patent-owning entities who purchased patents being used by companies, but on the companies who are using technology that they did not develop without compensation to the patent owner. The patent purchaser may not have developed anything new, but the technology company they are suing did not invent the technology either, and untless the patent owner can enforce or sell their inventions, the "manufacturers already using the technology" that the FTC feels sorry for are getting away with theft. The idea expressed in the report is that big companies should be able to steal with impunity so long as who they are stealing from is a small inventor or someone who purchased an invention from a small inventor. That is un-American and frankly sickening.

[staff]

Call it what you will...patent hoarder, patent troll, non-practicing entity, etc. It all means one thing: “we’re using your invention and we’re not going to pay”. This is just dissembling by large infringers to kill any inventor support system. It is purely about legalizing theft.

Prior to eBay v Mercexchange, small entities had a viable chance at commercializing their inventions. If the defendant was found guilty, an injunction was most always issued. Then the inventor small entity could enjoy the exclusive use of his invention in commercializing it. Unfortunately, injunctions are often no longer available to small entity inventors because of the Supreme Court decision so we have no fair chance to compete with much larger entities who are now free to use our inventions. Worse yet, inability to commercialize means those same small entities will not be hiring new employees to roll out their products and services. And now some of those same parties who killed injunctions for small entities and thus blocked their chance at commercializing now complain that small entity inventors are not commercializing. They created the problem and now they want to blame small entities for it. What dissembling! If you don’t like this state of affairs (your unemployment is running out), tell your Congress member. Then maybe we can get some sense back in the patent system with injunctions fully enforceable on all infringers by all inventors, large and small.

For the truth about trolls, please see http://truereform.piausa.org.

[Should You Be A Lawyer Website]

I am glad the FTC is weighing in an effort to curb certain abuses of the patent system. The current system can be a deterrent to innovation, as a company may invest a large amount of money in successfully launching a technology, only to then be sued for large damages by another patent holding entity.

Broad, indefinite claims are a large part of the problem, as such claims could potentially include technologies that the patent holder's inventor never foresaw or never knew how to actually build.

Another problem is the loophole in the 18 month publication rule. A patent holder may apply for a patent - with a priority date based on when he applied - yet keep the application secret by not filing in any other countries. There is no way for other companies to avoid infringement if they don't even know about the patent until it issues. At that point, they may have already committed significant money into the now-infringing product, and the product may even be in production. Federal regulations usually include some type of notice period before they go into effect to avoid these shocks. All patents should be published a reasonable amount of time before they issue for this same reason - to give fair notice to others so they can avoid infringement.