Is There a Solution to the Software Patent Crisis?

Posted on Nov 6, 2013 in Articles

This article originally appeared in The Legal Intelligencer on November 6, 2013.

One hundred and seventy-one—that is the number of patent lawsuits that have been filed against Apple since the beginning of 2009. While Apple was sued for patent infringement more than any other company over the last four years, others are not far behind. Since 2009, Hewlett-Packard has been sued for infringement 137 times, Samsung has been sued for infringement 133 times, and AT&T has been sued for infringement 127 times.

At the intellectual property bar conferences, and in the IP journals, frivolous patent lawsuits are attracting the lion’s share of the attention. Proposals abound as to how to solve the “crisis.” Yet, the problem is so complex, and the interests are so diverse, that finding a workable solution has proven to be difficult.

A U.S. Government Accountability Office (GAO) study released earlier this year found that patent lawsuits had more than doubled between 2007 and 2011. Incredibly, the GAO calculated that 89 percent of the patents responsible for that increase were related to computer software. In 2011, over 3,400 defendants were sued by patent monetization entities (PME), companies that purchase patents from others for the purpose of asserting the patents for profit. Those companies, often referred to (in a derogatory fashion) as “trolls,” account for a significant portion of the concern over software patents.

For those of you who have never experienced the misfortune of being targeted by a patent troll, the process typically begins with the receipt of a letter threatening litigation. A few of the typical components of the letter include: (a) reference to an issued U.S. patent with claims that seem to be so broad, it is not understood how the U.S. Patent and Trademark Office issued the patent; (b) a threat to file suit for infringement of the patent; (c) an offer to avoid litigation by extending a license; (d) an offer to discount the fee for the license if the fee is paid quickly; and (e) information about other companies that have agreed to pay the fee for the license.

The cost to defend a potential lawsuit is typically more than $800,000. A paper recently published by Boston University School of Law found that in 2011, defendants of patent troll litigation incurred $29 billion in direct costs. The authors of that study published a separate article estimating that, between 1970 and 2010, PME lawsuits had resulted in half a trillion dollars in lost wealth. Thus, it should not be surprising that many companies accept the license and pay the fee.

In the past few months, many opinions have been circulating regarding how to “fix” the “broken” patent system. Ideas have been proposed by the government (e.g., the White House, the GAO and congressional bills), private industry and academia. Here are a few of those proposals:

Clear patent claims.

This is a thorny issue because of diametrically opposed interests. On the one hand, many of the software patents that have been asserted over the past few years have claims that include ambiguous language. The ambiguous language is an incentive to file the lawsuits. The plaintiffs place very broad interpretations on their claim language when they make their accusations of infringement.

On the other hand, patent attorneys are required to draft claims as broadly as possible. The broader the claims of a patent, the greater the value of the patent. As patent claims narrow, asserting those claims becomes more difficult (because a greater number of claim elements need to be found for a product or process to infringe).

While ambiguity can potentially broaden the scope of the claim, there is no reason for claim language to be unclear. A claim can be broad without being ambiguous. Claims should have as much coverage as possible, but at the same time the language of the claims needs to be clear.

The best way to ensure that claims are clear is for the patent office to require clear language before the patent is allowed to issue. The U.S. Court of Appeals for the Federal Circuit has commented on this issue. In Halliburton Energy Services v. M-I LLC, 514 F.3d 1244 (Fed. Cir. 2008), the Federal Circuit stated, “We note that the patent drafter is in the best position to resolve the ambiguity in the patent claims, and it is highly desirable that patent examiners demand that applicants do so in appropriate circumstances.”

Thus, most public opinion has been advocating for the USPTO to ensure that claims are non-ambiguous prior to the patent being granted.

Fee shifting.

One very popular proposal has been for the prevailing party of a patent litigation suit to be awarded attorney costs and court fees by the losing party. The thinking has been that “raising the stakes” of litigation will help to discourage frivolous patent suits. One bill currently before Congress would require the courts to award the costs and fees to the prevailing party “unless the court finds that the position of the non-prevailing party or parties was substantially justified.” While this proposal has its supporters, it also has its opponents. Last month, the U.S. Supreme Court granted certiorari in two cases with questions relating to awarding of attorney fees to the prevailing party. Some members of Congress argue that Congress should not consider enacting legislation related to this issue while this issue is about to be reviewed by the Supreme Court. Further criticism has been made that the bill overrides the constitutional balance between Congress and the judiciary by instructing judges how patent cases should be handled. Fee shifting is a topic that has always received debate. On the one hand, it is argued that fee shifting is useful because it discourages a party with a weak case from filing suit. On the other hand, it is argued that the added risk of fee shifting may deter the assertion of valid claims.

Covered business method (CBM) program.

The USPTO currently offers post-grant review of “financial services” business method patents. There has been much public interest in expanding the program. In a letter sent to judiciary committee leaders Oct. 28, the Internet Association (which includes companies such as Amazon, Google, eBay, Verizon and Wal-Mart) joined with 23 other organizations representing tens of millions of American employees, urging that the patent office extend the CBM program to cover all software patents. In June, the White House issued a package of legislative recommendations, which included a request urging that the CBM program be extended to include “a broader category of computer-enabled patents.” In October, the USPTO also announced support for expansion of the program.

As previously explained, defending an accusation of patent infringement can cost upward of $800,000, with costs often soaring into the millions. The CBM program provides a much lower cost alternative to challenge low-quality patents. Utilization of the CBM program can be achieved for about $100,000, or less than one-eighth of the cost of litigation.

In an unusual act of bipartisanship, House Judiciary Committee Chairman Bob Goodlatte, R-Va., Rep. Peter DeFazio, D-Ore., and others have sponsored a bill to address abusive patent litigation. This bill, which is called the Innovation Act bill, expands the USPTO’s ability to conduct post-grant review beyond the financial services industry.

Of course, this proposal is not without concern. Some software companies have expressed fear that an expanded program would make it too easy for patent portfolios to be subject to broad attack. Also, some attorneys question whether the patent office has sufficient resources to handle expansion of the CBM program.

Discovery limits.

Patent trolls use discovery as a strong weapon to try to obtain a settlement. Discovery rules can require a defendant to disclose millions of documents. The expense to an accused infringer for producing such documents can be astronomical.

The Innovation Act bill referred to above requires that: “If the court determines that a ruling relating to the construction of terms used in a patent claim asserted in the complaint is required, discovery shall be limited, until such ruling is issued, to information necessary for the court to determine the meaning of the terms used in the patent claim.”

By limiting discovery in the above manner, the costs and burdens of discovery would be removed from the arsenal that patent trolls use to coerce early agreement to their demands.

While many applaud the above proposals, some IP litigators express concern regarding the effect of these solutions on the ability of small companies and individual inventors to assert patent rights. Typically, those patent owners rely on venture capital to fund the suits against infringers of their patents. Would the proposed rules discourage venture capital from funding such a lawsuit? Without venture capital, those patent owners would find it much more difficult to obtain royalties for their inventions. Some attorneys argue that frivolous litigation is more likely to be brought by large practicing entities against small startup companies that are competing with one of their products. Hence, there is concern that some of the proposals do not address needs of the small patent owners. While it is important to fix the patent troll problem, it needs to be done in a way so that legitimate inventors and small companies are still able to assert their claims.

The software patent problem is now so huge that the urgency to find a fix is at unprecedented levels. Each proposed solution has its pros and cons and much further consideration will be required to formulate the best possible outcome. This topic will attract much attention in the months to come.

– by Lawrence Ashery