Archive for IP rights
A small start-up company fighting one of the great giants of all time: it’s a classic story of David vs. Goliath, or in this case, David vs. Googleliath (a.k.a. VSL vs. Google).
Many small companies have claimed that Google misappropriated trade secrets or other IP, but rarely has Google graciously (and accidentally) cooperated in providing smoking-gun evidence the way they apparently did for Vedanti Systems, Ltd. (VSL). In this case, they allegedly left sticky notes on VSL’s trade secret materials showing their questionable intentions to take Vedanti’s technology. If VSL prevails against this giant, it may be more a case of Googleliath falling on its own sword than David being great with a sling.
VSL and their partners are now suing Googleliath for infringement of patents and theft of trade secrets in two courts. The suits are against Google (here also known as “Googleliath”) and their subsidiairies, YouTube and On2 Technologies. London-based Vedanti Systems Limited and their U.S.-based parent, VSL Communications, Inc., have turned to Max Sound for help in enforcing IP rights. The patent suit was filed in U.S. District Court for the District of Delaware, while the trade secret suit was filed in Superior Court of California, County of Santa Clara.
The complaints claim that Google executives met with Vedanti Systems in 2010 to discuss the possibility of acquiring Vedanti’s patented digital video streaming techniques and other trade secrets. Vedanti’s compression technology for streaming audio and video files is far superior to what Google had, Google’s own standards for streaming video t the time led to “jittery, low-quality video and sound for large-sized video files,” according to the patent complaint.
As part of the talks with VSL,Â Google had access to trade secrets such as VSL’s proprietary codec for encoding and decoding a digital data stream.Â That codex has proprietary techniques for “key frame positioning, slicing and analyzing pixel selection of video content to significantly reduce the volume of digital video files, while minimizing any resulting loss of video quality.”
Shortly after the negotiations began, Google allegedly began implementing VSL technology into its WebM/VP8 video codec, applying what they had learned from VSL but not letting VSL know. The WebM/VP8 video codec is extremely important for Google. It is used in many of their services and websites including YouTube.com, Google TV, the Android operating system, and Chrome web browser. They had inferior technology, but by allegedly stealing Vedanti’s, they were able to quickly advance their business at virtually no cost.
There’s just two pesky little problems for Google:
1. Vedanti has patents for its technology and is not afraid to sue. Now you might see why Google seems to really hate software patents (rather, other people’s software patents). They have been a leading force in some of the patent reform measures and related steps that have made protecting IP rights harder than ever for little guys like Vedanti. This giant, with its easy access to the White House and many other influencers, has also been an important voice against software patents, and may have helped influence popular opinion and the courts into recent devastating attacks on software patents. But Vedanti’s patents are still alive for now, so Google has cause for concern.
2. Google seems to have assisted VSL’s case by returning VSL’s trade secret materials with tell-tale sticky notes all over them showing their intent. Huh? This is really an amazing part of this story.
When the VSL Google talks ended, VSL demanded the return of its files. The returned documents were covered with incriminating Post-it notes that had apparently been left behind by Google employees. Attorney Adam Levitt claims that the notes said, among other things, that Google might possibly be infringing VSLâ€™s then-pending patent and that Google should â€œkeep an eyeâ€ on VSLâ€™s technology and sweep it into a Google patent. In addition, notes warned Google engineers not to be caught â€œdigging deepâ€ and to â€œclose eyes to existing IP.â€
The complaint alleges that Google began to amend its preexisting patent applications and file new applications using VSLâ€™s technology. Then in early 2012, VSL noticed that there were significant improvements to the video quality of Googleâ€™s Android operating system as well as other Google software. In June, the staff at VSL analyzed Googleâ€™s publicly available code only to discover that the code contained VSL trade secrets. Levitt asserts that the â€œDefendantsâ€™ theft of VSLâ€™s trade secrets pervades virtually every website and product offered by defendants.â€
“The use of new technology by established companies should be based on original creation and innovation,” said Adam Levitt, head of Grant & Eisenhofer’s Consumer Protection practice, who is representing the plaintiffs. “Vedanti Systems created groundbreaking digital video technologyÂ — technology that has forever changed the way that video content is streamed and displayed over the Internet.”
The lawsuits allege that Google willfully infringed Vedanti Systems’ patent and did so deliberately and knowingly, while recognizing the serious shortcomings of their own video streaming capabilities prior to the infusion of stolen IP.
Whether the suit will succeed or not remains to be seen, but I find Google’s lapse in leaving sticky notes on the borrowed materials to be rather hilarious, if it is true. One thing is for sure: If Vedanti’s allegations are factual, their chances of seeing some degree of justice are vastly greater by virtue of having a patent than if they did not. Software patents are essential for protecting innovations in the hugely important arena of information technology. This is the Knowledge Economy, folks, not the Iron Age. Economic growth and progress is more likely to come from advanced software and IT innovations than from hammering out better cogs and gears, and we need an IP system that understands this. Most judges and politicians ranting against software patents or patents in general do not understand this. Recent ruling that make many software innovations not even eligible for patents show that we have judges and influencers very ignorant of the physical nature of information and computer systems. Innovations like those of Vedenati are not tantamount to mere abstraction and mental exercises. They should have just as much right to be considered for a patent (provided they are novel, nonobvious, and useful) as any tool wielded by or widget hammered out by an innovative blacksmith.
Software patents matter, and they are vitally important for the best innovators of our day if they are to stand against the anti-patent giants that want anything but a level playing field. VSL vs. Google, or David vs. Googleliath, is a compelling reminder of that.
VSL’s patents in Europe are already causing pain for Google. Here is an excerpt from “Court Seizes Google’s Infringing Android Devices in Germany at IFA,” Stockhouse.com, Sept. 11, 2014:
SANTA MONICA, CA–(Marketwired – September 11, 2014) – VSL Communications, creators of Optimized Data Transmission technology and Max Sound CorporationÂ (OTCQB: MAXD)Â (MAXD) creators of MAX-D HD Audio solutions, have been granted multiple preliminary injunctions from the District Court Berlin against OEM’s (Original Equipment Manufacturers) to stop the sale of certain Google Android devices in the Federal Republic of Germany at the Premier show IFA in Berlin (Internationale Funkausstellung, http://www.ifa-berlin.de/en), the world’s leading fair for Consumer Electronics and Home Appliances).
Max Sound, under agreement with VSL Communications, is enforcing intellectual property rights on VSL’s behalf and has obtained preliminary injunctions against Shenzhen KTC Technology Co. Ltd and Pact Informatique S.A., France. German Customs authorities further inspected several other exhibitors of smartphones and tablet PC’s with Android operating system. Shenzhen KTC Technology Co. Ltd. is one of the largest Chinese electronics groups operating worldwide, and Pact Informatique is a French electronics company operating in many European countries under the brand Storex. Max Sound’s actions were based on infringement of VSL’s European Patent EP 2 026 277 concerning an Optimized Data Transmission System Method. The Infringement was found on the basis that Google’s Android OS implements the H.264-Standard for video encoding, which is protected by VSL’s patent. A bailiff seized all smartphones and tablets of KTC and Pact at the trade fair IFA in Berlin on September 10, 2014. The injunctions have no automatic time limit, and opponents can file an opposition.
So what will Google do? For starters, I’m predicting we’ll see VSL and their allies soon being called some kind of “troll.” I also think we can rely on Google’s friends at the USPTO and beyond to find all sorts of reasons why Vedanti’s patents aren’t even drawn to patent eligible subject matter, regardless of how novel they may be. But the trade secret case is where I think tiny Vedanti might have a fighting chance, thanks to Googleliath’s cooperation with the sticky notes. Who said IP law wasn’t entertaining? Weird Al could have a lot of fun with this story. Suggestions for what tune to use in his spoof?
Note: The US cases referred to are captioned as: Vedanti Systems Ltd. and Max Sound Corp. v. Google, Inc., YouTube, LLC, and On2 Technologies, Inc., No. 1:14-cv-01029 (D. Del., filed Aug. 9, 2014) and Max Sound Corp., VSL Communications Ltd., et al. v. Google, Inc., et al.,Â No. 114-cv-269231 (Cal. Sup Ct.).
- Max Sound Corp. Files Two Lawsuits Against Google, Accusing Search Giant of Misappropriating Proprietary Digital Video Streaming Technology (PRNewswire.com)
- Story at Yahoo! News
- Android Devices Seized in Europe (Stockhouse.com)
- Originally posted at JeffLindsay.com
My latest post here at Innovation Fatigue lamented the actions of the USPTO in their apparent war on patents involving natural products. New information makes the story even more troubling than before, indicating that more than just judicial error and bureaucratic blindness was involved. The steps taken appear much more deliberate and political than that, and reflect an increasingly revolutionary attitude toward patent rights holders, where IP is viewed as the problem, not as a vital tool to benefit society.
First, new insight into the actions of the USPTO comes from a leaked USPTO PowerPoint used to train patent examiners on the radical new USPTO guidelines implementing their extreme response to the Myriad decision. A PDF of the PowerPoint slides, coupled with the USPTO guidelines and some vital commentary have been compiled by Hal Wegner and are kindly provided by a great champion of IP (quality IP, that is), Greg Aharonian, Director, Center for Global Innovation/Patent Metrics. Wegner observes that the new guidelines, which require inventions involving natural products to be “significantly different” than what may be found in nature provide no concrete, objective test to determine when a claimed invention is “significantly different” from ineligible subject matter. Is a creative device made out of wood significantly different from naturally occurring wood? Is a new anti-cancer drug extracted from a newly discovered fungus significantly different? Who knows? The uncertainty created by the test can be disastrous for property rights holders. Wegner points out that a much more useful and concrete test already exists: the Papesch test for determining whether the claimed invention as a whole is nonobvious from the prior art. But this was never mentioned by the Supreme Court in the infamous Myriad decision and has been neglected by the USPTO as well.
In a recent email to his subscribers, Greg Aharonian shares an email sent to him by a biotech patent examiner within the USPTO. It helps explain some of the motivation behind the seemingly crazy USPTO action, which isn’t so crazy at all from the perspective of politics:
1610 examiner here again. We examiners in biotech at the PTO also would like to know ourselves who wrote those ridiculous guidelines. We are being told to stretch 101 as much as possible. The guidelines say that, for example, if claim 1 is an assay method, with steps such as centrifugation, column chromatography, mixing reagents in a test tube, spectrophotometric measurements, if each category of technique was known at the time of the invention (is routine/well known/conventional), forget about whether the step was ever done with the molecules in the claim, we have to write how each step is 103-obvious w/o using 103’s word “obvious”. We have to write somehow how the combination is 103-obvious, w/o the using 103 word “obvious”. Then we have to reject the claim under 101. We don’t know if the PTO requires art cited for each step that is obvious.
Now, Funk Bros. v. Kalo Inoculant, one example in the guidelines, is a decision in which the patented composition, which I think is amazingly clever, was considered not to be inventive. The decision involves 103, not 101. How could the PTO so thoroughly confuse 101 with 103?…
Myriad was politically motivated, filed by the ACLU, because poor people can’t afford the BRCA1 gene test. OK, this is the Obama era, max political correctness. Current politics ruled. The test, however, is expensive and difficult to do. It’s not in the test strip category, like a pregnancy test.
But Mayo v. Prometheus takes the cake. The drug and its metabolites are not natural products. So what is the natural phenomenon that the justices never mentioned? And the clever part is looking for a target concentration of one synthetic metabolite in red blood cells.
What seems to be forgotten is that patents are intellectual property and that patented inventions are new and useful. When intellectual activity is maligned rather than rewarded, the economy goes with it. The PTO seems to be under pressure from the White House, because biotech patents don’t jive with Obamacare, which is backfiring.
Yes, it is high time for patent attorneys to fight back (don’t laugh Greg). David Kappos cut our time for examination, but he increased customer service. Time for the customers to demand more service.
The biotech community seems afraid to speak out too loudly on these outrages, but I think savvy investors see a dimmed future and have begun pulling some of their money out of the field (my guess about the recent plunge). The patent community and the business community is remaining far too silent, perhaps afraid of attracting political wrath, but the losses of IP rights could seriously set back innovation in the US and beyond.
China is ramping up its IP system and strengthening protection, while America is declaring IP to be the problem and weakening IP rights. Who’s going to own the future? I’m living in beautiful Shanghai now, where a lot of the future seems to be sprouting in an increasingly pro-IP environment. Meanwhile, I hope America will come to its senses and return to vigorously protecting IP rights and promoting innovation, not innovation fatigue.
In response to recent court cases, the USPTO has dramatically revised its approach to dealing with a wide variety of patents. Its new guidelines to patent examiners on subject matter eligibility for inventions involving natural productsÂ seem to go way beyond the legal decisions on which they are allegedly based, adding extremely high barriers to patentability. If your invention uses natural products, as almost every tangible invention does to some degree, you now must show that what you claim is “significantly different” that what might be found in nature or from natural phenomena. This vague requirement gives examiners a new club. I’ve already seen it abused.
One client from a previous employer of mine was on the verge of having her patent allowed, but instead just received a ridiculous rejection based on the new guidelines. Â The invention is a real breakthrough in consumer products that replaces a potentially harmful active ingredient with a novel formulation of several natural compounds with unexpected benefits. The value of the invention is potentially huge, but the examiner notes that since all the ingredients are natural and not significantly different from what can be found in nature, the overall invention is not patentable. End of story. I hope this examiner doesn’t realize that every atom, electron, and photon used in any invention can be found in nature.
Those in the biotech industry are highly agitated by this development.Â “IP Practitioners ‘Horrified’ by USPTO Guidelines on Myriad” is a recent article from Managing IP Magazine with the following:
Sherry Knowles, principal at Knowles Intellectual Property Strategies [said]:
I think the guidelines that were promulgated by the Patent Office are horrifying to the pharmaceutical and biotech industry. That is probably the nicest thing I could say about them. According to the utility guidelines that came out in March this year, not only is no natural product patentable in the US, arguably derivatives of natural products may also not be patentable. That is a clear change in the law.
She said the guidelines include a number of questions to find out if something is patentable. The first is: is it a natural product and does it include chemicals derived from natural sources such as antibiotics and proteins. Knowles noted that 47% of drugs over the past 30 years include derivatives of natural products.
“According to the guidelines, if it is not a natural product you look at whether it is ‘markedly different’ from the natural product. That’s the test. Of course that is clear as mud and that will be defined over time in case law. But let’s say two-thirds of approved drugs that are derived from natural products are markedly different you are still down to 390 drugs over the past 30 years that arguably under the utility guidelines are not patentable. I find that horrifying. I am very concerned,” she said.
These new guidelines, as well as the questionable court cases behind them, reflect a growing anti-patent mentality among our judges, politicians, and bureaucrats. We need to educate a new generation to understand that intellectual property is a critical tool to lift all boats by encouraging innovation and the sharing of secret knowledge obtained by inventors. We need to reverse the popular trend of pointing to patents and trolls as the biggest barriers to progress, when it is not that way at all. Sound patents, properly examined and granted, encourage innovation and lead to gains in knowledge for all.
Breaking news from the Province of Shandong in northern China: A Chinese paper company, Quanlin Paper (also called “Tralin Paper”) has successfully used its portfolio of patents and trademarks to secure a huge loan of 7.9 billion RMB (about $1.3 billion). Potentially significant story for those tracking IP and innovation in China. The story was just reported on March 3, 2014 at China Paper (the story is in Mandarin). This is quite a big deal and may be a record for China in terms of how much value IP brought in seeking a corporate loan. To emphasize the significance of this development, the normally dry China Paper publication begins with a somewhat flowery statement based on an interview with the Chairman, who expresses surprise and delight at how much money they were able to obtain with their IP. Here’s my loose translation, followed by the actual Chinese:
“I never thought that intellectual property could have such a big effect in obtaining this loan. IP was a big part of it,” according to Quanlin Paper Company’s Chairman of the Board, President Li Hongfa, speaking today to a reporter about the 7.9 billion yuan from bank lenders that began this week. He said that this money will help them rapidly expand and seize market opportunities. For an enterprise where funds have been tight, this new addition is gladly welcomed just as the mist-covered earth rejoices in the spring rains from the night before.
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OK, a bit flowery, but again, this is big news for China and things get flowery when the big news is good. This development shows that IP in China can be valuable (though the portfolio includes some international patents, though it is mostly Chinese IP). It also shows that Chinese companies, even in seemingly dull industries like the paper industry, can be innovative and create valuable IP. I haven’t reviewed their IP to assess its value, but I understand they have over 100 Chinese patents in areas such as technology for using straw and other renewable or recycled materials for making paper, with alleged benefits of enhanced environmental friendliness and cost effectiveness. Shandong Province’s IP Office has also created some publicity about Quanlin’s IP estate (see the Chinese article here), though this was before the news of the massive loan secured with the help of IP. Expect more publicity from them shortly.
Further background comes from Baidu’s wiki-like entry on Quanlin Paper.
When nations develop strong IP systems, companies can use their IP to protect their innovations. This also motivates them to take the risk and spend the money need to drive further innovation, and gives investors courage to fund growth and innovation. In this case, it helped give a lending partner (a Chinese financial organization) the courage to loan a giant sum of money to help Tralin grow. Tralin has been pursuing IP not just for tax breaks it seems but also for strategic purposes, and information coming out about this story shows that they have been developing expertise in their staff to develop their IP estate. Sure looks like that has paid off for them.
This is one of many signs that China is becoming serious about IP and innovation, and not just low quality IP, but IP that can provide significant value. For IP to apparently be a crucial part of such a large loan in this challenging economic times is a remarkably positive sign for China, in my opinion.
A hat tip to Ian Feng (Yan Feng) of Goldeast Paper in Zhenjiang, China for bringing this news to my attention.
Update:Â On my mostly China-related blog,Â Shake Well Before Serving, I offer my full translation of the China Paper article, if you are interested. The translation is in the post, “A Sign of Chinaâ€™s Growth in Intellectual Property: Chinese Company Relies on IP to Gain Giant Loan,” where I have cross-posted the breaking news on Tralin Paper (a.k.a. Quanlin Paper).
The hysteria against software patents continues around the globe, threatening to hinder the most important aspects of the knowledge economy in favor of clinging to old industrial age paradigms. The real problem with software patents has been the large number of poor quality patents issued by the US Patent and Trademark Office due to bad searches, poor training, and poor quality examination in general. These problems are not solved by banning certain classes of patents, but by improving the Office and correcting the huge siphoning of funds from USPTO coffers that Congress has done to fund their endless spending sprees. But in backlash to the few outrageous examples of overly broad patents that have been issued, ill-informed mobs have been stirred up to condemn software patents, business method patents, and sometimes patents in general, not recognizing that intellectual property rights are essential for providing the incentives required for inventors to make the sacrifices and investments required to bring inventions to life.
A recent development comes from New Zealand, where anti-patent zeal has resulted in a law that outright bans computer-related patents altogether, or so it seems. Here is the text of the law:
(1) A computer program is not an invention and not a manner of manufacture
for the purposes of this Act.
(2) Subsection (1) prevents anything from being an invention or a manner of
manufacture for the purposes of this Act only to the extent that a claim in
a patent or an application relates to a computer program as such.
(3) A claim in a patent or an application relates to a computer program as such
if the actual contribution made by the alleged invention lies solely in it
being a computer program.
In this, the Knowledge Economy, where innovation increasingly depends on how information and data are applied, managed, and created, eradicating computer-related patents is almost as logical as banning patents on anything using electricity. It is an expression of a Luddite mentality that will slow progress in some of the most promising areas of the economy.
Greg Aharonian of the Internet Patent News Service, a keen observer of patent trends and government follies in the IP world, in email to his subscribers sent Aug. 29, 2013, readily pointed out the hopeless defects in this law, arguing that it is “meaningless without a definition of ‘computer’ and ‘computer program.'” He illustrates this with some examples:
Take a computer program written in C, with a listing of the C source code. Clearly that is a computer program. Now, run the C code through a hardware/software co-design tool and create an Application Specific Integrated Circuit that performs the C code. Is the ASIC a computer program? Of course not, it is hardware, a chip, not programmable … but a computer program to anyone who isn’t brain dead.
Or, convert the C code into a burn pattern for a Field Programmable Gate Array? Is this FPGA a computer program? Well, it is pure hardware, a chip, but it is more programmable like a microprocessor executive now-banned computer programs. Computer program or hardware? Finally, using the same co-design tool, just compile the C code and distribute it on a CDROM for execution on a PC or Mac. Clearly that is a computer program. But its all the same thing. It is the same algorithm in different embodiments.
Yet none of these subtleties are reflected in the law for lack of a definition of “computer” and “computer program”. This is the same patent law terrorism seen in not defining “abstract”, “obvious”, and “as such”.
This law, like many of the utterances of justices in the U.S., reflects profound ignorance about the digital world and the nature of computers, computer chips, software, hardware, smart appliances, automation, and electronic technology in general. Reacting to backlash over low quality patents in this manner does nothing to address the quality problems and only adds to the expense and difficulty for those seeking to protect their inventions. It’s another recipe for innovation fatigue.
One of the most serious factors contributing to innovation fatigue in the U.S. and many other nations can be the failure of government to protect and enforce property rights, including intellectual property rights. When the fruits of invention can be plucked by anyone without benefit to the inventor, when the risks and costs of innovation provide no benefit to the innovator apart from a first mover advantage in the market place, then the incentives to invest, to sacrifice, and to bear the pains of innovation are diminished. Frankly, why spend ones time and money inventing and innovating if the results cannot be protected to benefit those who sacrificed and paved the way?
As we argue in Conquering Innovation Fatigue, that nations with good IP systems tend to have stronger, more vibrant economies. China gets this and is building its future with a growing emphasis on IP, even as the West thinks China has no IP. Meanwhile, many in the West seem to have bought into the lie that IP hinders economic progress, and have joined the anti-patent bandwagon. It’s a fast road to innovation fatigue.
Sadly, the latest to join the anti-patent parade is one of the most powerful entities on earth, the Federal Reserve Bank of the United States. That’s right, the secretive, unelected, unaccountable organization that has overseen the erosion of about 95% of the value of the dollar since its inception, the institution that repeatedly turns to “legal counterfeiting” with non-stop printing of money created from thin air as the addictive cure-all for America’s economic problems, now dares to expand its influence into not just eroding your financial property, but also your intellectual property, with a call for the elimination of patents: “the final goal cannot be anything short of abolition.” Ouch.
The mega-government, Keynesian mentality behind Quantitative Easing and the other voodoo tools of the Fed can naturally lead to a hostility toward property rights of all kinds, so the assault on patents is not necessarily out of character for the Fed, though certainly far afield from their supposed area of responsibility and certainly far from any hint of expertise. Yet they have had the audacity to publish a report pretending to offer economic analysis into the harm of patents with a call for the ultimate demise of patents. This is disturbing stuff.
The failure of the USPTO and the patent problems that are given so much publicity are generally not inherent to IP rights but are largely due to the failure of the USPTO to ensure that quality searching and examination is done. Issuing loads of worthless patents can create serious problems. It is easy to focus on the loss caused by bad patents, as we do in a chapter of Conquering Innovation Fatigue, but one must also consider the even greater loss caused by no patents and easy theft of IP. The solution, again, is not to abolish IP, but to strengthen the USPTO so they can and must perform quality examination, prevent the siphoning of funds by Congress from the USPTO, and strengthen our patent system so it is less capricious (real patent reform, perhaps beginning with eliminating the vague and unpredictable 101 assaults on patents when some computer method is involved).
We must say no to the Fed’s attempt to add yet another devastating failure to its track record, or rather, to prevent one more success in reducing the value of the property held by Americans.
Innovators need to recognize that there are numerous IP risks that their new products and services may face. Sometimes a little attention to your supply chain, packaging, and business model can greatly reduce those risks. An excellent resource on this topic, from which I have drawn a couple of suggestions, is “IP risk assessments – a pragmatic approach
to avoiding problems” by Richard Baker in Intellectual Asset Management (November/December 2011), pp. 72-77.
One approach involves considering and segregating the risk that various aspects of your products and services expose you to. For example, if you are offering a product that includes wireless functionality, consider providing the wireless aspect as an optional add-on that can be purchased separately. If it’s part of the product, you could be sued for infringement of numerous wireless patents and risk paying a royalty of some percentage on the entire product. By moving the wireless features into a separate add-on, the risk becomes much lower, and if you are found to infringe, you’ll be paying a royalty on the sales of the add-on and probably not the sales of the primary device.
You can also reduce risk by exercising caution in how much you disclose (outside of confidentiality agreements) to the public on the details of your products and manufacturing methods. The less you disclose, the less likely someone with a patent looking to sue will spot you as a candidate.
Baker also advocates careful examination of your supply chain and consideration of the jurisdictions that might be involved if there is a suit. If you are shipping internationally, for example, you might want to avoid assembly and shipping from the US where you could be exposed to US lawsuits. Bakers observes that having operations elsewhere can greatly reduce risks. In England, for example, patent infringement suits are successful only about 6% of the time, and in Italy, IP lawsuits move at “glacial” speed through an inefficient court system that often takes longer than the life of the patent to be decided. The US is a great place to be a patent owner looking to sue an apparent infringer, compared to other nations, so take that into account.
Of course, a good patent clearance assessment and care to avoid infringing other patents should be part of your IP risk reduction strategy in the first place, but there is always uncertainty.
Reducing IP risks can help you have a higher chance of succeeding in the market place and overcoming innovation fatigue.
On Sept. 16, President Obama signed the Leahy-Smith “America Invents Act” which supposedly will strengthen innovation and improve our patent system. It’s a radical change in our patent system–one that seems to have been drafted by people who don’t fully understand patents or innovation.
Does this bill promote innovation as advertized? What about that 15% rate hike for patent fees–a new 15% tax on the IP that entrepreneurs need. That’s the most immediate and obvious change. Guess which way that increased burden tilts the balance? Economics 101 suggests that making innovation more expensive is not likely to make it more abundant. But Congress may know better.
Congress apparently recognizes that we have a problem with the patent system, where huge backlogs exist that cause enormous delay and expense for inventors. The backlog and efficiency problem they are allegedly fixing, however, does not require all the unintended consequences of revising patent law but simply improving the administration of the PTO. For example, if Congress would refrain from siphoning off many millions of dollars of PTO funds each year, effectively taxing innovation and crushing the ability of the PTO to properly staff itself and keep its systems up to date, then the backlog could be easily resolved, in my opinion. Unfortunately, we seem to have another case of politicians proposing costly solutions that won’t solve the costly problems that they caused. As long as Congress can redirect funds received by the PTO, the administrative problems at the PTO will not be resolved by changes in patent law. (See “Patent Reform–A Tax on Innovation?” and “Let the Patent Office Keep Its Money.“)
While probably not solving the problems it allegedly fixes, the America Invents Act clearly raises a host of new problems that may lead to unpredictable results in costly litigation for years to come. The radical changes involving who gets patents and what is prior art use confusing language that strips the bill of the “certainty” that its proponents allegedly sought to restore in the system. See excellent reviews of the controversies in these sources:
- Joshua D. Sarnoff, “Derivation and Prior Art Problems with the New Patent Act,” 2011 Patently-O Patent Law Journal, http://www.patentlyo.com/files/sarnoff.2011.derivation.pdf.
- Eric Guttag, “Some More Heretical Thoughts on Strategies for Coping with First to File Under the America Invents Act,” IPWathdog.com, Oct. 5, 2011.
- Gene Quinn, “Prior Art Under America Invents: The USPTO Explains First to File,” IPWathdog.com, Oct. 4, 2011.
Harold C. Wegner of the respect form Foley and Lardner has published an analysis of the law (3rd edition, Sept. 29, 2011) which highlights its pervasive ambiguity due to poor drafting. This is a serious issue which will cloud patent law and hinder the quest for patent rights for years to come. Wegner also rules that the new law may increase backlogs because appeal judges will have to continue dealing with their heavy load of existing cases as well as take on added cases of “post-grant reviews” and other new administrative procedures (supplemental examination and transitional examination of business method patents) which are provided in the new law. The backlog is sure to increase and fees will be raised even more to cope. Meanwhile, the new post-grant review process has “dractonian” elements, as Wegner observes, that may further impede the ability of an inventor with a real invention to obtain a patent. Further, there are numerous details Wegner identifies in his 177-page text showing potential harm to “upstream” entities like universities and small inventors while benefiting those downstream entities that want to use the innovations of others for their business as cheaply as possible. I smell innovation fatigue.
In my view, the bill reflects fundamental ignorance about the nature of invention. The perplexing provisions on prior art highlight this. Years of litigation that will be needed to clarify what on earth is meant by the new prior art provisions as patent professionals already express exasperation over issues of derivation, inventorship, and prior art in the new law.
A crucial part of the ignorance here is on the nature of invention itself, amplifying the confusion created by the judiciary regarding what is patentable. Viewing business methods and software as somehow being non-technical, in spite of typically involving highly technical systems and tools, opens many cans of worms. If something is novel, useful, and non-obvious, why should it not be patentable if it involves computers and electronic data? But the judicial backlash against vaguely defined “business method patents” has been institutionalized in this new law, where business method patents dealing with the financial services industry (thank you, Wall Street lobbyists) have been given special treatment, allowing Wall Street to have a special route to invalidate patents that otherwise have survived basic prosecution, reexamination, and prior litigation. Section 18 of the law describes how those being sued by a “covered business method patent” can have a special hearing to invalidate the patent. That section includes this gem to define that key term:
(1) IN GENERAL.–For purposes of this section, the term â€œcovered business method patentâ€ means a patent that claims a method or corresponding apparatus for performing data processing or other operations used in the practice, administration, or management of a financial product or service, except that the term does not include patents for technological inventions.
(2) REGULATIONS.–To assist in implementing the transitional proceeding authorized by this subsection, the Director shall issue regulations for determining whether a patent is for a technological invention.
The drafters of this law apparently view “business method” inventions as distinct from “technological inventions.” If science were to rule, it would be clear that one cannot clearly distinguish between “technological inventions” and a claim involving data processing or management of a financial product or service when technology is involved. Why is a new use of a computer to advance financial services not “technological”? Why is it a less worthy invention than a new use of a polymer or of amide chemistry or of coherent photons? This probably relates to the non-scientific but widely held view among judges and politicians that information, data, and electronic signals are somehow not part of the physical universe and should be viewed as abstractions rather than concrete entities that relate to physical measures such as entropy and require tangible matter and real energy to manipulate. Note that “technological” is undefined, perhaps because it cannot reasonably be defined in this unreasonable provision of an fatigue-generating law. I wish the best of luck to the Director of the PTO in clarifying this opaque miasma.
The richest innovations transforming our era involve inventions rooted in the processing and manipulation of information and these innovations must be encouraged and rewarded, not excluded from patent coverage because some failing but well-connected ‘too big to fail” entities don’t want patents from others to stand in their uncreative way. The AIA clearly shows the power of those Wall Street entities in guiding legislation and giving them special breaks, breaks that will do anything but strengthen innovation. Like much of the rest of the law, it’s directed at fixing the wrong things in the wrong way. May wiser heads quickly repeal or massively revise this legislation before backlogs explode and innovation fatigue is further spread across the US system.
Meanwhile, from my vantage point in Shanghai, I see China increasingly strengthening incentives for innovation and strengthening patent rights. This bodes well for the competitiveness of China in the future. America will soon be wondering how to catch up. How about some real patent reform down the road?
For a rather optimistic but definitely helpful overview of the impact of the AIA on patent practice, see PLI’s page, “America Invents Act: How the New Law Impacts Your Clients and Your Patent Practice.”
One of the troubling trends in US patent law, a trend I first heard about roughly a decade ago in a course “Drafting and Crafting Winning Patents” from Patent Resources Group, was the tendency for courts in patent litigation to twist the claims to limit their scope. Among the many examples of courts finding language or lack of language in the specification to import unintended and often questionable limitations into the claims is a 2011 case, Retractable Technologies, Inc. v. Becton, Dickinson & Co.. It took creative mental gymnastics by the court to rule that the “body” of the claimed syringe must not read on two-piece bodies, contrary to logic and evidence within the claims themselves. See the response of IP Watchdog to see how this decision may contradict fundamentals of established patent law. The Patent Prospector blog offers this view:
Somewhat subtlety, but most assuredly corruptly, the courts are on a continuing crusade to limit patent protection. In the past four years, the capriciously subjective Obzilla (KSR) has trampled many patents, where an objective evidentiary standard would have left them standing. In this episode, Retractable Technologies v. Becton, the crusade against patent enforcement continues, but from a different angle, with the CAFC distorting well-settled claim construction precedent to squeeze the scope of claims.
The courts seem increasingly ill-disposed toward protecting property and intellectual property rights, especially those of individuals and small companies lacking political clout. Is that due to corruption or just the twisted anti-property (well, anti-other-people’s-property) ideological bent that many of our leading universities impose on students? To be fair, many large companies also bemoan US patent law trends where intellectual property is increasingly taxed and stalled (e.g., through high costs and delay at the USPTO, and the siphoning of patent fees by Congress to pay for their excesses elsewhere), where claim scope is being limited, and where the capricious uncertainties and cost of litigation are ominous. To revive the US economy, there really is a need to strengthen innovation by strengthening and accelerating our patent system and strengthening, not diluting, property rights.
Meanwhile, here in China, there are serious efforts to strengthen enforcement of IP rights, to encourage patent pursuit (e.g., with generous tax incentives and some special incentives that local governments may add in some areas), and to facilitate enforcement. There is a rush in China to create IP and it will have profound long-term effects in terms of global competitiveness. I think that China will become the technology leader of the world and the IP leader, and the U.S. will pay dearly in the end–royalties and more. The U.S. needs to regain its IP and innovation momentum and abandon capricious judicial changing of the rules at the expense of innovators.
“As we discussed on Tuesday, Andre Geim won this year’s Nobel prize in physics for graphene, but he never patented it. In an interview with Nature News, he explains why: ‘We considered patenting; we prepared a patent and it was nearly filed. Then I had an interaction with a big, multinational electronics company. I approached a guy at a conference and said, “We’ve got this patent coming up, would you be interested in sponsoring it over the years?” It’s quite expensive to keep a patent alive for 20 years. The guy told me, “We are looking at graphene, and it might have a future in the long term. If after ten years we find it’s really as good as it promises, we will put a hundred patent lawyers on it to write a hundred patents a day, and you will spend the rest of your life, and the gross domestic product of your little island, suing us.” That’s a direct quote.'”
While some people, including some in the anti-patent community, see this as a self-evident case for the problem with patents, it’s actually just the opposite, in my opinion. Tim’s a sharp thinker and great entrepreneur, but I have to disagree on this one.
Look at the story again. A genius on the verge of filing a foundational patent for a major breakthrough in technology approaches a large corporation who might benefit from the technology. The company learns that the inventor is about to file a patent. A valid patent would mean that the company would have to pay royalties for the invention, perhaps very expensive royalties. If no patent is filed, the company can use the technology for free and develop its own patents without having to cross-license or worry about what Andre Geim owns. Hmm, which would be better: paying a lot, or paying nothing? Having to work with an inventor or tech transfer office or new patent owner who may end up thinking an invention is worth billions, or having the whole thing pretty much gratis? Tough call, but I think the corporate leader was quick to recognize the advantages to nipping the patent threat in the bud. How could he talk the inventor out of a patent? What negotiating tactic to deploy? ah, how about the Hindenburg? That’s where you explain to the other party that their intended course of action would be a flaming disaster, with burning bodies falling out of the sky–oh, the humanity!–resulting in the adversary becoming toast themselves.The Hindenberg it is. The corporate leader then explains that IF Geim is so foolish, so greedy, so inhumane as to file a patent, disastrous suffering will follow and he’ll be burned. “100 patents a day!” Overwhelming force! You’ll go into debt suing us for nothing! You’ll be toast, baby. One big flaming Hindenburg crashing into the ground.
Baloney! All bluff and bluster. But the intimidation and scare tactics work. “OK, OK, I won’t file my patent. Sorry for even thinking about that. Now I see that patents don’t help the little guy, Mr. Big. Here, take what I’ve got for free. I’m just honored to watch you commercialize my work.”
Patents are the great equalizer. It’s what gives lone inventors a fighting chance against the big corporation that wants to take what they’ve got for free. It’s not easy and may not work, but with patents you’ve got a chance and corporations know it. Good ones respect that and will work with out. Others will try to take what you’ve got anyway, or better yet if they can, talk you out of pursuing a patent. Without one, you’ve already surrendered. You might as well throw the keys of your car to any passing stranger and hope they will pay you someday after they drive away.
The story isn’t about why patents don’t help the little guy. In fact, I think it’s about how much some big corporations despise and loathe patents in the hands of little guys. So much so that they would make outrageous statements to trick a brilliant scientists into NOT doing the one thing that could have helped him most: filing a patent. Instead, he handed them his inventions for free. Score one for the big guys.
It would be fun to go back in time and be with Dr. Geim when he was given the Hindenburg treatment. I’d like to ask a quick question of the corporate executive who made the threat:
Wow, 100 patents a day. That’s so amazing, you know, because the world’s most prolific patent filers like IBM and Canon average less than 20 filings a day, and I would be surprised if they ever hit 100 patents a day, and certainly not on one single project and certainly not over an extended period of time. So how many US patents did your company get last year? Wait, it’s right here at USPTO.gov – hey, based in your pathetic past filing rate, it looks like you could never ramp up to 100 a day. You’re trying to spook me. So just what are you afraid of? Oh, I see, my patent. Nice try, Mr. Big. I’m going to file, especially now that I see how much you care. Now go ahead and hire a hundred lawyers and create your own little fiscal Hindenburg, or we can talk about collaboration.
Oh, one more thing. You need to work on that Hindenburg act. The flames shooting out of your ears were a bit freaky.