Definition of "patent troll"...
In the wake of yet another "patent troll" case, Microsoft, Autodesk lose patent case, I decided to take up Matthew Buchanan's challenge to define a patent troll. (I've submitted the following as a comment as well).
I'll take a stab at a definition of a "patent troll":
A company, individual or other entity whose current sole
business objective is the exploitation of a patent or patent portfolio
acquired after (but patented before) the adoption of a technology to
extract royalties or settlement agreements at values calculated to be
near the cost of patent litigation.
Under this definition, companies can move from "legitimate" inventive
businesses into the realm of "trolls" and vice-versa. I think that I've
incorporated several important distinctions:
- Simply seeking out licensors and/or infringers cannot be enough
to be a troll;
- Simply seeking reasonable royalties cannot be enough;
- Simply defending one's actual business by using a patent or patent
portfolio cannot be enough (purpose of; and
- Being a invention farm cannot be enough.
I think that this captures companies that are essentially patent
holding companies, with no real business objective except the
acquisition of patents (usually not of their own creation), to enforce
against wealthier, productive entities.
The Slashdot crowd may not like this def'n since they use the term to
include lots of entities--or even one commenter using the term against
universities.
Frankly, I'm not sure that there is such a thing as a patent troll,
or even if they're necessarily a bad thing. I think largely the idea of
a patent troll is really about perception. The small patent owner is
always a troll when you're the infringer.
Additional material: I might also add to the definition that the patent or patent portfolio often contain weak or seemingly invalid patents. By quickly glancing at the software patent at issue in the Microsoft/Autodesk case, I'd have to say that Microsoft/Autodesk are correct that these patents, 6,044,471 (filed 6/4/1998) and 6,785,825 (filed 5/31/2002), seem invalid. For one thing, the first patent seems to cover methods of "product activation" long used by shareware software.
Offshoring I.P.
I'll write more about this later, but in a somewhat stunning announcement, the IRS is seeking $1 billion dollars from Symantec for undervaluing it's intellectual property in Ireland.
This is several months after a Washington Post (it's a pay article, reposted here discussed here) article talked about Irish subsidiaries.
It so happens that I'm researching the risks and advantages of offshore IP operations. So I should have a lengthier post shortly.
What you get for the money…
…Is apparently not much, according to the district court for the Western District of Pennsylvania in FTC v. Davison Assoc. (via invent blog). Davison, if you remember, is one of those invention submission corporations. Well, what most people have long suspected is now “true” according to the court: it’s a rip off. The court ordered a permanent injunction and $26 million in equitable relief (interestingly, the court suggested this could have been more but the FTC failed to provide evidence of earnings for years other than 2004).
From the findings of fact, the scheme works in “two” parts. * There were slightly different approaches before and after the FTC filed its complaint. *
First, an inventor signs a “Pre-inventegration” agreement for the seemingly cheap price of $700. The $700 buys a “portfolio” containing “product research, a patent design search, and a provisional patent application”. The inventor then signs a “Contigency” agreement costing 10% of future licensing. It requires, among other things, a “virtual reality presentation” before any further work will continue.
This takes us to step two. Once the inventor signs the Contingency Agreement, Davison conveniently offers to produce the virtual reality presentation. This costs money, of course. You can pay by the hour or simply pay the flat rate, between $8,000 and $14,000, and another cut of future royalties.
There were a number of interesting findings. First, Davison approach here is to make it look like they are invested equally in the invention by using royalties. The problem, however (but unsurprisingly), is that the court found fewer than 1% of all revenue to Davison was by way of royalties. Second, most of the claims were simply “hiding the ball”. For example, since the Contingency Agreement was royalties only, a $1 return was a “profit”—of course, ignoring the very expensive “other services”.
After looking at a number of things, the court concluded several things:
- inventors were lead to believe that there was “a reasonably good chance of realizing financial gain”
- inventors were lead to believe that “some or more” of Davison’s client’s products had been successful and profitable;
- that Davison did not have the “vast network of corporations with whom they have ongoing, special relationships” they claimed to have;
- that Davison lead inventors to believe all the services were necessary for licensing their inventions to corporations; and
- that Davison was not the expert in patentability of consumer inventions they claimed to be
Though, the court rejected the argument that Davison “falsely represented” had helped “many” customers.
Are shrinkwrap contracts pre-empted by copyright law?
In a continuing theme of contract v. copyright, the author of Bubble-Wrap: Why the Contractual Protection of Ideas is Preempted by Federal Copyright argues that shrink-wrap licenses are pre-empted by copyright law:
Another way in which courts attempt to avoid the preemption issue is through the extra element test: “Courts generally hold that because contract rights depend on extra elements that distinguish them from section 106's exclusive rights—essentially the presence of a bargained-for exchange--section 301 does not preempt breach of contract claims….
However, this extra element test fails under a shrink wrap theory, because the extra element, the bargained for exchange, is markedly absent in such a contract.40 Here, the breach of contract action serves as nothing other than a subterfuge to control the exclusive rights of works within the subject matter of copyright for a work which failed to meet the federal act's standards for protection.
Can this be right? The only “extra element” in a contract claim is the bargained for deal? I am not an expert in this area, however, it seems that to win on a contract case one would need to prove a valid, enforceable contract. Thus, offer, acceptance, and consideration seem to be “additional elements”.
Follow-up question: One more thing, I doubt that in fact one could in fact argue that a shrinkwrap license, in fact, was not bargained for. The fact that you have little ability, or desire, to negotiate a "better" deal is not dispositive of whether the deal was "bargained for". In fact, one could presumably seek a better deal, but what incentive do most content owners have to negotiate with you or grant to you "better" terms?
Licensee's rights: standing to sue
The Medimmune v. Genentech appeal asks the court to address whether a licensee may sue the licensor to challenge the validity of the licensed patent. While the ultimate outcome of the dispute is unknown, we do know a few things about other licensee’s rights. For example, when can a licensee sue infringers of the licensor’s patents?
An exclusive licensee with “all substantial rights”
Tthe Patent Act confers standing to sue for infringement. Intellectual Property Development, Inc. v. TCI Cablevision, 248 F.3d 1333, 1345 (Fed. Cir, 2001). A patent confers the “right to exclude others from making, using, offering for sale, or selling the invention.” 35 U.S.C. §154(a)(1) (2004). The Patent Act provides the patentee with the sole “remedy by civil action for infringement of his patent.” 35 USC §281 (2004). A “patentee” is “not only the patentee to whom the patent was issued but also the successors in title to the patentee.” 35 USC §281 (2004). Thus, courts have generally required “that a suit for infringement ordinarily be brought by a party holding legal title to the patent.” Abbott Laboratories v. Diamedix, 47 F.3d 1128, 1130 (Fed. Cir., 1995); Arachnid, Inc. v. Merit Indus., Inc., 939 F.2d 1574, 1578-9 (Fed. Cir. 1991).
Courts have interpreted the statute to preclude nonexclusive licensee from suing for infringement. Crown Die & Tool Co. v. Nye Tool & Machine Works, 261 U.S. 24 (1923). Crown Die held that “the injury inflicted by an act of infringement falls upon the individual who owns the monopoly at the date of infringement. Id. Since a nonexclusive licensee receives only a covenant by the patent owner not to sue, a nonexclusive licensee suffers no legal injury from infringement. Intellectual Property Development, 248 F.3d at 1345. This reasoning, though, does not necessarily apply to exclusive licensees under standing doctrine.
An exclusive licensee with “all substantial rights” has standing to sue in their own name. Courts have held that a grant of “all substantial rights in a patent amounts to an assignment—that is, a transfer of title in the patent—which confers constitutional standing on the assignee to sue another for patent infringement.” Intellectual Property Development, 248 F.3d at 1345; Waterman v. Mackenzie, 138 U.S. 252, 256 (1891). In this analysis, an exclusive licensee with “all substantial rights” is simply recognized as the patentee. There is a substantial amount of case law which addressing whether a particular exclusive license is in fact an assignment. Such a determination is outside the scope of this memo. However, where an exclusive licensee does not claim to be the patentee or assignee, it has “the burden to provide evidence endowing it with all substantial rights in the patent.” Fieldturf v. Fieldturf International, 357 F.3d 1266, 1268 (Fed. Cir., 2004). Particularly dispositive are reservations on the right to enforce the patents. Vaupel Textilmachinen KG v. Meccanica Euro Italia S.P.S., 944 F.2d 870, 875 (Fed. Cir. 1991).
A licensee with less than all substantial rights in a patent
Where an exclusive licensee has fewer than all substantial rights, courts must address the “threshold issue” of standing. The issue of standing is a question of law. The “doctrine of standing limits federal judicial power and has both constitutional and prudential components.” Evident Co. v. Church & Dwight C., 399 F.3d 1310, 1313 (Fed.Cir. Feb. 22, 2005)(quoting Media Techs. Licensing, LLC v. Upper Deck Co., 334 F.3d 1366, 1369 (Fed. Cir. 2001)). Standing is judged under the Supreme Court’s Lujan test. Constitutional standing requires “only that a plaintiff must have suffered an injury in fact, that there be a causal connection between the injury and a defendant’s conduct, and that the injury be redressable by a favorable court decision.” Id. In addition, when an exclusive licensee has constitutional standing, it may still be barred by prudential concerns.
An exclusive licensee with fewer than all substantial rights may have constitutional standing. “An exclusive licensee receives more substantial rights in a patent than a nonexclusive licensee, but receives fewer rights than an assignee of all substantial patent rights.” Id. To determine constitutional standing, the courts will apply Lujan test to an exclusive licensee. The first prong requires injury in fact. The second prong requires the causation be “fairly traceable” to the injury in fact. Id. Finally, Lujan requires that the injury be redressable.
The first prong is satisfied where an exclusive licensee has the right to exclude other from “making, using, and selling an invention.” In that case, the licensee is constitutionally “injured by any party that made, used, or sold” the invention. Intellectual Property Development, 248 F.3d at 1346; Evident, 399 F.3d at 1314.
Second, there must be a “fairly traceable” casual connection between the conduct and the injury. In the case of infringement, the conduct is directly related to the injury and is sufficient to overcome the “fairly traceable” test. Id.
Finally, patent infringement is redressable through the courts by an award of damages. Id. Intellectual Property Development notes that the “court has awarded damages to exclusive licensees.” Id. Therefore, the injury is redressable by the court. Id. Under these circumstances, an exclusive licensee meets the constitutional standing requirements.
Nevertheless, an exclusive licensee with less than all substantial rights cannot usually bring a suit in their own name. That is, although “an exclusive licensee may have standing to participate in a patent infringement suit, in some cases it must still be joined in suit by the patent owner.” Prima Tek II v. A-Roo Co., 222 F.3d 1372, 1377 (Fed.Cir., 2000). This rule is a “judicially self-imposed” prudential limit. Independent Wireless, 269 U.S. at 468. The prudential limit thus denies standing to an exclusive licensee with fewer than all substantial rights unless the patent owner is joined as a plaintiff. “This principle hold true except in extraordinary circumstances, such as where the infringer is the patentee and cannot sue itself.” Id.
In Independent Wireless v. Radio Corp., the Supreme Court held “The presence of the owner of the patent as a party is indispensable not only to give jurisdiction under the patent laws but also, in most cases, to enable the alleged infringer to respond in one action al all claims of infringement for his act, and thus either to defeat all claims in the one action, or by satisfying one adverse decree to bar all subsequent actions.” 269 U.S. 459, 468 (1926).
Subsequently, the Federal Circuit has, as a general rule, adhered “to the principle that a patent owner should be joined, either voluntarily or involuntarily, in any patent infringement suit brought by an exclusive licensee having fewer than all substantial patent rights.” Prima Tek II, 222 F.3d at 1377; Abbott Labs, 47 F.3d at 1131; Evident, 399 F.3d at 1314; Fieldturf, 357 F.3d at 1268; Intellectual Property Development, 248 F.3d at 1348; Mentor H/S, 240 F.3d 1016; Ortho Pharmaceutical, 52 F.3d at 1030; Textile Productions, 134 F.3d at 1484. As this rule is “prudential rather than constitutional,” it is subject to exceptions. Id. The court has recognized two exceptions. The first exception is where the exclusive license grants “all substantial rights,” as noted earlier. The second is where the patentee is the alleged infringer. Absent these two situations, the patentee is an “indispensable party.”
Importantly, an exclusive licensee is not barred from enforcement simply by an unwilling or unavailable patent owner. A patent owner is “duty bound to become a party.” Independent Wireless, 269 U.S. at 472. A licensee “may make [the patent owner] a party defendant by process and he will be lined up by the court in the party character which he should assume.” Abbott Labs, 47 F.3d at 1131 (quoting Independent Wireless, 269 U.S. at 468). The court explained the patentee “holds the title to the patent in trust for [the exclusive] licensee, to the extent that he must allow the use of his name as plaintiff in any action brought at the instance of the licensee in law or in equity to obtain damages for the injury to his exclusive right by an infringer or to enjoin infringement of it.” Id. Even in the absence of an expressed provision, courts will imply an “obligation” on the “licensor to allow the use of his name” so that the licensee may enjoy “the monopoly which by personal contract the licensor has given.” Independent Wireless, 269 U.S. at 469.
Courts are aware of the inconvenient and “possibly embarrassing” results of an adjudication brought by an exclusive licensee. Independent Wireless, 269 U.S. at 469. As would be the case where litigation posed potential geographic or economic hardships, or where the ultimate disposition of the case held a patent invalid or unenforceable. These concerns address the policy of making the patentee an indispensable party since the licensee’s and patentee’s interests do not necessarily align. To a licensee, paying royalties while competing with even a negligible infringer is the worst of two worlds. In such a case, the invalidity of a patent may be better than the status quo. On the other hand, the patentee is interested in maintaining royalty payment, avoiding expensive litigation and maintaining even weak patent rights.
As such, courts are willing to entertain provisions that vary the rights of the parties to bring a suit. “Express covenants may, of course, regulate the duties between the licensor and licensee to implement the rights of the parties.” Ortho Pharmaceutical, 52 F.3d at 1034. Among the permitted provisions are those which outline whom may initiate an action. Intellectual Property Development, 248 F.3d at 1345 (upholding a provision that required the licensee obtain consent from licensor); Mentor H/S, Inc. v. Medical Device Alliance, 240 F.3d 1016, 1018 (Fed. Cir. 2001) (upholding provision that allowed licensee to sue only when patentee failed to take action); Speedplay, Inc. v. Bebop, Inc., 211 F.3d 1245, 1251 (Fed. Cir.2000)(upholding an provision that allowed the patentee to sue, but finding it “illusory” in effect); Abbott Laboratories, 47 F.3d at 1132 (upholding a provision that granted the right to sue to exclusive licensee, but also maintained a right to bring suit in its own name); Vaupel Textilmachinen KG v. Meccanica Euro Italia S.P.S., 944 F.2d 870, 875 (Fed. Cir. 1991)(upholding a licensee’s right to sue conditioned upon notice only). In addition, courts looked at the right to initiate a suit to discern whether a party had “all substantial rights.” For example, where such a right is made conditional, the agreements are understood to confer something less than all substantial rights, and thus not an assignment.
Google denuded
The soon to be much talked about Google Images opinion is available here. Under this decision, the court granted Perfect 10's request for a preliminary injunction. The court found Google's use and creation of thumbnails an infringement. However, I'm not sure that that's the most interesting part. Since I'm a former web developer, let me look at only the deep linking/framing issue.
The plaintiff, Perfect 10 is a proprieter of "high-quality, nude photographs of 'natural' models." (They seem to have a thriving business selling small images for cellphones in the UK--about 6000/mo, interesting...).
Google's Image search engine creates thumbnails of the images which it presents to users searching its database. When Google returns a result (like this for Julie Bowen) clicking on a link takes you to a Framed version of the website. The frame, on the top half shows the cached thumbnail, and below the page from which the picture originated.
The court analogizes "in-line linking" and "framing". First, the image on the right of this paragraph of William Patry is "inline linked". That is, in my HTML code I have told your browser to fetch that image. It's not stored on my server--well it's actually on blogger.com, but that's not really the point--and is not actually part of my website. This means nothing is stored here, and nothing is sent to your browser except the information disclosing the location of the image. Second, the box immediately below this paragraph is a "frame" of William Patry's discussion of this Google case. His page is wholly contained within my own:
In determining whether such activity was direct infringement, the court applied the "server test". The test merely asks, "on what web server is the content actually stored?" Under this test, neither of the above examples would constitute direct infringement. Similarly Google could directly infringe simply by linking to an image (including directly linking to full size image and showing it on its servers) or by framing Perfect 10's content.
Since Google merely frames full-size pictures located on Perfect 10's on site, Google is not directly infringing those copyrights. However, Google loses under the "server test" as applied to the display of thumbnails on its search result page.
The problem
As a former web developer, I think that that the decision is largely correct. ON the facts presented to the court, it clearly must be correct. However, nearer the margins I'm not so sure. Let's consider a few things first.
The test for direct infringement is really a question of "where the content 'originates'". Since neither the image of Professor Patry nor the content contained within the frame reside on my server, I'm not infringing. To the unknowing, the fact that the image isn't on my server would probably go unnoticed. Can it be that the test for infringement lies merely what's in the source code? Is it only HTML source code?
A number of web development languages allow developers to "get" content from another website. What if a developer "fetched" the infringing content and merely returned it to the browser. Nothing stored (at least for very long) on the server but everything returned directly with the page as it's sent to the browser. Many small sites have used a similar techniques to add weather/stock tickers to their pages. If one were to look, the only thing found on the server is the "request" to get the information from those pages.
That sounds like direct infringement to me. It may be that under the "server test" it would be as well. Since the content makes a momentary stop by the "infringers" servers, you've got infringement. However, how many other servers would that same content momentarily pass through on its way to the end user/browser? A trace route of any website from your computer reveals that there are probably dozens of computers between you and the content.
What's more, I think that Google gets a break because of the obviousness of the fact that it did create the content. The search results in fact reveal the actual source. That is not clearly the case of "inline-linking".
New treatment for Type I diabetes
Full disclosure: I am a type I diabetic.
Via Daily Dose, Transition Therapeutics has announced a new treatment for Type I diabetes: Islet Neogenesis Therapy (I.N.T.™):
The I.N.T.™ technology platform, covered by a broad patent portfolio, is
based on the discovery that a short course of injections of naturally
occurring peptides can regenerate insulin-producing cells in the body.
Transition Therapeutics was issued a patent covering the new treatment in late January. I wonder how I can be on the clinical trials.
More CD copying...
... from the Silicon Valley Media Law blog.
It seems unlikely that suing consumers over ripping CDS to their iPODs will help win the messaging war, and it seems a court would quickly jump to pronounce this fair use as in the Rio space-shifting case and create some case law they don't want on the books.
So this may be more about the transition to copy protection and DMCA issues, which was the context of the filing that has raised this issue -- the Copyright Office's anticircumvention rulemaking proceedings.
