On his great 271 Blog, Peter Zura posted excerpts of the Chief Circuit Judge Michel’s keynote address at the FTC hearings on “The Evolving IP Marketplace” last December where Judge Michel addressed the state of patent law and patent reform. Anyone interested in patents, the USPTO and patent reform should take a look. I posted a comment on this post, and am reposting it here (with additions) along with Judge Michel’s comments about NPE’s as presented on the 271 blog.
Specifically, I was intrigued by Chief Circuit Judge Michel’s view that NPE’s (“non-practicing entities” also known by the pejorative term “patent trolls”) should not be viewed as somehow “illegitimate.” He apparently believes that by allowing those who are on the receiving end of NPE lawsuits to control the argument by “naming and framing” (my phrase) the problem as “trolls” is not helpful. Here is the excerpt of this part of his speech (again, thanks to Peter Zura of the 271 Blog for posting this–Peter’s emphasis removed):
Then the argument keeps shifting. Well, it’s not so much the number of infringement suits filed every year, it’s who’s filing. Well, why should we assume that a non-manufacturing patent owner shouldn’t be allowed to enforce its patent? What is wrong with a university owning patents based on research of its faculty scientists or research institutes or small inventors or small innovative companies that either can or don’t want to try to manufacture products themselves but license their inventions so others can make them?
Well, are these patentees really illegitimate somehow? I mean, after all, at least up until now a patent has given its owner the right to exclude, not the obligation to make. Then some say, well, it’s not so much the non-practicing entities, it’s certain companies that don’t invent at all, but merely acquire and enforce patents, and of course calling them ‘trolls’ just confuses the analysis because obviously a troll is a bad thing.
It’s a pejorative label. (Some people who used to complain about trolls allegedly have become trolls). But I don’t think that it’s helpful — it’s a slogan. It’s a label. It’s an excuse to not think carefully about the problem, as far as I’m concerned. It’s like talking about ‘questionable patents.’ It’s an excuse to not think carefully about the problem as far as I’m concerned. It’s like talking about questionable patents. It’s not helpful if we’re going to try to diagnose the real illness and prescribe a useful medicine.
Besides, patents, like any other form of property, the essential element of property is it is alienable. You can sell it. You can sell it to anybody you want to for whatever price you want to sell it. Why should that be prohibited? Why should I be prohibited from buying patents if that’s what I want to do, whether I invented them or not, whether I am going to practice them or not, whether I’m a research institution or a university or not? There might be some reasons. Maybe some of them are good, but it’s not self-evident, at least not to me.
Then there’s certainly the debate about motives. Well, they just want to acquire patents so they can squeeze royalties out of infringers. Well, yeah. Hey, this is commerce. This is about money. This is not an altruistic system. The whole constitutional idea was that the incentive of monetary gains would motivate innovation at a greater rate and to better ends than if the lure of money wasn’t there, so I’m a little dismayed when I see it even creep into footnotes of Supreme Court opinions, that certain patentees were just trying to squeeze money out of the accused infringer. Well, all kinds of patentees are trying to squeeze money out of the accused infringer. That’s what the lawsuit is all about, so come on. Let’s be a little more adult about it than to worry about the greedy motive of the patentee. Of course the patentee is greedy.
Judge Michel is right on the money about the NPE argument! As Judge Michel properly asserts, there are many patentees, such as universities, that never intend (nor do they have the wherewith all) to ever make a product covered by the patent claims. Rather, their objective from patenting is to sell or license their rights. If another entity chooses not to buy or license their rights, that entity is effectively “stealing” from the university etc. and should be sued.
The view that NPE’s are a burden on society is one promoted by those companies that must react to lawsuits (or threat of lawsuits) on a regular basis. And, clearly, this is an expensive proposition for these entities. As a result, in recent years, these manufacturers have banded together to develop a framework for making Congress, as well as the public, aware of the negative effects that NPE’s allegedly have on the business community.
To this end, I sat in a Gathering 2.0 webinar this week where Dan McCurdy of Allied Security Trust (“AST”) made the argument that only those companies that actually make a product should be able to sue for damages. This effectively means that only his colleagues (that is, those large technology companies who fund AST) and those other companies in roll of “manufacturers” should be allowed to sue for patent infringement. This is an viewpoint that is in opposition to the public policy with which the patent system is imbibed.
I think what is almost always lost in the “patent troll” argument is the fact that patents exist to disseminate information and promote innovation through public disclosure. People will not do so unless their self-interest is served by giving them exclusive rights to that innovation for a limited term in return for this disclosure. Corporations, along with their lawyers, have long considered patents first and foremost be a legal right to protect their products from competition. In short, corporations appear to believe that the Constitution provides them with a right if they make something that benefits society. This is a perspective of a monopoly right (that is, an affirmative right to sell something) as opposed to a broader exclusionary right.
In other words, public policy is agnostic to the fact that the patentee actually makes something, as long as the patentee meets the disclosure requirements of the patent laws. It is the exclusionary aspect of patents that allows the public policy of innovation promotion through patents to succeed, but it is this exclusionary aspect that provides universities and other NPE’s to sue corporations when they do not actually make the product covered by their patent rights.
In my opinion, the battle against NPE’s is at its core a battle against the public policy that serves as the foundational basis of our patent system–disclosures of innovations that “promote the progress of science and the useful arts.” Those of us who believe that NPE’s meet the objective and, as such, are not inherently “evil” must begin to reframe the argument and communicate the societal benefits of patent publication to those who set public policy. Of course, it will be difficult for the diverse interests of NPE’s to come together in a uniform manner to present the arguments against corporations that today control the public argument. I hope that cooler heads will prevail as we move forward with patent reform in the current Congress.