Monday, August 30, 2010

Why Paul Allen doesn't want to be a troll

ZDNet blogger Ed Bott has already made the case that Microsoft co-founder Paul Allen and his Interval Licensing company don't meet the definition of a "troll".

They sue a number of large players over some patents, but there's some history there that sets them apart from other licensing (or "non-practicing") entities. Among 11 defendants, the lawsuit targets Google (as well as its YouTube subsidiary), and Google once gave credit to Interval Research (the company whose patents are now being enforced) on its About page (shown toward the bottom of this screenshot).

This indicates that Interval did indeed contribute to Internet innovation.

A matter of business models

I for my part prefer the business model of companies putting out actual products and don't like the notion of software innovation being largely a matter of patent filings.

However, Google's founders applied for the PageRank patent very early on through Stanford University, where they developed their technology prior to founding their company, and owe their success in no small part to that kind of exclusivity (which Google still maintains by not licensing its most important patents to any competitor). So if Google favors this kind of business model and knowingly and willingly cooperated with Paul Allen's company on that basis, it may now have to eat its own dogfood.

Of course, there are some other companies who may never have had a working relationship with Interval but get sued anyway, such as Facebook. But I haven't seen any company on the list of defendants (Apple, Google + YouTube, eBay, Facebook, Yahoo, Netflix, AOL, Office Depot, OfficeMax, and Staples) who would ever have spoken out against software patents.

Contrary to opposing software patents, Google essentially supported the patentability of software in its Bilski brief, Apple goes after HTC very aggressively, Yahoo is known to be pro-patent and eBay co-financed lobbyists who advocated software patents in the EU and against whom I fought with the NoSoftwarePatents campaign at the time.

So they now have to respect the rules they themselves favor.


Based on what a spokesman for Paul Allen has said (quoted by Ed Bott), I believe that this is a matter of recognition for contributions to innovation.

In the world of business, being paid for a contribution -- in this case, for patents -- is the sincerest form of recognition. Unfortunately, it seems that a lawsuit was necessary to (maybe) get there.

Given Paul Allen's biography, a categorization as a "troll" just wouldn't make sense. If other world-class entrepreneurs such as Larry Ellison, Steve Jobs, Larry Page or Sergey Brin founded a research company and later tried to commercialize their patents, they couldn't be called "trolls" either.

To me a troll is someone who never contributes in any serious way to innovation and simply leverages the patent system (which has serious problems, let there be no doubt about it) for his purposes. Entrepreneurs who have actually proven -- in Paul Allen's case multiple times -- that they can build real businesses aren't trolls.

Similarly, if a company like Yahoo registers some web domains for future use, that can hardly be considered an act of "domain grabbing" except under the most egregious of circumstances.

By contrast, NTP, the company that received $612 million from the BlackBerry company in 2006, was set up by lawyers. No programmers, no entrepreneurs. Just legal experts who identified and seized a business opportunity by obtaining a monopoly on some key functionality and litigating. They're still doing it, now suing Apple, Google, HTC, LG, Microsoft and Motorola.

Legal implications: entitlement to injunctive relief

In addition to image and psychological considerations, the question of "troll or not" has a very important legal aspect: in the US, "trolls" usually don't get injunctions anymore.

The possibility of obtaining an injunction -- a court order that forces an "infringer" to stop offering infringing services or products -- is powerful leverage in the hands of a patent holder. I explained in this earlier posting that injunctions are the most dreadful use of software patents and without that threat the BlackBerry company would probably not have felt forced to cough up $612 million back in 2006.

Only a few months after the BlackBerry blackout was averted at the 11th hour, the US Supreme Court decided on a different patent matter: eBay vs. MercExchange.

In that context, the key question put before the SCOTUS was under which circumstances a patent holder can obtain an injunction against an infringer and under which those patent holders have to content themselves with monetary indemnification (but can't disrupt the infringer's business).

That is a very US-specific kind of legal question. In Germany, for instance, no one even asks that question because §9 of the German "Patentgesetz" (patent act) makes an injunction an absolute right that any patent holder can demand. But the relevant part of the US Patent Act (35 U. S. C. §283.2) allows injunctions only "in accordance with the principles of equity" (the latter meaning "justice" or "fairness" in this context). So there can be an argument over whether an injunction is appropriate or overreaching in a particular scenario, all things considered.

The eBay vs. MercExchange ruling and what it means for Paul Allen's Interval Licensing company

Before the Supreme Court looked at the case, there had been two conflicting decisions by prior instances. Despite finding that eBay infringed MercExchange's patents (which were considered valid), MercExchange was denied an injunction by the first instance, a district court which argued that MercExchange was willing to license those patents (in other words, only after some license fees) and, very importantly, was not "practicing the patents" commercially. The latter was certainly an allusion to the term "non-practicing entities" (or some say "non-producing", but here we're talking about Internet services, not products per se), a euphemism in many cases for "trolls".

That was one extreme. The second instance, the Court of Appeals for the Federal Circuit (CAFC), took a diametrically opposed position. The CAFC believed that injunctions are the norm and refusal to grant them is a rare exception. In particular, the CAFC said that injunctions would be denied only under "exceptional circumstances [and] in rare instances [...] to protect the public interest." MercExchange would not have been exceptional only for being a non-practicing entity.

The Supreme Court then took a unanimous decision disagreeing with both lower instances. The first instance had established a broad rule that the SCOTUS considered to be too hard on patent holders, while the second instance favored the rights of patentees too much (that case wasn't the first, only or last time where it did so).

Some misunderstood the SCOTUS decision as supporting pretty much the first instance (trolls can't get injunctions). But in reality, the SCOTUS outlined a more complex legal test than either of the lower instances and favors a significant degree of flexibility:

After reaffirming a sophisticated four-factor test that a patent holder must pass to obtain an injunction (irreparable harm, money not being enough, patent holder unjustly suffering more from not getting an injunction than the infringer would under an injunction, no disservice to public interest), the SCOTUS also explained that "some patent holders, such as university researchers or self-made inventors, might reasonably prefer to license their patents, rather than undertake efforts to secure the financing necessary to bring their works to market themselves. Such patent holders may be able to satisfy the traditional four-factor test [...]"

So it would be incorrect to claim that the SCOTUS wanted to deny all non-practicing entities the right to obtain injunctions against infringers. The ruling certainly raised the bar for non-practicing entities very considerably. Until that decision, a lot of judges in the US really thought that an injunction was pretty much a foregone conclusion (provided that there was an infringement of presumably valid patents).

But make no mistake: the SCOTUS also wanted to support the patent-centric business model I described further above.

In its lawsuit, Interval Licensing asked for an injunction but for the event that it can't get one just requested financial compensation. That's different from Apple and Oracle, who in their suits against (respectively) HTC and Google shoot for injunctions all the way. Apple and Oracle will have no problem with the "four-factor test". With Interval Licensing, it's not certain but just looking at the screenshot where Google gives Interval Research credit, this might be a case in which even a non-practicing entity could be entitled to an injunction, depending on a lot of things I don't know yet (such as the nature of its past contract with Google, and many other circumstances).

Whether it gets to the point where an injunction might be granted will depend on how quickly Paul Allen's company can settle with the 11 defendants. Since there are so many of them, it's possible that one or more of them will decide to see this case through, and then we may get clarification in a few years as to whether this plaintiff is treated by the courts more like a "troll" or more like a legitimate inventor.

Ed Bott was the first one to say this isn't a troll. A court -- possibly even the SCOTUS -- may have the last word on this.

If you are interested in international equivalents to the patents at the heart of this lawsuit, please read the previous posting.

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