Tuesday, June 21, 2016

Airbus (the COMPANY, not a plane) hijacked by patent extremists, joined trolls' lobbying entity named IP Europe

With respect to standard-essential patent licensing, my preferred European voice of reason(ableness) is the Fair Standards Alliance, an organization Google recently joined and which I'd like to see Apple and Samsung team up with at some point. On the other end of the spectrum, there's a lobbying group named IP Europe. While I personally know and respect two of the individuals working for that one, I fundamentally disagree with its policy positions and object to its false claim of supporting "innovatives SMEs." IP Europe advances the cause of patent trolls and of businesses that failed in the mobile phone business for a lack of innovation and increasingly resort to patent licensing as a revenue source.

Looking at IP Europe's member list, it's generally easy to see why each of those organizations expects to gain something from overpatenting and from an overcompensation of patentees, with a couple of exceptions, however.

Orange (France Telecom) is a carrier. In the U.S., mobile carriers are usually on the reasonable side (and sometimes go too far even for my taste when making public-interest arguments in amicus curiae briefs). Does the former France Teleom plan to engage in patent trolling like its British counterpart? I don't know, but it was most likely a mistake that Orange joined IP Europe.

The other, better-known and even more surprising member is Airbus Group. The only explanation I have for Airbus's decision to join IP Europe is that an IP-incompetent senior management has allowed the patent professionals running Airbus's IP department to hijack the company in order to advance the interests of their profession rather than defend the interests of their current employer.

In the airplane business, Airbus only stands to lose from excessive patent royalties. In the defense and space businesses, patents won't protect Airbus either. In 2012, Elon Musk already explained why SpaceX (which in a few years of existence has already achieved technically more impressive feats than Airbus in its much longer history) generally doesn't file for patents.

I want my Munich area-based startup to be very innovative in its niche, but generally speaking, Europe has a huge innovation gap versus Silicon Valley. California has Elon Musk. Europe has Tom Enders. Tom who? Well, the CEO of Airbus studied politics, started his career in politics, and at a heavily-subsidized intergovernmental joint venture like Airbus, political connections are more important than anything else. Elon Musk, despite all of his amazing talents, would never get a top job at an organization like Airbus. Fortunately, he doesn't need it.

When the CEO of a company that should be technology-driven is absolutely not a technologist (but a political scientist/historian), it just takes a self-serving IP department to make the company sign up with a lobbying group like IP Europe, thereby teaming up with highly litigious patent assertion entities (PAEs)/non-practicing entities (NPEs).

One of IP Europe's key priorities--if not its number one priority--is to fight against the "smallest saleable unit" approach to FRAND license fees. Do the bureaucrats in charge of Airbus even know what that means for their business? Presumably they don't. What if someone made a Motorola-like patent royalty claim and demanded a percentage of the sales price of an entire Airbus plane over a few WiFi, video or whatever patents?

Do those decision-makers realize that the number of potentially patented "inventions" in an Airbus that third parties hold account for a vast majority of all patentable "inventions" in a modern airplane? It has been estimated that 250,000 patents are embodied in a smartphone. In practical terms, the digital entertainment and communications technology installed in today's planes is increasingly like that, and actually much bigger.

To many of you this may seem obvious, but let me explain this for the rest: there is no such thing as a software patent that guarantees stability and security. The reason: no matter what a patent may describe (with or without specificity), it can always be implemented in an unstable and insecure fashion.

Airbus has a software quality problem. Last year Airbus even admitted that a software configuration error caused the crash of a military transporter, and I vaguely remember a crash of a commercial Airbus plane many years ago that some experts attributed to a software issue. In terms of success factors in the airplane business, that is what Airbus should be focusing on. It has nothing to do with patents. Any code that is stable or unstable, secure or insecure, is protected by copyright (and trade secrets). Any configuration that is stable or unstable, secure or insecure, is a matter of quality assurance.

If Airbus focused on software quality, it wouldn't have to fear copycats. If someone copied great code, copyright (not patent) law would protect Airbus.

Airbus is the craziest example now of a company that builds highly multifunctional products and opposes the "smallest saleable unit" approach to patent license fees. But maybe Airbus is not really a company. It's more of an intergovernmental organization that is detached from economic realities because taxpayers will have to foot the bill if anything goes wrong.

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Sunday, June 12, 2016

Amicus curiae briefs in Samsung v. Apple (design patent damages): all the documents and the key points

There never was any doubt that the question of whether the infringement of a single design patent by a complex, multifunctional product warrants an unapportioned disgorgement of profits would be an extraordinarily important one. Previous rounds of amicus curiae briefs already demonstrated broadbased support. But the level of support the petition has just received at this decisive stage exceeds my expectations.

One major caveat is that Apple might still be able to orchestrate something big as well. I doubt it for two reasons, though. First, the interpretation of the law that Apple is defending in this case is not really in the interest of a lot of companies. I wholeheartedly believe that Apple itself, if it weren't the beneficiary of an outsized damages award in this particular case, would be the most logical amicus curiae supporting Samsung in this context. Second, some potential Apple allies have now declared themselves in support of neither party, stopping short of supporting Apple's position in its entirety. Some companies just want to ensure the Supreme Court won't weaken design patents too much, but they don't say the law of the smartphone should follow from the law of the spoon. And the U.S. government's position is like "we disagree with Apple on the law and on policy, but we don't want to rule out that Samsung might still somehow become the last victim of an incorrect interpretation." That's a major win for Samsung and everyone with a balanced position on the issue.

I'll now point to all of the amicus briefs filed in the first round (I'll do the same when Apple's backers file later this summer) and sum up what I consider to be their key points.

Pro-Samsung brief #1: The Internet Association, The Software & Information Industry Association, Dell, eBay, Facebook, Garmin, Google, HP, Lenovo, Motorola Mobility, Newegg, Pegasystems, Red Hat, SAS Institute, Varian Medical Systems, Vizio

20 years ago I served (for only a short time because I then founded my first startup, which I later sold to Telefónica) on the board of the Software Publishers Association (SPA) Europe. The SPA merged with another body to form the Software & Information Industries Association, which now has more than 700 members, and Ken Wasch is still its president. He's done so much for the software industry over the decades. You can find the SIIA's press release on the amicus brief here, and the amicus curiae brief here.

The brief accurately mentions "the spurious quality of many design patents." This blog hasn't talked about all the ridiculously obvious designs for which the USPTO has granted patents. Even the USPTO now regrets having originally issued Apple's D'677 patent, which covers little more than a round button. Microsoft's tiny-arrow-in-a-corner patent is no better. And that slider design patent is probably not far below the quality of the average design patent.

The brief talks about how design patents have become weaker and weaker over the centuries:

"Whatever the degree of invention in Apple's design, this example amply illustrates that even design patents belonging to major technology companies may involve only minimal, if any, advances over the prior art. Design patents in the modern era are seldom directed to fashionable carpet designs or classic Coca-Cola bottles; they are often sought, and issued, for relatively mundane design features."

On the importance of technical innovation relative to design, I like the following passage from the brief:

"To state the obvious, the investment in research and development for information and communication technologies—currently estimated at $250 billion annually—extends well beyond design to include the hardware, software, and services that are incorporated into the technological products. [...] The reason is simple: technology companies know that consumers want a product that works well, not simply one that looks good."

That's true. For example, the nice design of my iPhone 6S (now my primary phone so I can always test the latest beta version of my app) doesn't help me as much as the shortcomings of Apple's on-screen keyboard and autocomplete algorithms affect me. I use two languages, sometimes in the same message, and always have to switch between keyboards in order to get the right dictionary. And even with the right dictionary, the iPhone's autocomplete won't find the word I want to type if I mistype the first character. None of that is an issue for Android, with or without the right to build devices with round buttons, rounded corners etc.

As for statutory interpretation, I already discussed the term "article of manufacture" in a post shortly before Samsung's opening brief. The Internet Association, SIIA et al. brief contains an interesting explanation of how "article of manufacture" must be interpreted differently from a "machine." A smartphone as a whole would, of course, be a machine.

Being familiar with patent licensing and litigation tactics of always singling out the most lucrative target, I also wish to quote the following passage:

"Finally, the Federal Circuit's interpretation could lead to arbitrary results. That is because it could make the measure of damages in design-patent cases depend on the identity of the infringer. Consider, for example, the market for smartphone components. [...] If Samsung or Apple were to infringe a component manufacturer's design patent and to incorporate it in a smartphone, the component manufacturer could recover profit from sales of the entire smartphone. But if the component manufacturer were to infringe an identical patent held by Samsung or Apple, Samsung or Apple could recover damages based only the manufacturer's sales of the component. In other words, an identical act of infringement would yield two different damages awards simply because the infringers packaged their products in different units."

Pro-Samsung #2: Computer & Communications Industry Association

I have a huge problem with the CCIA's positions on software copyright, but I will always credit the organization (of which Samsung is a member) for its pioneering role in placing the emphasis on how to interpret the term "article of manufacture" in an amicus brief filed with the Federal Circuit two years ago.

The organization's new amicus brief is consistent with previous filings. One subject it discusses in more detail than most other briefs is the problem of patent assertion entities (PAEs).

Pro-Samsung #3: Engine Advocacy

Engine is a startup advocacy organization. Its list of members is really impressive, including lots of Internet household names. I've uploaded its amicus curiae brief to Scribd. In filing this letter, Engine was joined by a 3D printing startup. 3D printing is definitely an area in which excessive design patent damages could have a devastating effect.

The brief does a very good job of looking at the problem from a startup angle. It's worth noting that a Stanford Law School clinic is representing Engine here.

It's disappointing and inexplicable that no major app developer organization filed a brief. But Engine raises pretty much the same issues as app developers face.

Pro-Samsung #4: Hispanic Leadership Fund, National Black Chamber of Commerce, National Grange (rural communities)

Minority advocacy groups Hispanic Leadership Fund and National Black Chamber of Commerce once again teamed up with the National Grange of the Order of the Patrons of Husbandry (advocacy group representing America's farmers and rural communities) to voice their specific concerns over outsized design patent damages. I've also uploaded their joint amicus brief, which contains an interesting reference to historic "design patent sharks" (the predecessors of today's trolls) while pointing out that patent-abusing competitors are the worst threat:

"Indeed, this is not the first time that design patents have spawned abuse. In the late 1860s, the Patent Office experimented with allowing 'design' patents to be issued for minor functional improvements on already existing products. [...] This ill-considered effort spawned the creation of 'design patent sharks,' who took out 'design' patents on basic farm machinery like plows, shovels, and other basic farm tools, and then sued unsuspecting farmers for using the protected technology. Cases like Nordock illustrate that an overly expansive interpretation of the recovery available under Section 289 could lead to a resurgence in this patent-enabled chicanery, by allowing excessive damages to be extracted on the basis of the 'design' of what is, in essence, a purely functional article. There is thus no shortage of abusers that will exploit the availability of entire-profit damages under Section 289. Although larger companies like Apple may be unconcerned about fostering a market for such abusive conduct, because they have the resources to fend off, or buy off, even the most abusive non-practicing entities, these abusers can be expected to exact a heavy toll upon smaller, entrepreneurial companies that lack the means to effectively defend against them.

Moreover, non-practicing entities are only part of the problem. Indeed, the outsized risks associated with entire-profit awards could be even more harmful when asserted in disputes between product-producing competitors."

As for the consumer argument that certain citizens depend on affordable smartphones to a greater extent than others, and that minority businesses on average have a disadvantage in terms of resources to fend off threats, the brief provides statistical facts that lend those claims significant credibility--even in my eyes, though I'm not easily persuaded by minority arguments (for example, I think Apple simply doesn't need a minority quota for its Board of Directors, and if affirmative action ever made sense, I believe we're way past the point where it did).

Pro-Samsung #5: Electronic Frontier Foundation, Public Knowledge, R Street Institute, American Antitrust Institute, IP Justice

The EFF is far too anti-copyright for my taste, and I find its positions on Oracle v. Google misleading and troubling beyond belief. However, its patent policy positions aren't nearly as radical as its views on copyright. On patent policy, the EFF is fairly balanced and reasonable. With respect to design patent damages it has partnered with some other advocacy groups. The EFF's press release can be found here, and it contains a link to the brief.

The EFF habitually bashes the Federal Circuit. Here, however, it does have a point that a patent marketing decision gave rise to a cottage industry of trolls:

"The case thus described was Forest Group, Inc. v. Bon Tool Co. and related to patent marking, but it could be the present design patent damages case in five years' time if history is any guide."

Pro-Samsung #6: Software Freedom Law Center

Despite strong reservations concerning the Software Freedom Law Center, I have uploaded its brief, which uniquely raises a free-speech issue in connection with design patents. I'd be extremely surprised if this argument got traction with the Supreme Court.

Pro-Samsung #7: 50 intellectual Property professors

The list of intellectual property professors supporting Samsung has grown over time: now there are 50 academics who signed the latest brief, including a number of very well-known ones. This is a very persuasive passage (and just an example; there's more of that in the brief):

"Nor does all, or even most, of the value of a product normally come from patented designs. People don't buy iPhones for their appearance alone; they buy them for their functions. Those functions contribute substantially to the phone's value and they are covered by many utility patents.

Indeed, by one estimate, there are 250,000 patents that arguably cover various aspects of a smartphone. To conclude that one design patent drives the purchase of the product, and therefore that the defendant's entire profit is attributable to infringing that patent, is to say that none of those functional features contribute anything to the value of the phone – a ludicrous proposition."

Neutral #1: Bar of the City of New York

The New York City bar association filed a brief in support of neither party. It raises two distinct issues. The first part is just about generating more business for lawyers even if it's against the public interest; they want Section 289 (disgorgement) to be deemed an additional, not alternative remedy to Section 284. The second issue is, of course, also just in the interest of lawyers: they argue that "a design patent holder's monetary recovery under section 289 should be on a sliding scale from $250 up to the extent of the infringer's profits, with the precise value being determined based on the facts of each particular case."

While the motivation is very transparent here (just more business for trial lawyers and for lawyers writing and responding to demand letters), the fact that these New York lawyers think the statute leaves room for different interpretations benefits Samsung.

Neutral #2: BSA | The Software Alliance

The organization formerly known as the Business Software Alliance (originally created by Microsoft, which is currently trying to get leverage out of design patents of questionable quality). I've uploaded its brief, which is vague and weak.

It doesn't address Apple's smartphone case patents (two of the three design patents at issue in the case) and focuses on screen design patents (which one of the patents-in-suit is):

"Design patents provide an essential element of legal protection for software innovations. This Court should ensure that design patents in the software context receive appropriate protection against infringement."

This is like saying "please don't take an extreme position on screen design patents" without clearly advocating affirmance or any particular rule or policy.

One reason (and not the only one) why the Supreme Court shouldn't take that filing seriously is that it's rather unclear to what extent the BSA's members even back that filing. It may just be the lowest common denominator, but it's probably even less than that. Dell and SAS Institute support the Internet Association/SIIA/Google brief. Salesforce and Intuit are not only BSA but also Internet Association members.

Neutral #3: Nike

Nike would have been a first-rate ally for Apple, and the fact it has declared itself neutral with respect to screen design and smartphone case patents is a huge lost opportunity for Cupertino:

"As the owner of more than two thousand active design patents, Nike holds the third largest portfolio of design patents in the United States."

Nike's brief focuses entirely on the relevance of design patents to its business:

"In consumer product markets and in fashion industries, including the highly competitive market for athletic footwear and apparel, product designs are often a key factor driving sales. Consumers largely choose products with designs that appeal to them and reflect their aesthetic sensibilities, their personalities, and the image they wish to convey to those around them."

As to statutory interpretation, Nike appears close to Apple's position (it wants the "total profit" rule to remain in place):

"The reality of facing a´substantial, actual damages award is a deterrent to would-be intentional infringers, making it less likely that intellectual property owners like Nike (as well as law enforcement agencies) will need to expend significant resources addressing knockoff products. Conversely, if the Court were to water down the remedies provided under Section 289, it would embolden potential infringers to treat the risk of an infringement judgment as simply the price of doing business, and one that can be managed by advancing arguments as to the appropriate apportionment of costs."

You'd be hard-pressed to find a bigger supporter of the idea of deterrence than me. For example, I'm part of a small minority of Europeans supporting the death penalty and the "castle doctrine." But even I don't think the end of deterrence always justifies the means. Here, what Nike wants is for my industry to suffer so that Nike enjoy a maximum degree of leverage over infringers. Sorry, but this is not only a sports apparel world.

Here's a couple of particularly unconvincing passages:

"[Reversal of the Fed. Circuit] would also create, for the first time in more than a century, a host of difficult questions of first impression that courts would have to resolve without guidance from Section 289's text."

If that's what it takes for the law of the smartphone to be different from the law of the spoon, then that's just simply necessary. But Nike totally overstates the problem anyway. Courts have to deal with apportionment all the time, such as in connection with standard-essential patents.

"For design patents, the risk of innocent infringement is low."

The average Nike shoe is more intelligent than that sentence. Tiny arrows, round buttons, rounded corners etc. are examples of how ridiculously broad many design patents are, and when patents are overbroad, incidental infringement is more frequent than willful infringement. To Nike's credit, a different passage limits the rarely-innocent-infringement claim to its own industry:

"The scenario that Congress feared is particularly real in markets such as the footwear and apparel market, where products sell at a fast pace and in high volumes, where innocent infringers are rare, and where product lifecycles are short. In such markets, infringers can effectively divert innovators' profits by entering and exiting the market swiftly in hopes that innovators will not detect the infringement in time or find enforcement worth the cost."

Just one last misguided part (of many) of Nike's filing:

"The validity of issued design patents can be challenged in an administrative 'inter partes review' proceeding before the United States Patent and Trademark Office (35 U.S.C. § 311(a)), and in a 'post-grant review' proceeding within nine months after a design patent issues (id. § 321)."

Yeah, it just takes so many years that it doesn't help much if devastasting remedies are imposed in the meantime. Look at this Apple-Samsung case: the D'677 patent is a dead design patent walking, but Apple will exhaust all appeals.

Neutral #4: Department of Justice

The federal government of the United States, represented by the Solicitor General, agrees with Samsung that the Federal Circuit and Judge Koh got the law wrong, but leaves the door open to a finding that Samsung failed to present the evidence necessary to benefit from the correct interpretation. I've also uploaded the DoJ's brief.

The legal argument that the Justice Department supports is the one relating to the term "article of manufacture":

"Although Section 289 entitles the patent holder to recover the infringer's 'total profit' on the 'article of manufacture' to which the design was applied, that 'article of manufacture' will not always be the finished product that is sold in commerce. Rather, the relevant article will sometimes be a component of the ultimate item of sale. In such cases, the patentee is entitled only to the infringer's total profit for that component, not its total profit for the finished item."

"[T]he term 'article of manufacture' literally encompasses all manufactured objects—both complete products and components—and it has historically been understood to include both. When the product whose sale gives rise to in-fringement liability is made up of multiple components, the factfinder must determine whether the 'article of manufacture' to which the defendant has applied the patented design is the entire product as sold, or a component of that product."

"If the product contains other components that embody conceptually distinct innovations, it may be appropriate to conclude that a component is the relevant article."

The DoJ also warns against the practical consequences of affirmance:

"The Federal Circuit's contrary approach, under which the relevant 'article of manufacture' is invariably the entire product as sold, would result in grossly excessive and essentially arbitrary awards."

"From a potential defendant's perspective, the consequences of the Federal Circuit's rule could be draconian."

Nike won't like the following:

"To be sure, even in cases involving unitary (i.e., single-component) items of sale, Section 289's 'total profit' standard may sometimes produce awards that are disproportionate to the commercial significance of the patented design."

Presumably for political reasons, the DoJ didn't want to support Samsung all the way against the most profitable U.S. company:

"Although the district court's jury instructions equated the term 'article of manufacture' with the finished smartphones, it is unclear whether petitioners produced evidence supporting their assertions that components of the phones should be considered the relevant articles of manufacture."

I don't have access to the complete record of the case. As far as I've been able to monitor the proceedings from a distance, Samsung repeatedly argued in favor of apportionment, so I guess there's enough in the record. And let's not forget that Samsung argues Apple failed to present evidence in this regard.

Apple has achieved that the DoJ isn't against the notion of a one-time windfall profit for Apple, but has failed to persuade the DoJ that the legal standard Apple is defending here is in the interest of the U.S. economy at large.

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Tuesday, June 7, 2016

Design patent absurdity on display as Samsung points Supreme Court to Microsoft suit over tiny arrow

Last week I provided an overview of the key issues in Samsung v. Apple, Samsung's appeal to the Supreme Court of Apple's design patent damages win. Thanks to CNET, Samsung's opening brief has meanwhile been published (this post continues below the document):

Samsung opening brief in Apple case at US Supreme Court by CNET News

That opening brief is really very interesting. Recommended reading. I'll talk about the issues it raises and the points it makes over time. The next procedural step is for "friends of the court" supporting Samsung (or supporting neither party) to file their submissions tomorrow.

The first part of Samsung's opening brief that I wish to comment on underscores the need for a Supreme Court ruling that will, hopefully, restore sanity. Otherwise, a company might have to disgorge its total, unapportioned profits from the sale of a product only because it uses a tiny arrow like this one (this post continues below the image):

This is one of the patents Microsoft is presently asserting against Corel. Last summer I reported on Corel drawing first blood by suing Microsoft over a bunch of preview-related patents. A few months later, Microsoft retaliated with the assertion of six utility patents and four design patents. The Electronic Frontier Foundation named one of Microsoft's design patents-in-suit the "stupid patent of the month" of December 2015 because it merely covered the design of a slider. But that patent isn't nearly as bad as U.S. Design PAtent No. D550,237, which practically just covers a tiny arrow positioned in the lower right corner of a rectangle. If you look at the drawings, particularly this one, note that the dotted lines mark the parts that aren't claimed. What's really claimed is just a rectangle with another rectangle inside and that tiny graphical arrow in the bottom right corner.

If the EFF considered the slider patent the stupid patent of a given month, it might as well consider labeling the tiny-arrow-in-a-corner patent the stupid patent of the century.

This is not about Microsoft-bashing. It's all about a systemic problem.

If the world's largest software maker, with an annual R&D budget on the order of $10 billion, countersues a smaller software company and 40% of its assertions are design patents, one of which covers a tiny arrow in a corner, it's clear that the legal uncertainty currently surrounding design patent damages due to the decisions made in Apple v. Samsung by the Federal Circuit and the district court makes design patents disproportionately "valuable" since litigation is all about getting leverage.

As Samsung's lawyers put it in their opening brief, "the entire-profits rule for design-patent infringement makes the value of any single design patent, no matter how minor or trivial, greater than the value of all the utility patents in a smartphone or other technological device combined. The rule thus encourages companies to focus research and development on design patents rather than technologies. As one commentator [Prof. David Opderbeck, Seton Hall University] put it, ''the Federal Circuit's ruling could allow design patent law to swallow utility patent law, making the ornamental design more important than the underlying technology.'""

The following section of Samsung's brief discusses the "disastrous practical consequences" of the Federal Circuit ruling (if it was affirmed):

"The rule would create extreme asymmetry between design patents and utility patents, which are governed by ordinary rules of causation and proportionality. By making the most trivial design patent worth exponentially more than the most innovative utility patent, the rule would distort the patent system and harm innovation and competition. The rule would encourage companies to divert research and development from useful technologies to ornamental designs. It would encourage design-patent holders to litigate even weak infringement claims in a quest for outsized awards. And it would encourage non-practicing entities to use design patents as the next big thing for extracting holdup value from targeted businesses, with such extortionate demands posing especially grave threats to small businesses for whom a single design misstep could be an existential threat. Congress could not have intended any of these results."

Apple and Microsoft, two highly profitable technology companies, may see short-term value in design patents. They may hope that design patents just give them the leverage they need to obtain favorable settlements/license deals. But in the long run, nobody except for patent trolls and failed businesses will really want any of those disastrous things to happen.

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