FOSS Patents: Covered Business Methods

Thursday, January 21, 2016

Study reveals Apple and Samsung are the leading utilizers of so-called 'patent death squads'

I have a post coming up tomorrow on the tremendous support Samsung has received from industry, the legal community and non-governmental organizations for its cert petition relating to design patent claim construction and damages. For now, suffice it to say that Apple will have a hard time trying to persuade the Supreme Court next month that there's nothing to see (or review) here. I will publish and discuss all those third-party submissions tomorrow, Friday.

Today I received a really interesting Lex Machina press release. Lex Machina, a LexisNexis company, operates the Legal Analytics platform and claims that companies such as Microsoft, Google, Nike and eBay as well as various top-notch law firms are among its clients. Its new "Patent Trial and Appeal Board 2015 Report" provides lots of insight about last year's trials before the United States Patent and Trademark Office's (USPTO) Patent Trial and Appeal Board, i.e., the USPTO's in-house court system. The following two bullet points are particularly relevant to the topics covered by this blog:

"Apple has filed 252 PTAB trials (making it the leading filer of PTAB petitions with 197 IPRs and 55 CBMs) but has never appeared as a patent owner.
Samsung Electronics, the second most active petitioner, has filed a total of 155 PTAB trials (141 IPR and 14 CBM), and has appeared as a patent owner in 11 petitions."

IPR means inter-partes review and CBM means covered business methods, i.e., a category of subject matter with respect to which a challenge before the USPTO can be particularly effective when defending against patent infringement lawsuits.

Here are my observations:

The report comes at a time when the Supreme Court has just decided to review a key principle underlying many patent invalidation decisions by the PTAB: the broadest reasonable claim construction principle. As Bloomberg notes, PTAB challenges have a very high rate of success, with at least part of a disputed patent getting invalidated in 87% of all PTAB cases. The Bloomberg article I just referred to mentions former Chief Judge Rader's derogatory remark: he called PTAB panels "death squads" for patents. I disagree with Mr. Rader. Most patents, at least in this industry here, are invalid as granted. It's a form of hygiene, or one might call it garbage collection, to shoot those junk patents down. The appropriate conclusion is to downsize the patent system and prioritize quality over quantity.
Lex Machina describes communications and semiconductors as the "most litigious sectors." It's widely known that no one gets sued as often over patents as Apple these days, and Samsung is also a defendant in countless patent infringement cases. I consider it unfortunate that the two are still embroiled in a long-running patent infringement dispute instead of teaming up to promote reasonableness in patent enforcement, which as a side effect would benefit app developers.
In the U.S. patent reform debate, one of the most controversial questions--though in my view it should not be controversial at all--is a proposed expansion of the Covered Business Method (CBM) review program. It was originally created to help banks fend off lawsuits by patent trolls over financial services-related patents. For the reason stated above--hygiene or garbage collection, or whichever other term you may prefer--this program should be extended. It's very interesting that Apple is a big-time utilizer of CBM proceedings (more than 20% of its PTAB trials, as compared to approximately 10% of Samsung's cases). I just don't understand why Apple doesn't actively promote an expansion of the CBM program. It would certainly be in the interest of Apple's shareholders to do so.

In a nutshell: there's way too many bad patents out there; some of them are unbelievably stupid, as the Electronic Frontier Foundation regularly highlights; the PTAB process enables especially deep-pocketed litigants to strike down such bad patents; and Apple and Samsung, though they are fighting each other in court, are the top two utilizers of that kind of proceeding. It would be great if the Supreme Court could affirm the PTAB's approach to claim construction once and for all. I'm keeping my fingers crossed.

If you'd like to be updated on the smartphone patent disputes and other intellectual property matters I cover, please subscribe to my RSS feed (in the right-hand column) and/or follow me on Twitter @FOSSpatents and Google+.

Follow @FOSSpatents

Share with other professionals via LinkedIn:

Share|

Wednesday, October 30, 2013

Support, competent pushback for Goodlatte patent reform proposal at Congressional hearing

Yesterday I tweeted and retweeted numerous times during the three-hour hearing on the proposed "Innovation Act" (H.R. 3309: Improving the Patent System to Promote American Innovation and Competitiveness) held by the Judiciary Committee of the House of Representatives. Committee Chairman Bob Goodlatte (R-Va.) opened the hearing; last week he led a bipartisan group of Congressmen who jointly made this legislative proposal.

It was an interesting discussion with witnesses from EMC, Yahoo, a former head of the USPTO who is now a partner at IBM's primary law firm (Cravath), and a former general counsel of pharmaceutical giant Eli Lilly.

To me it became clear pretty quickly that the movement pushing for far-reaching reform faces a steep challenge. There are items on which it won't be too hard to build consensus, but apart from some low-hanging fruit, there are also some more ambitious plans that would affect patent litigation even more fundamentally but have drawn a lot of blowback from Members of Congress as well as industry players and intellectual property professionals.

Last month I reported on a letter that more than 100 innovators wrote to express their opposition to an expansion of the Covered Business Method Patents review program (often just referred to as the "CBM program"), and based on how yesterday's hearing went, this is the part of the Goodlatte proposal that is least likely to come to fruition anytime soon. The CBM part of the Goodlatte proposal may be in for an even rougher ride in the Senate, but it's hard to see how it could receive majority support in the House as a first step, so the Senate may not even have to look at it.

Two of the witnesses (from EMC and Yahoo) favor the Goodlatte proposal, and they did a great job advocating reform. EMC is the more credible innovator of the two companies. Web companies like Yahoo typically don't develop hardcore technology. The Web business is more about doing the right thing at the right time and building network effects and brand recognition. EMC is a hardcore innovator, but there aren't many companies like EMC who would support weakening patent enforcement.

Former USPTO chief David Kappos was undoubtedly the most competent witness and explained his views very well, and it's clear that his insights bear considerable weight with Members of Congress (even some of those advocating major reform).

Mr. Kappos also highlighted something that many of the participants in the hearing and the public debate may not have understood yet. The "customer-suit exception" in its drafted form may not be too helpful anyway because lawsuits between patent holders and manufacturers typically raise different issues from lawsuits against end users. (Apart from the fact that Mr. Kappos is right on this one, I generally think that technology makers must protect their customers, though there are probably some lawsuits targeting end users, such as patent royalty demands or infringement actions over WiFi or the use of scanners, in connection with which it's difficult to identify a particular vendor who should step in.)

Many Members of Congress asked questions. On balance, the ones cautioning against overcorrection of certain issues made a more competent impression. One of the politicians promoting major reform -- out of politeness I won't say which one -- asked questions that reflected his own confusion and lack of understanding of how patent law works. By contrast, IP-specialized politicians such as Representatives Conyers and Watt demonstrated their knowledge. Interestingly, the more time politicians spend on IP matters, the less they are in panic mode concerning patent trolls and other pretexts.

There was relatively little discussion of another important topic that I consider important and on which it may not be too hard to build a consensus: transparency. Congressman Deutch focused on it, and I hope he'll continue to push for more transparency in patent ownership.

A really good article on the U.S. patent reform debate was published ahead of the hearing, and one of the experts quoted in it says something that's absolutely correct: the reform proposals on the table don't really have much to do with trolls per se.

The one proposal that I think is most likely to have an impact on trolls is, however, also most likely to get broadbased support: fee-shifting. This appears to be a consensus item. There will never be a 100% consensus on a question like this, but it's apparently as close to 100% as it realistically gets in politics. The only Member of Congress who strongly spoke out against fee-shifting yesterday was someone from Texas whose electoral district includes parts of the Eastern District of Texas. He's not going to be able to stop fee-shifting from happening. And those who argue that the Supreme Court is in the process of dealing with this also won't be able to discourage lawmakers from doing what their job is: to pass good policy into law. In all fields, including patents, the Supreme Court has repeatedly indicated that certain decisions must be made by the legislature, not by judges.

I'll continue to follow the patent reform process. I guess the Goodlatte proposal in its complete, current form is not going to become law in the near term. Congress will ultimately agree on a common denominator, and it could end up being the lowest common denominator, which is basically fee-shifting and (hopefully) some transparency initiative, but not an expanded CBM program. Staged discovery could also work, depending on whether it's really focused on preventing abuse or hijacked by those who just seek to slow down and weaken IP enforcement.