
Politicians want “loser pays” rule for patent trolls - Steveism
http://arstechnica.com/tech-policy/2013/02/pissed-off-politicians-want-loser-pays-rule-for-patent-trolls/
======
JumpCrisscross
" _The bill would allow patent defendants to file a motion seeking to have a
judge rule that the patent owner is a certain type of 'non-practicing
entity'—although the bill doesn't use that term. If the motion is successful,
the lawsuit can still proceed, but if the patent-holding company loses, it
will be on the hook for legal costs._ "

The bill is essentially a judicial shortcut to make patent litigation riskier
for non-practicing entities, precisely, non subsection (d) entities.
Unfortunately, there is little judicial consensus (to the best of my limited
knowledge) on what this means. ARM produces nothing tangible - it licenses
designs. That makes ARM look like a non-practicing entity. Yet few would brand
it as a patent troll.

Having losing plaintiffs pay is good. But it still leaves the defendant
bearing the risk of adverse judgment. Even the non-practicing entity shortcut
means hiring a lawyer. Perhaps, for patent suits, the plaintiff should have
to, as part of filing the suit, dislose whether they or their beneficial
owners' related entities have a history of filing patent suits deemed
frivolous.

~~~
nitrogen
One could argue that ARM's "practice" is producing designs. They are heavily
involved in the creation and implementation of their patents, making them
different from any troll that licenses "patents" they bought rather than
"designs" they created.

~~~
JumpCrisscross
So patents are only valid if held by their originator? That would make the IP
non-transferable. In ARM's case, it would mean a takeover would invalidate its
value.

~~~
bigiain
This is a problem that needs to be addressed carefully in my opinion.

Right now, it's a perfectly valid decision for an inventive/creative person(or
team or company) to choose to spend their time inventing new things instead of
commercialising "finished ideas", since the laws are (and have been for
decades) written to allow an inventor to sell their patents.

If you're the world's best battery chemist, I'd rather you spent this year
looking for an even better battery, rather than needing to be involved in
making and selling last years "best battery" to earn any money from it. I
don't want the top cancer researchers "wasting time" being personally involved
in making drugs at commercial scale and doing deals with Walgreens, I want
them doing cancer research - and having a patent/legal system that allows them
to earn a living doing so (with the understanding that they've got a choice to
license or sell their patents, and whether they get to share in the
spectacular riches that some big-pharma company will make if they've just
saved millions of lives will depend on how they chose to structure that
transaction).

Somehow, we need to allow inventors to continue to be "NPEs", while stopping
the obvious "patent troll" techniques of buying up uncommercialised patents
with the only intent being to use them to litigate.

(And note, by "inventors" I'm including "companies set up to do inventing,
either as their sole business or perhaps with a few staff or division who
'invent' as part of their regular work". I know of companies like
<http://www.novogen.com> and <http://www.mesoblast.com> who are pretty much
teams of biotech researchers intending to work out how to cure cancer, then
sell the knowledge to other companies to commercialise it. I also know people
at <http://www.ecoult.com> who didn't invent the technology they're
commercialising, but have licensed the patents from the government research
organisation that did invent/patent them.)

~~~
belorn
Nothing in this bill prevents a inventor to sell his finished invention once
to whoever want to commercialize it to a product. Nothing. He doesn't even
need a patent to do this.

Say that the best battery chemist invents a way to make current lithium-ion
battery packs 25% better. In a bidding war, the price would easy reach hundred
of millions, because the practical effects of having better batteries are
economic interesting for companies being restricted by ineffective batteries.

Regarding cancer research, I find it quite wrong that state funded research is
being patented. Most serious medical research is being paid for NiH with the
use of tax money. Society has already paid for all the step regarding the
research and it due to get what it paid for. Research which has no bases on
NiH funded research theories, and has no relation with any public funds what
so ever is an exceptional case, and there is a lot of companies out there that
produce derivative works from NiH produced research and gets a patent for it.
derivative works that has been created from tax money should not allow someone
to get a 20 years state enforced monopoly on it.

~~~
yummyfajitas
_Most serious medical research is being paid for NiH with the use of tax
money._

This is simply not true. The NIH pays for basic research into NMEs (New
Molecular Entities). The gap between an NME and a drug (i.e., a molecular
entity, approved manufacturing methods, approved usage, identified side
effects, monitoring) is huge.

~~~
belorn
The gap is then derivative work. They basically take the core research done by
NiH for free and refine it and demand in return a 20 years monopoly from the
state. The biggest single actor in medical research is by a large factor NiH,
paid through tax money.

Drug companies are the only market where this is happening. Why should they
get this free research if we want the market to handle the research of medical
innovation? You don't see the state doing the basic research of mobile phones
and then giving it away to Samsung or apple. They can't just take some already
taxed funded research and "refine", getting themselves a 20 years monopoly for
the effort on the expensive of the public.

And what is the benefit for the public? They give their money away with tax
money and get zero back in return? It is taxed paid research, and then the
state gives out a additional 20 years enforced monopoly to the first one who
do the last step and refine it. Maybe a bit ism'ish, but is this the core idea
of capitalism; having the state pay for the core part of the medical industry
without getting anything in return?

~~~
yummyfajitas
_You don't see the state doing the basic research of mobile phones and then
giving it away to Samsung or apple._

The state (mainly the military) did basic research in signal processing and
electromagnetism. Apple and Samsung turned that basic research into consumer
devices you can buy at the store.

 _They give their money away with tax money and get zero back in return?_

If private entities didn't turn molecular entities into drugs, then yes, the
public would get nothing for their money.

The fact is you can't buy arbitrary chemicals in the pharmacy, and very likely
you believe it should be illegal to do so (do you favor abolishing the FDA and
all drug regulation?). Pfizer needs to turn drug ideas (what the NIH
generates) into actual drugs, just as Samsung needs to turn coding schemes and
relativistic corrections into actual consumer devices.

------
fpgeek
Why should "loser pays" be limited to patent trolls?

I understand that they're the least sympathetic players is a patent system,
but a bogus patent lawsuit is a bogus patent lawsuit. I would even argue that,
in many cases, a company trying throw sand in the gears of their competitors
by using patents that never should have been granted is _worse_ than a patent
troll. At the end of the day, a patent troll just wants to extract money (and
typically is happy to extract it from all players equally). A company suing
its competitors, by contrast, is trying to upset the competitive balance in
some market which can easily have more far-reaching implications.

One counterargument I've heard is that we don't need "loser pays" for
practicing entities because they can be countersued with your own portfolio,
so you can eventually negotiate a truce based on MAD. To me, this misses the
point. MAD is a workaround for some bugs in the patent system, not an end in
itself. If there's a better way to discourage trumped-up patent lawsuits, we
should use it too (or even instead, depending). And MAD has significant
weaknesses (doesn't protect small players vs big players, favors incumbents,
etc.) that a broad "loser pays" could help.

------
chimeracoder
This is really easy for patent trolls to get around - patent trolls (NPEs) are
typically shell companies that have no assets that can be seized (aside from
the patent itself).

~~~
pronoiac
Won't that mean that if they lose a case, they shut down?

~~~
cosmie
It means the troll's shell company, whose only asset is the now-useless
patent, is shut down. The parent company isn't touched, nor the thousands of
other subsidiaries owned by said parent company.

~~~
DannyBee
Deliberately underfunding an LLC is not something that is going to be looked
upon kindly, particularly if it's purpose is exactly to get around the law.

Any judge worth his salt would either sanction the hell out of the lawyers
involved, or let you go after the parents.

~~~
damoncali
That's the rub - what is underfunding? Should you have to plan to lose
lawsuits?

~~~
DannyBee
Yes, you should have to plan what your exposure is when you lose lawsuits.
Normal businesses already do, and warn about it in SEC filings.

------
will_brown
Very bizarre to focus on the symptom and not the cause. Legislators appear to
acknowledge the USPTO gives out patents to patent trolls and yet wants to
focus on curbing their enforcement not their registration. Perhaps this is a
necessary step, because so many patent trolls currently exist, but why don't
the legislators focus instead on cutting the head off the snake and prohibit
patent trolls from successfully registering a patent in the first place.

For example, Trademark law requires that a application indicate the date of
first use in commerce, and the one exception is filing under "intent to use".
I know there are a lot of arguments against a similar provision for patents,
but why not make this distinction in Patent applications, because if a patent
is actually used in commerce, then you basically insure the holder is not just
a troll.

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jmduke
This is called the English Rule (<http://en.wikipedia.org/wiki/English_rule>),
and is adopted in nearly every Western democracy (besides, of course, the US).

~~~
drzaiusapelord
How do you stop me from making LLC's or s-corps with almost no assets over and
over again to sue? Most patent trolls have next to nothing in assets.

If people aren't in threat of losing their savings or their home then they
aren't going to care about such rules.

~~~
learc83
The bill proposes that once the plaintiff is declared an NPE they must post a
bond to cover the defendant's legal costs.

------
trotsky
One of the real problems in this whole situation has been defining NPE's. Law
scholars seem to be unable to come to anything close to a consensus on how to
define one (legally) without causing a lot of collateral damage. So now
congress wants circuit court judges to be on the hook for labeling every
plaintiff? Sounds like a good way to make sure a little venue shopping will
solve all the plaintiff's problems. It's not like NPE's don't already have a
history of that /s

------
learc83
The most important part of this bill isn't that it forces losing plaintiffs to
pay legal costs, it's that it forces plaintiff's classified as an NPE by the
judge to post a bond to cover the defendant's possible legal costs.

This will vastly increase the cost of operation for NPEs.

~~~
scottevi199
I missed that part - if this is accurate - then I agree that this could have
an impact.

------
mtgx
It should be for everyone asserting patent infringement allegations, not just
"trolls". That way, they would at least think twice about using trivial
patents against others, knowing that if they lose the trial, they have to pay
the winner's expenses.

It would also encourage some companies to take companies who are asking them
to pay "patent fees" to Court if they think the patents are not good enough,
and they could win.

~~~
jessriedel
I don't think definition of "trolls" is a sensible way to handle the problem
either, but I think the idea is that if you don't restrict it to trolls, then
Google can wantonly infringe on a patent owned by Joe Littleguy. Joe couldn't
possibly risk suing Google when he might be responsible for the millions in
legal defense that Google could rack up in a heartbeat.

------
scottevi199
If "patent trolls" are formed as shell companies (located in the eastern
district of texas) that have no assets other than the patent and enough to sue
(i.e. corporation whose shareholders form it by merely contributing the patent
and a nominal amount of funds), then this bill is useless unless it also
permits piercing of the corporate veil (or equivalent for other limited
liability entities such as LLC) such that the shareholders or directors are
also liable for the attorney's fees of the defendant. Otherwise, why would a
patent troll place assets other than enough to litigate in their shell
companies?

~~~
olliej
That was my thought - i couldn't see why this would make things better (you
don't remove trolls, but people who we don't want to consider trolls would now
run the risk of simply being outspent and then bankrupted -> which could
"hilariously" result in them selling the IP to an actual troll...).

I think the fix would be to stop allowing overly broad patents (eg. actually
say how what you're doing what you're claiming, instead of saying "i have an
idea" and not saying how to do it)

------
incomethax
What struck me from the article:

>For example, successful copyright plaintiffs usually win attorneys' fees if
they have a registered copyright.

That means that the MAFIAA gets their legal fees back if they sue the 9-yr old
down the street and win?

IMO that's pretty messed up.

~~~
mmcconnell1618
I believe the article said defendants are exempt from paying legal fees to the
other side. The rule would be "plantiffs's pay when they lose."

------
AnthonyMouse

      The plaintiff is an inventor or original assignee. 
      The plaintiff is actually using the patent.
      The plaintiff is a university or "technology transfer organization"
    

Last one shouldn't be there. It's redundant with the first in 99% of the cases
that matter and sets up an obvious method for the trolls to rebrand themselves
as universities or "technology transfer organizations" for the sole purpose of
evading the law.

Also, forget the "loser pays" system. Just make establishing one of the first
two a prerequisite for having standing to sue for patent infringement.

~~~
Karunamon
s/university/accredited university, and strip out the technology transfer
organization bit (though again, that leaves ARM in a weird spot)

Somehow I doubt that patent trolls will develop curriculums and bring in
students for the sheer purpose of bilking inventors.

~~~
AnthonyMouse
ARM falls clearly into the first category. They hire engineers who develop
chips and are the original assignee of the patents.

>Somehow I doubt that patent trolls will develop curriculums and bring in
students for the sheer purpose of bilking inventors.

Maybe. I could see how they might partner pretty quickly with the likes of the
University of Phoenix however.

------
arbuge
It's great that the trolls would have to pay for losing the lawsuit, but the
basic problem remains - the company being sued can't afford to be the losing
party, leading it to pony up outrageous settlement/royalty fees.

Even for junk patents, certain well known jurisdictions (read: Marshall, TX)
award the trolls in these cases 80%+ success rates at trial. The trolls would
only be on the hook for the remaining 20%, in addition to having collected all
the settlements and royalties for cases which never made it to trial.

In view of the above I don't see this changing much of anything.

------
edouard1234567
I would go a step further and ask the plaintiff to subsidies the defense and
only get reimbursed if they win. In many cases (including one I was involved
in) the defendant doesn't have enough cash to hire a proper defense and is
forced into settling. This will put all the burden/risk on the plaintiff and
therefore limit the abuse against small start-ups that typically don't have
access to a lot of cash.

------
jheriko
Maybe I am naive, but can't we do even more to make patent trolling
impossible?

Like forbidding their transfer to such non-practicing (or any) entities to
begin with? Or maybe not having patents and finding a new way to encourage
development in medicine - which afaik is the only area where patents have a
measurable benefit.

(to make clear i mean /benefit to society/ not money)

------
dromidas
I really hope this works like they intend. For some reason I see patent trolls
figuring a way around it though.

~~~
eli
IANAL and I don't know nearly enough about it, but one potential problem with
"loser pays" is that you could be found guilty of some relatively minor
infraction and then get slammed with legal bills that are far in excess of the
original damages.

~~~
cmsmith
This is addressed in the article. Losing defendants don't have to pay. Meaning
that if you sue someone and win, you still have to pay your own legal bills.

------
noonespecial
Almost there. All we need now is a personal penalty for the _lawyer_ who
knowingly brings the frivolous case and I'd bet that it would tip the balance
just enough so that trolling mostly disappears.

~~~
rayiner
You mean like Rule 11(b)(2) and 11(c)?

<http://www.law.cornell.edu/rules/frcp/rule_11>

~~~
noonespecial
I wonder how effective it would be if every trolling victim filed this motion
for sanctions automatically. Of course, that assumes going to court in the
first place, which brings us back to the original problem, I guess. Could this
be used along with the judge's ruling that the troll is this type of NPE?

As in: You're a troll, pay the defendant, oh and your lawyer pays too?

~~~
AnthonyMouse
>I wonder how effective it would be if every trolling victim filed this motion
for sanctions automatically.

What makes you think they don't already? The problem with patent trolls isn't
that what they're doing is illegal, it's that what they're doing is legal.

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lsiebert
Don't patent trolls already create LLCs or other corporate firewalls so that
if they are countersued, they don't have assets?

~~~
learc83
Yes. But this bill requires NPEs to put a bond to cover the defendant's legal
fees in case they lose.

------
TallboyOne
Reading about this patent trolling just makes me angry :(

------
OGinparadise
Pays what? They will create a few LLCs for each case with next to zero assets.
If they lose the case the patents are almost by definition worthless, so they
get nothing.

However, think of trying to legitimately sue Microsoft, or Apple or Google for
using your patent. You have their bills to worry about too and they can out-
lawyer almost everyone. This is no doubt loved by the largest corps, it does
nothing to stop trolls but makes it much harder for a real person /entity to
sue them (with tens of billions in the bank)

Edit: Imagine the first day in court, months after the other side's billing
has started: you see 16 lawyers on the [Google's, MS, Apple's] side and have a
heart attack! 16X$400 an hour (on the low side) X 5 hours = $32,000 for half a
day, just to show up in court.

~~~
elpachuco
>>Pays what? They will create a few LLCs for each case with next to zero
assets. If they lose the case the patents are almost by definition worthless,
so they get nothing.

Sounds like fraud to me. I'm sure this loop hole could get closed.

~~~
damoncali
It's neither fraud nor a loop hole. Suppose you are a patent troll and you set
up a business to extract value from a particular patent. You start out with
$100k and buy a patent for $50k. You use the other $50k to sue someone and
lose. You now owe them, say $30k. (I made up the numbers, but they don't
really matter - the point is that liabilities are greater than assets at the
end).

Where is that $30k going to come from? It doesn't exist. If you think that
this is a case where you should breach the limited liability provided by
incorporating, you're opening a pretty huge can of worms - it's pretty much
the basis of our economy.

It's a lot more complex than "you can't do that".

~~~
DannyBee
There is a huge difference between setting up a business to say, mow lawns,
and setting up a business to file lawsuits.

Especially when the possible costs are basically known (you have no customers
except yourself, and you control your own costs), you are deliberately
underfunding. Maybe that's not even so bad. Doing so specifically to avoid the
intent of an act of congress, is, well, a bad idea.

Courts make factual distinctions between cases all the time when deciding
whether to pierce the corporate veil, and i can't see why they wouldn't do so
here.

Note that limited liability corporations are fairly new. The world got along
just fine when shareholders were responsible for the actions of companies. It
made the shareholders more careful in investing.

~~~
damoncali
How is setting up a separate corporation for each patent different from
setting upa separate corporation for each, say, office building? How much
money is necessary to keep a corporation set up for these purposes from being
underfunded? Do we really want to set that precident? Do we really want to
require money to access the legal system? Keep in mind the business model is
not to sue other companies. The business model is to create license revenue
from the patent. Lawsuits are merely a way to settle disputes.

~~~
DannyBee
Yes, we really want to set that precedent. We _already_ require money to
access the legal system in certain cases.

You act as if this is a slippery slope where if we differentiate here we've
given up the ball game. If that's what you think, well, that ball game was
given up long ago. We already have different pleading requirements for
different types of lawsuits, etc. This is all done to serve various end policy
goals. The business model you give is not the end goal of patents. It's not
clear why supporting it should be a policy goal, and as of right now, it
isn't. The end goal is to encourage innovation as well as R&D, _not_ to create
license revenue. These are separate things.

~~~
damoncali
The way patents encourage innovation is by protecting the profits of the
holder. You can't have one without the other.

This scheme seems to be solving the wrong problem (The right problem is to
answer the question "What is patentable?").

------
cooldeal
Unfortunately, this is doing to stack up the deck against individual small
inventors.

This guy would've had to start a car company in order not to be liable for
millions in legal fees if he lost?

<http://en.wikipedia.org/wiki/Robert_Kearns>

Somehow I think the big companies will exploit this, and start violating NDAs
and real patents willy nilly, since the bar has been raised for them.

But the patent trolls are doing enough damage too, I am not sure if it's worth
hurting a few real deserving inventors.

~~~
ramblerman
"The bill would allow patent defendants to file a motion seeking to have a
judge rule that the patent owner is a certain type of "non-practicing
entity"—although the bill doesn't use that term. If the motion is successful,
the lawsuit can still proceed, but if the patent-holding company loses, it
will be on the hook for legal costs."

a) I doubt your example of Robert Keans, who is actually an inventor and not a
patent troll would be found to be the latter by most judges.

b) If the motion is successful, you can still pull out and save the costs. You
did lose, but you didn't go broke trying.

So It's probably not quite as dramatic for the little guy, as you suggest.

