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Bill would force patent trolls to pay defendants' legal bills (arstechnica.com)
250 points by chaud on Aug 1, 2012 | hide | past | web | favorite | 83 comments



This is a largely pointless gesture.

Patent trolls by definition have no assets (technically they're NPE or non-practicing entities). This means that if they lose big, they'll simply declare bankruptcy and move on.

The real problem--still--is software patents shouldn't exist at all.

If a single device (eg a smartphone) potentially infringes on thousands of patents then you've gone well beyond the intent or usefulness of the patent system.

If this were going to do anything at all, any entity that files a patent violation suit should be required to establish a bond (set by the court) to cover defendants' reasonable fees before the suit can even go to discovery.

The maths of patent trolling is simple:

- filing suits, issuing C&Ds, etc = $X million

- potential payoff for settlement or successful litigation = $YYY million

- probability of winning = Z%

If Y x Z > X then it's worthwhile suing. Filing a bond with the court then change sthis to Y x Z > X + B.


The company may be able to collect ownership of the patent from the shell company as payment to cover the legal fees.

This means that a troll would lose the set of patents every time they lost a case. Unless they were willing to outbid the winning party to recover the patents from the shell, in which case the winning party would recover their legal fees.

So it's not pointless. It does increase risk for trolls. Although I do agree that much larger reform would be better. And requiring the posting of a bond is a fantastic idea.


Not necessarily. Some of the companies are structured such that they don't own the patent, just certain rights to it. Basically they sue on behalf of someone else which both reduces the risk and also allows the patent owner to claim that they're not the one behind the suit.

I'd imagine that those rights would just be tied up so they weren't transferable (so if the company did go under they would no longer be an asset) and that this structure would become the norm.

What you'd need to do is have the suing company stump up the money in advance into some sort of escrow account (or some other mechanism for proving they can pay).


Shouldn't this loophole be closed? Something like: only allow the exclusive owner of a patent to sue potential infringers. That isn't enough to make shell companies a losing proposition, though, because they still contain the risk of losing a suit. I prefer the bond idea, it is a simple and more direct route to making NPEs liable for their actions.


Something along those lines might be an improvement but then you have the issue of a parent company in the US not being able to assign those rights to a European based subsidiary to defend them there.

I think it's probably dealing with the wrong problem which is the need for more fundamental reform of IP law.


I'm quite sure they thought of this and will address it in some way.


> "The company may be able to collect ownership of the patent from the shell company as payment to cover the legal fees."

The patent that, by definition, was just invalidated or neutered in the defendants victory? Why would the trolls care about that?


Unfortunately this just moves the nuclear weapons around. We really need disarmament.


> Patent trolls by definition have no assets (technically they're NPE or non-practicing entities). This means that if they lose big, they'll simply declare bankruptcy and move on.

Not all patent trolls are tiny. Some of the most dangerous are huge, for example Intellectual Ventures. Bankrupting them would be a big win.

> The real problem--still--is software patents shouldn't exist at all.

Agreed.


I was under the impression Intellectual Ventures doesn't bring patent suits themselves, but has quasi-independent shell corporations do the dirty work? In any case, I'm sure a team of IP lawyers would be able to set something like that up to protect the mothership.


In which case you'd have to pierce the corporate veil.

IV scare the shit out of me.


It's much worse than you'd think. I don't have proof or specific details, but I've heard from someone in the know that it is common for IV to set up a chain of 20-or-so companies, owning each other, transferring property, etc -- and all in different jurisdictions (counties, states, contries!).

It's a legal "obscurity amplifier" - setting up these structures is relatively cheap and easy ($1K/year/shell, so $20K/year or so if you're not versed in the processes; IV can probably do that for a quarter of the price).

Piercing this structure is likely to cost >$100K and perhaps even >$500K - you have to file for piercing in each jurisdiction independently, and you cannot file in one jurisdiction until you've been granted in the previous one -- you don't even know which jurisdiction it is going to be!


[edited typo]

"This means that if they lose big, they'll simply declare bankruptcy and move on."

I may not know exactly how patent trolls work, so apologies if this is a dumb question; If they declare bankruptcy, won't they have to then sell the patent(s) that they own (their assets)? Is there a way patent trolls can get around having to do this if they lose?


Losing the suit would provide evidence to potential acquirers that the patents are worthless.


Those that were used in the lawsuit, yes, but they'd probably have other patents as well, and there would be no reason to consider them worthless.


Most patent trolls such as Intellectual Ventures set up a shell company for each lawsuit, essentially (or group of lawsuits if they're targetting multiple companies) so they only really have the patents used in the case they'd be losing to sell.


The flip side of this is that even if we decide to no longer issue software patents today, we still have 20 years of software patent lawsuits (I'm assuming that invalidating all current software patents would be too difficult), and so methods for mitigating the harm that comes from software patent trolling are welcome.


Exempt patent troll legal fees from limited liability protection--make it so you can go directly after the shareholders.


This, I LIKE. It's definitely a band-aid, but what a band-aid!


To enforce it properly, it would be best to require one or more directors to provide guarantees for the money that would potentially be owed.

For comparison: in the UK, it's not uncommon for suppliers to require a director of a new llc to sign for the goods guaranteeing payment if the llc can't make the payments. I imagine this is mostly for fraud-prevention purposes, but it seems to be the best model to follow here.


While I agree with you that the real issue here is that software patents should not exist in the first and that this bill actually gives some legitimacy to them (by explicitly naming them), this is still a good thing (IMHO).

Patent trolls basically just throw legal shit against a wall and see what sticks. If nothing sticks it does not cost them anything. This bill would increase the risk to the troll. There is now cost associate with the non-sticky legal shit (so to speak).


What is actually happening to the patent itself? Are the "trolls" just licensing the patent or do they have to have full ownership of it? If the later were true and they could actually loose the patent to the trial winner the situation would get more interesting.


Not really. If they lose the case then in 90% of the cases it means the patent is worthless. So it would not make a big difference if they lost patents which anyway would be worthless.

This law just forces them to be more careful with creating a new company for every lawsuit. A slight increase in their cost of operations perhaps but nothing much beyond what they are currently doing.


Isn't their warchest of patents an asset? They may have patents that are valued in the millions. I don't think you can simply declare bankruptcy.


Every patent (or group if necessary) is owned by a separate legal entity, so most at risk is the patent(s) involved in the lawsuit.


A smartphone doesn't infringe on thousands of patents because we have standards in place for 3G, WiFi, Bluetooth, H.264 etc which you can license affordably under FRAND terms. This process was what made software patents manageable.

This process needs to be encouraged and expanded in order to dull the impact of software patents. So really there needs to be just as much criticism of Google and Samsung (FRAND abusers) as the patent trolls.


Unfortunately we don't have standards in place for "click to upgrade" or "slide to unlock" and potentially thousands of other tiny patents that cover the minutia of operating systems and software. Why does it matter that you can use Bluetooth if you can't do anything with it?


There is only ONE way to implement Bluetooth and meet the standard.

There are LOTS of ways to unlock a phone. Including the way every phone was doing before the iPhone i.e. holding down a button. Likewise for click to upgrade and most of the other design and UI related patents.

So you see now why Google and Samsung are just as much of a problem as patent trolls ?


That's about as reasonable as saying there are LOTS of ways to show multiple applications on a screen, Microsoft (and HP) shouldn't have used overlapping windows (and so on).

As a matter of pure legal hackery, I suppose it is impressive that Apple's lawyers have found a way around the previous "look and feel" lawsuit, but the rest of us should realize that an old dog is up to the same old tricks.


I see you forgot to include Apple in this.


Personally, if software patents can't be done away with or at least reduced in its length, then I would like to see a couple of things happen:

1. When sued, a defendant has the right to request a review of the patents, which would automatically stay all proceedings until the review is finished. Only upheld patents could then be litigated and if all patents were overturned, then the plaintiff would have to pay all court costs.

2. Patents holders who sue but do not actually manufacture anything should be awarded reduced damages.


Both of these things happen already (well, sort of) under existing law:

1. A defendant can request reexamination of the patent by the USPTO. There are pros and cons to doing so. [1]

[EDIT: If a defendant requests reexamination at an early-enough stage in the lawsuit, the judge is likely to grant a request to stay the lawsuit until the reexamination proceedings are finished. If the defendant waits too long, though, the judge might think the defendant is gaming the system to try to delay the trial, in which case the judge likely will deny a request for a stay.]

2. A patent holder that actually makes and sells something can recover the profits it would have earned if it had made the infringing sales. To do so it has prove some things it doesn't have to prove to recover a reasonable royalty. A troll can't do this because it didn't have the capacity to meet an existing demand at the time of the infringing sales. [2]

[1] http://en.wikipedia.org/wiki/Reexamination

[2] http://www.finnegan.com/resources/articles/articlesdetail.as...


A reexam request requires new prior art. You can't use what USPTO evaluated improperly (rms argued public prior art databases are a bad idea for this reason) and you're out of luck if it was something so obvious that nobody bothered writing it down. It also costs thousands of dollars per patent with no refund for winning.


I know they can request it but I have seen cases being litigated while the patent review was being conducted. In my opinion, it is asinine for that to happen.


Wouldn't it be simpler to require that any company suing over patents must also be an active practitioner in the field(s) that the patents involve?

That would kill the asset-free trolls instantly because without an engineering staff and a product they can't very well be building anything that uses their "property", can they?


I was thinking the same thing, but then realised how easy would it be to subvert any definition of "active practitioner". The troll only needs to contract a guy (offshore?) who swears he's developing something that will come to market real soon now.


A typical patent lawsuit is so expensive that hiring a small engineering staff and tell them to go off and design something cheap that makes use of the patent would be peanuts in comparison.


I don't think we have to bring down the whole patent system just to stop software patents. Let's just stop issuing software patents and just deal with existing software patents however we can? One possibility.


If it is property, tax it like property, at 1% of value per year. All of a sudden, every trivial patent will be assigned 0 value by its owner, and then convincing a court the violation is worth $100M is hard.

Also puts old and new patents on equal footing.


> If it is property, tax it like property, at 1% of value per year.

Where is property taxed like that?


Real estate, essentially everywhere in the western world. The range I have observed in multiple countries is 0.5%-1.5%, and it isn't always called "property tax" (e.g., in the UK it breaks between "council tax", and various other taxes, none of which is specifically named "property tax"; in the neighborhoods of CA I'm familiar with, it's 1.2% in the last few years)

Car licenses in many places are also essentially a property tax of 1% of the car value, or so.


This seems like a step in the right direction. In the UK, as far as I'm aware, this is standard procedure in ANY legal case. The loser has to pay the legal fees of the winner. This can be a double-edged sword however. A big legal firm with lots of resources will mount legal fees that they alone can crush any small company.

This is one aspect that I see missing from this. The mere threat to sue over a patent can force a small company to settle or to even close-shop completely. Sure, if the small company wins, they'll get their legal fees back, but when would that be?? a good few months of time, energy, lack of sleep, and huge legal bills until the end of the process, and that's only IF they win.


The reason that the American government hasn't implemented this broadly in legal disputes, as is practice in other countries, is that it makes it dangerous to pursue legal action for any entity. If I am a lone engineer who has just invented the perfect fuel source and GE rips it off, I have no recourse, because they can hire $50 million worth of lawyers and if she can't beat them in court, she's stuck with an impossible bill. These laws unfairly stifle the little businesses who are "supposed" to have a fair footing in the unbiased court of laws.


How are the current laws any more favorable to the little guy? In the current situation, patent trolls "win" against small businesses, because even if you fight the patent and win, you still are severely damaged - if not bankrupted - by the legal fees.

I would far rather have the lion's share of the risk be assigned to the plaintiff.


>If I am a lone engineer who has just invented the perfect fuel source and GE rips it off, I have no recourse, because they can hire $50 million worth of lawyers and if she can't beat them in court, she's stuck with an impossible bill.

Yeah, that's what the ABA says. But in the real world you're going to get stuck with an impossible bill anyway when the deep pocketed people you sue start filing countersuits.


The way US politicians are funded, they do not give a shit about this hypothetical lone inventor. This is just a romantic ideal used by the pro-patent lobby to glamorise patents.


Why can't you make the max payout based on a percentage of the total money spent on the case by the loser.

That way if company A spends $10 million on the case and loses, the winner can recoup say $8 million.

But if Person A spends $50k on a case and loses, the winner can only recoup $40k.


Sounds like you might run into problems similar to US campaign financing law.


I know most people here favor abolishing software patents.

My take is that they shouldn't be abolished. But they should be restricted. Say, 3 years. Maybe 5.

Software has short development cycles and version iterations. Three years gives a company a year to bring a product to market, and 2 years of patent protection after that.

This isn't perfect I'm sure and there are probably more optimal time frames than 3 years. But I like the idea that if I come up with a truly novel invention in code, I'll be granted a patent and a couple years at market before the clones emerge.


Why exactly do you think this would solve the problem? In a world where most (all?) patents being used for trolling are trivial and/or ignores prior art already. Why won't trolls just repatent something with different wording after it expires? This is already common in pharmaceuticals where some drugs have been under monopoly for way over the normal 20 years but under "different" patents. This is only not too common in software, yet, because the industry is young.

So wouldn't reducing length just worsen the problem by shifting even more power into the hand of incumbents who can afford to refill "different" patents more often than startups? Trolls would just use newer crap patents anyway.


So the answer is to deal with trolls not eliminate patents. Having a shorter patent grant is about addressing issues like Amazon 1-click. Amazon is not a patent troll, but having a 20 year patent on 1-click is absurd.

There are a lot of patent trolls outside software. Being against software patents and being against patent trolls are different issues with different solutions. I reject that dispensing with patents altogether is the best choice.


Speaking from personal experience, 8-10 years for a patent to go from application to being granted is not unreasonable.

That fact alone makes the lag between work being done and a patent available to sue far too long.


Whilst the motives are good it realy should be a simpler bill:

`If you take somebody to court and you lose the case then you pick up the cost of the defence and courts time.`

That is what is needed, something simple and fair that covers this and other area's instead of one law for a specific area which will then need another law for another area and in essence complicate things by having many laws covering one simple thing.

Keep It Simple Stupid is a such a great old software term, that applies to so many things, including this.


TBH the entire court system would be better if money were a non-issue. The best way I can think of to solve that is to require both sides to be funded equally. i.e. if Side A wants better lawyers that cost more, then they should enough money towards a legal pool which is split equally between Side A and Side B. We will never have a just legal system until you eliminate this financial asymmetry.


That's actually a pretty good idea. I'm sure there are some implementation problems I haven't thought of yet, and ways for companies to get around it, but on the face of it a really good idea.


Doh! I think I'm becoming dsylexic in my old age. Missed a word entirely. Should have read "... then they should [contribute] enough money ..."


> If you take somebody to court and you lose the case then you pick up the cost of the defence and courts time.

Or: "IBM just screwed me over, but if I sue there's a chance I'll lose, and the penalty for losing is orders of magnitude greater than I could possibly afford. Guess IBM gets to keep screwing me over."


Uh huh. Which do you think is more common, your scenario or this one:

"IBM is suing me using twenty overly broad patents, most of which don't even apply. I'm pretty sure I can win in court, but it doesn't matter because the legal costs will bankrupt my company long before I can get a final decision. May as well sell out for pennies on the dollar - it's my only choice."


Their scenario.

The amount of times I've seen breaches of e.g. open source licenses dwarfs the number of patent cases I've seen. Generally, the creator has no recourse, because they can't prove it most of the time (closed-source product), nor can they afford the court costs if they wanted to, so it just slides. Sometimes changes are made (e.g. GPL-using code open-sourced), but often they aren't, and it's largely because the offended party is small and can't properly defend themselves, so it isn't worth it.


We were talking about patents, not copyright.


The root post of this thread suggested a general rule covering all lawsuits.


From what I've read, loser-pays is standard practice in Europe, and judges have final say over the amount, which must be reasonable.


Also the case in Australia and the UK. Not that the winner gets all their costs back (60% is a figure I've seen bandied around) but it still creates a significant disincentive. Probably a good thing in the case of patent trolls, but not necessarily in other situations.


They're certainly welcome to the overly-litigious situation we have in the US. I would trade in a heartbeat.


I think it's like that in Canada too.



How would this actually work? Unless a bond has to be posted the troll would just make sure the trolling entity (almost always a separate company shielding liability from true owner) has zero assets to pay the legal bills. Or did I misunderstand something?


Wouldn't the troll entity have at least control of the patents it's suing for?


Sure but if they lost the case doesn't that suggest those patents are worthless? If they can't be enforced they aren't effective patents.


At least it would keep them from using them to extort money from other victims.

A patent troll could lose without the patent being invalidated. It could be that the patent is enforceable, but not in this particular case (a case where a jury finds the defendant wasn't actually infringing).

We've seen patent trolls go after victims with nebulous claims that might not win in court even though the patent wasn't likely to be invalidated.

This may prevent those situations because if they lose and they have to hand over the patent, it deprives them of future extortion money.

It may at the least limit the scope of companies they go after to actual likely infringers.


I thought I saw somewhere that the loathsome "Intellectual" Ventures had a program where you could rent some patents to sue with.


If I remember correctly, the courts ruled against this practice, deciding that only the actual owner of a patent had standing to sue for infringement.


I'm not sure about patents, but at least with copyright the judge in the Righthaven case ruled that Righthaven lacked standing to sue because they didn't have exclusive rights to the copyright.


I like it. If it works then it should cut down on these stupid spectacles. If it does not work then it only would further the cry of "See? We need total reform!"


I like this alot:

In other words: just because we're defining "software patent" doesn't necessarily mean software patents are necessarily legal.

It's basically a temporary fix.


This post was second after the one to Mark Zuckerberg when I clicked it, and for a second I thought it meant Bill Gates was doing it. I boggled for a second at the idea of Mr Microsoft being sane about patents, but of course it was my error. Pity.


Maybe I'm crazy but it seems there is a relatively simple solution to all this: make patents non-transferable.


If company A buys company B and company B owns a patent, the patent wasn't transferred, just company ownership.

So, making patents not transferable only adds a step or two depending on how complex the law is.


What I said was extremely simple, there are a million ways it could turn into law. A simplistic solution in my mind would be a rule that if your example were to happen, the patent is transferable in the case that the purchasing company intended to act on that patent (insert legal shenanigans to define what that means here).

The general intention is that a company can not own a patent which it does not have a vested interest in acting on, how that is defined could be an entire thread of its own.


And now your "relatively simple solution" has turned into a massive legal quagmire.


Here's a simpler solution, that creates no legal quagmires: Do away with patents.


This is the way things should always have been. If you're going to falsely claim patent infringement only for it to be discovered you're not the patent holder or are merely using scare tactics to get money out of people you should be held liable for all costs associated with the legal threat.


Why restrict this to just patent trolls?




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