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Politicians want “loser pays” rule for patent trolls (arstechnica.com)
229 points by Steveism 1522 days ago | hide | past | web | 129 comments | favorite



"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.


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.


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.


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.)


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.


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.


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?


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.


This isn't much of a problem if the inventor sells the patent outright to the company that is going to use it. Then the new owner is not a troll and could legitimately sue infringers. I agree that it's problematic if the inventor structures the deal as a license.


The problem there is that Intellectual Ventures would be allowed to remain, but they're the largest patent troll in the industry and a large part of the reason that this conversation is even taking place.


Exactly.

In one sense, this suggestion is as good or better than any I've heard. Let the defendant raise the possible issue with a judge - let a (presumably impartial and intelligent) judge look at it on a case-by-case basis, and let the plaintiff know in selected cases "this one's going to cost you lots if you lose". I guess there's then be a danger of a "reverse class action" thing, where someone like the scan-to-email patent holder sends out hundreds or thousands of legal threats, and some law firm decides to try and run up half million dollar costs for each and every defendant.


As long as the judge is aware when the suing party is a shell company vs. an actual small business and requires some sort of monetary escrow only for the former.

I don't know if "danger" is the word you are looking for :) I'd love to see a "reverse class action" happen to an intellectual vulture; the only way it would be better would be if the judge allowed the "defendants" to pierce the veil when it came time to collect.


The main distinguishing factor is whether or not the alleged infringement was actually independent rediscovery or not.

Patent trolls are dangerous because they hold patents on things that are easy to independently rediscover. It's too easy to infringe by accident, without ever reading troll patents.


Now you're talking about rewriting patent law, not identifying the types of people who may hold patents.


>So patents are only valid if held by their originator? That would make the IP non-transferable.

They could sell to anyone who practices the invention, just not to a patent troll.

>In ARM's case, it would mean a takeover would invalidate its value.

This is a good point, but it's cleanly solved by exempting mergers. That would allow two ARM-like companies to merge without losing their ability to license original patents, but it still beats back the trolls because a merger only allows you to combine two complete entities, it doesn't allow you to transfer anything less than the entirety of each company's patent holdings to a third party.


> cleanly solved by exempting mergers...

Your description hardly sounds clean. In fact, given the complexity of business mergers, sales, taxes, etc., it sounds like it would result in an ever expanding nest of exemptions.

There's nothing wrong with companies that buy IP and do nothing but licence it; that's how an efficient market in IP is likely to operate. The problem is with the frivolousness/obviousness of the original patents.


>Your description hardly sounds clean. In fact, given the complexity of business mergers, sales, taxes, etc., it sounds like it would result in an ever expanding nest of exemptions.

What does it have anything to do with taxes or any of that other stuff? If you have two corporate entities that merge, the merged entity can be considered the original assignee of all of the patents that each of the merging entities was. It's not a complicated rule. But it keeps trolls from setting up "mergers" to falsify their status as an "inventor or original assignee," because it's all or nothing. You couldn't transfer any subset of the selling entity's original patents to anyone else and still call them original patents.

Here, we can make it even more simple. Forget about mergers. You can transfer a patent for which you are the inventor or original assignee to another party and have that party be considered the original assignee if and only if you transfer every such patent you own to that party.

>There's nothing wrong with companies that buy IP and do nothing but licence it; that's how an efficient market in IP is likely to operate.

So say the patent trolls. It reminds me of what the high frequency traders say about liquidity: Even if it could theoretically be true under some set of artificial constraints, in practice the cost of allowing it pretty clearly exceeds the supposed efficiency benefits.

>The problem is with the frivolousness/obviousness of the original patents.

The problem is that software patents anyone is likely to infringe are inherently frivolous/obvious, because the lack of physical constraints causes there to be a million good ways to do any given thing in software, so (putting aside standards-essential patents that constitute their own special brand of unintended consequences), the only way you get a software patent that anyone else will ever infringe is to abstract the so-called invention out so far that it covers all plausible implementations rather than only the specific one that you're supposed to have invented.

The patent system wasn't designed for software. They're not compatible with one another. The proper solution is to eliminate software patents. But if we can't do that today then putting as many sensible limits on the amount of economic damage they can cause in the meantime will have to suffice.


> If you have two corporate entities that merge, the merged entity can be considered the original assignee of all of the patents that each of the merging entities was. It's not a complicated rule.

What about when companies spin-off subdivisions as separate companies? Can they "legitimately" own a patent and then spin-off a troll with that patent as its only asset?

Or what if the original inventor own only part of the company? How much do they need to own? If no minimum, then a troll will just sell 0.0001% of the company to the original patent holder. If a minimum, then the troll will find some other way to compensate the patent holder so they effectively doesn't cost them anything to hold that requisite amount.

Seriously, I know nothing about this stuff. I challenge you to find a someone well-versed in mergers and acquisitions who thinks a simple rule would work. Anytime you give property rights to someone but then try to restrict them, there will always be away to wriggle around the restrictions when sufficient money is at stake.

>So say the patent trolls. It reminds me of what the high frequency traders say about liquidity

I don't think your opinion about HFT is universally shared.

> The problem is that software patents anyone is likely to infringe are inherently frivolous/obvious...

I strongly disagree, but it would take us too far afield to debate it. Eliminating software patents might indeed be a good, crude decisions which is better than the status quo, but the abstract nature of software does not in principle prevent novel, patent-worthy ideas from being reliably identified.


>What about when companies spin-off subdivisions as separate companies? Can they "legitimately" own a patent and then spin-off a troll with that patent as its only asset?

Spin offs aren't mergers. If you create a new entity as a spin off and transfer patents to it, it wouldn't be the original assignee anymore, so it would have to practice the invention. A spin off that doesn't practice the invention is a patent troll.

>Or what if the original inventor own only part of the company?

It doesn't matter who owns the company, it matters who owns the patent. If it's owned entirely by either the inventors listed on the patent, or the first company they assigned the patent to immediately on issuance (typically their employer), then they wouldn't need to practice the invention. If it's anyone else then they would need to practice the invention. A company's single exclusive designated successor stands in for the original company if the original company ceases to exist. You can't split up the patents in any way or else all but the designated one of the new owner(s) will have to practice the invention.

> Anytime you give property rights to someone but then try to restrict them, there will always be away to wriggle around the restrictions when sufficient money is at stake.

Any time there is money on the table someone will try to take it. That's a poor argument for not doing anything about it.

>Eliminating software patents might indeed be a good, crude decisions which is better than the status quo, but the abstract nature of software does not in principle prevent novel, patent-worthy ideas from being reliably identified.

Software itself is an abstraction. The only types of patents that software could infringe are patents on mathematics itself (e.g. compression or crypto patents) or patents on abstract ideas that can be built on top of mathematical primitives, because that is all software is. It's abstractions built on abstractions built on abstractions built on mathematics. And none of that is even supposed to be patentable. Contrary to popular belief, patents aren't supposed to be granted for ideas, they're granted for inventions. An idea isn't an invention, the invention is the thing you make after you have an idea. You patent a nuclear reactor design, not E=mc^2.

The "problem" with software is that there are arbitrarily many practical inventions that implement a given idea. Patenting any partial subset of the possible implementations would be pointless, because any competent programmer could come up with a hundred other different ones that implement the same idea. But patenting the idea itself goes too far. Which is what they've been allowing and what causes all of these problems. It's why in software accidental infringement is the rule rather than the exception and as a consequence everything infringes everything.

People have intuitively understood this forever. It's for exactly this reason that literary works aren't patentable, because it would cause the exact same thing. But software makes peoples' brains explode because we created virtual worlds where you can go simulate human interaction and even buy and sell fake stuff for real money, and at some point we went from calling those interactive works of fiction names like World of Warcraft and Second Life and to calling them names like YouTube and Facebook and the App Store.

At some point we lost track of the line that distinguishes a patentable device that physically holds your CD collection from an unpatentable work of interactive fiction that allows you to see a picture of such a device on your screen and pretend to interact with it, and we started issuing patents for simulated "inventions" that exist solely as abstract ideas in software literary works. But it was never supposed to be this way because of exactly the mess that allowing that has caused.


> Spin offs aren't mergers. If you create a new entity as a spin off and transfer patents to it, it wouldn't be the original assignee anymore, so it would have to practice the invention. A spin off that doesn't practice the invention is a patent troll.

Which would make ARM a patent troll - they're a spin-off of Acorn originally and they license designs to others rather than practicing their inventions themselves. I'm not sure you've entirely thought this through. (Probably not such a problem for ARM since all their Acorn-era patents have probably expired anyway, but the next similar company could really get screwed.)


> It reminds me of what the high frequency traders say about liquidity: Even if it could theoretically be true under some set of artificial constraints, in practice the cost of allowing it pretty clearly exceeds the supposed efficiency benefits.

I don't get the ire against HFT. The only ones who should be worried about HFT besides regulators are the human traders who are going to be put out of work by HFT shops.


>I don't get the ire against HFT. The only ones who should be worried about HFT besides regulators are the human traders who are going to be put out of work by HFT shops.

I'm not convinced that HFT is anything particularly insidious, but the fig leaf of providing liquidity is pure rubbish and it seems like the sort of activity that shouldn't be rewarded with billions in profits. It reminds me of the scam from Office Space. Take a fraction of a penny from a large number of people and nobody really cares, but that doesn't mean you deserve the money. And it's causing an enormous amount of resources and brain power to go into beating the runner up by a fraction of a millisecond that could be going to something more productive.


Why is the liquidity justification pure rubbish? That's what human traders do as well. HFT doesn't "take" money from anyone. Its all voluntary sales and purchases. They don't "deserve" it any more or less than any other middle man.


>Why is the liquidity justification pure rubbish? That's what human traders do as well.

Human traders hold securities for more than fractions of a second. If I want to sell my shares of some low volume stock today and some other human investor wants to buy them next month, a third party who is willing to buy them from me today and sell them to the other buyer in a month is providing a useful service -- I get paid today, he gets the shares at a slight discount and makes a profit a month from now. That clearly doesn't apply when a high frequency trader buys shares and turns them around in fractions of a second.

>They don't "deserve" it any more or less than any other middle man.

A middle man deserves the profit he earns by providing value. What value is provided by a middle man engaged in naked arbitrage by taking advantage of an ephemeral information asymmetry?


There needs to be a name for the fallacy where people discuss trades as if prices could only move in one direction. That, obviously, is the only way you can frame a discussion of trading in terms of "discounts". In reality, an entity that takes a position in an instrument also bears the downside risk for that instrument. Averaged out, it is exactly as likely that an HFT shields an unwitting potential buyer from a loss as it is that they snipe away the profits from that sale.

The value provided by "middle men", be they robots or crooked traders in pits, is liquidity and price discovery. Trading allows people holding an instrument to unload it more quickly rather than waiting to convince themselves to take a bigger leap on pricing; it's what, in a simplifier Bohr-model kind of way of looking at stock trading, allows you to buy shares in a stock at a market price you can look up online as opposed to waiting for the stars to align. The faster the trading, the lower the spread, the smaller the leap sellers and buyers have to take.

It's worth noting again as always that before automated and program trading, spreads were higher, and the space in the spread between the bid and the ask was basically a license to steal.

Here's a good comment from awhile ago, including a cite to an accessible paper:

http://news.ycombinator.com/item?id=3895208


>Averaged out, it is exactly as likely that an HFT shields an unwitting potential buyer from a loss as it is that they snipe away the profits from that sale.

How can this be true consistent with HFT being profitable?

> The faster the trading, the lower the spread, the smaller the leap sellers and buyers have to take.

That's the theory. The issue is that when you get into sub-millisecond trades, you're so far into diminishing returns that the profits the HFTers are taking exceed the benefit of any theoretical increase in liquidity.

Also, the paper link in that post is truncated, but I found it on Google and (at least from the abstract) it doesn't seem to support what you're saying. The paper says HFT has caused spreads to go down because in order to mitigate its effects, third parties are breaking larger trades into smaller ones. But that only reduces the spread on paper by increasing the number of transactions.


HFT market makers profit from the spread the same way human market makers do. The difference is that HFT market makers narrow the spread sharply; they are fighting over a much smaller slice of the pie than humans do.

I'm not sure what you mean by your second point. Sellers and buyers are always breaking large blocks into small blocks. Moving large blocks of tradable instruments at the best price is one of the fundamental technical problems of trading. The spread captures what at any moment you would need to give to middlemen to transact on the market. Smaller is better no matter what the reason.


Large HFT players are market makers who are paid by exchanges to ALWAYS be in the market for each share traded.


A fraction of a millisecond is a long time, in HFT.


The article mentions that one of the conditions that excludes a company from being a non-practicing entity is "the plaintiff is an inventor or original assignee."


I'm not sure that is entirely true.

I'm no expert in the area but I would guess that the primary thing they are licensing is a particular design or instruction set, legally protected by copyright, not patents.

I'm sure some patent licensing has to occur as part of any licensing for the protection of the licensee but I don't think the patents are the primary 'thing' being licensed, its the copyrighted material.


I didn't say anything about patent validity, only that it's arguable ARM does not meet some possible definitions of NPE. I admit that the reference to trolls buying patents near the end of my second sentence slightly muddies that intended meaning.


A patent troll, then, could argue its "practise" is "developing" undervalued patents by buying them off investors, who receive the value up-front, and then licensing them.

ARM is, for all intents and purposes, a non-practising entity. It's just not a patent troll. The folly is in assuming all NPEs are patent trolls. Carving the ARMs out of the NPEs will take more thought that lobbing exceptions at a general idea. Minimum viable products don't work in law because switching costs are high.


> ARM is, for all intents and purposes, a non-practising entity.

I'm fairly certain ARM employs more technologists than lawyers. They also make actual products, and even if the patent system disappeared tomorrow, designing processors would still be a viable business. In this way they differ from trolls, who make nothing of value but are merely parasitic on the productive economy.


You're using trolls and NPE's interchangeably. When an NPE buys patents from the inventor, that is a contribution to the productive economy. The possibility of a buy-out drives productive activity (this is the same as startups who hope to get bought out by Google, etc).

Also, how would you classify this: http://en.wikipedia.org/wiki/Mojave_Aerospace_Ventures


In the end a judge will make a judgement, which means they can take actual intent of the rules of what makes a company a non-practicing entity into account. Your point about high switching-costs is valid, but the law is not a blind rules engine.


I really don't get the "ARM is an NOE" thinking. They spend a lot of time and money developing the product they license. If ARM is an NOE then so is every software company.


Maybe one could look at how many customers elect to licence the patents vs how many are litigated into being customers. Or look at the availability of the patents for license. If a company holds a lot of patents, has no technical staff to develop products, and doesn't have sales staff to try to license their IP in any markets, we might conclude the company is a non-practicing entity whose only purpose is the litigate their way to customers.


According to subsection (d) it is sufficient to meet any single condition. For how many of its patents would ARM not meet the first condition?

(1) Original Inventor Such party is the inventor, a joint inventor, or in the case of a patent filed by and awarded to an assignee of the original inventor or joint inventor, the original assignee of the patent.


So instead of make thing, get patent, sell patent to troll we have make entity, make thing, get patent as entity (thus making the entity the original inventor), sell subsection (d)(1) compliant entity to troll? Someone please tell me this is wrong.


I think your scenario takes (ed: or should take IMO) the patent out of the original assignee's hands, removing the (d)(1) condition.


I don't think it does... the smaller entity is the original assignee - it just now happens to be owned by the troll.


The article mentions "actually using the patent" as being a criteria - having a history of having people voluntarily pay you for your IP seems to be pretty clear cut evidence of "actually using the patent".

The bigger loop-hole, it seems, is the exemption of "technology transfer organizations". What is the difference between a legitimate such, and a shell patent troll? They both have the explicit purpose of holding an inactive patent for the purpose of commercialising it.


" it still leaves the defendant bearing the risk of adverse judgment."

This is the major flaw IMHO. In jurisdictions like Marshall, TX adverse judgements happen 80%+ of the time. So I don't see this as radically changing the status quo.


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.


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).


The shell would have to post a bond when it is deemed to be a non-practising entity, i.e. not subsection (d) compliant.

"Any party that fails to meet a condition under subsection (a)(3) shall be required to post a bond in an amount determined by the court to cover the recovery of full costs." [1]

The subsection (a)(3) reference points to the subsection (d) exemptions for original inventors, parties which have made "substantial investment" in exploiting the patent through "production or sale of an item covered by the patent", universities, and technology transfer organisations "whose primary purpose is to facilitate the commercialisation of technology developed by one or more institutions of higher education".

[1] http://cdn.arstechnica.net/wp-content/uploads/2013/02/SHIELD... § 285 subsection (b)


Couldn't the judge require the patent troll to put money into escrow to cover their opponent's estimated legal expenses (otherwise not allow the case to proceed)?


Because you don't limit access to the courts based on how much money someone has. That's insane.


Ironically, that's exactly what happens now -- defendants usually don't have access to the courts, because they don't have millions to defend themselves.


We do it for shareholder derivatives suits, and in several other contexts. For B2B lawsuits it's not a big deal.


Not for everyone, but for those judged to be non-practicing entities.


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


So they spin up a new one. Shell companies are like EC2 instances - cheap and disposable.


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.


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.


As I mentioned in another reply: How could the judicial system incorporate rules to pierce the corporate veil in such situations and therefore expose the shell company creator(s)? Would something like this help? And what are the cons?


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


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.


How could the judicial system incorporate rules to pierce the corporate veil in such situations and therefore expose the shell company creator(s)? Would something like this help? And what are the cons?


What (good) purpose do shell companies serve?

LLC is limits liability doesn't it? Its not no liability. Surely a more effective and wide ranging measure would be to enforce limits on the limitations. If no one wants to take some small amount of responsibility for a company, that company has no business existing.


They're not really shells. They're very small companies created to limit the exposure of the owners to liability. This is not weird or abnormal in business. Real estate guys use separate entities for their projects all the time. If one gets in trouble, it leaves the others intact. That is the whole point of limited liability.


Real estate guys shouldn't be doing it either.

A coworker had his house destroyed by errors on an adjacent building site, and he faces the real risk of the real estate guys declaring a loss on this one and moving on to the next "shell company".


Thnk about that for a moment, because it's not even possible. How are you going to finance a second building when the first one has the ability to suck up all the cash flow? No bank would do it. No equity partners would do it. Throwing out limited liability is a huge deal.


Courts should have the option of making directors or whatever personally liable in the case of gross negligence (like cratering an adjacent building).

Either that, or mandatory insurance for these cases.

It's just unfair that someone is made homeless and faces the threat of being left out in the cold while the persons responsible are raking massive profits elsewhere. It's not a faceless meteorite crash, it was gross negligence.

I can't find the news in English, but:

http://www.lr21.com.uy/comunidad/430518-derrumbe-de-edificio...

In the case of patent trolls, "piercing the veil" is also complicated.

There's also the common practice of naming a figurehead as the person responsible for a company, while the real owners don't figure in the legal documents (we call them "testaferros" over here). I don't know what the solution is (I wish I did), but the current system doesn't seem to be working out well.


I have always understood the "limited" liability means that the company is liable, but the shareholders are not.

In the case of the shell companies the owner is the parent company, not the shareholders. Thus the shell companies limit the liability to the parent company. This allows the parent company to sue people without the risk of an adverse ruling.


This is a really good step though. If paying legal fees becomes a problem for NPEs, then perhaps the next step is to require NPEs to post a bond before going to trial.


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.


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).


Comparing the U.S. to other western countries is fraught with pitfalls. The English rule discourages private litigation, which is a more reasonable practice in Europe where there is aggressive public enforcement of the law. It's not a sane practice in a country where everything from labor rights to health and environmental rights are largely enforced through private litigation (by design).


I assure you that there is loads of private litigation in European countries (eg UK). There's even a term for it "compo culture", there are ads on TV looking for people who have been injured and they sue the other party.


We call those "ambulance chasers" in the US (though the act of actually following ambulances in search of potential clients is barratry and a crime). I had no idea you guys had them.


If there's money to be made, then there will be sleaze balls who'll try to make money.

Happens all over the world, all us humans are alike.


As the article mentions, but not by name, the US has a similar rule typically called "prevailing party fees". The article also mentions in the US the prevailing party fees must be triggered by statute or a provision of a contract - but fails to mention this is done quite frequently, in fact so much so that I would say while each party bearing its own fees is the rule in the US by default, but the exceptions (prevailing party fee triggered by statute or contract) are used more generally than the default.

Aside from common law vs civil law, Europe and the US have fundamentally different legal systems (adversarial vs non-adversarial). I think the non-adversarial system supports the English Rule, while the US adversarial system unnecessarily drives up attorneys fees and costs so legislators authorize attorneys fees only in specific types of cases where it is justified, and of course where a provision is included in a contact (of course parties in the US have the ability to contract such provisions).


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.


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


Worst case, the court could pierce the corporate veil, but apparently there is the bond requirement mentioned in my sibling comment as well.


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


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.


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


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.


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.


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?


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)


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.


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."


  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.


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.


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.


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.


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.


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)


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


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.


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.


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.


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

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


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?


>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.



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


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


Reading about this patent trolling just makes me angry :(


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.


>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.

The bill addresses that by applying the losing plaintiff pays only to non practicing entities. It specifically excludes original inventors.


What about the fact that the original inventor is actually a human being that through an employment "contract" agrees to assign and transfer any patents to the employing company? How does this idea affect things?


The employing company would then be the original assignee, and also exempt from being classified as an NPE.


As a non-lawyer, I read the bill and found it surprisingly very short. As usual the devil is in the details. Probably judges will be able to fill in the many details, go all the way to SCOTUS and then back to where we were.

The easiest way would be to fund USPTO so they stop issuing bogus patents.


That's true and this helps big corps but this is one case in politics where I really don't care. Software patents are universally bogus and have no business being enforced. Anything that reduces anyone's ability to sue is good in my opinion. To combat the LLC with zero assets issue, which is a good point, I'd like to see a system whereby they establish standards to pierce the corporate veil and go after personal assets, which they tend to argue in cases where the LLC/corp is essentially just a front.


> 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 why pushing "loser pays" in the U.S., along with binding arbitration, has been a favorite pet project of some people.


If you legitimately sue them, you're not a patent troll/NPE and this new rule wouldn't apply.

It'd suck as much as before to lose.


>>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.


Perhaps, once deemed an NPE, the plaintiff could be forced to put up the legal costs in escrow for the duration of the trial? Not only will this require them to be able to pay if they lose, but it will be a further deterrent to even attempting to sue.


That's exactly what the bill proposes.


It does? The linked article doesn't mention that.


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".


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.


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.


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.


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?").


From what I understand, in limited circumstances this can and does happen. http://en.wikipedia.org/wiki/Piercing_the_corporate_veil But given that I am not a lawyer I have no idea if creating a LLC for the sole purpose of isolating a patent holder from court fees would qualify and/or be provable.


That's why this bill requires NPEs to put up a bond to cover the other sides legal bills in the case they lose.


This would definitely be a good case for piercing the corporate veil.


Re your edit: the judge would have to approve this before the case starts. If you can show you are the rightful inventor, you shouldn't have a problem.


What's wrong with selling your patent? You dedicate x years or $xxxxx but can't see it to completion so you cash out?


Why can't the people in your second example use the tactic in your first example?


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.


"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.


Correct me if I'm wrong, but the article states that if the plaintiff is the inventor or original assignee, they would qualify as a practicing patent holder and would not be liable for paying the defendants fees. In Kearns' case, he would not be liable for paying defendants fees because he was the original inventor of the technology.




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