i-DEPOT: A “Good First Step in Innovation”?

Perhaps I find this fascinating because I have heard from so many entrepreneurs about how the options presented to them by the current intellectual property legal system fail to meet their needs.  Or because of my research on copyright fixation.  Or because I’m fairly convinced I was a magpie in a prior life.  But through the diligence of a research assistant (thanks, Benton Patterson), I recently came across i-DEPOT, and I find it very interesting.

i-DEPOT is a sort of safe deposit box for ideas, offered in Benelux through the Benelux Office of Intellectual Property (BOIP).  The website is very careful to say, repeatedly, that i-DEPOT does not convey any IP rights.  Rather, it claims that i-DEPOT is a “legal means of proof that issues a date stamp,” providing that a particular individual is “the rightful owner of a particular creation at a specific date.”  It does not offer legal protection at all, except in so far as it serves as a source of evidence.  After a creator or inventor submits something to i-DEPOT, the individual receives a certificate with an assigned number.  (Here I am tempted to analogize to the Universitatis Commitiatum E Pluribus Unum, but that might be unfair.)

The website of the BOIP recommends that i-DEPOT be used while an idea is in the development stage, or if an individual wants to keep her idea secret.  Maybe the patent costs are too great, or the life-cycle of the product is so short that a patent would be worthless.  It can also be used for IP rights that do not require formal registration, such as copyright (does this serve as a sort of official validation of the “poor man’s copyright”?).  Finally, the BOIP suggests that i-DEPOT enables creators and inventors to feel more secure in negotiations with potential business partners by including the i-DEPOT number in a confidentiality agreement.

The BOIP frames this as a good first step in the innovation process.  I’m interested to hear from others on this.  What are your thoughts?  Does anyone know about anything similar in other countries?  Or about how widely used this is in Benelux?

Rules, Standards, and Patent Reform

Inspiration struck me today about patent reforms intended to curb troll, NPE, PAE, PME, PLE, etc., activity. Perhaps this insight is clear to everyone else, but a quick Google search tells me maybe not.

I tweeted today about two contradictory arguments made by Apple in two litigations (as Plaintiff arguing that no expert was necessary to testify, and as Defendant arguing that plaintiffs without experts were out of luck). My thoughts were that such activity is pretty normal for repeat, high stakes litigants, but perhaps under proposed “everything is frivolous” reform, there should be sanctions for taking such positions. After all, a frequent complaint about NPEs is that they seek more money than damages they can prove.

That’s when it struck me that this is a rules versus standards problem. This whole debate is. In addition to cultural cognition issues (whereby people with prior views undervalue contrary evidence), even when evidence is credited, the proposed solutions are at complete loggerheads because of the views about how rules and standards will play out.

Thus, those opposing reforms usually argue that while there are certainly bad actors, we should evaluate their behavior in each case and act accordingly. This is typical standards-like consideration. Generalized rules can be overinclusive, sweeping in activity that we might find desirable (consider the anti-software patent view, for example, or even the “you have to make a product or your patent is worthless” view). They can also be underinclusive and/or worked around, which is why many prior rules — like allowing licensees to challenge or the one defendant per suit rule — have had absolutely no effect on patent enforcement (and in some cases made life harder on defendants). This is not to say that there are no rules – we have some bright line rules, like novelty, that allow us to determine if patents are valid.

Those favoring reforms believe that standards are not enough. They are costly to administer (e.g. litigation) and the standards themselves allow too much wrongful activity (like the exceptional case standard for shifting fees, which allows a lot of sharp litigation tactics without shifting fees).

So, who is right? All of them, of course. If this were easy, it would be solved by now. What I think is driving the current patent reform push is grasping at some rule – any rule – that will have a beneficial effect without being overinclusive. The problem is that no one – to date, as far as I can tell – has actually framed the question in terms of rules v. standards tradeoffs.

An example: the heightened pleading requirement that essentially requires you put a claim chart into the complaint. This is a rule. The question is, is it overinclusive? Almost surely so. I don’t have evidence on people who file suits without an idea of why a product is infringing, but I bet it is really small. Why? Because that is a sure way to get hit with attorneys fees. When I talk to people who have been approached by patent trolls, their gripe is not that there is no claim chart. The worry is that they don’t like the claim chart. A pleading requirement will not fix that.The worst part of the rule is that it will increase administrative costs without any real benefit. Many courts require infringement contentions early. But the cost of 150 page long complaints seems really high for the benefit achieved.

A better rule might be to require claim construction orders on a more timely basis; this, to me, is the unexplored problem with much of patent litigation – courts that delay claim construction orders. That rule might speed things along, especially when coupled with the proposed rule to limit discovery until claim construction. However, if you have the rule that discovery is limited until claim construction without a rule requiring timely claim construction, you create an overinclusive rule that essentially delays justice for as long as the judge decides to wait. This turns the rule into a standard, and one without any real recourse to the litigants.

The takeaway, for me at least, is that we must consider each of these proposed reforms from a rules v. standards perspective. If it is a standard, is it one that is less costly to administer? Is it a rule in standard’s clothing? If it is a rule, is it one that is over or under inclusive? Is it less costly than a standard? Is it easily avoided? Will it change behavior of those who were the intended beneficiaries? Will it come in to play in every case or will it be irrelevant in all but the few cases that go to trial? Without this type of analysis, patent reforms are doomed to fail in a way that many already have.

A quick update:

A colleague asked me about proposals that would carve out pharmaceuticals, often in a way that seems doctrinally unsubstantiated. On the one hand, this is a clear public choice type issue: eliminating a dissenting voice by providing exclusions to patent reform so that the voice will be unaffected.

On the other hand, there is still a rules issue there. If the dissenting voice complained that the rules would be overinclusive and harm innovation, then it might make sense to have such exclusions, even at the cost of doctrinal complexity (or even doctrinal incoherence). Then again, if the rules were overinclusive for one innovative segment (phamaceuticals), it’s unclear why they would not be overinclusive for other, non-excluded segments (e.g. research & development companies that make no products).

This, I think, was my colleague’s concern, that reforms are being bandied about, hoping one of them sticks, without some real consideration of the effects. It’s my concern as well. And while excluding one group might be justifiable from a rules based perspective, the failure to consider other groups (or weigh the costs of rules against standards) is not.

Some Takeaways from “When Patents Attack! – Part 2”

I listened to This American Life’s new show on patents today; it’s a followup to the original, widely heralded show from two years ago. I think it was well reported, and worth a listen. Despite concerns about NPEs being worse now than two years ago, I thought the show was oddly more balanced than the last time (even though nearly half the show is just a replay of a portion of the original). The part of the show I want to focus on is a patent granted to Crawford based on a 1993 filing date, which claims a large part of the online backup business model/technology (depending on how you look at it).

In the original show, it was revealed that Intellectual Ventures (IV) purchased the patent in 2007, sold it to a shell company in Marshall, Texas, called Oasis in 2010, but retained a “back end” percentage of any settlements/litigation winnings. Oasis sued a bunch of online backup companies, settled with most, and then lost against the holdouts when a jury found that Crawford actually co-invented the patent but failed to include the other inventor on the patent application. In this part, we learn that IV’s back end percentage is 90%, and that Crawford got about 18% of IV’s take. In short, Oasis got 10% as an enforcement agent. I have a lot to say about this topic, but only a short amount of time now, due to deadlines on three different papers (who says professors take the summer off). I did want to note three takeaways:

1. The Intellectual Ventures part of the story is actually the least surprising/interesting part of the story. I think it’s a great piece of reporting; IV made a real gaffe by pointing to Crawford as its model inventor, and This American Life dug and found some answers. But the answer isn’t all that new if you’ve been following this area. At the time Oasis filed its suit, the conventional wisdom was that IV was mounting several lawsuits through shell companies. Maybe this was due to earlier IV statements that they preferred not to litigate, much like people never die at Disneyland.

It appears that the Oasis lawsuit featured in the show is one of those shell lawsuits, though I have no idea whether IV ceded control when it transferred the patent or retained control about who pursue. To this, I ask the same question I asked in my Wired op-ed: does it matter? Would we view this lawsuit or the patent differently if it were brought by IV? If IV had a 10% backend instead of 90%? If Crawford brought the suit? If Crawford’s company survived to bring suit? My answer is generally not, other than having concerns about misinformation and secrecy. Perhaps others feel differently.

2. Many software patents are too broad. This is nothing new, of course, but the show illustrates it nicely. I’ll discuss the Crawford patent below, but the first part of the show nicely illustrates this point with a segment on the podcasting patent. The show argues that the inventors never could make podcasting work, and resorted to audiocassette distribution; the argument is that the inventor merely invented the “idea” of podcasting.

This type of attack on the patent falls under a few different legal rules: written description (claiming more than the inventor actually invented), enablement (claiming more than the inventor actually taught), and functional claiming (claiming the function divorced from the way it was implemented). Further, in Life After Bilski we argue that an idea that is so broad that it is unmoored from any specific application might be an unpatentable abstract idea.

I don’t know where the podcasting patent stands, but my first read of it makes me think it’s pretty broad.

3. My favorite part of the show was the story about how Crawford obtained the patent. While the ending is not so great (invalidity due to non-joinder of inventor), the story itself is one that is rarely told in today’s patent bashing news cycle.  It turns out that Crawford and friends came up with the idea for online backup with passwords back in 1991, as part of a failed business venture to solve a very real problem that consumers faced – an easy way to back up data offsite. The story describes how the friends swapped floppy disks, but remember that 1991 was before writeable CDs, and floppy drives were 1.44MB. The average 20MB hard drive (can you imagine? how did we live like that?) would take many floppy disks.

Thus, they came up with a solution. Was it obvious? I don’t know. The first When Patents Attack show implied as much, but the patent survived whatever challenges the litigants brought on that front. For all the talk about many other patents in the same area, it might just be that those patents were improvements on this pioneering patent. It wouldn’t be the first time, but I don’t really have any idea.

The point I want to make, though, is that this is patent law working exactly as it was supposed to. It was people getting together to solve a problem, coming up with a solution, and attempting to protect it. (Well, there was one hiccup, which is that the inventors didn’t get together and file, apparently – but it was invalidated for that reason. This isn’t the case most of the time.) Indeed, the show confirms a key point that IV has always maintained, that a significant amount of money was paid to the inventor. That money might stimulate further investment in the invention in the future.

But another thing happened that often happens; the inventors were too early. They came up with a solution that wasn’t commercially viable yet. The world of 2400 baud modems where users pay for bandwidth by the minute was simply not ready for the online solution, and the business failed to materialize. Indeed, my own firm tried something similar in 1997 working with a Sparcstation and a client who was a Sun engineer; it was still too slow to use in-house, let alone online. Technology needed to catch up.

This is one reason why we often see patent assertions much later in a patent’s life, especially in software. Many really great software solutions–both in patents and in research–implement ideas nobody ever thought of on equipment that’s just barely ready to handle it. It’s not until years later that the solutions seem obvious because the enabling technology makes it commercially feasible.

The question is, what do we do about this? In other areas of patent law, we tolerate long delays. We would prefer not to have them, of course. Indeed, one side benefit of the current assertion trend is that patentees are getting more savvy about commercializing earlier. For example, Crawford and friends could have approached folks with fast networks and computers – universities – with their solution back in the early 1990s. Maybe today they would have, and might have found some early adopters.

But even if patents are not exploited, other patent areas treat this as a feature of the system; most calls to reform the system to avoid this problem have been to commercialize earlier, not to kill off  the patents (so long as the patent is not hidden for too long). Software patents seem to be different, though. The collective wisdom seems to be less tolerant of this delay for software. I think the reason for this stems from my second point, above. Because software patents can be so broad, the concern is that a single broad patent –even a valid one– can render an entire industry infringers. Furthermore, patents filed in the early 1990s expire seventeen years after grant, not 20 years after filing. This effectively extended their life, perhaps for too long.

I’ll end by saying that I share these concerns about software patents, but I’m not so sure that they are so different from the rest of the patent world. There have been plenty of broad overarching patents in a variety of industries over time. Some had poor outcomes that stunted industries, and some fueled industries. People disagree about the software industry, I think.

These were my primary takeaways. I wish I had a clever solution, but I don’t; the show is worth listening to, however, with an open mind.

Scratching my Head Over the SHIELD Act

I get that many people hate patent trolls. I get that many people would like to find a way to limit NPE activities in enforcing patents. But I’m scratching my head over the rhetoric and content SHIELD Act, which was reintroduced last week. For the uninitiated, the proposal would mandate fee shifting for all losing NPEs. Carved out of this group are initial assignees of a patent (that is, individuals and companies who obtained the patents themselves), universities, and companies that spend “substantial” resources making something. Further, NPEs must post a bond for the fees before they can even get into the courthouse.

I should start by saying that I don’t have a strong position on fee shifting. I think that mutual fee shifting might actually do some good to reduce litigation costs and force more reasonable licensing negotiations. I’m also in favor of all sorts of behavior based fee shifting: filing frivolous cases, demanding license fees that far exceed reasonableness, ridiculous claim construction arguments, frivolous discovery requests, unrealistic damages expert reports, etc. I think the threat of fee shifting is a stick that could be used to tame costs. But note that all of these proposals are based on behavior, not identity.

This leads to my concerns with the SHIELD Act, which leave me scratching my head. As a taste of my further thoughts, I’ll note that the EFFs poster child for the act, a podcasting NPE, is actually excluded from the act, and would not have to pay fees on loss.

Rhetoric

Let’s start with the rhetoric. It seems like few people have actually examined the act in detail, and thus support for it sounds like a propagandistic echo chamber. I joined Twitter only recently, and originally attributed this to the 140 character limit. Get rid of trolls! $29 billion in costs! Meritless patents! However, it turns out that longer discussion also repeats the same claims without much analysis, albeit with more words. Indeed, very few of the reports actually link to the text of the act, which is here, but instead link to each other, all saying the same thing.

I have a problem with this rhetoric for two reasons. First, the facts are way, way more complicated than that (see Kesan & Schwartz, for example, for a critique of the $29 billion estimate, and see the PWC study on patent judgments since 1995 for discussion about how often and how much NPEs and practicing entities win).

Furthermore, there are many types of NPEs out there, from pre-adoption technology houses to the most abusive frivolous claim filers. The SHIELD Act and its proponents consider none of this nuance.

This leads to my real problem with the rhetoric: it is driven by large companies and presented as if it will benefit small companies. If we were so worried about small companies, why wouldn’t we make the act apply to all patent plaintiffs? After all, large companies routinely assert their patents against smaller, disruptive entities in order to stake out market position or even put them out of business. Just compare the Barnes & Noble submission to the FTC about Patent Assertion Entities with the Barnes & Noble complaints about Microsoft’s licensing practices. The complaint is the same, so it is unclear why the solution should not be the same.

I am bothered by any rhetoric purportedly intended to “protect innovation” that does not, well, protect innovation by its own terms. The EFF campaign focus on a patent that would not actually be subject to the act is just one example. And the fact that no one pushing the SHIELD Act—many of whom I respect even though I disagree—is asking these questions makes my knees jerk to oppose it.

Content

My general point of view is that we should address the behavior, not the owner. Yes, it’s bad that an NPE has asserted what many think is a meritless podcasting claim against Adam Corolla. (I won’t address the merits here, but I will note that the initial patent application was filed in 1996, not last year).

But would we really feel better if it were a product company making the same claim? A meritless claim hinders innovation no matter who makes it. That’s about all I will say about the core question of whether NPEs should be required to post a bond just to get into the courthouse. I think they should not—nor should anyone,—even if fee shifting were mutual. But defending that statement is more than I can do in this blog post. I’ve written at least two articles that address the topic and there are a multitude of other studies that address the role of NPEs in licensing as well as the parallels between NPE and product making patentee behavior.

Thus, my questions about the Act relate to the particulars and their unintended consequences. Note that the text of the act has been carefully written to carve out everyone who might object to it, except NPEs. This is the root of the problem, because “patent troll” means different things to different people.

Some points:

1. The act mandates a fee award to any party victorious on noninfringement or invalidity. This means that a company can sue for declaratory relief and force fee shifting, even though the patentee never filed suit. I realize that many people would say, “Great! No more demand letters!” But consider two things. First, there are many, many transactions – millions, if not billions of dollars worth – that are undertaken between technology licensing companies and product companies without the imprimatur of “trollishness.” This provision could disrupt that ecosphere in an effort to fix a different one. Second, this provision could have a perverse effect of multiplying the number of litigations. I don’t believe that patent holders should overclaim in order to seek higher licenses, but I also don’t believe that potential infringers should underclaim in order to force litigation.

2. The act excludes parties that have a “substantial investment” in the exploitation of a patent via production or sale. This is fraught with difficulty. First, what does “substantial” mean? Presumably it is intended to ensnare NPEs that decide to make things, but not make enough (or good enough) things. But why should a court get to decide what is enough? And what do we do about start-ups who have patents but have not yet commercialized their invention? Are they trolls, too?

And what is to stop NPEs from becoming distributors? They could buy competing products wholesale (perhaps products where they have secured licenses) and sell them. This only makes sense; by being resellers, they can claim that the competition of the infringing product is harming their sales business. This points to the general complexity of licensing in the first place: companies might license patents when their opponents do not in order to gain a competitive advantage, even if the patent is old.

3. This exploitation prong leads to other questions. What if a claim construction goes against the patentee, and the patent isn’t quite as broad as the owner thought. This happens all the time, to patentees of all types. Does this mean that the product selling patent holder is no longer exploiting the patent? The language seems to say so, and even the biggest producer would be ensnared.

4. The potential for producers to be liable doesn’t stop there. Consider Palm, which developed WebOS, and made stuff. Consider HP, which has spent billions of dollars in research and development. HP bought Palm, and made WebOS tablets. For various reasons, maybe in part due to patent claims from other tablet makers like Apple, HP decides to stop selling WebOS tablets. HP then decides to enforce Palm’s patents. Mind you, HP didn’t just buy the patents, it bought the company. And then it made stuff, it researched, it developed, and it has even licensed WebOS out to LG try to resurrect it for televisions. Is HP a troll now? It falls under the text of this act. I think that just cannot be right, and yet there it is, in black and white. By the way, HP sold some patents to HTC, who then asserted them against Apple. Soon after, HTC and Apple settled a long running, very costly litigation. Would the SHIELD Act change the dynamic of this dispute? I hope not, my family bought HTC phones.

5. Universities and technology transfer organizations are excluded. This offers a potential way for NPEs to avoid the law. They can become technology transfer organizations for small colleges that cannot afford them, or perhaps coordinate with each other to offer 1 year programs that satisfy the higher education requirements. This latter likelihood is a longshot, I think, but when money is at stake, you never know. This exception also ignores the role of universities in the patent ecosystem; do universities really never assert meritless claims? What happens when they start bringing more lawsuits? Maybe NPEs should team with tech transfer organizations and the tech transfer folks can bring suit instead; it would only take a few large university related intermediaries to make the entire bill fall apart.

6. Excluded are “original assignees,” which are assignees prior to patent issuance that appear on the face of the patent. This leads to two issues. First, what if the assignment is done late, even at a product company? It happens. I suppose they would rely on the “investment” prong, but the company might not be making the patented product.

Second, many NPE patents are assigned to the NPE as the initial assignee. NPEs often buy patents while they are in process and assign continuation applications to themselves; those continuations are often the broadest claims (and thus the least likely to be meritorious as a matter of logic). In other words, the patents we worry about most are the patents that are least likely to fall under the rule. Some of the most highly-litigated, most-litigated patents were originally assigned to the NPE enforcing them now. This brings us to the point I made above, Personal Audio, with its podcasting patent, is initially assigned to….Personal Audio. Sorry folks, this is not the SHIELD you are looking for.

Furthermore, to avoid this issue, NPEs can simply buy shell companies that continue to hold the patents, while the original owner, if still active, can spin off any business to a new entity. I think Acacia does a fair amount of this already, and will surely do more. The more I think about it, the more I think that this rule, intended to protect “real” inventors, will instead render the much of the act toothless.

7. Finally, the original inventor can always sue. This leaves me scratching my head on both ends of the spectrum. On the large company end, I cannot comprehend why fee shifting is a bad thing if BigCo enforces patents, but a good thing if BigCo creates BigCoIPSubsidiary to enforce its patents. Are these two worlds really that different? Perhaps it is to those BigCo supporters of the bill that enforce their own patents. I should add that I’m told, but have not verified, that the tax code rewards companies that spin out their patents. The law gives with one hand and takes away with the other. Perhaps a better solution would be to get rid of the tax benefits, but I won’t hold my breath.

On the small side, I see the SHIELD Act as changing the way NPEs enforce patents. Original inventors aren’t covered, so perhaps the original inventor should be a nominal plaintiff and just get funded by the NPE. That’s a great incentive at a time when people are clamoring for more transparency in the system.

One more point: Individuals are a primary source of NPE patents. Small businesses have always held their own as patent plaintiffs in the system and continue to do so. But the number of patents represented by individual inventors is double with NPE participation. It’s easy to see why: it costs a lot to enforce a patent, or even to license it, and NPEs have skill and finances that individuals lack.

And so when we discuss the SHIELD Act, we should be crystal clear about what we are talking about: a system that favors big companies over individuals. I’m not making a value statement; there may be good reasons why we want fewer patents by individuals enforced. For example, individuals invent a lot of software, and a lot of software patents are really bad. But are individual software patents worse than everyone else’s? I’ve read thousands of software patents, and my belief is that big companies can write crappy patents just like everyone else. My point is that we should be truthful about what is at stake, what the impacts will be, and whether those are the results we want. Then, given that truth, we should look at some evidence to decide what to do.

Update
A comment below notes that the podcasting patent might indeed fall under SHIELD because it was assigned by a family trust of one of the inventors instead of the inventor. This highlights another problem with the bill that I hadn’t even thought about. I noted issues with purchases of companies above.

But if we also say that a wholly owned and controlled intermediary cannot assign the patent on behalf of the original inventor, then SHIELD has the potential to throw a wrench into the works of corporate financing and restructuring. Every day of the week, companies reform through mergers or financing, often creating “NewCo” shell companies that will serve as intermediate owners of assets or will take on new names post financing. I have known lawyers who have such companies already formed so they can use them on a moments notice.

If we say that the intermediary trust excludes the next assignee from being the “original inventor,” then many restructured startup, merged, and financed companies may be in for a rude surprise when the attempt to enforce their patent portfolios. Now, if you dislike patents generally, this realization would lead to rejoicing. I doubt that’s how this act was intended, though.

Update 2
Colleen Chien has a helpful post on NPE litigation activity at Patently-O. The post notes two interesting points related to this post:
1. It confirms that individual plaintiff cases have descreased significantly as NPE cases have risen. This stands to reason NPEs are better at enforcing patents than individuals. But it also means that we always had individual patentee type patent litigation, and NPEs will figure out a way to go there again if they have to.

2. It argues that the SHIELD Act will be helpful because 9 out of the top 10 “high impact” trolls would fall under it. My response, assuming that this definition of high impact is accurate, is that:
a) These may be high impact today, but don’t know what tomorrow will bring. The high impact NPEs of today were not the most litigious of just 2 or 3 years ago. In the future, these patents will be assigned in a way that keeps them with their original owner.
b) The high impact NPEs are the ones that will be least deterred by the act. They are high impact because they have been adjudged valid multiple times, there is little prior art, and many seemingly infringe. They will have the funds and the motivation to post bonds and keep going, collecting winnings and settlements down the way.
c) I scratch my head even more at the scattershot approach of this act. Highly overinclusive, underinclusive, and really just targeted at a few high impact patents that happen to have been purchased in a particular way — a way that is used by many legitimate businesses. It feels like there’s got to be a better way.

Bloomberg Businessweek Editorial Calls for Reduction of IP Laws

Yesterday, Bloomberg Businessweek published a piece by Charles Kenny calling for the reduction of IP, particularly patent. An interesting component of Kenny’s argument is that patent is now a drag on GDP, and that trimming patent protection would raise GDP and – by extension – help raise tax revenue to solve the deficit problem. It’s an interesting argument, though I doubt it will get much traction in the present political environment. For better or worse (probably worse), we’re in times where more IP is seen as pro-business and pro-job, even if growing numbers of business executives are reaching the opposite conclusion.