"Who's that tripping over my bridge?"
Thus spake the troll in the famous children's tale "The Three Billy Goats Gruff." Miffed that the goats were encroaching on his property, the troll threatened to gobble them up. But the trolls' adversaries had the last laugh. In the original (unsanitized) version of the tale, the largest of the three goats "flew at the troll, and poked his eyes out with his horns, and crushed him to bits, body and bones." (Try reading that to your three-year-old.)
Nowadays, many large companies, academics, and economists fear the presence of a new kind of "patent troll." The contemporary counterpart to the fairy-tale beast is generally described as an individual or entity owning a patent to a certain technology but not "practicing" it, i.e. not manufacturing products related to the technology.
The would-be goats disdain what they describe as the troll's restatement of his gripe: "Who's that infringing my patent?" For his part, the troll simply wants to defend his own property against trespassers and isn't afraid to do so by suing the goats for hundreds of millions of dollars. But, frustrated by the troll's costly and intimidating demeanor, the goats have been plotting a vengeful dismemberment. For months the skirmish has been splashed across the pages of business, scientific, and legal publications ranging from the Wall Street Journal to American Airlines' in-flight magazine.
But before engaging the gory details, it's first necessary to explain the controversy and how it fits into the current discussion of patent reform.
In the first installment of this series, I described the crucial need to fully fund the Patent and Trademark Office in order to ensure that patent applications are reviewed with sufficient scrutiny, thereby enhancing the quality of patents allowed to issue. This is a relatively uncontroversial suggestion but, as we shall see, it underpins far more tendentious debates.
One such debate concerns the fundamental role and obligations of a patent-holder -- and the nature of the rights bestowed upon her when her patent issues. Since the ratification of the Constitution -- which authorizes Congress "to promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries" -- the patent laws have consistently required nothing of an inventor seeking a patent other than the full and complete disclosure of her invention.
In exchange for such disclosure, the inventor is entitled for a "limited time" -- currently 20 years from the date the application was filed -- to exclude others from practicing the patent. However, at no time in U.S. history have patentees been obliged to practice the patent. It is more or less a purely negative right.
The laws of intellectual property are sometimes too often analogized to those concerning real property. But in this instance, the analogy is apt: just as a landowner may prevent others from trespassing on the acreage to which he holds title, but need not do anything productive with his land, so too does a patent empower its owner to exclude use of her invention while not requiring her to make use of it.
The current controversy over trolls springs from this fundamental feature of our patent system. A single inventor not practicing her patent at all may nevertheless assert it against a major multinational corporation whose products she accuses of infringement. This is more or less what happened in the now-infamous BlackBerry case where NTP, a patent-holding company with no products or services to its name, won a $612 million settlement from RIM, the popular handheld's manufacturer.
The wrangling over the damages caused by the infringement is where the rubber meets the road: a damages dispute in a typical patent cases usually involves a hotly contested "battle of the experts" where each party's hired-gun consultant bestows upon the jury hundred-page reports and testimony concerning fifteen factors relevant to damages (a good summary is here). Several of these factors concern the patentee's use of the invention; simply put, the more significant the inventor's exercise of her patent, the greater the damages will be.
Yet besides jury-awarded damages, judges also consider whether to enter an injunction preventing the infringer from selling or manufacturing the accused product or service. And "consider" may be too strong of a word: under current precedent, the award of an injunction is nearly automatic. With some notable exceptions, courts almost always enter injunctions once infringement is found, regardless of whether the patentee practices her invention.
When it comes to patents, injunctions are no small matter. In fact, in many if not most instances they are more significant than damages since they often involve shutting down the defendant's core business. For example, the BlackBerry jury awarded NTP $23.1 million but because the judge entered an injunction, the parties ultimately settled for 25 times that amount.
It is precisely the nature of these injunctions that has the "goats" ready to disembowel the "trolls." Why, many large companies argue, should an individual or a small company not even using its invention be entitled to an injunction that permits them to hold a major company hostage for a princely ransom? Worse, the patent sometimes covers a tiny, insignificant piece of the accused product but the injunction covers the entire product. Why then, the goats wonder, should our system protect parties who contribute nothing to the economy but instead lie in wait for others to strike it big?
To redress this injustice, the anti-troll forces have proposed a judicial and legislative rejiggering of the patent system that would prevent "unworthy" entities from reaping the benefits of an injunction. This group includes the unlikely bedfellows of Yahoo!, IBM, Intel, Microsoft, Oracle, RIM, Lawrence Lessig's Electronic Frontier Foundation, and dozens of law professors including TCS's own Glenn Reynolds. Troll backers include the pharmaceutical and biotech industries, several law and economics professors, and giants like GE, Procter & Gamble, 3M, Du Pont, and Johnson and Johnson.
The goats' first proposal is quite simply to insert a greater amount of discretion into the judge's determination of whether an injunction is appropriate. Such judicial freedom would presumably diminish the number of injunctions entered.
While on the surface, this seems appealing, in reality it would yield far more uncertainty than currently exists; analyzing the appropriateness of an injunction on a case-by-case basis with only vague guidance will undermine the predictability that undergirds the patent system. And if anything, if ever there were a time to presumptively grant injunctive relief, it's precisely when a jury has already found a patent to be valid and infringed.
Instead, the categories of exceptions that generally short-circuit an injunction -- to protect public health, to promote national security, and in cases of "laches" (i.e. where the patentee waited too long before bringing suit) -- offer a superior (although not perfect) balance between discretion and certainty.
The second major caprine suggestion is to make injunctive relief unavailable to any entity not practicing its patent. This reform, say the goats, would rectify the currently inequitable, imbalanced situation in which the troll can mug a large, commercially successful company.
But it raises more concerns than it answers. What does it mean to "practice a patent"? Does a company have to actually manufacture the product itself? What if it licenses the patent to a manufacturer? And if that's alright, what if the factory is located overseas? If the goats mean to exclude corporations that develop technology but farm out production to others through licensing schemes, this could spell trouble for major companies like Qualcomm (which asserts that "the value of property should not depend on legal rules that are different for different owners.").
And what about large companies that do make products but that hold -- and assert -- patents in areas in which they do not (yet) produce anything? Even major corporations have been known to threaten others with patents unrelated to their core competencies.
Moreover, what about inventors or entities that try unsuccessfully to market or license their patents? Should their failures be held against them? And if not, what constitutes a sufficient attempt to practice a patent? A single unanswered phone call to a big company's customer service department? Unfortunately, the goats leave these questions unanswered.
In short, trolls may be mean and ugly but goats are stubborn and strong. Is it possible, then, to restore peace and balance to this real-world fairytale? I believe so. The next installment of this series will point toward some corrective options.
Michael M. Rosen, TCS Daily's IP columnist, practices intellectual property law in San Diego.