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05.01.16

The US Patent System: Where One Wastes Years in Court and Spends $8,000,000 in Lawyers’ Fees Fighting a Bogus Patent

Posted in America, Patents at 5:24 am by Dr. Roy Schestowitz

The US patent office has essentially externalised the costs to the public

Alice road

Summary: A roundup of news about software patents in the US and what they have led to, owing in part to the USPTO’s declining patent quality (leaving others to clean up its mess)

THE ridiculously low standards of the USPTO come at a huge cost, albeit this cost is considered an externality by this greedy patent office. Unless this mess is sorted out soon, the US might have nothing left but large multinational corporations with tens of thousands of patents each, as opposed to agile startups with none.

Elliot Harmon says that this one particular software patent, which can possibly be demolished quite easily using Alice, has been used in the Eastern District of Texas and it’s the “Stupid Patent of the Month” (as per the series of the EFF). To quote:

This month, a company called Voice2Text Innovations filed patent infringement lawsuits against two voice over Internet protocol (VoIP) services, Phone.com and Vitelity. Voice2Text has no website or any other information online; its sole asset appears to be US Patent No. 8,914,003—unsurprisingly, a patent on using voice recognition to convert a voicemail into a text message. Equally unsurprisingly, it’s filed those suits in the Eastern District of Texas, whose patent-troll-friendly practices we’ve thoroughly documented on this blog. The Voice2Text patent is so absurd that we had to honor it with our Stupid Patent of the Month award.

“Unless this mess is sorted out soon, the US might have nothing left but large multinational corporations with tens of thousands of patents each, as opposed to agile startups with none.”In order to destroy such a patent one might need to spend quite a lot of money rather than settle. Consider this new story titled “Court Orders Plaintiff to Pay Defendants’ $8 Million in Attorney’s Fees in Patent Row”. That’s a lot of money; patent lawyers grossly overcharge and the system plays in their favour by inducing additional costs at many levels (e.g. appeals), thus favouring those with bigger budgets or deeper pockets, leaving small players vastly more vulnerable. To quote the concluding words: “This case illustrates that the courts will take strong action when faced with baseless claims, hidden or altered evidence, and misleading statements made to the court or opponents. It also serves as a strong reminder to consider your counsel carefully, and the advice that they provide, or a plaintiff may have to pay its own fees and those of the defendant, which in this case amounted to another $8 million.”

This case may be the exception rather than the norm, but judging by NewEgg’s decision to stand up to trolls, it often costs literally millions and there is no guarantee of the plaintiff — upon loss — bearing the cost of the defendant’s (victim’s) legal bills. NewEgg actually made history by managing to compel a patent troll to pay its victim’s legal fees some months ago, owing to an unusual decision by the judge.

“NewEgg actually made history by managing to compel a patent troll to pay its victim’s legal fees some months ago, owing to an unusual decision by the judge.”Patently-O has just recommended Lynda J. Oswald’s relatively new paper which criticises the term “strict liability” and whose abstract says: “In 1995, the Federal Circuit summarily attached the label of “strict liability” to direct patent infringement, even though that term does not appear in any U.S. Patent Act of the past two centuries. The catechism of “strict” direct patent infringement liability is now so well-engrained in patent doctrine that it is easy to lose sight of how recent the advent of this terminology is in the case law, and how troublesome application of this standard has proven, even to the Federal Circuit, which created it. The first patent act (1790) preceded the emergence of tort law as a distinct field of U.S. common law (mid-1800s) by a half-century or more, and the products liability explosion of the mid-twentieth century radically altered our understanding of strict liability. The implications of this forgotten timeline are profound. “Strict liability,” particularly in its modern formulation, is not a neutral, descriptive term. Rather, the term evokes social policy choices and balancing considerations that may be appropriate within the case law context of products liability or abnormally dangerous activities, but which are incongruous and inapposite in the statutory context of patent law. Deeming direct patent infringement to be a strict liability leads to two unanticipated and unwelcome effects. First, the adoption of the “strict liability” label for direct patent infringement liability improperly inflates the courts’ role in setting direct patent infringement liability standards and suggests — incorrectly — that patent liability is a case law construct, when in fact it is a statutory construct. Second, the “strict liability” label improperly shifts the focus of the patent infringement inquiry from the Patent Act’s protection of the plaintiff’s exclusive property interest in its patent right toward a value-laden examination of the social utility of the defendant’s conduct vis-à-vis the injury to the patent holder. Jettisoning the “strict liability” label for direct patent infringement would reframe the analysis and debate, moving direct patent infringement liability out of a policy framework and back toward its proper statutory setting.”

“PTAB is increasingly being used to correct the USPTO’s errors, but why not dig deep into the root of the problem and simply tackle the USPTO’s unrestrained greed?”What’s worth noting here is that a lot of the risk has been passed to defendants, not to plaintiffs, who often rely on poor quality examination by the USPTO (resulting in the grant of bogus patents). PTAB is increasingly being used to correct the USPTO’s errors, but why not dig deep into the root of the problem and simply tackle the USPTO’s unrestrained greed?

CAFC won’t be coming to one’s rescue after PTAB, according to one example just put forth by Patently-O. To quote Patently-O: “The Federal Circuit has denied en banc review of decisions in four inter partes review proceedings brought by Gnosis. Federal Circuit had previously affirmed the Patent Trial and Appeal Board’s IPR determination that the challenged Merck and SAMSF patent claims were invalid as obvious.”

The relevance of this was ever more apparent when Bass gamed the value of companies by invalidating key patents — a move which IAM now conflates with patent trolls by comparing Bass to trolls. Spangenberg is a patent troll, Bass invalidates patents. They have a very different modus operandi, but as IAM put it, the connection lies within a team-up: “Since teaming up with former IPNav CEO Erich Spangenberg to launch their first US inter partes review (IPR) in February last year – challenging a pharmaceutical dosage-related patent owned by Acorda Therapeutics – Kyle Bass has become one of the IP business world’s highest-profile players. Whether he should primarily be seen as antagonist, protagonist or the antihero somewhere in-between depends on your point of view. What is certain is that the validity actions being pursued by him and Spangenberg through their Coalition for Affordable Drugs – targeting patents belonging to pharmaceutical ‘originator’ companies – rocked the post-America Invents IP landscape.”

“The USPTO’s poor quality — a trap which the EPO growingly falls into — helps trolls, strategic predatory investors/hedge funds, and monopolists which do a disservice to innovation.”What is worth noting here is that if the patents invalidated upon request by Bass were not granted by the USPTO in the first place, none of this would have happened. The USPTO’s poor quality — a trap which the EPO growingly falls into — helps trolls, strategic predatory investors/hedge funds, and monopolists which do a disservice to innovation. Watch IBM’s patent chief having the audacity this weekend to complain about the system which David Kappos from IBM made worse (in IBM’s favour; IBM pays him now for lobbying), furthermore complaining about a system outside his own country (Australia) because it attempts to improve patent quality, as we noted yesterday.

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