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08.03.17

High Cost of Erroneous Patent Grants

Posted in America, Europe, Patents at 2:26 am by Dr. Roy Schestowitz

Patents granted in the absence of economic rationale/basis can be a heavy burden on society

On patent externality

Summary: An in-depth look, courtesy of the Computer and Communications Industry Association, into the cost of invalid patents being granted, then used extrajudicially against small companies that cannot afford a challenge or have little financial incentive to do so

THE migration/emergence of patent trolls to/in Europe is real. We have pointed this out many times (I also heard stories like that, e.g. over the telephone). It will never make it into the press because extortion rackets rely on silence; a lot of this is due to reckless patent offices that grant bogus patents, not realising how much pain these patents may cause to many people. Battistelli's latest lies and distraction from decreased patent quality symbolises the sort of sycophancy which endangers the EPO.

But this post is not about the EPO. It’a actually about this long new article from the CCIA (Computer and Communications Industry Association) and it focuses on the USPTO, whose low-quality patent grants cost the American economy a lot of money. Here are some portions from this article:

The Cost Of Bad Patents: It’s Not Just The Lawsuit

The cost of bad patents is not just the cost of lawsuits.

This may seem obvious, but apparently it isn’t. I’ve recently noticed a trend from the anti-reform lobby: someone testifies in front of Congress about patent reform, they complain that “they’ve only been sued once or twice, why are they being asked to testify, what would they know?” They base their dismissal of the witnesses’ experience purely on the number of times that they’ve been sued. If you haven’t been sued enough times, in the mind of the anti-reform lobby, then you don’t know anything.

But any patent attorney with any experience knows that just isn’t true.

Most Assertion Activity Doesn’t Show Up In Court

At the DOJ/FTC hearing on Patent Assertion Entities back in 2012, Colleen Chien provided two estimates of the number of times a company will see a demand based on a patent compared to the number of times they see a lawsuit. A general estimate, provided by a sell-side patent broker (i.e., someone who sells patents for a living) is that there are between 25 and 50 patent demands made for each lawsuit actually filed. Another, based on the behavior of a real NPE, noted that the NPE sent out more than 8,000 demand letters, but only filed 26 lawsuits. That’s 307 demand letters for each filed lawsuit.

These demand letters are essentially invisible—they don’t show up in court and companies rarely publicize them. In other words, there’s a lot more than just lawsuits. You can face trolls any number of times without ever actually having a suit filed against you.

And it’ll cost you a meaningful amount of money every single time.

[...]

Even if you’re successful in convincing the other side that they don’t have a case, you’re still out the money and the time. You’ve still paid for the privilege of not having a lawsuit filed against you, and you’ve still learned about how trolls (and the Eastern District of Texas) operate.

None of which will ever show up in a lawsuit—or in the news.

The above mentions, notably, Conversant (MOSAID), which is particularly malicious. It pays IAM and receives puff pieces from IAM, but in reality it’s a litigation machine lubricated in part by Microsoft and Nokia.

We must always remember that for each lawsuit we publicly see/hear about there may be lots of shakedowns (in the above example, there’s one lawsuit per 307 demand letters). It’s good for the patent microcosm, which wants to then jump to the ‘rescue’ (from the mess it contributed to). Problem-solution business model.

Here is an article from yesterday that’s titled “What to do if you’re accused of patent infringement”; law firms keep selling their services (Katherine A. Hamer and Nathan E. Whitlock in this case) and for each of these demand letters they can make a lot of money at both ends (accuser/sender and accused/recipient). The patent microcosm makes money not just from the party suing/threatening but also the recipient of the threats/defendant. It’s obscene.

In the US, being merely accused of patent infringement can cost one dearly (anyone can accuse anyone else and it’s now done extensively by copyright trolls too). It’s a ruinous thing and it should not be tolerated. As the promotional article from yesterday puts it:

Just as you are looking forward to the weekend, you receive a cease-and-desist letter accusing your company of patent infringement. Or, worse, you receive a summons and complaint. You have been sued. There goes the weekend.

As CEO, CTO or in-house lawyer, you may have only cursory experience with patents. It never occurred to you that what you sell could have been patented by others. And, until now, you had never heard of the company that owns the patent. What do you do?

Basically, pay some law firm. That’s the advice of law firms. And as CCIA points out, the whole thing can end up costing thousands of dollars if not tens of thousands of dollars even without it reaching a court.

Patent grants come at a high cost — a societal and collective cost. Patent offices and examiners hopefully realise the nature of this externality.

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