The Legal Intelligencer Blog

NPE: The Scarlet Letters of Patent Ownership

By Anthony S. Volpe
Special to the Legal

The continuing outrage against patent owners deemed nonpracticing entities (NPEs, aka trolls) appears to be part of our schizophrenia over wanting an economy dominated by creative business types and hating the creative business models that foster that domination. It now appears that there are further factures in what should be deemed a bad NPE and what should be considered a good NPE. In a recent congressional hearing, there were distinctions made among patent owners that just buy patents, patents owners that may have done research for some patents and may buy other patents and university research that produces patents that are commercialized by technology transfer departments.

This same division over what should be done with patent portfolios finds its way into many commercial situations. Consider the growing swell of criticism for Kodak’s failure to monetize its patent portfolio before going into bankruptcy. If Kodak had exploited its patent portfolio against commercial entities making products that were not produced by Kodak, would it have been an NPE for those assertions or a creative company that found a way to monetize its patent portfolio and recapture some of its investment in research? Some argue that Kodak and its assertion targets were not competitors, so Kodak, in those circumstances, is acting as an NPE. Others argue that even if Kodak and its assertion targets were not competitors, Kodak has an obligation to shareholders to return value on the money spent on research, regardless of whether it makes an actual product that incorporates the patented technology. Others argue that Kodak is still an NPE because it does not fit the university model of pure research for the educational value of the work, and it cannot hide behind its commercial research efforts. Similar situations present themselves when Google buys Motorola Mobility patents or the Rockstar consortium – Apple, Microsoft, Rim, Ericsson and Sony – buys the Nortel patents.

Many of the same entities that complained about NPEs are now in the same category if the classification for the category is based on the patent owner not producing the product covered by the patent or patents. See the Rockstar website. What all of this really means is that the term is poorly defined and the definition depends on which side you are at a given time.

What seems to be lost in the debate is the fact that patents are property that was developed at a cost to someone. The availability of a market for that someone to recover that cost or even profit is what drives the research in many of the smaller entities that cannot sustain large research budgets. As for companies like Kodak, it is the very availability of the aftermarket for patent portfolios that gives shareholders the best hope of some recovery and, at the same time, causes shareholders to wonder why such a valued asset was not monetized before the company went into bankruptcy.

Anthony S. Volpe, a shareholder at Volpe & Koenig, has corporate and private practice experience in securing, licensing and enforcing all aspects of intellectual property rights. His patent work includes appeals before the USPTO Board of Patent Appeals and interferences and international trade commission, prosecution of patent applications, rendering opinions regarding patentability and enforcement of patent rights.

Can the America Invents Act Deliver on Its Promise?

By Anthony S. Volpe
Special to the Legal

The initial driver for the America Invents Act was to create a stimulus for the American knowledge industry, create jobs and reaffirm American leadership in technology. The Judiciary Committee described the AIA purpose as follows:

Background on H.R. 1249, the America Invents Act: On September 16, President Obama signed into law the Leahy-Smith America Invents Act (H.R. 1249), a bipartisan, bicameral bill that updates our patent system to encourage innovation, job creation and economic growth. Both Houses of Congress overwhelmingly supported the proposal, which was sponsored by House Judiciary Committee Chairman Lamar Smith (R-Texas). The House of Representatives passed H.R. 1249 by a vote of 304-117 earlier this year. The Senate passed the bill by a vote of 89-9. Senator Patrick Leahy (D-Vermont) partnered with Chairman Smith on the legislation. Congressman Smith led the House efforts on patent reform for more than six years.

Much-needed reforms to our patent system are long overdue. The last major patent re-form was nearly 60 years ago. Since then, U.S. innovators have developed cell phones and launched the Internet. And yet the laws protecting the technologies of today are stuck in the past.

Our outdated patent system has been a barrier to innovation, unnecessarily delaying American inventors from marketing new products and creating jobs for American workers. It takes over three years to get a patent approved in the U.S. American innovators are forced to wait years before they can hire workers and market their inventions. Meanwhile, our competitors are busy developing new products that expand their businesses and grow their economies. This year, for the first time, China is expected to become the world’s number one patent publisher, surpassing the U.S. and Japan in the total and basic number of patents. We cannot expect America’s innovators and job creators to keep pace with the global marketplace with the patent system of the past. We need a system that ensures patent certainty, approves good patents quickly and weeds out bad patents effectively.

The Leahy-Smith America Invents Act is one of the most significant job creation bills enacted by Congress this year. The Act implements a first-inventor-to-file standard for patent approval, creates a post-grant review system to weed out bad patents, and helps the Patent and Trademark Office (PTO) address the backlog of patent applications. The enactment of H.R. 1249 is a victory for America’s innovators and job creators who rely on our patent system to develop new products and grow their businesses. The America Invents Act brings our patent system into the 21st century, reducing frivolous litigation while creating a more efficient process for the approval of patents. These reforms will help the innovators and job creators of today launch the products and businesses of tomorrow.

Congress acted on this legislation under the premise that our patent system was the cause of the lagging U.S economy. Now, the United States Patent and Trademark Office is dealing with the task of establishing regulations and practices to implement the new law. Considering the time it will take for the USPTO to establish them and the time for industry and the legal profession to sort them out and create a working environment, there remain real questions about whether the AIA can or will do anything to improve job creation or economic growth.

In the fight leading up to passage of the AIA, the warring sides were largely made up of multinational companies fighting over what provisions were best for them. There was little to truly address the domestic issues of job creation or economic growth.

Consider the following: The USPTO has an impressive display of many patents issued to Apple’s Steve Jobs – an impressive display that reflects brilliance, if not genius. However, the truth is Apple is not an engine of economic growth or the creator of jobs that are needed domestically. While Apple’s stock price tops $500 and it becomes the most valuable enterprise, its products are made in China and very few, if any, of the lower tech manufacturing jobs needed for domestic growth are available in this country.

Apple cannot be faulted for following the business model that the market demands. However, it is but one example of why patents are not and are not likely to be the engines Congress hopes for. Moreover, the number of U.S. patents granted to foreign nationals is increasing quickly. An effort to reverse that trend will require long-term rather that short-term fixes and lofty goals in the Congressional Record. Ultimately, the task of creating jobs will fall to the educational systems that train the next generations and governmental policies that encourage domestic investment over short-term returns.

Anthony S. Volpe, a shareholder at Volpe & Koenig, has corporate and private practice experience in securing, licensing and enforcing all aspects of intellectual property rights. His patent work includes appeals before the USPTO Board of Patent Appeals and interferences and international trade commission, prosecution of patent applications, rendering opinions regarding patentability and enforcement of patent rights.

Is the Constitution the Roadblock to Meaningful Patent Reform?

By Anthony S. Volpe
Special to the Legal

The issue of patent reform and the enforcement of the rights afforded by patents has been making headlines. The make-up of the forces lining up on opposite sides of the issue are not predictable. But, predictably, each side is attacking the other for its self-serving view of how the reform should proceed. With this fight in mind, is it possible that the Constitution has built into its genius the very root of the problem?

The Constitution is clear: Congress has the power under Article 1, Section 8  “To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writing and Discoveries.” Since there is no further definition of how this is to be achieved, it is left to the legislative process to provide the statutory framework to accomplish this mandate.

If it stopped at that point, getting the statutory framework in place may not be a problem. However, there is the not-so-small matter of the first 10 amendments to the Constitution, commonly known as the "Bill of Rights," which was required to gain passage of the document. The First Amendment is a prohibition against government power that states, "Congress shall make no law … abridging the freedom of speech or the press, or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances." So, as the nation goes forth, the people get to weigh in on how the Congress should do its job.

As expected, individuals, companies, PACs, lobbyists, trade organizations and the like have chosen sides and there is a virtual First Amendment war of words over the alleged reforms. Each side is sure the other side's view will spell the end of American innovation. Each plainly ignores the fact that more U.S. patents now issue to foreign inventors than U.S. inventors, and many patents with U.S. corporate inventors are assigned to foreign parent companies. 

Many will point to the fact that the U.S. Patent and Trademark Office recently issued Patent Number 8,000,000 as proof that the current system is working. While the system is working in the sense that the PTO is doing its job, that is only one element of the whole patent system. The validity and enforceability of the patent is as critical as the issuance. In the present environment, there is huge uncertainty over issues as basic as what is patentable and how patents will be construed in the courts. The need for certainty in the patent world is critical. Everyone is reluctant to invest in innovation when the rewards are uncertain and the rules shift with the political winds.

Since the recent debt ceiling debate confirmed that the members of Congress will line upon the side of the First Amendment money that funds their campaigns, I predict that we will not get patent reform in a reasoned fashion. Instead, we will get the usual First Amendment blend of compromises that does little to add to the needed certainty.

Anthony S. Volpe is a founding partner of Volpe & Koenig. He can be reached at [email protected].

A Sliver of a Silver Lining for Microsoft

By Joshua Wolson
Special to the Legal

The U.S. Supreme Court's decision last week in Microsoft v. i4i appears, at least at first blush, to be a complete loss for Microsoft. Microsoft argued that a defendant in a patent infringement action should have to prove patent invalidity by a preponderance of the evidence. The Supreme Court disagreed and held that federal law requires proof by clear and convincing evidence. Microsoft argued that even if the general rule requires clear and convincing evidence, the rule should be modified if the evidence rendering the patent invalid was not before the Patent and Trademark Office when the patent was granted initially. The Supreme Court disagreed and held that the clear and convincing standard still applies.  And the court affirmed a jury verdict against Microsoft.

So, yes, Microsoft lost, and the court's 8-0 vote wasn't even close. 

At first glance, the decision seems to indicate the court's hostility to invalidity challenges (or at least reaffirms just how difficult it is to succeed on an invalidity challenge). But there is in the court's opinion a small silver lining for Microsoft and other infringement defendants that might just keep the ruling from being a total disaster.

The court, in rejecting Microsoft's argument that a lower standard applies in cases where the evidence of invalidity presented in court was never before the PTO, said, "Simply put, if the PTO did not have all material facts before it, its considered judgment may lose significant force."

Translation (or at least the translation that Microsoft and other defendants should cling to): The standard of proof is the same -- clear and convincing evidence -- but the import of finding evidence that was not before the PTO is arguably more important than it was before. In fact, in some cases, such evidence, on its own, might be the clear and convincing evidence needed to prove a patent invalid. 

It remains to be seen, of course, what effect the court's decision will have on future invalidity arguments. Microsoft itself was able to show at the trial against i4i that some information was not before the patent examiner in the case. That, however, did not sway any of the courts that heard the case, including the Supreme Court. Even faced with such evidence, each court held that Microsoft had not proven that the information in question would or should have changed the examiner's decision.

Nonetheless, future infringement defendants would be wise to be mindful of the court's ruling and scour the universe for evidence outside of the PTO's files for evidence that an examiner was unaware of something relevant. Thus, the court's opinion has given Microsoft and other defendants a roadmap to an invalidity challenge, and with that, a small glimmer of hope.

At least, that's what Microsoft will have to tell itself to make the ruling sting a little less.

Joshua D. Wolson is a partner in the litigation department at Dilworth Paxson. He can be reached at 215-575-7295 or [email protected].