Our article on Patent Ogres appeared in the IAM Magazine

In a debate about patent reform that is all too one sided, our article on Patent Ogres attempts to bring a balance to the discussion. If you think you know about patent trolls but never heard of Patent Ogres, then read it here: http://www.iam-magazine.com/blog/Detail.aspx?g=dba41734-acfa-4759-93fc-26fcb2c0b98a

The original article is below:

Who Is Uglier? Patent Trolls or Patent Ogres?

Unless you live under a rock in a far away land, or have been locked up in a cabin in Montana for the last number of years, you know what a ‘patent troll’ is. A troll acquires patents to assert them against companies making or selling products that may infringe those patents. What makes patent trolls so ugly is that the patent infringement cases they bring are often based on a questionable read of patent claims, and that they count on the fact that it is often easier and cheaper for companies to settle those cases rather than fight them in court. Patent trolls are the equivalents of ambulance chasers of the intellectual property world.

As an inventor of nearly 200 issued US patents, as a tech entrepreneur, and as an IP strategist, I propose to you that there is another type of creature that inhabit the intellectual property world that is just as ugly and just as objectionable. They are the patent ogres!

A patent ogre is a large company that has a significant market position in a product or service category and protects its economic interest by suppressing, bullying, and simply grinding into the ground the smaller innovative competitors that have patented technologies. Faced with a small innovator with patents that potentially read on the ogre’s products or services, the patent ogre may refuse to communicate with the patent owner, may refuse to license the technology at market rates, force the inventors into lengthy legal proceedings beyond their financial abilities, create publicity campaigns to label the inventors as trolls, and drag them through endless legal maneuvers until they run out of money, patience, or time, and go away. Then the patent ogre continues to drive economic benefit from the technology that someone else invented or perfected.

There was a time in the history of American inventions that individual inventors made very notable contributions to the social good. That’s when it was possible for two bicycle mechanics to go into a barn and build an airplane. Nowadays, how many engineers and how big a team do you think you would need to build the next Dreamliner? Clearly, inventions have steadily moved to the domain of larger companies simply because technology has become more complex and research requires larger financial commitments. Today only about 10% of all US patents are filed by individual inventors. Based on that, you may be inclined to think that we should support the large companies and large financiers and let them innovate – small inventors are less relevant anyways. But you would be very wrong.

There are two changes that happened over the past decade that make small inventors more and more important and affirm their status as true drivers of economic progress. One such change is that there is a huge innovation frontier that opened up in the Internet, SaaS, cloud computing, security, advertising technology, e-commerce, social networking, media delivery, e-commerce, and countless other areas that are advanced every day by small startups. This has become possible because a lot of these innovations are software based, or bring together specialized software with general purpose hardware. They can be brought to life with smaller teams using improved software development tools and modular code. Entrepreneurs of the software age are also the users of the technology that they develop, and therefore can assess needs and demands quickly. Confluence of all these changes made it possible for a handful of creative and hungry innovators to create Pinterest, Facebook, Uber, Google, and you name it. In their core, their products are software based intellectual property.

The second change that happened that pushes the innovative momentum towards small inventors is the introduction and proliferation of cloud computing. You do not have to build million dollar data centers to be able to build a prototype and test your inventions. You can now do that at a reasonable cost. This all means more creative people are able to create and test more ideas, and do that faster. Combine all of that with the exponentially faster spread of information today compared to twenty years ago, small startups are changing the way we live, communicate, and work. Of course high-end bio, pharma, nano-tech, and semiconductor research will always require large NRE investment and it will remain in the monopoly of larger research teams with healthy funding. But for just about everything else, there is a new front in innovation that is expanding.

Therefore, small inventors are even more important today than they have been in any recent memory. It is therefore imperative that we preserve and strengthen the intellectual property laws that protect small inventors. It is also imperative that while attempting to fix the patent troll problem we don’t undercut small innovators and give a free pass to patent ogres.

A huge reason why patent trolls exist is because patent ogres exist.

As a small inventor, especially in the IT, software, Internet, advertising technology, e-commerce, online media, and related industries, you will see larger companies take your ideas and incorporate them into their product lines. One fact about software based intellectual property is that it is difficult to conceive but relatively fast to develop if you have access to large groups of developers. Once a large competitor sees your product online, in a trade show, or in a publication, they can duplicate it more easily than say another bicycle mechanic duplicating the flight at Kitty Hawk. It may even be the case that you tell a larger player about your invention in good faith while trying to forge a relationship. Sometimes the larger competitor may get into a partnership with you, pay you for your inventions, or somehow compensate you. But what’s their incentive for them to do that? Not much. If you are dealing with a patent ogre, they will take your intellectual property and build their own product around it, and just step on you on their way to poaching yet another inventor.

A small inventor then has no option but to go to a patent assertion entity, a patent troll, to attempt to get compensated for their intellectual property. See the irony? Patent trolls thrive because small inventors have no other recourse against patent ogres.

It is disdainful that unscrupulous entities bring baseless patent infringement cases in order to extract nuisance fees from operating companies. We have to find ways to discourage that. As a matter of fact, a number of changes made recently reportedly resulted in 40% reduction in NPE law suites this year. However only a balanced solution will prove long term and assure that we are not talking about another patent reform again in five years. Therefore, I propose we do a thought experiment and amend each of troll remedies to take care of the patent ogre problem as well.

One hot-button issue is fee shifting, which basically means in a law suit the loser pays for the attorney fees of the prevailing party. So, if you assert your patents and lose, you may be on the hook for several millions of dollars to pay to the defendant’s lawyers. This works to discourage frivolous cases – but it also works to discourage legitimate cases just the same. In effect, you can’t assert your patents against a patent ogre, no matter how clear the infringement case is, without signing on to a round of Russian-roulette. Clearly bad for small innovators. I say let’s counter-balance this with a concept of affirmative-fee-shifting, where if the defendant is found to be infringing a patent and the infringement appears prima facie clear and obvious, then attorney fees should be awarded to the patent holder. Many judges are quick to award attorney fees to the defendant in cases that they see as baseless; why shouldn’t the opposite be true?

Another tool at the disposal of the patent ogre is the Inter Partes Review (IPR) proceedings where the patents can be challenged on broader bases than was possible in the past. There is plenty of room for the patent ogre to use this tool to grind down the inventors and deplete their financial capabilities. After all the plaintiff is now the defendant and has to spend several hundreds of thousands to defend a patent that’s already issued and presumed to be valid. I say let’s counter-balance this by introducing the rule that if a patent ogre brings IPR against a plaintiff and the patent survives, then the ogre should pay for the IPR fees of the patent owner, in other words an IPR-fee-shifting of sorts. Absent that, most patent ogres will, and do, immediately resort to IPR to exact a financial toll on a small inventor given the gigantic asymmetry in financial resources of a patent ogre who is a behemoth and that of a small startup.

Patent ogres have little incentive, if any at all, to even answer a legitimate call from a patent holder about licensing their invention. In other words, if you are the general counsel of a patent ogre, it should be your standard operating procedure not to answer any calls or emails from a small innovator claiming that you infringe their patents. Unless the patent holder somehow can find $3-$5 Million to fund a patent infringement case or convince a respected law firm to take the case on contingency, you are home free. Even if a case is brought, and even if the ogre loses squarely, it pays the same damages anyways. So why in the world would a patent ogre take license to any patent from a small inventor? It wouldn’t, and they don’t. It’s that inefficiency in the patent ecosystem that breeds patent trolls. Patent trolls become the only avenue for an inventor who is shut down by patent ogres.

You may think that not responding to a legitimate claim by a patent holder may give rise to willful infringement. You would be wrong in thinking that. As it stands now, to prove willful infringement, a patent holder has to prove with clear and convincing evidence that the alleged infringer has acted despite “an objectively high likelihood that its actions constituted infringement of a valid patent”, and moreover the patent holder must show that this high likelihood was “either known or so obvious that it should have been known” by the infringer. Extremely difficult to prove indeed. You don’t have to be a lawyer – and I am not one – to understand what this means. Unless a patent holder can find an email from the general counsel to the CEO of the accused infringer that reads “… yeah, we are infringing this patent for sure, but go ahead and use it willfully anyways …”, there is no way to prove willful infringement.

This deliberate and willful treatment of small inventors by patent ogres is unfair and abusive. I say we level the playing field for the small inventors but forcing patent ogres to have to give due consideration to claims and requests from small inventors. A patent ogre should be required to answer a request from a small inventor within a reasonable time and have a credible process for doing so. In failing to show this in court, should the patent holder prevail, treble damages should automatically kick in. Let’s give the patent ogres an incentive to not shut out legitimate inventors and patent claims by stonewalling them.

It is a simple and demonstrable fact – and already the subject of many articles – that the money patent ogres spend in defending against patent cases brought by small inventors is very small compared to the money they spend in patent suits between other patent giants like themselves.

So, as an inventor, as a portfolio strategist, and as an entrepreneur, I say that to find a fair solution to the patent troll problem that doesn’t squash the small inventors in the process, let’s address the patent ogre problem also.