Fixing the patent system: government and industry push for reform

Bringing reform to the US patent system has been an ongoing goal for a number of tech industry giants, many of which see it as allowing predatory companies to too easily file frivolous suits, earning them money and using up others' resources without contributing to innovation. The US was actually moving toward passing legislation to cut down on so-called patent trolls earlier this year, but the legislation has since stalled in the Senate. With much of the impetus for reform stemming from the tech industry and a broader struggle around software patents, Lee's background puts her in a strong position to move the system toward efficiency.

Software patents aren't dead, but they just took a blow. In a unanimous decision, the Supreme Court has ruled that a series of banking patents didn't cover a concrete software process but an abstract idea, throwing them out and potentially setting a stricter precedent for future patents.

Alice Corp. and CLS Bank are both major financial institutions, and they've been sparring for years in court. The issue is a series of patents that cover a kind of electronic escrow or "intermediated settlement," where a third party holds the real money while "shadow" balances are shown to both sides during trading. In order to preempt a threat from Alice, which held those patents, CLS asked for a court to declare them invalid, saying that the basic idea was obvious and that the patents didn't add more than a generic software process to carry it out. Alice countersued, alleging that CLS had infringed its patents, and the Supreme Court took up the issue in late 2013.

Patent trolls can claim a major victory today thanks to Sen. Patrick Leahy. The Senate Judiciary Committee Chairman has removed patent reform legislation from the agenda, citing a lack of "sufficient support behind any comprehensive deal." In a statement, Leahy said that despite working for nearly a year on legislation, there's been "no agreement on how to combat the scourge of patent trolls on our economy without burdening the companies and universities who rely on the patent system every day to protect their inventions." This stall in the Senate comes after the House passed a bipartisan bill designed to crack down on frivolous lawsuits with strong support on both sides of the aisle. The White House also stands behind reform.

The Supreme Court thinks that if you bring a bad enough patent suit, you should have to pay for it. In a pair of rulings handed down today, the court loosened restrictions on patent lawsuit fee-shifting, in which the losing party must pay the winner's attorney's fees. It's a move that could make it harder for so-called "patent trolls" to bring frivolous lawsuits, as well as the first of a number of major patent cases expected this year.

Because of the frequency and increasing visibility of patent lawsuits, particularly those involving big names like Apple and Samsung or patent holding companies like Intellectual Ventures, the past few years have been spent debating whether the standards for issuing patents should be tightened, and whether bringing a suit should be harder. Though the definition of patent trolling varies, there's an undeniable subset of companies that bring lawsuits against small businesses using broad, tangentially related, or likely invalid patents. Victims have complained that expensive, arduous lawsuits make it cheaper to settle than to fight even an obviously bad lawsuit, and Congress is workshopping a patent reform bill meant to ease the process.

Over the past year, the debate over patent reform has heated up, and attention has focused on the dark side of patents, particularly "trolls" who extract money off inventions they don't plan to use. But Microsoft, Apple, Ford, and several other companies are banding together to support a system that they depend on to incentivize new research. The newly formed Partnership for American Innovation (PAI) exists to promote a "strong patent system" and a well-funded US Patent and Trademark Office, but its main focus seems to be changing the tone of debate in an environment where patent law is sometimes seen as beyond repair.

Few things are more despised in the tech community than patent trolls, and to many, Intellectual Ventures is the biggest one around. In January, the company took the next step in its evolution and took its patents to trial for the first time. The case is against Motorola Mobility and by extension Google, which hasn't yet turned the company over to Lenovo; its phone displays, software update system, and other elements allegedly infringe on six of Intellectual Ventures’ thousands of patents. While the jury deliberates, the court of public opinion has largely made up its mind: Intellectual Ventures may insist that it’s helping inventors, but convincing anyone it’s not abusing the patent system will be an uphill battle, especially in an environment that’s never been more hostile.

Intellectual Ventures describes itself as an "invention marketplace" — most simply, it buys up massive amounts of intellectual property and licenses it in bulk, serving as a kind of clearinghouse. Started by former Microsoft CTO Nathan Myhrvold in 2000 and initially funded by a who’s who of tech companies including Google, it touts a portfolio of 70,000 patent assets and $3 billion in licensing earnings, $500 million of which it says has been sent back to inventors. Every big name in tech, including Samsung, Apple, and Microsoft, has licensed patents from Intellectual Ventures, as have smaller startups like Nest.

The Supreme Court has agreed to hear a case on how far software patents can go in covering an abstract idea. Today, the court said it would take on CLS Bank v. Alice Corp., a contentious decision over online trading tools. Next year, it will have to decide whether a handful of patents should be thrown out for cloaking a basic concept in technical terms — or whether doing so would effectively invalidate all software patents.

Alice Corporation develops financial software tools, and it promotes its patent portfolio heavily. In that portfolio are four filings for an electronic trading platform that lets a third party manage trading obligations between two other groups — ensuring that one side isn't able to unilaterally back out of the deal. And according to Alice, CLS Bank used the ideas it developed to create its own trading platform. One example, patent 5,970,479 ('479), covers the process of holding "shadow" balances for each party in a trade, tallying money until the end of a day and then giving each a net credit or debit. While Alice described it as a concrete software tool, though, CLS argued that this was essentially just the description of escrow, not any kind of actual innovation.

A bipartisan bill that cracks down on potentially frivolous suits from "patent trolls" has passed the House of Representatives. Rep. Bob Goodlatte's (R-VA) Innovation Act passed committee in November and reached the House floor today, where it was approved in a vote of 325 to 91. It has gained wide support both in and outside Congress: the White House officially backed Goodlatte's legislation earlier this week and in fact proposed several of its elements in June, and a host of tech companies and venture capitalists, including Google, have thrown their weight behind it. The Patent Transparency and Improvements Act, a companion bill from Senator Patrick Leahy (D-VT), was introduced in November. That bill is still in committee, but with significant momentum around the issue, it's likely to do well.

The Innovation Act is aimed at keeping the effective structure of the patent system in place but reducing the incentives to send frivolous complaints, cutting down on the alleged billions of dollars of damage done by them, but not everyone agreed it would have the right effect. Groups like the National Small Business Association argue that it places an unfairly high burden on patent holders, making it too difficult for small businesses or individual inventors — rather than large companies — to protect their patents. The NSBA expressed consternation at the "alarming rate" at which patent troll legislation has moved forward: Goodlatte's bill was introduced less than two months ago. Some universities, which develop and license patents but do not build commercial products, also say that the bill's scope is too broad and would hurt their ability to make money from research, and Qualcomm CEO Paul Jacobs said the "point of view of the inventor" was missing from the debate.

By Adi Robertson and Kwame Opam

Congress is one step closer to cracking down on patent assertion entities, better known as "patent trolls." In a hearing today, the Senate Commerce Committee grilled witnesses on both sides of the debate, attempting to clear up questions before voting on a companion bill to Representative Bob Goodlatte's (R-VA) Innovation Act. Goodlatte's bill would require more specific claims in the demand letters that patent holders send, making them list the products and patents in question; it would also require a court to take steps forward in the case before ordering the defendants to start a potentially long and expensive discovery process. If a patent holder is suing the manufacturer of a product, they can't require customers to stop using it during the case, and if trolls bring a suit to court and lose, they may have to pay the winner's court costs — giving companies a way to fight back without going broke.

A new front in the war to reform patent law could be unfolding. Eighteen members of Congress, led by Judy Chu (D-CA) and Blake Farenthold (R-TX), filed a letter with the FTC on Thursday asking the agency to use its Section 5 powers to prosecute patent trolls for unfair and deceptive business practices. In the letter, spotted by Adweek, the representatives argue that by threatening end users like consumers and small businesses with litigation, patent trolls are bilking them for quick settlements, forcing them to decide whether it’s worth it to chance an expensive court case.

Among the many gripes in the US tech industry over the past 10 years, you’d be hard-pressed to find one so universal as "patent trolls." These are the companies that acquire patents but don’t make any real products or services. Instead, they use patents primarily to sue other companies, effectively extorting, or "trolling" them. The problem — as many prominent tech executives, venture capitalists, developers and journalists have repeatedly pointed out — is that such rampant, often frivolous lawsuits may discourage actual innovation, ultimately harming competition and consumers.

Many solutions to the patent trolling problem have been proposed over the years, but few have made it into law or industry practice. But now the White House is on the case in a big way. Just yesterday, the Obama administration released a long list of executive actions and recommendations for new laws it wants Congress to enact to reform the US patent system and cut down on trolling. "It’s clear that the abuse of the patent system is stifling innovation and putting a drag on our economy," wrote Gene Sperling, director of the National Economic Council, in an official White House blog post on Tuesday. "The trolling has gotten out of control, and it’s time to act."

President Obama is planning to take executive action against patent trolls, announcing a series of legal moves tomorrow to rein in some of the patent system’s current abuses, reports The Wall Street Journal. The president will reportedly instruct the Patent and Trademark Office to start work on a rule-making process that would require the disclosure of a patent's owner in addition to its inventor. The move is reportedly designed to give people more information in the case that they’re charged with patent infringement, like whether the company that’s suing them owns other related patents. Citing unnamed officials, The WSJ writes that the president will announce five executive actions and seven proposed legislative changes, including one that would allow litigants to be sanctioned for filing abusive lawsuits.

One such change is reportedly aimed at lessening the role of the International Trade Commission (ITC) in settling patent disputes. Tech companies like Apple, Motorola, and others have increasingly turned to the regulatory body to seek import bans on competitors' products that they believe infringe their patents, and Obama is reportedly aiming to cut down on the frequency that it's used.

Since Julie Samuels joined the EFF as the Mark Cuban Chair to Eliminate Stupid Patents, she’s spearheaded the movement to keep 3D printing free by challenging new applications with crowdsourced prior art. Today, the EFF is announcing that it and its partners including Harvard’s Cyberlaw Clinic and Ask Patents have now submitted documents on six pending applications, including one for a “Ribbon Filament and Assembly for Use in Extrusion-based Digital Manufacturing Systems” — i.e., using a filament that’s fettucine-shaped instead of spaghetti-shaped because it melts more quickly.

This ability for third parties to help invalidate patents before they’re even granted comes thanks to a new provision in the America Invents Act that lets anyone submit any “printed publication of potential relevance to the examination of the application.” As the industry grows, companies and individuals are trying to stake out a piece of the action, both by filing for new patents and aggressively asserting old ones. Formlabs, the startup behind the high-precision Form 1 printer, is one of several companies in the growing sector to be hit with patent infringement claims.

In the latest of several swipes against patent trolls, Google has taken aim at the companies who sell off their patents so they can be used in lawsuits. Writing to the FTC and US Department of Justice, Google warned against "patent privateering" — by which it means outsourcing patent warfare by going through firms that don't make anything themselves and therefore can't be countersued. Patent trolls are almost universally reviled for aggressively suing companies on vague, sweeping patent claims. But Google claims the US government should turn its attention to the companies who created those patents in the first place.

"PAEs [Patent Assertion Entities, which litigate patents] impose tremendous costs on innovative industries," writes Google in a letter co-signed by BlackBerry, Earthlink, and Red Hat. "These costs are exacerbated by the evolving practice of operating companies employing PAE privateers as competitive weapons." That's partly because patent assertion entities can be overly aggressive, but also because using them can create layers of fees and companies that must be navigated to license a patent. Google didn't name names, but it linked to an article citing both Microsoft and Nokia as companies that employed privateering.

Google has recently been taking a hard line on the US patent system, claiming that it over-rewards the work of coming up with an idea while taxing those who do the work of actually implementing it. The company also takes issue with excessive patent litigation from so-called "patent trolls," and now Google is encouraging companies to work together to cross-license patents to help cut down on frivolous lawsuits. On a new site that Google launched today, the company outlines four different, royalty-free patent licensing agreements that it believes will help protect participants from patent trolls.

It's also asking for interested parties to take a survey and submit feedback on its proposals to help determine which of the approaches it outlined is the most interesting to potential participants. Google's looking to collect feedback on the issue by April 9th, though it's not yet clear what the next steps will be following that deadline. Similarly, it's not yet clear how willing companies will be to work with Google on this initiative, though we imagine many will find Google the lesser evil when compared to patent trolls.

The Electronic Frontier Foundation (EFF) has recommended that the US Patent Office require applicants to submit working code with their software patent applications. This would help stop patent trolls from abusing broad software patents in their litigation schemes, the EFF believes. It's a simple recommendation, but one that could go a long way towards cleaning up the software patent situation — applicants would have to submit working code and a detailed breakdown of how that code works. If the patent was granted, the USPTO would have to limit the patent to the specific invention claimed in the application.

This would help alleviate the problem known as "functional claiming" — this currently allows patent applicants to submit extremely broad and vague patent applications that lay claim to all possible approaches to solving a particular problem rather than a specific solution proposed by the inventor. The EFF's recommendation comes just as the USPTO was holding roundtables to talk about the problems inherent in software patents — one of those conversations specifically revolved specifically around the functional claiming issue. It's one of the simpler, more concrete proposed solutions to the software patent issue, and we'll see if the EFF is successful pushing it forward.

Soverain, a serial patent troll that successfully won a $17.9 million case against Ann Summers and Avon using its "shopping cart" patents, has been defeated by online retailer Newegg. After losing a case against Soverain back in 2007, the electronics reseller decided to appeal the ruling, and recently saw the decision overturned. As Ars Technica reports, Soverain is currently suing US giants like Kohl's, Bloomingdales, Walgreens, and Home Depot; by winning its appeal, Newegg has effectively invalidated the patents for use in any future cases.

Chief Legal Officer Lee Cheng told Ars that Newegg has "been hit by companies that claim to own the drop-down menu, or a search box, or Web navigation. In fact, I think there's at least four that claim to 'own' some part of a search box." He says that his company has "never lost a patent case" (discounting the now-overturned verdict), and will continue to fight against trolls. "Seriously, screw them — you can quote me on that."

Successful internet entrepreneurs Mark Cuban and Markus "Notch" Persson have each donated $250,000 to the Electronic Frontier Foundation in hopes of reforming a "broken" and "dangerous" patent system. Cuban, who started early internet radio site Broadcast.com and currently owns the Dallas Mavericks, has previously called to end all software and process patents, saying that the latter serve "absolutely no purpose." His EFF donation will fund the new "Mark Cuban Chair to Eliminate Stupid Patents," which will be held by Staff Attorney Julie Samuels. It will also pay for the EFF to hire an additional patent reform attorney, Daniel Nazer.

Persson, whose company Mojang created the hit game Minecraft, made a separate donation, which will go to general EFF patent reform work. Neither Persson nor Cuban are paying to help the EFF abolish patents, despite Cuban's previous statements. Both, however, want to address serious and widely recognized structural problems that have come to a head in recent years. "New games and other technological tools come from improving on old things and making them better — an iterative process that the current patent environment could shut down entirely," says Persson. Cuban, likewise, says that "Silly patent lawsuits force prices to go up while competition and innovation suffer."

Bart Eppenauer is Microsof't Chief Patent Counsel — the man who oversees the company's enormous portfolio of 20,000 patents. That's a big job at a time when technology patents are under increasing scrutiny — especially patents on software and mobile technologies, which have sparked billions in litigation around the world. We spoke for a few minutes about how he sees the landscape changing, and how he's shaping Microsoft's policy for the future.

So what does the Chief Patent Counsel at Microsoft do when he wakes up in the morning? What's your first move?

Google's been heavily involved in patent litigation lately, both directly and through lawsuits against OEMs using its software, and the company has just reiterated its position that the patent system should be reformed to cut down on mobile software- and device-related lawsuits. According to The Wall Street Journal, the company's chief legal officer David Drummond was particularly focused on the problems surrounding software patents when talking to the press in Seoul today. Drummond noted that countries outside the US make it much more difficult to acquire software patents, and he said Google believes "that's probably the better way to go." Ideally, Drummond said, "we need to do to is move past the one-size-fits-all and start thinking about software patents more specifically."

Drummond does know that patent reform can be a tricky issue, particularly with other industries that would be affected by such changes — though he believes that "if you talk [specifically] about software patents, I don't think those other industries will feel as threatened." Regardless of what happens, Google appears to be tiring of the patent wars, and Drummond says his company isn't the only one. "It doesn't take much digging to find statements from Apple, Microsoft, all lamenting the fact that we have this patent litigation," he said.

Google is no stranger to the mire of patent litigation, as evinced by its own lengthy legal battle against Oracle. The company has also made numerous efforts in the past to combat vague, abstract patents it believes serve only to stifle the sort of grassroots innovation that drive industry growth. In a conversation with VentureBeat, a Google spokesperson remarked that the company is wary of the current 20-year shelf life of software patents, and also calling for stronger financial penalties against so-called patent trolls who lose a lawsuit.

Setting aside the cognitive dissonance of arguing against patent litigation while its subsidiary launches a new legal battle, Google's slow-going efforts to establish a discussion on software patent reform could prove beneficial, provided there's a bit of substantive discussion. Twitter's own Innovator's Patent Agreement also seems like a step in the right direction. Still, in the current patent wars it seems like we could use a little less conversation, and a little more action.

Judge Richard Posner threw out Apple v. Motorola after expressing frustration with the behavior of the sparring litigants, and in a new op-ed for The Atlantic, he's broadened his distasteful gaze to the whole US patent system. Posner believes that patent law falls short in its broadly consistent application: he says that "with some exceptions, US patent law does not discriminate among types of inventions or particular industries. This is, or should be, the most controversial feature of that law." Posner says that there are too many patents in the US, and that industries with low costs of invention give competitors advantages for less than optimal reasons.

Posner cites the pharmaceutical industry as a "poster child" for patent system protection, because "the invention of a new drug tends to be extremely costly," among other reasons. On the other hand, he says that "few industries resemble pharmaceuticals" in cost of invention and other factors, and that "most industries could get along fine without patent protection" — specifically those with salaried engineers who make small improvements to products (like, say, mobile operating systems).

Tomorrow, the Senate Judiciary Committee will hold a hearing to determine the antitrust implications of sales bans based on infringement of standard-essential patents. The FTC and Justice Department are also weighing in, in order to help determine whether patent holders should be forbidden from asking for the bans in the first place.

As reported by Reuters, Motorola insists that it needs the leverage provided by the possibility of sales bans in order to ensure that its rivals pay the licensing fees. Time will tell if the argument is enough to win over the Committee.

This piece was originally published on August 11, 2011 on This is my next, before The Verge launched. We've updated it to reflect recent developments in the patent debate, and we'll revisit it periodically as time goes on.

There is a fundamental problem with patents in the United States.