Washington Legal Foundation Advocate for Freedom and Justice® 2009 Massachusetts Avenue, N.W. Conversations With... Washington D.C. 20036 202.588.0302 wlf.org sPrInG 2013 the honorable Dick thornburgh thomas L. ewing robin Feldman The Issue: Trolling, Licensing rency rapidly from a patent infringement & Litigating: A 21st Century case in which Peter Detkin, then head of Intel’s patent department, accused the Patent Paradigm? Dick Thornburgh plaintiff and its counsel Peter niro of K & L Gates LLP being “patent extortionists.” niro then In this edition of Washington Legal sued Detkin for libel, prompting Detkin Foundation’s ConversatIons WIth, for- to look for another term that wouldn’t mer attorney General of the United land him in hot water. the troll term had states and Pennsylvania Governor Dick been around for nearly a decade already, thornburgh leads a discussion with but Detkin’s promotion of the term sig- thomas L. ewing, an attorney and patent nificantly accelerated its use. Ironically, counselor with avencept LLC, and Detkin is now vice chairman at Professor robin Feldman of the Intellectual ventures, which has been University of California hastings described as “a troll on steroids.” a non- College of the Law, on the lucrative prac- practicing entity (“nPe”) is a similar, tice of monetizing patents. rather than Thomas L. Ewing less loaded term that describes compa- Avencept LLC utilizing patents to produce and sell prod- nies that make no products of their own ucts or services, an increasing number of and earn their revenue from technology “non-practicing entities” purchase, hold, transfer, licensing, and litigation. nPes and aggregate patents for the purpose of include universities and companies that earning licensing fees or using the conduct their own research and/or make patents as weapons in litigation. Mr. their own designs but don’t actually make ewing and Professor Feldman discuss the products. a patent assertion entity positives and negatives of such activity; (“Pae”) describes a particular kind of explain the different actors involved, company that makes nothing at all—no from “patent trolls” to defensive patent designs, no research, no engineering— aggregators; and assess legal policy but instead earns all of its revenue by devices which may reduce abuses that Robin Feldman acquiring patents and then licensing or University of California can arise from patent monetization. litigating them. Paes have no ability to Hastings College of the Law grant technology or know-how licenses Governor Thornburgh: the term because they know no more about the “patent troll” is thrown around a lot, so patents they have purchased than the much, tom ewing, that you’ve written it words in the publicly available patent has become passé. Where did the term documents. come from and how does it compare to “non-practicing entity” (nPe) or “patent Governor Thornburgh: Professor assertion entity” (Pae)? Feldman, what do you think of these terms and their connotations? Thomas Ewing: Yes, the term has become meaningless because just about Robin Feldman: I prefer to use the term every defendant in a patent case applies it “patent monetization entity” or “monetiz- to every plaintiff. the term gained cur- er” for short. a patent monetization enti- ® WL F publications are available on Lexis/nexis www.wlf.org THE ISSUE: TRoLLInG, LICEnSInG & LITIGATInG: A 21ST CEnTURy PATEnT PARADIGm? ty is one whose primary focus can be creates a successful product. others, then, described as deriving income from licensing either use patents they already have or and litigation. although product companies patents they acquire to approach the success- do engage in licensing and litigation, when ful product company and extract payment. Fewer new products framed in terms of the primary focus of the entity, it is not difficult to separate the sheep For example, Wired magazine last May will be able to from the goats. interviewed a “reverse engineer” at the enter the market, as rockstar Consortium. according to the innovators are forced the term “patent assertion entity” falls short, engineer, his job is to take apart and examine to factor in the likely in my view, because it could theoretically products like routers and smartphones, look- cost of paying off— exclude those entities who do not assert ing for ways to claim that the product or fighting off— patents directly but transfer patents to third infringes on one of the thousands of patents monetizers. parties. a business focused on buying, sell- in rockstar’s portfolio. rockstar then fol- ing, and licensing patents is quite different lows up with a license demand. Robin Feldman from a product company, regardless of whether the business sues people itself or this type of activity acts as a tax on produc- merely makes money by selling to others tion, extracting value as part of the price of who sue. having a successful product. Fewer new products will be able to enter the market, as the picture becomes more complicated, innovators are forced to factor in the likely however, by the way in which product com- cost of paying off—or fighting off—mone- panies are increasingly using patent bargain- tizers. as a result, this type of tax on produc- ing in their competition strategy. as moneti- tion stifles innovation. zation activity has exploded in the last few years, product companies are spending ever In theory, one could argue that the product increasing amounts of time and resources on company is just being forced to pay what it acquiring, trading, and posturing with should already have been paying. after all, patents. this is being done in some cases to shouldn’t a company who wants to make a defend a company’s products and in others product just look through the Pto database to attack or disadvantage competitors. one to determine who has rights to various scholar estimates that in the smartphone aspects of the product and acquire any nec- wars alone, $1 billion dollars has been spent essary licenses before going into produc- on litigation and $15-20 billion dollars on tion? patent acquisitions so far. this is a remark- able waste of societal resources. this might be true in an idealized world, but the patent system is far from ideal. It is near- Governor Thornburgh: For the sake of ly impossible to identify all of the patents clarity, we’ll use the term nPe here in a that might be asserted against a particular generic sense. robin, a 2012 Congressional product. there are more than two million research service study noted that a major utility patents alone, each with numerous characteristic of nPes is their engagement in claims. Claims are often broad and vaguely ex post facto licensing and enforcement. worded, drafted in the hopes of going after What does that mean and do you consider it products that have yet to be dreamed of at an abuse of our patent system? the time of the patent grant. In my recent book, “rethinking Patent Law,” I describe Professor Feldman: I suspect the phrase “ex the bargain aspect of patents and explain post facto licensing and enforcement” refers why it is simply not possible for a patent to the following type of activity: a company grant to create more than a starting place for 2 © 2013 Washington Legal Foundation sPrInG 2013 understanding what the patent might cover. ventures, and other mass aggregators, today operate on a scale and at a level of complex- Modern monetization entities have devel- ity that would have seemed unimaginable at oped sophisticated methods to systemize and the turn of the Millennium. exploit this uncertainty. this is not how the patent system was intended to function, and as with opening Pandora’s box, once the I believe it will operate as a serious drag on model became known, others were quick to innovation. enter the field looking for their own tiny slice of the market and their own variation Governor Thornburgh: tom, you’ve writ- on the theme. With little formal or informal ten and spoken quite a bit about what you regulation, patent monetization has the feel call “mass aggregators.” Where do they fit of the Wild West, where early settlers creat- into the nPe debate? ed and enforced their own norms with little intervention from sovereign entities. mr. Ewing: Mass aggregators have resources that rival or even exceed the Governor Thornburgh: Why have we seen resources of the companies they chase down so much nPe-related litigation and licensing for licenses. Intellectual ventures, for exam- controversies swirling around industries like ple, has a patent portfolio that matches, or smartphones and technology-oriented com- nearly matches, the portfolio of IBM, which panies? is generally considered the largest domestic portfolio. Because of their size, the mass Professor Feldman: With technology prod- aggregators enjoy numerous advantages in ucts such as smartphones and computers, an licensing and litigation over traditional inordinate number of patents may relate to patent trolls. here’s just one example: if a any individual device. these include patents patent troll seeks to license just one patent, on the various hardware components, patents then the licensing target typically examines on the software, patents on the methods of the patent in great detail, including a thor- operating the phone and its network, patents ough review of the patent’s official file his- on the methods of constructing the various tory at the UsPto. this review finds every components, and design patents. any one of flaw and potential flaw in that one patent and these patents can be used to demand royal- often provides useful ammunition for lower- ties and hold up the sale of the product. I ing the licensing fee or even making the described above the tremendous uncertainty problem go away.