RIM ATS NTP: Lessons Learned
Barry B. SookmanNovember 30, 2006
McTet2 #3690836 v1
Playing to Win on the World Stage The Winning Hand for
MicroelectronicsITAC: The 12th Executive Forum on
Why the Case is Important
Extra-territorial application of US patent law under control and
beneficial use test.
RIM is poster child for US patent reform
Quality of patents that issue
Filing of continuations
Impact of re-examination process on remedies
The standard for granting permanent injunctions
Impact of patent trolls
Fostered debate as to whether patents spur or impede
Extra-territorial application of US patent law under control
and beneficial use test.
4Patent Liability Where Essential Component is Outside U.S.
The question before the Federal Circuit was whether the using,
offering to sell, or selling of a patented invention is an
infringement under section 271(a) if a component or step of the
patented invention is located or performed abroad.
The Court decided that the use of a claimed system under section
271(a) is the place at which the system as a whole is put into
service, i.e., the place where control of the system is exercised
and beneficial use of the system obtained.
The Court found that RIMs customers were liable for direct
infringement under 35 U.S.C. 271(a) even though an essential
element of the BlackBerry system, RIMs Relay which makes RIMs
BlackBerry systems operational, is located entirely in Canada.
5Patent Liability Where a Method Step is Outside U.S.
Because a process is nothing more than the sequence of actions
of which it is comprised, the use of a process necessarily involves
doing or performing each of the steps recited. This is unlike use
of a system as a whole, in which the components are used
collectively, not individually.
On the basis of this distinction the Court held that a process
cannot be used within the United States as required by section
271(a) unless each of the steps is performed within this
Thus, the Court agreed with RIM that a finding of direct
infringement by RIMs customers under section 271(a) of the method
claims that recited an interface switch or an interface was
precluded by the location of RIMs Relay in Canada.
What ITAC Said About the Opinion
This new form of extraterritorial system liability is not
contemplated by the plain language of 271(a) and significantly
increases the risks of patent infringement liability for
foreign-based companies, particularly those in the fields of
telecommunications and other Internet-based communications
For entities with foreign activities, such as those members of
the Amici organizations, the CAFCs decision creates more
uncertainty than clarity. These entities must not only determine
the type of patent claims they potentially may face, but also must
determine if control and beneficial use of their systems can be
deemed to occur within United States, despite the physical presence
of some or all of the components of the system outside the United
States. AMICUS Brief to the CAFC
What ITAC Said About the Opinion
These control and beneficial use tests are not readily applied
to the Internet and other telecommunications technology, where
internationally distributed networks combine to provide a single
service or product.
For example, if a user in the United States accesses a foreign
website (hosted in a foreign country) and plays a game on that site
or enters data into that site, has a computer system encompassing
that website been used in the United States solely by manipulating
a mouse and keyboard a use that could act as infringing
If only a router server exists in the United States, and
information passes through that router from one foreign country to
another foreign country, does the passage of information without
human interactivity create a use in the United States so as to
potentially infringe a network system patent?
And, how is mobile technology that spans geographical
boundariescontrolled as a practical matter. For wireless devices,
for example, how are systems that send signals capable of reception
across geographical boundaries controlled? Is the entire system
terminated, even though legal in one country, because it is used in
another country in an infringing manner even though it has merely
received signals from a legal transmitter? Amicus Brief to U.S.
RIM is poster child for US patent reform
9RIM patent case a lightning rod' in rethinking system
BARRIE MCKENNA, Globe and Mail Update (Nov 28, 2006)
WASHINGTON Research In Motion Ltd.'s costly legal misadventures
in the United States are a powerful symbol of an overprotective
patent system that is killing innovation and putting the country at
a competitive disadvantage, according to a new report.
The United States has built a regime on the misguided notion
that stronger patent rights always lead to more innovation,
economist Keith Maskus argues in a report released Tuesday by the
influential New York-based Council of Foreign Relations.
Instead, mushrooming litigation costs, patents that are too easy
to get and laissez-faire antitrust enforcement have conspired to
create a system that unfairly favours inventors over legitimate
users, Mr. Maskusconcluded in the 45-page report.
Failure to rein in the patent regime could have global
repercussions, the report warned. To hinder innovation is to hinder
the dynamic competitiveness of U.S. companies.
Patent Trolls/Patent Assertion Companies
The expression patent troll is a pejorative and controversial
phrase attributed to former Intel assistant general counsel Peter
Patent troll is a derogatory term used to describe a patent
owner, frequently a small company, which enforces patent rights
against accused infringers, but does not manufacture products or
supply services based on the patents in question. Wikipedia
Those unsavory characters who buy up obscure patents to extort
money from innovative and law-abiding companies.-Steven Pearlstein,
columnist, The Washington Post
Other terms include patent extortionist, patent parasite, patent
pirate, and patent speculator.
In Japan patent mafia and patent rouge have been used.
The key point of contention against patent trolls is not their
non-practising status, nor that their assertions are necessarily
invalid, but rather that they are in a position to negotiate
licensing fees that are grossly out of alignment with their
contribution to the alleged infringers product or service
Who Are Patent Trolls? Today, patent troll is used more
generally to describe a variety of businesses. The one
commonality appears to be that the patent troll company attempts
to license and enforce patents, but does not itself perform
research, produce products or provide a service. However, there is
neither an official definition of patent troll nor any test to
determine whether a company qualifies as a patent troll, making the
neologism vague and its use subjective. The neologism is pejorative
while the concerned strategy is lawful. Wikipedia
Trolls could be the companies who purchase controversial patents
from others for the purpose of asserting them against someone else,
like Acacia. Acacia Technologies is a company that acquires,
develops, licenses and enforces patents. Its clients are mostly
individual inventors and small companies with limited
Patent trolls could be the agents that assert patents on behalf
of patent owners, such as IP Value Management IP Value Management
is a business process outsourcing firm focused on commercializing
A patent troll could be a company that originally sold products,
but has either completely or partially closed its operations, such
as Mosaid or Patriot. Mosaid is a Canadian company based in Ottawa
that is suing other memory manufactures for patent infringement.
Mosaid still maintains some manufacturing; however, technology
licensing has been the most important part of their total revenue
Finally, patent trolls could be law firms, such as Robin,
Kaplan, Miller & Ciresi in Minneapolis or Makool Smith, PC in
Dallas. Both firms help clients to exploit their intellectual
property, for which they take contingency fees.
CASRIP Newsletter: Spring/Summer 2006, Volume 13, Issue 2
Patent Terrorism? No bombs. No hijacks. No recorded messages.
exclamation marks. This terror will simply strike your share
price. Your product is the hostage and your bottomline is the
ransom. Pay up, or read on Patent Bin-Laden, IPFrontline.com June
In the last decade, patent enforcement has grown into a
multibillion shadow industry that is transforming Americas patent
system from a security fence protecting inventors from exploitation
into a money-minting machine for a few patent holders. Brenda
Sandburg You may not have a choice. Trolling for dollars, law.com
July 30, 2001.
Patent trolls have inverted the traditional rationale for
building an intellectual property (IP) portfolio. They obtain
patents, not to make, use, or sell new products and technologies,
but solely to force third parties to purchase licenses. Instead of
investing capital to develop inventions, patent trolls wait for the
industry to utilize a patented technology and then enforce their
patents on the alleged infringers. Jeremiah Chan & Matthew
Fawcett, Footsteps of the Patent Troll, 10 No. 1 Intel. Prop. L.
Bull 1 (2005)
Microsoft spends $100m per year defending patent suits.
Business Model of Patent Trolls
Want money through license fees and are willing to litigate.
Have little to lose; are not subject to countersuits; can
assertpatents using contingency fees.
Often focus on big companies with high revenues like Microsoft,
Often send demand or notices to all companies in an industry
sector and select one company to make example.
Sometimes do nothing and wait for broad deployment of technology
before asserting patents.
Often game patent system such as by filing continuation patent
applications to get patents specifically covering target.
PATENT Troll Examples
Patents on answering machine has more than 50 licenses worth
> $55.5PhoneTel Communications
Patent on interactive control of machine tools has collected $50
in license feesIMS Technology
Recovered $35m against eBay on patents for facilitating online
auctions after going out of business
Billion from licensing patents covering IVR/call center
technology Ronald A. Katz
Medtronic settlement for $1.35 billion following jury award of
Dr. Gary Michelson (surgeon, holder of patent on spinal fusion
Judgement against Microsoft for $521m on patent for method for
displaying browser plug-ins
Over $1.2 billion since 1988 in license fees for patents over
bar code readers
Lemelson Medical, Education & Research Foundation
RevenuesName of the Troll
PATENT Troll Examples
Collected royalties > $675m from Intel and TI on clipper
Patent covering superfast transmission of songs and content
making claims Apple after settling for $60m with Microsoft on
Claim on xml data format standard used for many years
Judgment for $91m against Sony over haptics technology (permits
interaction with virtual worlds); also settled with Microsoft for
Sued over 50 banks and other FIs for infringing their patents on
check imaging technologyData Treasury
RevenuesName of the Troll
Investing in Patents
New model regards patents as asset class that can be
bought/invested in as invention capital; e.g. Deutsche Bank
starting investment fund to buy into patents.
Acacia Research corp. trades on Nasdaq has >140 patents in
> 29 patent portfolios ranging from credit card fraud
technology, digital streaming video, bar codes, broadcast data
retrieval, data encryption, Internet navigation, digital media
Intellectual Ventures founded by Nathan Myhryold, Private equity
fund and innovation hothouse with 3,000 5,000 software patents;
investors include Microsoft, Intel, Sony, Apple, eBay, Google.
With its vast hoard of patents, IV could turn out to be the
world's biggest patent troll. It could have the power, at least in
theory, to sue a vast swath of Corporate America, becoming a force
that smothers rather than nurtures innovation. "There's just a lot
of questions about all of these patents they have and what they are
going to do with them," says Christina Schneider, a spokesperson
for Hewlett-Packard Co., echoing concerns heard widely in Silicon
it is clear that the classical model of the patent system, in
which inventors sell products based on their invention and use
their patents to exclude competitors from the market, is not an
accurate description of the way patents work in the real world.
Benefits/Harms of Patent Trolls
Increase the liquidity of intellectual property by providing a
ready market for patents which the respective inventors cannot
exploit or commercialize.
Facilitate legal access to intellectual property via the
organization of patents governing a given technology by aggregating
and licensing patent portfolios as a whole.
Promote innovation and progress by providing incentives for the
making, and public disclosure of, new inventions.
Increase costs for manufacturers due to increased potential of
having to pay royalties for intellectual property which they do not
Increase costs for product developers due to the increased need
to monitor issued patents and pending patent applications.
What Fuels Patent Assertions?
Anything under sun is patentable including business method
Too few patent examiners; not enough prior art in some
Poor examination leading to poor quality patents; patents issue
with very broad/dubious claims that permit assertions that cast
Number of claims in patents makes it difficult to defend
Rocket dockets leading to forum shopping
Ease of finding wilfulness leading to treble damages
Low threshold non-obviousness
High costs to defend patent suit (2001 medium $1.5m)
MUD principle doesnt apply to trolls
Contingency fee system
Juries are very unpredictable and inconsistent; 50% reversed on
Juries have only days to make complex determinations of
validity/infringement that can take experts months
Ability to use threat of permanent injunction to extort massive
Gaming The Patent System
Patent applicants whose patents were ultimately litigated filed
many more continuation applications than ordinary applicants an
average of 0.72 per litigated patent, compared with 0.24 for issued
patents in our sample study.
applicants are increasingly securing their ability to file
additional claims through an extensive continuation practice.
Although patentees who employ this tactic relinquish part of their
patent term for the later-issued patents, they can wait until
competing products emerge and then attempt to obtain patent claims
that will read directly on the competing product. For the patentee,
this eliminates concerns over claim construction and doctrine of
equivalents issues that might otherwise challenge the patentee. It
creates concerns for society, however, since patentapplicants may
claim during prosecution to have invented something that was in
fact first created by a competitor. John R. Allison, Mark A.
Lemley, Valuable Patents, Public Law and Legal Theory Research
Paper Series University of California at Berkeley, School of Law
28 years11/03/198704/06/1959Light amplifiers employing
collisions to produce a population inversion
20 years11/11/198609/09/1966Automated machine installation and
21 years07/17/199011/24/1969Application for micro computer basic
38 years09/01/199212/24/1954Machine vision and bar code
Submarine termIssued date
CASRIP Newsletter: Spring/Summer 2006, Volume 13, Issue 2
21Likelihood of Litigation by Industry Category
Patents in mechanical, computer and medical device industries
are most likely to be litigated.
16%10%Drugs & Med.
12%18%Elec. and Electronic
20%13%Comp. and Comm.
Valuable Patents, Allison, John R. et al 2003 supra,
So What Happened?
The Injunction Hearing Feb. 24, 2006
the general rule is that a permanent injunction will issue once
infringement and validity have been adjudged; injunctive relief
should be denied only in rare instances where necessary to protect
the public interest.
Strong Public and Private Health and Safety Interest.
Strong State and Local Government Interest.
Section 1498 exemption.
Overarching Public and Private Economic and Practical
U.S. Government Intervention
BlackBerry UsesBlackBerry Uses
Banks and Brokers
Other BlackBerry Users In Critical Infrastructure Sectorsor
Other Essential Industries
Government Contractors &
Government Contractors &
Postal &ShippingPostal &Shipping
At least 13 Critical Infrastructure Sectors
BlackBerry Public interest Uses
26Public Interest Evidence in Support of NO Injunction:Balcoure
Boucher NIH, DOD, Vendors
Erwin Florida Dept. of Health
Halamka Harvard Medical
Humbert Health and Nursing in Florida
Liscouski Homeland Security
Nye Florida Law Enforcement
Zadra FDLE Intelligence
Linn American Gas Association
Yermus Drug interaction data
Roga financial uses
Altschul Public and Private critical users
ONeill Local Governments
David Arlington County, VA
Wallace Wireless Incident Notification for COOP
Mayer-Schonberg Harvard Kennedy School of Govt (BB superior to
Mazor Custom Alert Messaging
Bade 460 BB in DC Hospitals
Copas organ donations
Birnbach financial uses
Morrison Real Life emails
NTPs Public Interest Evidence:
Quality of NTPs Patents
The PTO found these patents were INVALID in re-examinations.
Refusing to enjoin infringement of rejected patents should NOT
be irreparable harm to the patent owner.
There is a strong public interest against questionable
Enforcing invalid patents through an injunction is granting a
There has NEVER been a BPAI or CAFC reversal of a rejection in a
Director Initiated Reexamination.
And in the reexaminations the PTO followed its new procedure of
using elite team of THREE Senior Examiners.
Judge Spencers Remarks from the Bench Feb. 24, 2006
THE COURT: All right. The hallmark of sanity is that one remains
firmly tethered to reality. And one unfortunate reality for RIM,
and one that they would just as soon forget or ignore, is that in
this very courtroom there was a trial, a jury was selected, a trial
was carried out for a period of weeks, and evidence was received,
and the jury heard arguments from some of the best legal talents
that money can buy. And when all was said and done, they decided
that RIM had infringed NTP's patent, and that the infringement was
The jury consisted of 12 men and women, tried and true citizens
of this district, and I can assure you that the citizens of this
judicial district and the Commonwealth of Virginia are not foolish
or frivolous when it comes to the matter of fixing legal liability.
After all of the appeals, the petitions this central truth, this
reality of the jury verdict has not changed in any essential or
I can discern from reading the pleadings and preparing for this
hearing that a legal decision, a Court imposed solution, will be
imperfect. The legal squabbling will continue, RIM's business will
continue, in plain words the case should have been settled. But, it
hasn't. So I have to deal with that reality
I'm going to take the matter under advisement and I will issue a
decision as soon as reasonably possible. I'm thinking that probably
the damages order may come out quicker than the decision on
injunction. That requires a little bit more thought.
Statement of James Balsillie, Co-Chief Executive Officer,
Research In Motion Before the Subcommittee on Courts, the Internet
and Intellectual Property of The House Committee on the Judiciary
On Patent Quality: April 5, 2006
As the Members of the Subcommittee are certainly aware, last
month RIM paid $612.5 million to settle a patent lawsuit brought by
patent holding company, NTP. Despite clear evidence that the Patent
Office had rejected the NTP patents and was very likely to declare
these patents invalid, RIM was effectively forced to pay one of the
largest settlements in U.S. history in order to end NTPs highly
publicized threats and the associated uncertainty felt by RIMs U.S.
partners and customers.
RIMs experience in the NTP case demonstrates that there are
significant social and economic costs inherent in treating patents
as an absolute property right. We hope that Congress will consider
these costs carefully in deciding which is the appropriate
characterization of patent rights.
35Quality of Patents; Limitation on Number of Claims
Patents with an excessive number of claims put a huge burden on
the process and can compromise the quality of the patents
In our case, an NTP patent with 665 claims issued without a
single documented office action. The prosecution history consists
solely of references to undocumented meetings with the applicants.
Qualcomm noted in its request for a director-initiated
reexamination of the NTP patents, [w]eunderstand that the U.S.
Examiner allowed over 1690 claims in five U.S. Patentswithout ever
issuing an action on the merits, with the exception of one
double-patenting-only rejection on the 172 patent.
Another issue of patent quality relates to the ability of patent
holders to file multiple continuation applications during the life
of the patent. I believe that, in the aftermath of the NTP
litigation, we have to ask if the ability to file continuations in
this manner is consistent with the objectives of progressing
In the case of NTPs suit, four of the five patents asserted at
trial were continuations.
After RIMs success on appeal, there were nine claims in three
patents left at issue in the suit, and only one of these claims was
not in a continuation.
Six of these claims were in the 592 patent, which was a
continuation filed more than eight years after NTPs first patent
NTP filed the 592 patent application six months after RIM
launched the BlackBerry solution, and NTP sued RIM on that patent
the day after it issued. NTP plainly crafted claims in the 592
patent to specifically cover what RIM had already independently
Indeed, in the reexamination of the 592 patent, the Patent
Office has determined that RIM not NTP was the first to invent what
NTP claimed in its 592 Patent. Thus while RIM never copied the
inventions in the NTP patents, NTP was able to aggressively use the
current continuation practice to copy RIMs ideas and seek an
injunction that would prevent RIM from practicing what RIM
Even with the Patent Office issuing rulings fully and finally
rejecting the NTP patents remaining in suit as unpatentable,
theDistrict Court hearing the case was unmoved. Although the
Courtdid not formally enter a ruling at that time, the Judges
comments during the proceedings emphatically suggested that he
viewed the final office actions as irrelevant to his decision
I respectfully suggest that clarity be given to companies as
tothe relevance of reexamination proceedings, possibly by providing
formal guidance to the courts on what deference to give the Patent
Offices reexamination proceedings during its different stages as
the Court weighs the procedural options in litigation (e.g., stay
the litigation or limit injunctive relief pending the outcome of
Remedies for Patentees
A second key question raised by the NTP case is: Should there be
limitations placed on the compensation available to patentees?
Although some may ask why cant we let the marketplace take care
of the problem, the reality is that the current law on injunctions
effectively gives patentees a gun, and the availability of a gun to
one party in negotiations tends to skew the results that would
otherwise naturally occur in the marketplace. Patentees are
effectively able to use the Courts as a weapon to extort settlement
amounts far greater than the reasonable market value of their
What NTP said:
We get a lot of bargaining power [if an injunction is awarded].
(InfoWorld August 2, 2005)
Sooner or later were going to be back before Spencer and were
going to get the injunction. All I need is one of my 16 claims to
shut em down and Im gonna shut em down.
As was widely reported during the course of the NTP litigation,
and especially in the last six months, RIM faced the very real
possibility of an injunction being imposed by the District
NTP further leveraged this threat against RIM by hiring a public
relations firm to instill fear amongst RIMs customers and
shareholders by way of a publicity campaign, effectively
threatening millions of American customers in order to put
additional pressure on a public company to capitulate to excessive
EBAY INC. et al. v. MERCEXCHANGE, L. L. C. (U.S. Sup. Ct. May
15, 2006) And as in our decision today, this Court has consistently
rejected invitations to replace traditional equitable
considerations with a rule that an injunction automatically follows
a determination that a copyright has been infringed.Per Justices
Kennedy, Stevens, Souter, and Breyer
In cases now arising trial courts should bear in mind that in
many instances the nature of the patent being enforced and the
economic function of the patent holder present considerations quite
unlike earlier cases. An industry has developed in which firms use
patents not as a basis for producing and selling goods but,
instead, primarily for obtaining licensing fees
For these firms, an injunction, and the potentially serious
sanctions arising from its violation, can be employed as a
bargaining tool to charge exorbitant fees to companies that seek to
buy licenses topractice the patent
When the patented invention is but a small component of the
product the companies seek to produce and the threat of an
injunction isemployed simply for undue leverage in negotiations,
legal damages may well be sufficient to compensate for the
infringement and aninjunction may not serve the public
In addition injunctive relief may have different consequences
for the burgeoning number of patents over business methods, which
were not of much economic and legal significance in earlier times.
The potential vagueness and suspect validity of some of these
patents may affect the calculus under the four-factor test.
Could it Happen Here?
Belzberg Technologies Inc., which sells software and services
for stock traders, said it has retained Donald Stout to help it
enforce two patents. Mr. Stout is best known as the co-founder of
NTP Inc. and the man who turned a drawer of dusty patents into a
$612.5-million (U.S.) windfall from RIM in March.
We were very impressed by his track record, said Sydney
Belzberg, chief executive officer of Belzberg Technologies. We
think he's got a lot of integrity and we're very, very happy to
have him on our side.
The Toronto-based firm received a U.S. patent in 1999 for
software that translates transactions into the appropriate language
for various stock exchanges and lets traders buy and sell directly
from one computer screen. Mr. Belzberg claims that the patent,
along with a second granted in Europe in 2004, covers a process
used by traders around the world. RIM nemesis Stout gets a Canadian
gig Globe and Mail May 20, 2006