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RIM ATS NTP: Lessons Learned
Barry B. SookmanNovember 30, 2006
McTet2 #3690836 v1
“Playing to Win on the World Stage –The Winning Hand for Canadian
Microelectronics”ITAC: The 12th Executive Forum on
Micro-electronics
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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 innovation
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 RIM’s customers were liable for direct infringement under 35 U.S.C. § 271(a) even though an essential element of the BlackBerry system, RIM’s Relay which makes RIM’s 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 country.”
• Thus, the Court agreed with RIM that a finding of direct infringement by RIM’s customers under section 271(a) of the method claims that recited an “interface switch” or an “interface” was precluded by the location of RIM’s Relay in Canada.
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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 networks.”
• “For entities with foreign activities, such as those members of the Amici organizations, the CAFC’s 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
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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 activity?
• 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. Supreme Court
RIM is “poster child” for US patent reform
9“RIM 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.’”
http://www.cfr.org/content/publications/attachments/PatentCSR.pdf
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Patent Trolls/Patent Assertion Companies
• The expression ‘patent troll’ is a pejorative and controversial phrase attributed to former Intel assistant general counsel Peter Detkin.
• “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 infringer’s product or service’… Wikipedia
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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 resources.”
• “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 intellectual assets.”
• “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 since 1999.”
• “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
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Patent Terrorism?• “No bombs. No hijacks. No recorded messages. And no
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 27, 2006
• “In the last decade, patent enforcement has grown into a multibillion shadow industry that is transforming America’s 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.
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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, RIM, eBay.
• 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.
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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
MercExchange
Billion from licensing patents covering IVR/call center technology Ronald A. Katz
Medtronic settlement for $1.35 billion following jury award of $400m.
Dr. Gary Michelson (surgeon, holder of patent on spinal fusion implant technology)
Judgement against Microsoft for $521m on patent for method for displaying browser plug-ins
Eolas Technologies
Over $1.2 billion since 1988 in license fees for patents over bar code readers
Lemelson Medical, Education & Research Foundation
RevenuesName of the Troll
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PATENT Troll Examples
Collected royalties > $675m from Intel and TI on clipper processor technology
Intergraph
Patent covering “superfast transmission of songs and content” making claims Apple after settling for $60m with Microsoft on another patent
Burst;Burst.com
Claim on xml data format standard used for many years
Scientigo
Judgment for $91m against Sony over haptics technology (permits interaction with virtual worlds); also settled with Microsoft for $26m
Immersion
Sued over 50 banks and other FIs for infringing their patents on check imaging technologyData Treasury
RevenuesName of the Troll
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“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 transmission.
• 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 Valley.”
• “…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”. Lemley infra.
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Benefits/Harms of Patent Trolls
Benefits:
• “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.”
Harm:
• “Increase costs for manufacturers due to increased potential of having to pay royalties for intellectual property which they do not own.
• Increase costs for product developers due to the increased need to monitor issued patents and pending patent applications.” Wikipedia
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What Fuels Patent Assertions?
• “Anything under sun” is patentable including business method patents
• Too few patent examiners; not enough prior art in some fields
• Poor examination leading to poor quality patents; patents issue with very broad/dubious claims that permit assertions that cast “wide nets”
• Number of claims in patents makes it difficult to defend suits
• 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 doesn’t apply to trolls
• Contingency fee system
• Juries are very unpredictable and inconsistent; 50% reversed on appeal
• 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 settlements
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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 (2003)
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Submarine Patents
28 years11/03/198704/06/1959Light amplifiers employing collisions to produce a population inversion
Gould USP4,704,583
20 years11/11/198609/09/1966Automated machine installation and method
Williamson USP4,621,410
21 years07/17/199011/24/1969Application for micro computer basic technology
Hyatt USP4,942,516
38 years09/01/199212/24/1954Machine vision and bar code technologies
Lemelson USP4,118,730
Submarine termIssued date
Application dateSubstanceName
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.
26%20%Other
10%19%Chemistry
16%10%Drugs & Med.
16%21%Mechanical
12%18%Elec. and Electronic
20%13%Comp. and Comm.
LitigatedPatents
Issued Patents(weighted)
Category
Valuable Patents, Allison, John R. et al 2003 supra,
So What Happened?
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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.’”
RIM’s Defense:
• Strong Public and Private Health and Safety Interest.
• Strong State and Local Government Interest.
• Section 1498 exemption.
• Overarching Public and Private Economic and Practical Considerations.
• U.S. Government Intervention
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BlackBerry UsesBlackBerry Uses
Schools
Banks and Brokers
Police
Firemen
Emergency RespondersPara-Medics
Physicians
Hospitals
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Other BlackBerry Users In Critical Infrastructure Sectorsor Other Essential Industries
AgricultureAgriculture
FoodFoodWater
PublicHealthPublicHealth Emergency
ServicesEmergency
Services
Government Contractors &
Suppliers
Government Contractors &
SuppliersDefenseDefense
Information/Telecom.
Information/Telecom.
EnergyEnergy
TransportationTransportation
Banking &Finance
Banking &Finance
Chemical/HazardousMaterials
Chemical/HazardousMaterials
Postal &ShippingPostal &Shipping
At least 13 Critical Infrastructure Sectors
BlackBerry “Public interest” Uses
26Public Interest Evidence in Support of NO Injunction:Balcoure – Alachua County
Boucher – NIH, DOD, Vendors
Erwin – Florida Dept. of Health
Halamka – Harvard Medical
Humbert – Health and Nursing in Florida
Eaton – Hurricanes
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
Hammerman – Securities
O’Neill – Local Governments
David – Arlington County, VA
Wallace – “Wireless Incident Notification” for COOP
Mayer-Schonberg – Harvard Kennedy School of Gov’t (BB superior to SMS)
Mazor – “Custom Alert Messaging”
Bade – 460 BB in DC Hospitals
Copas – organ donations
Birnbach – financial uses
Morrison – “Real Life” emails
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NTP’s Public Interest Evidence:
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Quality of NTP’s 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 monopolies.
• Enforcing invalid patents through an injunction is granting a questionable monopoly.
• 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 Spencer’s Remarks from the Bench Feb. 24, 2006
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Judge Spencer
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 willful.”
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Judge Spencer
“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 substantive way.”
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Judge Spencer
• “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”
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Introduction
• 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 NTP’s highly publicized threats and the associated uncertainty felt by RIM’s U.S. partners and customers….
• RIM’s 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 issued…
• 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. Patents…without ever issuing an action on the merits, with the exception of one double-patenting-only rejection on the ‘172 patent.”
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Continuations
• 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 innovation.
• In the case of NTP’s suit, four of the five patents asserted at trial were continuations.
• After RIM’s 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 NTP’s first patent application.
• 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 developed.
• 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 RIM’s ideas and seek an injunction that would prevent RIM from practicing what RIM invented.
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Re-Examination Procedures
• “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 Judge’s 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 Office’s 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 the reexamination).”
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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 can’t 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 patents.
What NTP said:
• “We get a lot of bargaining power [if an injunction is awarded].” (InfoWorld August 2, 2005)
• “Sooner or later we’re going to be back before Spencer and we’re going to get the injunction. All I need is one of my 16 claims to shut ‘em down and I’m gonna shut ‘em down.”
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Injunctive Relief
• 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 Court.
• NTP further leveraged this threat against RIM by hiring a public relations firm to instill fear amongst RIM’s 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 demands.
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 interest.”
• “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.”
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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
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