An Energetic, Engaging and Balanced Symposium on Patent, Copyright and Trademark Trolls PART IV

The final panel was entitled, “Copyright and Trademark Trolls: Fable or Fact?”  The panelists included: Chris Arledge, Co-founder and Managing Partner, One LLP; Tom W. Bell, Professor of Law, Chapman University Fowler School of Law; Brad A. Greenberg, Postdoctoral Research Scholar in Intellectual Property, Columbia Law School; Lindy Herman, Senior Associate, Fish & Tsang LLP; and Michael S. Mireles, Professor of Law, University of the Pacific, McGeorge School of Law.  The moderator was Professor Mary Lee Ryan, Chapman University Fowler School of Law.  The following is a partial description of the panel discussion.

I was the first presenter and discussed my forthcoming paper which explains why “trademark trolls” are not a problem in the United States.  First, I explained that I was not proposing a practice requirement for patents, that trademarks are critical to our capitalist economy, that there are arguably problems with trademark enforcement--such as trademark bullies, and that a “troll-like” problem can develop in the trademark sphere because of changing law.  Second, I noted that the defining characteristic of a patent troll is failure to practice the invention.  Since U.S. trademark law has a use requirement, the trademark troll problem is effectively mitigated.  Further, failure to use can result in abandonment and the use requirement underlies the prohibitions against naked licensing and assignments in gross.  Next, trademark law has well-established inter partes proceedings such as opposition and cancellations actions which protect a producers ability to control related markets.  Third, policymakers have reacted well to potential troll-like problems in the domain name space by enacting the Anti-Cybersquatting Act and ICANN’s dispute resolution policy.  Policy makers have also learned from prior issues in the trademark field.  For example, ICANN was very thoughtful and proactive in making sure that the same cybersquatting issues would not arise in the new top level domain name space.   Fourth, I noted that U.S. Supreme Court case law directed at patent trolls may make a troll problem less likely to develop.  eBay v. MercExchange has been applied to trademark cases removing the categorical rule that a demonstration of a likelihood of confusion means that irreparable harm is proven.  The Octane Fitness case lowering the standard for attorney fees in patent law cases has also been applied to trademark cases.  Moreover, the same strategic advantages available to patent trolls are not available in the trademark field: layering defendants; asymmetrical discovery; availability of counterclaims; forum shopping; and intent is a factor for determining trademark infringement and dilution. 

Mr. Greenberg provided a very thoughtful discussion of copyright trolls.  He stated that there is an estimate that “41% of all cases filed were filed by copyright trolls.”  He states that some scholars argue that trolls are attracted to copyright trolling because of the low level and cost of obtaining a copyright, and the attractiveness of statutory damages.  He also states that scholars agree that copyright trolls are bad.  He has argued that we should have a presumptive fair use requirement that only applies to copyright trolls.  First, he looks to what is a copyright troll.  There are many definitions.  He identifies a copyright troll as someone who “acquires a copyright to enforce them,” “invests in a work based on litigation value not commercial value,”  “lacks a good faith licensing program” and “exploits statutory damages for settlement on often weak claims.”   He discussed the Righthaven litigation.  He noted that Righthaven recovered over 100 settlements.  He also discussed copyright porn trolls.  He explained how they use shame in litigation, but without making a clear connection between the IP address and the actual user.  Second, he looked at what makes trolls bad.  He thinks trolls “screw up” the incentive/access balance.  He discussed potential positive contributions of trolls, including: “they may increase compensation to authors;”  “free authors from having to monitor infringement” and deter infringement by making enforcement more likely.  The bad is that they encourage litigation and “compensate for litigation value instead of commercial value.”   He noted that copyright trolls can “chill speech.”  He states we survive because of “tolerated use” as Professor Tim Wu has noted.  Trolls do not tolerate uses.  He notes that the question “is what form will trolls take next.”

Professor Tom Bell provided a fascinating discussion of copyright as privilege.  He states that we have an “uneasy feeling” about copyright.  He believes that the problem is that we are treating copyright essentially stronger than other property.  He notes that we should be skeptical of calling copyright and taxi medallions “property.”  He notes that copyright porn trolls “engage in mass extortion” as a District Court Judge has stated as well.  These plaintiffs are using remedies that are stronger than common law remedies for other forms of property—property in the tangible.  He notes that law and economics scholars recognize that transaction costs are low with respect to enforcing rights in real property, so markets work there.  That is not true in copyright and particularly with porn suits.  The transaction costs include the difficulty of determining what is protected by copyright and there is also an issue with identifying the correct infringers.  The problem is the very large amount of statutory damages.  He thinks the solution is not to think about copyright as a “right,” but as a privilege.  He further discusses taxi medallions that can be very valuable, at least until Uber.  Uber reduces the value of taxi medallions.  He states that taxi medallion holders believe that they essentially have a “property” right and are protesting against the loss of their right.  However, he thinks that a better view is to look at taxi medallions as privileges.  He thinks that we have “market legal failures” with respect to copyright trolls and taxi medallions.  Since transactions costs are too high, then property type remedies are not appropriate.  We should view them as privileges instead that can be “tinkered” with “as long as due process requirements are met.”

Mr. Arledge provided a compelling argument concerning copyright enforcement.  He states that we need to think about copyright trolls from the perspective of understanding how attacking trolls will impact content creation.  He provides a very nice example of a paparazzi photograph and the erosion of the market for those photos because of mass infringement on the internet.  A solution may be obtaining licenses, however, the problem with trying to get licenses from the folks posting the photos is the usage of the DMCA “safe harbor.”  However, the issue is that once you use the DMCA process is that the value of that photograph is lost.  He notes that “the market is fundamentally broken.”  He believes courts are “stretching” the DMCA “safe harbor” beyond what he believes Congress intended.  He also discusses an example of a Russian website that is an “infringement mill” and a court has held that it falls within the “safe harbor.”  He further critiques the attractiveness of statutory damages to trolls.  He makes several points, including that many defendants do not have money and cannot pay, and are not worth going after.  The folks with money may not cave because of statutory damages.  He believes this is because a jury is unlikely to grant statutory damages for a weak copyright claim, so he would not bring the suit.  Finally, he asks what is the value of a paparazzi photograph offered for licensing—it has a very low value.  He encourages caution when proposing reform without empirical data especially when people are losing their livelihoods. 

Ms. Herman made several helpful comments.  She stated that you are unlikely to get statutory damages against defendants—you will get what they can pay for.  She does note that the threat of statutory damages can be helpful.  She believes what matters ultimately is the business decision.  She notes that frivolous litigation occurs in other areas of law and that, perhaps, some activity or entities do not necessarily need the label of troll.  She thinks the copyright “porn troll” problem concerns tactics—such as shaming the user.  That is the problem. 

The full discussion via webcast for the panels is available here. 

An Energetic, Engaging and Balanced Symposium on Patent, Copyright and Trademark Trolls PART III

The next panel is entitled, “The Practitioner’s Perspective:The Effect of Patent Non-Practicing Entities on Industry.”  The panelists include Lee Cheng, Chief Legal Officer, SVP-Corporate Development and Corporate Secretary, Newegg Inc.; Robert D. Fish, Founding Partner, Fish & Tsang LLP; Ian D. McClure, Director, Intellectual Property Exchange International, Inc.; Congressman Dana Rohrabacher, U.S. Representative for California’s 48^th Congressional District; and Nathan Shafroth, Partner, Covington & Burling LLP.  The moderator is John B. Sganga, Jr., partner at Knobbe, Martens, Olson & Bear.  The following is a partial description of the excellent panel discussion. 

The moderator, Mr. Sganga, posed several questions for the panelists.  The first question is “has the trend of NPE suits peaked?”  Mr. Shafroth noted that recent Supreme Court cases have “raised the barrier to entry” for new patent suits.  He is surprised that the rate of decline is not greater.  He thinks that one of the main reasons for decline includes: the Supreme Court’s Alice decision and the district courts' and the Federal Circuit’s interpretation of that decision.  He believes that some companies are more selective in patent enforcement.  Mr. Cheng noted that Newegg is not being sued anymore since Alice.  He also noted that “it is the low, low, low hanging fruit that is eliminated.”  He believes we still have problems with “imbalance” in the patent system.  He notes it is less than $10,000 to get a patent, but the cost to eliminate it is huge—perhaps around $300,000.  Mr. McClure notes that there are many patents with “nominal” value, but there is some “rearranging of business models” by nonpracticing entities.  Those entities are attempting to acquire better quality patent portfolios—“aggregation is the game.”  Mr. Shafroth noted there are other reasons for why there is a decline in patent suits.  One includes damages decisions, particularly by Chief Judge Rader, which limit damages for patents covering a part of a component product, such as smart phones.   Mr. Sganga noted that small companies and inventors may be hurt by these new developments.  Mr. Fish notes that we need to distinguish between enforcement and extortion, and Vermont’s legislation moves toward that goal through focusing on “bad faith.”  He believes “having the ability to sue through an NPE is critical” for some inventors and small companies with good patents that cover very good technology.  They do not have the resources to enforce their patents.  For business development, we need nonpracticing entities.  Congressman Rohrabacher noted the purpose of the patent system, but notes that “major multinational corporations are trying to change the discussion” away from the fact that a “property right has been stolen.”  He expressed a lot of concern for small corporations and “crony capitalism.”  Mr. Cheng stated that there are many “myths” surrounding the patent debate, including “that the patent act [helps] the little guy.”  He noted that patent rights are “property rights,” “but that not all property rights are created equally.”  Mr. Fish noted that some of the problem concerns “allocation of risk” and that there is litigation insurance.  These are just costs of doing business.  Mr. McClure noted that 96% of companies are relatively small.  He further noted that ascertaining the value of patents is difficult and expensive.  He thinks that NPEs helpfully create information concerning patents and that more information about patents is helpful.  He thinks that crowdsourcing of prior art is a good idea.  Congressman Rohrabacher states a patent represents “hard work” and is against taking away the chance of “treble of damages.”  Mr. Fish noted that “things have gotten out of hand,” but many developments are moving toward restoring balance, such as Alice and a focus on patent eligibility early and some districts requiring very early claim construction.  Mr. Cheng believes we should examine “abusive behavior” as opposed to status.   No one on the panel thinks that enforcement of quality patents is a problem.  

The full discussion is available via webcast here. 

An Energetic, Engaging and Balanced Symposium on Patent, Copyright and Trademark Trolls PART II

Andrew Byrnes, Chief of Staff, United States Patent and Trademark Office, was the lunch and keynote speaker.  His speech was entitled, “Standing Sentinel Over Innovation: The Importance of a Balanced and Effective IP System.”  The following is a partial description of his thoughtful speech. 

Mr. Byrnes noted the growing economic significance of intellectual property—accounting for 20% of American jobs.  He asks the important question: “How do we know if we are standing sentinel over innovation or just standing in the way?”  He noted that, as President Obama did in a Town Hall on Innovation, we need a balanced IP system.  He notes that patent litigation expenses are high and the asymmetry of litigation expenses push the accused infringer toward settlement.  Some of the other costs include the “risk of disrupting relationships,” “risk of patent counterclaims,” “discovery burdens and costs,” and availability of attorney fees.  He states we need to change how we think about the problem.  We should not think about “Who is the type of patent holder; How does the patent holder intend to use the patent”; and “What is the type of accused infringer.”   He thinks the question is does the system stop “abusive behavior.” He states that the USPTO is thinking about these issues—not only issues associated with procurement of patents.   He reviewed legislative, judicial responses, and administrative actions, and noted that we have to look at the “entire landscape” concerning the problem.  He noted that the USPTO is “committed to quality.”  Interestingly, he noted that “quality” includes an analysis of whether the system “encourages innovation.”  Some of the initiatives at the USPTO include: “improved patent claim clarity,” including a glossary pilot system; “expanded technical training for examiners”; “greater international harmonization to lead to more certainty for American inventors;”  “prior art crowdsourcing;” “IT improvements;” and “Pro bono & pro se assistance.”  He also noted that the UPSTO is “ramping up its patent quality team” through a new “Deputy Commissioner for Patent Quality,” who has recently been named.  Finally, he stated that the Patent Trial & Appeal Board has a large role in improving quality through the new AIA post grant proceedings.  He stated that they are “faster;” “more efficient;” and “less expensive” than district court litigation.  For fiscal year 2014, for inter partes review, there were 557 trials instituted.  He noted that the PTO is “calling balls and strikes.”  Some patent claims are upheld and some are struck down.   He stated that the USPTO goal is to hire 60 more administrative judges in fiscal year 2015.  Finally, he discussed “promoting American business abroad” and noted that “80% of [the world’s purchasing power [is] overseas.”  He stated that the PTO is working on “support[ing] trade negotiation” and supporting work towards “new trade agreements, e.g., Trans-Pacific Partnership.”   The USPTO is also working on engaging stakeholders through education and outreach.  Mr. Byrnes' full presentation can be found here. 

An Energetic, Engaging and Balanced Symposium on Patent, Copyright and Trademark Trolls PART I

The Chapman University, Fowler School of Law’s Law Review sponsored a symposium titled, “Trolls or Toll Takers: Do Intellectual Property Non-Practicing Entities Add Value to Society.”  The symposium examined three areas of inquiry:

(1) . . . expanding on the scholarly debate surrounding patent trolls; (2) by expanding on the perspectives informing this debate beyond academia by inviting the views of practitioners from both sides of the patent troll divide; and (3) by expanding on the scope of this topic by considering the nature and possibility of copyright and trademark trolls.

I am blogging the conference and here is a partial description of one of three of the panels.  I will also post partial descriptions of the keynote speaker’s address and the second and third panels soon.  For more information about the speakers and the symposium, please use this link.  Webcasts of the complete symposium discussion can be found at that link as well.  The symposium was organized by Professor Samuel Ernst and the Symposium Editor for the Law Review is Rachel Baker. 

The first panel is titled, “The Scholar’s Perspective: Theories of Patent Trolling.”  The panelists included Robin Feldman, the Harry & Lillian Hastings Professor of Law and Director of the Institute for Innovation Law at UC Hastings College of the Law in San Francisco, California; Brian L. Frye, Assistant Professor of Law, University of Kentucky College of Law; Ryan Holte, Assistant Professor of Law, Southern Illinois University of Law; and Amy L. Landers, Director of the Intellectual Property Law Program and Professor of Law, Drexel University Thomas R. Kline School of Law.  The moderator was Professor Samuel Ernst, Chapman University Fowler School of Law. 

The first panelist to participate was Professor Feldman, who provided a thorough and thoughtful discussion of the patent troll problem and patent reform.  Building on and referring to her earlier work, she discusses the Government Accounting Office data concerning non-practicing entities.  She notes that the results of this study are similar to other studies, if you include those NPEs organized as trusts.  She points to the problem that patent demand letters are very troublesome and account for most of the activity concerning non practicing entitles.  However, she states that it is difficult to gather data concerning demand letters and negotiations because they are subject to non-disclosure agreements.  She does point to some studies which shed some light as to what is happening with demand letters and subsequent activity that does not result in formal litigation.  She outlines how there have been government responses to the nonpracticing entity problem and discusses the Supreme Court cases addressing nonpracticing entities, including the importance of the Alice decision.  She looks to the future and notes that, “the rhetoric” is escalating, and expresses concerns about how the Supreme Court is being attacked as “political.”  She notes that “in theory” monetization activities can have “positive ends,” but she thinks the way things are happening are not productive.  She further notes that smaller firms may suffer the most.  She advises turning down the rhetoric and working on the issues.

Professor Landers asked a fascinating and provocative question of whether patents are the new bitcoin.  She notes that patent monetization and patent markets have the potential for “positive change,” such as increasing collaboration internationally in research and pushing funds to research and development.  She notes that nonpracticing entities are acting rationally in our free market economy.  She states that the problem with patents markets is that there is a “lack of agreement on price.”  Thus, “there is a lack of transparency.”  She makes the general point that there must be a valuation of the asset that is credible and transparent, and, in part, because we lack this there is essentially a “patent bubble.”  If this “patent bubble” bursts, then the entire system is discredited.  She further notes that “a lack of comparables” exist in patent markets similar to bit coin.  She also points to “nonproportional responses” as “policy bubbles” discussed in sociological research, that may not provide the benefits that may be expected by stakeholders and the public.  One example she gives is appointing a czar to address problems.  She notes there is not a “widely accepted” way to value patents – there is “a lack of a fundamental understanding of how patents are priced.”  She notes that the “price of litigation has nothing to do with the value of the patent” and that this is a fundamental problem.  She further notes the problem with royalty stacking.  She proposes that we move “toward industry accepted norms for rates” and that we exercise caution with how royalty rates are set in the future. 

Professor Ryan Holte provided a comprehensive and interesting analysis of the MercExchange and eBay litigation history.  His past work has examined case studies concerning non-practicing entities such as MercExchange.  He reviews the history of the eBay v. MercExchange case.  Notably, he states that every time a patent case went to the district court judge in the eBay v. MercExchange litigation, Judge Friedman, he dismissed it—and he further characterized Judge Friedman’s decisions as “anti-patent owner”.  He notes important facts influencing the case, including eBay’s essentially anti-patent public relations campaign and eBay’s spin of the Federal Circuit and Supreme Court’s decisions as wins.  He points to data after the eBay case and notes “a huge change” in patent injunctions granted.  He notes that the “[p]ost-eBay injunction denial [rate is] at 78% for NPEs.”  He states that “eBay does not stand for injunctions being unavailable to PAEs—[and that] the true holding has been lost.”  He notes that MercExchange did win in some ways.  He further noted that district courts tend to overuse the language in Justice Kennedy’s concurrence concerning NPEs.  He also states that “large notorious public companies are dangerous as litigants for useful legal precedent.” 

Professor Brian L. Frye insightfully stated that metaphors obscure the problems associated with intellectual property problems.  We use many metaphors to describe the scope of intellectual property, such as “sweat of the brow” or “thieves” or “bootleggers.”  And, finally, “trolls”—entities that may abuse their rights.  He suggests that dropping metaphors is a good idea for understanding intellectual property, particularly directed to IP concerned with efficiency justifications.  He points out that the problem is poor patents and the troll metaphor obscures that discussion.