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US DOJ FTC Patent Troll Probe: Google, Microsoft, Academic, Public Comments (analysis)

aNewDomain.net – The U.S. Department of Justice has posted the bulk of public, corporate, academic and international comments that it has so far received in its DOJ FTC patent troll probe. Patent troll is a pejorative term. The government calls them Patent Assertion Entities (PAEs). On the DOJ site, you’ll see I wrote an open letter to U.S. President Obama — it appeared first as a piece here at aNewDomain.net — urging the President to utilize all the subpoena powers his agencies have to get to the bottom of patent trolling and patent privateering.

Patent privateering. That’s the shadowy method certain patent trolls and some tech companies use to attack competitors in the courts without revealing their true identity. Instead, they sue using difficult-to-recognize and strangely-named shell companies they set up just for the purpose of profiting on litigation, settlements or licensing fees.

I coined the term “patent privateering” in 2010 and explained it later in a piece I wrote for IAM Magazine.  Find that in full, readable in place, below the fold.

Microsoft, Google, Apple and Intuit are among the major companies who commented publicly. Their comments are readable in full below. Interestingly, the four are also among major-tech-giant investors in one of the biggest PAEs, the multi-billion-dollar Intellectual Ventures, as court disclosures show. Google, sources tell aNewDomain.net, has since made a break from IV and has refused to re-up its sizable investment.

Startup execs, academics, various attorneys, private individuals and even international commentators weighed in, too. So did someone from the United Nations World International Property Organization (WIPO), though it posted as an individual comment from a private citizen.

The burning issue here —  and the topic of all these comments — is whether the U.S. should investigate or regulate the activities of PAEs, particularly those that operate under veil, an activity that is not illegal today.

But are trolls (or PAEs) anti-competitive or violating antitrust law in the United States? In essence, that’s what the FTC-DOJ patent troll probe is all about. And here’s the gist of what the comments say.

In his comment to the DOJ, Gene DeFelice of Barnes & Noble slammed trolls hard.

DeFelice wrote:

In the current system, patent trolls overwhelm operating companies with baseless litigation that is extremely costly to defend. Patent cases generally cost at least $2M to take through trial, and frequently much more. Litigating, even to victory, also entails massive business disruption. Companies are forced to disclose their most sensitive and top-secret technical and financial information and must divert key personnel from critical business tasks to provide information and testimony.”

Albert Foer, president of the  American Antitrust Institute, in his comment provides a long list of exactly how PAE activity potentially violates US anti-competitive doctrines. Ostensibly, he speaks to the whole point of the FTC-DOJ investigation in doing this.

Wrote Foer:

The manner in which PAEs acquire many patent portfolios may raise serious issues under Section 7 of the Clayton Act or Section 5 of the Federal Trade Commission Act. A significant transparency problem is inherent in many PAEs’ patent aggregation practices.”

In the comments, we also hear representatives from PAEs. Intellectual Ventures, for its part, has so far reserved its comments to its own site, pointing to a Harvard Business Journal article written by Nathan Myhrvold as its explanation for what IV really is — an incubator, he says, for invention.

Barry Leff, an exec speaking for IP Nav, a large and aggressive patent assertion entity by any measure, didn’t personify his firm as a PAE or troll — or not — but did say the government should note a subtle distinction between malevolent and benevolent PAEs. He suggests separating the PAE category into low-end and high-end PAEs and that the government should regulate only the former. He says:

We believe it is important to distinguish between “white hat” and “black hat” patent monetization … ‘Black hat’ patent monetizers use ‘spam’-type methods to seek enforcement of weak patents where there is dubious infringement – casting a wide net in hopes that at least some targets will pay to settle rather than spend more money to defend themselves in court. (But) ‘White hat’ patent monetizers are the reputable players in the field – companies that only enforce valid patents where there is clear infringement.”

The bulk of individual comments and of those individuals publicly representing small inventors, inventor alliances and startups spoke up loudly against the activity of patent assertion entities, companies that amass huge war chests of patents and litigate for profit.

Lee C. Cheng of Newegg wrote:

The absurd notion that trolling is somehow pro-competitive because it creates a market for the sale and acquisition of patents raises the question of what competition is being promoted by such a practice and is it something that should be promoted. If the idea is to incentivize companies to invest in technology development for the sole purpose of generating patents that can be sold, this is a misguided suggestion where a troll is acquiring the patent from the innovator.”

EDC, Inc. CEO Curt Nelson, in a comment that appeared as a form letter from multiple respondents on the DOJ page, said PAEs are a detriment to small businesses:

Patent trolls hamper innovation and force small businesses and startups to spend big dollars on legal fees rather than investing directly in their businesses and workforce. Large companies usually have the legal and financial resources to fight these off, but it’s the smaller companies that get hurt the most.”

Larry Serflaten, an individual who said he speaks on his own behalf, says he was altogether opposed to even the idea of patenting software. “While litigation has merit in a vibrant and expanding industry,” he wrote, “speculative PAEs should be limited to minimal damage recovery and reasonable licensing arrangements.”

The bigger question, chimed in Rutgers law professor Michael A. Carrier, is whether patent trolls violate U.S. antitrust laws and whether there is “significant competitive harm (not justified by purposes of U.S. patent system), lack of procompetitive justifications, and labyrinthine networks (that) call for potential action.”

Nonsense, said Dr. Sinai Yarus of Israel’s Eyal Research Consultants Ltd. He is a patent agent absolutely opposed to U.S. investigation of patent holders, regardless of what you call them.

“If there is a conflict between patent rights and antitrust laws … which there does not seem to be … it should be resolved by legislation, not litigation.”

Alan Minsk, an attorney formerly aligned with Intellectual Ventures, told aNewDomain.net he could not speak on the record about the company due to its extensive non-disclosure agreements. Now with Lane Powell LLC of Tacoma, Wash., the IP attorney made pro-investigation comments on the risks financial institutions face when they buy into a patent assertion entity. A court disclosure last year revealed the hundreds of millions of dollars such institutions and trusts, including the William and Flora Hewlett Foundation, put behind multi-billion-dollar PAE Intellectual Ventures.

Minsk made an intriguing comment in his note to the DOJ:

… if the buyer’s investors have input into what portfolios are being bought, this might be another example in which the lack of transparency is distorting the market. In this case, the investors can hide behind the PAE or NPE and have their risk exposure reduced in a way that distorts the market.”

Nuno Pires de Carvalho, who works as a director at the IP and Competition Policy Division of the United Nations World Intellectual Property Organization (WIPO), commented as a private individual — but spoke from an international standpoint.

He described extensive differences between the way patents work in the United States versus “the rest of the world.” He wrote:

In the United States, patents are granted as tools of protecting private property rights. In the rest of the world … patents are instruments of industrial policy. The two systems are still coincident in that a patent is granted as recognition of an invention made. But the systems divide in that, in the majority of countries, actual manufacturing is necessary to keep the patent.”

Martin Snyder, president of Main Sequence Technology, said he believed that losing patent plaintiffs should have to pay attorneys fees.

The result is that beyond the direct costs, the entire legitimacy of the patent system is brought into question, which then paints even legitimate users as racketeers in the minds of the people.”

The Professional Inventors Alliance, in its official comment, said it was strongly in favor of changing an eBay court ruling to restore automatic injunctions.

This is just dissembling by large invention thieves and their paid puppets to kill any inventor support system. It is purely about legalizing theft. The fact is, many of the large multinationals and their puppets who defame inventors in this way themselves make no products in the US or create any American jobs and it is their continued blatant theft which makes it impossible for the true creators to do so.”

Christian Renaud, of StartupCity in Des Moines, IA, said PAEs are a detriment to small businesses. He wrote:

Abuse of our patent system by bad actors often kills innovation in its cradle … If this type of behavior is left unchecked, the patent system that was designed to protect innovators and inventors will become an impediment to innovation at a time this country needs to be rapidly creating our next key industries.”

Michael Risch, of the Villanova University School of Law, said just the opposite. Aggregation is okay, he remarked, and the U.S. should not consider PAEs’ collection of patents to be anti-competitive. Risch argues that PAEs and NPEs include anyone not actively practicing the patents that they litigate, not just large firms.

Aggregation by NPEs provides perhaps the best outlet for enforcement of individually obtained patents. However, before NPEs, individuals were active litigants. How one views NPEs will depend greatly on how one views individual inventors.”

A rep from Dassault Systems criticized PAEs — calling them patent trolls — and called for international norms:

… though the original inventor may receive some amount of money in exchange for his or her patent rights, the patent laws as originally intended are not directed towards liquidity or mere money-making schemes. Rather, these laws are specifically created to advance society’s knowledge in science and technology. Even more, patent trolls have never actually shown how increased liquidity on its own benefits society.”

Cristian Valbuena, the CEO at startup Artsnapper, was also anti-NPE, writing that:

These nameless, faceless entities only stifle innovation and progress.”

Tucker Reed, who identified himself as speaking for the Downtown Brooklyn Partnership, said he was concerned about small companies and the risks they face from patent trolls — that is, PAEs. He wrote:

Right now patent trolls are free to file as many frivolous lawsuits on patent infringement as they want. As a result of these baseless lawsuits, many small companies are forced to settle rather than pay millions in legal fees.”

Justin Johnson, CEO at startup No Sweat Co., had still stronger words.

Patent trolls are nameless and faceless entities that only stifle innovation and progress.”

The president of the St. Cloud, Minnesota Chamber of Commerce was strongly anti-troll in his comments. He wrote:

Right now patent trolls are free to file as many frivolous lawsuits on patent infringement as they want. As a result of these baseless lawsuits, many small companies are forced to settle rather than pay millions in legal fees.”

Tick Segerblom, chair of Nevada State Senate Judiciary Committee, was concerned, like many others in the DOJ forum, about small companies and the lawsuits they face from large PAEs. He wrote:

As a result of these baseless lawsuits, many small companies are forced to settle because they can’t pay millions in legal fees.”

Joan M. Caron, PhD, commented as a private individual and also came out against “trolls.” She wrote:

As technology advances, patent reforms must keep up to protect today’s tech industry. Specifically, we need protection from patent trolls who prey on our success.”

Jon Cipes, who listed himself as the owner of a company, Creative Fuel, wrote:

Patent trolls are nameless and faceless entities that only stifle innovation and progress by bringing frivolous patent claims and litigation against the innovators who help create jobs through new products and technology. These patent trolls especially impact small tech companies who can’t afford the lawsuits and often times end up shutting their doors for good or settling to avoid paying legal fees.”

Adam Peirce, an owner at Stonepier, expanded on that thought, writing:

These patent trolls especially impact small tech companies who can’t afford the lawsuits and often times end up shutting their doors for good or settling to avoid paying legal fees. The money spent on the litigation process should be spent towards innovation and developing new ideas.”

Morse Haynes, who lists himself as an economic developer director said:

It is in our nation’s best interest that necessary reforms be put into place to reign in their frivolous lawsuits and the damage they create.”

Find all the public comments as they appeared on the DOJ site as of April 9, 2013, below. The IAM Magazine article I wrote on privateering and some of the comments I found most noteworthy are readable in place below the fold.

Public Comments

PAEW-0001 Serflaten, Larry

PAEW-0002 Carrier, Michael A. (Rutgers Law School-Camden)

PAEW-0003 Yarus, S.

PAEW-0004 Cheng, Lee C. (Newegg Inc.)

PAEW-0005 Minsk, Alan

PAEW-0006 Nutter, Art (TAEUS International Corp.)

PAEW-0007 Pires de Carvalho, Nuno

PAEW-0008 Snyder, Martin (Main Sequence Technology, Inc.)

PAEW-0009 Professional Investors Alliance

PAEW-0010 Leff, Barry (IPNav)

PAEW-0011 The American Antitrust Institute

PAEW-0012 Barnes & Noble, Inc.

PAEW-0013 Nelson, Curt (EDC: Entrepreneurial Development Center)

PAEW-0014 Renaud, Christian (StartupCity Des Moines)

PAEW-0015 Risch, Michael

PAEW-0016 Dassault Systèmes

PAEW-0017 Valbuena, Cristian (Artsnapper)

PAEW-0018 Reed, Tucker (Downtown Brooklyn Partnership)

PAEW-0019 Johnson, Justin (No Sweat)

PAEW-0020 Bohnen, Teresa (St. Cloud Area Chamber of Commerce)

PAEW-0021 Segerblom, Tick (Nevada State Senate)

PAEW-0022 Caron, Joan M., PhD

PAEW-0023 Cipes, Jon (Creative Fuel)

PAEW-0024 Peirce, Adam (Stonepier)

PAEW-0025 Haynes, Morse (Monahans EDC)

PAEW-0026 Reiswig, Marilyn (Perryton – Ochilitree Chamber (Texas))

PAEW-0027 Russo, Betty (Polk County Economic & Industrial Development Corporation)

PAEW-0028 Hardy, Sheryl

PAEW-0029 Guenzel, Roxanne (South Padre Island Chamber of Commerce)

PAEW-0030 O’Brien, Richard (American Association of Advertising Agencies)

PAEW-0031 Olsen, Kristine (Dalhart Area Chamber of Commerce)

PAEW-0032 Valentino, Jim (James Roberts Creative)

PAEW-0033 Lemster, Bryan (Halcyon Innovation, LLC)

PAEW-0034 Carrier, Michael A. (Rutgers School of Law-Camden)

PAEW-0035 Feldman, Robin

PAEW-0036 Melius, Niels J. (Vanderbilt Journal of Entertainment and Technology Law)

PAEW-0037 SAS Institute Inc., Acushnet Company, Limelight Networks, Newegg Inc., Safeway Inc., Sensus USA, Inc. and ABBYY USA Software House, Inc.

PAEW-0038 McCorkle, Arna (Fort Stockton, Texas Chamber of Commerce)

PAEW-0039 Consumer Electronics Association

PAEW-0040 Joslove, Scott K. (Texas Hotel & Lodging Association)

PAEW-0041 Washington Legal Foundation (WLF)

PAEW-0042 Microsoft Corporation

PAEW-0043 Verizon Communications Inc. and the United States Telecom Association (USTelecom)

PAEW-0044 MOSAID Technologies Incorporated

PAEW-0045 The Internet Association

PAEW-0046 American Intellectual Property Law Association

PAEW-0047 Engine Advocacy

PAEW-0048 Internet Retailers

PAEW-0049 Google, Blackberry, Earthlink, and Red Hat

PAEW-0050 Application Developers Alliance

PAEW-0051 Retail Industry Leaders Association’s (RILA’s)

PAEW-0052 The Innovation Alliance
Letter to the GAO: Comments of the Innovation Alliance April 20, 2012
Letter to the GAO: Study of Litigation for Non-Practicing Entities Under Section 34 of the America Invents Act – Comments of the Innovation Alliance March 1, 2013

PAEW-0053 Reiswig, Marilyn (Perryton – Ochilitree Chamber (Texas))

PAEW-0054 Rackspace, the Open Cloud Company

PAEW-0055 Coalition for Patent Fairness

PAEW-0056 Ewing, Tom

PAEW-0057 National Retail Federation

PAEW-0058 Software & Information Industry Association

PAEW-0059 Korea Semiconductor Industry Association

PAEW-0060 Friend, David (Carbonite, Inc.)

PAEW-0061 Yen, Mallun (RPX Corporation)

PAEW-0062 Valdez, John

PAEW-0063 MetroPCS Wireless, Inc.

PAEW-0064 Electronic Frontier Foundation

PAEW-0065 Computer & Communications Industry Association

PAEW-0066 Dell Inc., Hewlett-Packard Company, and Adobe Systems, Inc.

PAEW-0067 Wolfram, Richard

PAEW-0068 Food Marketing Institute and the National Restaurant Association

Here’s the full text of the patent privateering article from IAM Magazine. Written in 2010 and published in 2011, I wrote about patent privateering, a term I coined to describe the practice of acting competitors via mysterious third parties so it would be difficult for companies to know who is suing them.

.IAM Magazine Tom Ewing Privateering Article

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