Some measured thoughts on patent trolls

This post expands on the remarks I made today at the Chicago Tech Roundtable meeting on Patent Trolls and Chicago’s Tech Community. The meeting was attended by a number of elected officials and their representatives as well as start-ups such as Jump Rope and Options Away Travel who have had direct experiences with patent trolls. This is an important issue for Chicago’s technology sector.

Trolls and Trolling – The Nature of the Problem

Patent trolls are in the news and they have been high on the agenda of intellectual property policy makers and academics for over a decade now. I started thinking about these issues when I worked as an IP lawyer in Silicon Valley in the early 2000’s. The Federal Trade Commission sounded an important call to action on patent trolls and the balance of competition and patent law and policy in 2003 [FTC, To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy, (2003)], and again in 2011 [FTC, The Evolving IP Marketplace: Aligning Patent Notice and Remedies with Competition (2011)].

I first wrote about these issues in a paper published in 2007, Patent Reform and Differential Impact (with Kurt W. Rohde who was then a student of mine and is now is a partner with McDonnell Boehnen Hulbert & Berghoff LLP), some things have changed since then, but the patent trolls problem persists, it may even be getting worse. In 2012, businesses and individuals targeted by patent aggregators and patent holding companies accounted for 56% of all patent defendants. [The best empirical analysis on this issue so far is contained by Christopher A. Cotropia, Jay P. Kesan & David L. Schwartz, Unpacking Patent Assertion Entities (PAEs) (working paper available at http://ssrn.com/abstract=2346381), the 56% figure is based on the data shown in Figure 3.]

Not every non-practicing entity, patent aggregator and patent holding company is a necessarily a troll. There is obviously a role in our innovation ecosystem for people who invent but don’t have the complementary skills to commercialize. But the rough and ready correlation between patent assertion entities and trolls seems to fit. Any business that is sending out infringement notices by the hundreds or thousands can’t plausibly be doing the kind of diligence it should take to make a meritorious claim of infringement.

Debating who is and is not a troll is beside the point – it is trolling behavior that we need to address. Trolling is abusive and opportunistic behavior such as asserting bad patents or using patents to extort settlements that are only justified by the threat of legal fees. Trolling is mostly a numbers game – trolls targets hundreds or thousands of defendants, seeking quick settlements priced just low enough that it is easier for the defendant to pay the troll directly rather than pay his lawyers to defend the claim. Anyone who takes part in this kind of systematic opportunism that undermines innovation is a troll, NPE or not.

Patent trolls thrive by opportunistically taking advantage of the uncertain scope of patent claims, the poor quality of patent examination, the high cost of litigation and the asymmetry of risks and costs of litigation. There is nothing wrong with licensing your technology, or with litigating against infringers who would rather take your technology without a license. The patent system is meant to encourage investment in R&D and innovation. Businesses monetizing their technology aught to be celebrated, but using the threat of costly litigation to monetize bad or ill-fitting patent claims takes money away from R&D budgets for no social gain.

Solutions

There will always be opportunists who try to exploit the system – the goal of patent reform should be to limit unproductive rent-seeking while leaving the door open to those businesses that actually contribute to the research and development that makes the U.S. a world leader in so many fields. We need reforms targeted at bad patents such as limiting continuations, rejecting highly abstract functional claims (especially in software and business method patents) and improving the quality of patent examination. But we also need reforms targeted at bad conduct. We need reforms that level the litigation playing field — it is far too easy to impose millions of dollars of defense costs based on dubious patents and tenuous theories of the scope of those patents. Some of the most useful reforms— reforms that leave the door open for well-founded claims — include: fee shifting such that the losing party pays the winning party’s fees in ordinary cases; heightened pleading standards; delaying discovery until after “claim construction,” and limiting discovery to those documents likely to be relevant to the specific litigation at hand. “Consumer stay” provisions would also do a lot to end opportunistic threats of litigation – under this proposal if, for example, a cafe was sued by offering Wi-Future interest to its customers, the manufacturer of the router could intervene and effectively consolidate the cases of all of its customers. Reforms aimed at transparency of patent ownership and taking action against misleading and deceptive language in demand letters would also be of some assistance.

House recently passed the Innovation Act to take up some of these issues and the Senate Judiciary Committee seems close to finalizing a complementary bill. Neither of these bills will put an end to opportunism, but they have the potential to make life a harder for patent trolls and a little easier for the rest of us.

 

Garcia v. Google amicus briefs with very brief summaries

Due to the level of interest in Garcia v. Google, the Ninth Circuit has a dedicated page providing information and key court documents to the public.

I have listed the Amicus briefs along with very cursory descriptions below. The briefs are all quite short.

Internet Law Professors – addressing the implications of the Court’s decision for Section 230 of the Communications Decency Act.  Section 230 is vital to the health of e-commerce and web 2.0 businesses, it provides the legal foundation for many of the most popular websites that enable users to communicate with each other or the world at large.  The panel’s broad interpretation of copyright law undermines Section 230 immunity without even expressly considering it. * I am one of the Amici for this brief.

Professors of Intellectual Property Law – arguing that the Court’s opinion misinterprets the baseline requirements for copyrightability. ** This is the brief to read for students of copyright law.

Adobe Systems, et al. It is not surprising that eBay, Facebook, Gawker, Kickstarter, Pinterest, Tumblr, Twitter, and Yahoo!  would feel strongly about this case. These amici argue that the Court’s decision and order places too much responsibility on service providers to monitor their services and denies the public’s interest in free expression and access to information. They also argue that the Court’s order is unworkable and that the ruling poses a serious threat to online service providers’ businesses.

Netflix, Inc. – arguing that that the ruling creates a new species of copyright and risks wreaking havoc with established copyright and business rules on which third party distributors, such as Netflix, depend.

International Documentary Ass’n – arguing that the Court’s opinion has created uncertainty as to several fundamental concepts that are essential to modern filmmaking.

Floor64 (publisher of Techdirt.com) & Organization for Transformative Works –arguing that the Court’s decision undermines Congress’s goal of fostering online speech by effectively stripping intermediaries of the statutory protection they depend on to deliver it — i.e. the safe harbors created by the § 230 of the Communications Decency Act and the Digital Millennium Copyright Act (17 U.S.C. § 512).)

California Broadcasters – arguing that a finding that individual performances within films and television programs may be entitled to copyright protection creates uncertainly for entertainment media creators and distributors.

News Organizations – arguing that the Court’s decision did not properly consider important First Amendment interests and that it poses serious risk to news organizations that extend far beyond the unique facts of the case at hand.

Electronic Frontier Foundation, et al. – framing the issues in Constitutional terms and addressing the standard for preliminary injunctions.

Public Citizen Litigation Group – focusing on the correct standard for issuing an injunction restraining speech.

New Jersey’s anti-Tesla laws and the car dealership racket

Over 70 economists and law professors have signed a letter opposing New Jersey’s direct automobile distribution ban.

Why should you care?

This ban is aimed at keeping the Tesla electric car out of New Jersey, but this effects you even if you have no interest in an electric car. State laws protecting car dealerships add thousands of dollars to the cost of every new car.  NPR’s Planet Money program has an excellent summary of this issue.

The International Center for Law & Economics sent an open letter to New Jersey Governor Chris Christie today, urging reconsideration of the regulation.

As the letter notes:

 the regulations in question are motivated by economic protectionism that favors dealers at the expense of consumers and innovative technologies. It is discouraging to see this ban being used to block a company that is bringing dynamic and environmentally friendly products to market.

Among the letter’s signatories are some of the country’s most prominent legal scholars and economists from across the political spectrum.

Read the letter here: Open Letter to New Jersey Governor Chris Christie on the Direct Automobile Distribution Ban

Read Geoffrey Manne‘s post on Truth On The Market

New Copyright Troll Data

I have revised my paper  Copyright Trolling, An Empirical Study (March 21, 2014) (forthcoming in the Iowa Law Review) (http://ssrn.com/abstract=2404950) to include data for all US district courts from 2001 to 2013.

The following are a few of the new figures from the paper. The new data is discussed in the article.

John Doe lawsuits as a percentage of all copyright lawsuits 2010–2013, by State

Figure 2 (some states by years 10 to 13)

John Doe Copyright Lawsuits 2010–2013 Selected Districts

Figure5

Individual Doe Defendants in John Doe Copyright Cases 2001 – 2013Figure 6

 

Average Number of Doe Defendants per Suit 2001 – 2013

Figure 7

 

 

Aereo, Copyright, Technological neutrality, function v. effect

American Broadcasting Companies, Inc. v. Aereo, Inc., is a case scheduled for oral argument before the Supreme Court next month. The case gives us an interesting opportunity to reassess the oft-stated aim that copyright law should be technologically neutral.

Aereo offers consumers the ability to watch live free-to-air broadcast television via the Internet with the ability to pause, rewind and fast-forward programming. Aereo provides this service by receiving free-to-air broadcast television on a vast array of micro-antennae, each antenna being dedicated to an individual subscriber. The signals so received are reduced to individual copies of individual programs. These copies are then transmitted to individual subscribers, either virtually live or at some later time. See WNET, THIRTEEN v. Aereo, Inc., 712 F. 3d 676, 680-683 (2d Cir. 2013).

If technological neutrality is a question of the effect of a given technology, then Aereo is, in effect, the same as retransmission system and thus a public performance. But if technologically neutrality is a question of function, then Aereo is a remote DVR + one-to-one performances. It is thus a copying system and not the originator of public performances.

Judge Chin’s dissenting opinion takes an effect-based perspective and argues that regardless of how the Aereo system actually works:

Aereo’s “technology platform” is, however, a sham. The system … is a Rube Goldberg-like contrivance, over-engineered in an attempt to avoid the reach of the Copyright Act and to take advantage of a perceived loophole in the law.

The Copyright Act aims for neutrality in that the public performance right in 17 U.S.C. § 106(4) is defined to include the right “to transmit or otherwise communicate a performance… to the public, by means of any device or process.” Id. § 101. But the problem with Chin’s dissent is that the “by means of any device or process” language does not mean that non-public transmissions are rendered into public transmissions simply because they have the same effect as technology we recognize as implicating the public performance right.

An effect-based vision of technological neutrality flatly contradicts the basic structure of rights under the Copyright Act. The Copyright Act defines the rights of copyright owners with respect to six particular acts–thus, for example, reproducing a copyrighted novel without permission or justification is infringement, reading a copyrighted novel is not. 17 U.S.C. §106(1)-(6).

There are many reasons why we should not disregard the technical details of a system like Aereo’s, but perhaps the most important one is simply that transforming effects into functions is not necessary. Aereo has indeed designed its system to avoid making public performances, but it has done this by adding thousands of individual copies. We should not feel the need to label every performance from a copy as a public performance given that the copyright owner also has an exclusive right to reproduce the work in copies.

This post is a reaction to Brad Greenberg’s presentation on the issue of technological neutrality in copyright at the Fourth Internet Law Scholars Work-in-Progress Symposium.

The awesome program notes for the 4th Internet Law Scholars Work-in-Progress Symposium.

The fourth annual work-in-progress symposium for internet law scholarship  will be held at the Institute for Information Law and Policy at New York Law School on Saturday March 8, 2014 at .

The work-in-progress event was created for internet law scholars to receive feedback about their papers and projects from their academic peers.  This year some of the nation’s  leading internet law academics will convened at New York Law School to present serious papers under the following whimsical headings:

  • Panel 1: Copyright, The Gift That Keeps On Giving
  • Panel 2: Tinfoil Hats Are Only One Solution
  • Panel 3: Paranoia
  • Panel 4: It’s All Good
  • Panel 5: It’s Private
  • Panel 6: This Internet Thing Is Going To Be Huge
  • Panel 7: Because Too Much IP is Never Enough
  • Panel 8: The One, True Cyberlaw

Dan Hunter (Distinguished Visiting Professor of Law, New York Law School and Professor of Intellectual Property and Innovation, QUT Law School, Australia) deserves all credit/blame for the above.

Some illustrations to elucidate the #Aereo #copyright case

The U.S. Supreme Court will soon hear arguments in the case of American Broadcasting Companies, Inc. v. Aereo, Inc. (13-461) on the issue of whether a company “publicly performs” a copyrighted television program when it retransmits a broadcast of that program to thousands of paid subscribers over the Internet. This is an important case with far reaching implications for digital video recorders, cloud computing and the sale of movies and music online. It is also, unfortunately a case focused on exactly the wrong issue.
Aereo is just one of a long sequence of technologies that have raised conflicts between the interests of content owners and technology companies. Aereo offers the consumer the ability to watch live tv over the internet with the ability to pause, rewind and fast-forward programming.
Aereo provides this service by receiving free to air tv signals on a vast array of micro-antennae. Each antenna is dedicated to an individual subscriber. The tv signals so received are reduced to individual copies of individual programs. These copies are then transmitted to the subscribers.
The Second Circuit held that Aereo’s system did not implicate the copyright owners’ public performance rights under the Copyright Act because each transmission was from a single fixed copy to a single end-user. On the Second Circuit’s view, although Aereo’s system may transmit any given program to a large number of end-users (N), it is best understood as N one-to-one transmissions, not one one-to-N transmission.
A number of broadcasters including the titular plaintiff, American Broadcasting Companies, Inc., argue that the Second Circuit’s understanding of the “transmit clause” –  part of the definition of the public performance right under the Copyright Act – is flawed. The Broadcasters proposed a reading of the act that would render any transmission, from any source, a public performance if it is capable of being received by a sufficient number of persons.
The broadcaster’s preferred reading of the Copyright Act would overturn the Second Circuit’s decision in Cablevision, a case involving a remote digital video recorder (R-DVR).
Cablevision should not be overturned: (1) The broadcaster’s preferred reading of the Copyright Act is incorrect as a matter of legislative history and statutory construction.
(2) The policy concerns raised by the broadcasters and some commenters are misguided. (3) The legality of the Aereo system should turn on the application of the fair use doctrine Aereo’s internet tv service, an issue that the Supreme Court has not been briefed on, but will surely get a full airing in the Second Circuit if the Supreme Court affirms the decision currently under review.
I have added some pictures below that flesh out some of my tentative thoughts on this subject.
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