The creativity of American lawyers never ceases to amaze. I’ve heard of variations on this theme: using an IPR to coerce payment, a license, or something from the patentee. Variation on the theme:
A third party sees that a patentee has won a big judgment, defending its patent against a charge of invalidity. The third party then cobbles together an IPR petition based upon the arguments that failed in the district court, relying upon the lower burden of proof and broader claim construction that will apply in IPR, and sends it to the patentee with a note: “pay us or we’ll file this.” This was discussed a few months back here.
A third party uses IPR as a tool to manipulate stock price: sell the stock short and then file the IPR. Or, it sees the patentee is in litigation and says, “give us a license (which we’ll turn around and use to license the defendants) or we’ll file an IPR.” A story about that allegedly happening is here.
Gotta love America.
The ethics of this are fascinating: it may be that the OED could be brought in to show that the IPR was filed for an improper purpose and nip it in the bud. But that’s probably a long shot, given the right to petition and what-not. Perhaps Congress limiting standing in IPRs to competitors? It’s too early for me to think in depth about a creative solution to this creative problem.
Can these attornies also run afoul of the U.S. Securities and Exchange Commission? I think so.
Obvious solution seems to be to use the same standing requirements needed to bring a D.J. action, no?
The guy at post 18 thinks so too.
David: Fascinating from an ethics perspective. Lots of issues for lawyers who front this type of operation and are subject to the disciplinary jurisdiction of the OED or a state bar. A disciplinary “nip in the bud” solution would have to clear a number of hurdles. For starters, if the IPR passes muster under Rule 11, then query whether filing or threatening to file it is unethical. Patentees threaten suit all the time unless the accused infringer pays a license. As long as the patentee has a good faith basis for believing it has a claim, then it cannot be said that the demand for licensing fees is solely for an improper purpose.
One might consider the practice you speak of to be akin to or covered by the criminal law of extortion. No idea how that would play out but certainly at a high level it sounds no different than threatening to take some sort of negative action against another (e.g., I will disclose to your wife that you are having an affair unless you pay me money). The act of the disclosure to the wife in and of itself would not be improper, but it is the threat that you will take that otherwise lawful act unless you pay me to shut up and go away that could cross the line from lawful petitioning behavior and criminal conduct.
There is also potentially civil exposure, perhaps under some type of tortious interference or abuse of process claim. Again, though, I think the plaintiff would need to establish the baselessness of the conduct itself.
While I am no expert in securities law, it also smells to me like a possible effort to engage in stock manipulation, which might tie in with the extortion theory.
Again, fascinating issue and will be on the lookout for any developments.
I agree that the ethics angle is a long-shot, and my guess is that Noerr-Pennington petitioning would protect against a lot of claims. But I also know the OED can get pretty active when it gets concerned about something!
Amen to that!
Good point about the OED. Anyone who has been threatened with this form of blackmail ought to promptly turn it over to the OED.
Needless to say, what is going on here is criminal, or borderline.
A petition itself is not illegal. But the threat to do so (a legal act) in exchange for compensation is the illegal act.
link to en.wikipedia.org
A petition itself is not illegal. But the threat to do so (a legal act) in exchange for compensation is the illegal act.
Like a threat to sue for patent infringement? If the petition is legally justifiable, a threat to file one isn’t blackmail. Whether it’s ethical is a different question, that may or may not have a different answer.
Michael, this is not about patent owners filing an IPS, which cannot even be done. It is about attorneys who have no ownership or infringement interest, or even any client with any ownership or infringement interest, threatening a patent owner with an IPR filing unless they are paid not to file.
One might consider the practice you speak of to be akin to or covered by the criminal law of extortion. No idea how that would play out but certainly at a high level it sounds no different than threatening to take some sort of negative action against another (e.g., I will disclose to your wife that you are having an affair unless you pay me money). The act of the disclosure to the wife in and of itself would not be improper, but it is the threat that you will take that otherwise lawful act unless you pay me to shut up and go away that could cross the line from lawful petitioning behavior and criminal conduct.
That’s what I learned in law school as well. A related matter concerns an ethics complaint against a lawyer. You can make the complaint. But to threaten the lawful act, in exchange for something is not ethical. I recall some loop hole for a pleading and a lawyer (saying you are going to file this complaint unless you settle x). But you do that as an officer of the court (the bar in which you are governed) and are subject to discipline for abuse of that exception.
Why not just equalize the standards.
Why have a venue that makes it easy to torpedo a patent that was not easy to get allowed in the first place.
You know, we could have a presumption of validity or something like that.
I’m having difficulty seeing anything morally wrong, but the interplay of patent validity and stock price manipulation is an interesting topic.
If this brouhaha raises awareness within the political, business and finance communities, of patent validity as an issue, it will have done a good thing. I hope it will lead to a greater appreciation that, when it comes to patent rights, Quality might be more important than Quality.
And as for patent owners having to go in fear of attacks on the validity of their patents, for me this is long overdue. It ain’t right, that employers all over the USA have to go in quaking fear of being shaken down by patents which should never have issued in the first place. A bit more equality of arms is long overdue. You know, like we see in Europe between innovative pharma and the generics companies, towards the end of the term of a blockbuster patent. The tension achieved by such an equality of arms is what most nurtures the general welfare.
The wrong is that someone with a patent can be harassed now thanks to no standing necessary. What if the patent is valid? It still costs the owner of the patent $500K and time to keep the patent. So, anyone, can harass you.
The problem is the no standing. That just doesn’t make sense for IPRs. I think it is far less onerous for PGR.
I guess the large Google driven anti crowd won’t acknowledge this.
Well I’m not sure it costs 500k to assess the thrust of the assault on validity and then decide whether to fight it or drop the patent.
Are you saying that nobodynows whether an assault on validity has any merit?
Many thought that applicants at the USPTO would be deluged by observations on patentability filed by members of the public. That hasn’t happened, has it? Perhaps people have better things to do than spend X thousand USD putting together a poorly-based attack on validity?
And assaults on validity that fail do the patent owner a favour, in enhancing the aura of resistance to validity attacks. The most likely assailant might be the owner itself, busy putting a gloss on the validity of its property.
You are just mixing things up Max.
Realty: almost any patent can have an assault launched on it in an IPR where if you do nothing you may lose your patent. The patent judges are not going to do your work for you. This is true in many America forums where if someone sues you, you better spend the money to fight no matter the merit. And the $500K is what it costs these days to defend.
Please. That is the reality. So, with no standing you can be endlessly harassed and it becomes a game of who has the bigger purse.
This appears to be developing into one of those cases where we hear these theoretical arguments:
Max says, “Are you saying that nobodynows whether an assault on validity has any merit?”
Reality: If you don’t defend yourself, then you risk losing even if the merit is not very high. That is realty that is well-known and the common practice for attorneys in the US. So, let’s not de-rail the discussion with these attacks of regurgitating theoretical statements of how the judicial system is supposed to work vs. how it works.
et’s not de-rail the discussion with these attacks of regurgitating theoretical statements of how the judicial system is supposed to work
Right. Let’s instead de-rail the discussion by attacking anyone who disagrees with you as being “anti-patent” and paid for by Google.
And then when you get called out on your childish behavior, you can de-rail the discussion again by crying about how this blog is so unfair and “biased”.
Zero substance MM.
“almost any patent can have an assault launched on it in an IPR where if you do nothing you may lose your patent.”
I hear that irl almost any real property in certain areas can have an assault launched on it by someone coming along and putting up a fence adjoining the property to their own and if you do nothing you’ll lose the land.
Another zero substance harassment comment.
“putting up a fence adjoining the property to their own”
So, that is standing.
You guys are the ones all the time telling us about how real estate law is somewhat analogous to patent law. An attack on patents here in somewhat analogous to the attack on people’s real property there.
500k to defend? I’m sitting before the EPO watching patent owners defend their patents against oppositions. 500k looks to me like silly money. What is it about the US legal system that renders any opposition at the USPTO more expensive, by a factor of twenty or so, than a corresponding action at the EPO? After all, there are 600 million consumers in EPC land, as against, what 300 million in USPTO land.
And you say constantly that EPO and EPO lawyers are so greedy! John McEnroe! You cannot be serious!
Warning. English patent litigators used to charge X Million GBP. Till they saw the business decamp to Duesseldorf.
Of course, in an end of term generics action on a blockbuster drug, the costs of defending against a validity attack are in millions, even in Europe, but you seem to be saying that such costs can never fall below 500k, even on the most trivial toilet roll holder patent. Seriously?
Discovery and routinely permitted use of experts are main drivers of cost. And the US filing fees are much higher because the administration of these post grant proceedings is not subsidized by all users of the USPTO.
Also, note that the paper roll holder patents aren’t the ones generally under review – instead, it’s those for which an infringement judgment is going to be in the tens/hundreds of millions. That’s another aspect driving the average cost estimates one sees.
Note despite NWPA’s frequent complaint, the 500K figure bandied about is an estimate of average costs, so clearly some cases are going to be less expensive and some are more expensive.
But I’d be hard put to characterize any of my EPO oppositions as being routinely 1/20th the cost of that $500K. Factor or 10, sure, but not 20. Many if not most of mine spend in the close neighborhood of $50K through first instance hearing.
And I’ve used both bigger shops (60-100 member, including 2 in London) and quite small shops (5-10 member) as EPO reps, without significant difference in price.
Mellow, I would be the first to concede that 25k is much too low, if one is looking at the average cost of defending an EPO patent against a well-funded and well-grounded opposition. I misunderstood Night. I thought he was telling me that 500k is a minimum, that if you don’t spend at least that much to defend it, your US patent is toast. At the EPO, against an Opponent who files on poor grounds simply to extract cash from the patent owner, 25k ought to be enough to see him off. That’s what I meant.
Of course, as soon as the EPO defers deciding the case till after a discovery phase and cross-exam of rival exert reports, the costs will inevitably balloon, perhaps by a factor of 20.
Interesting for me is the whole evidence thing. What the USA and England rely upon as evidence carries little weight at the EPO. What the EPO relies upon to decide cases (the technical expertise within the tribunal) carries no weight in an English law jurisdiction. Do you agree?
Interesting for me is the whole evidence thing. What the USA and England rely
At the EPO the examiners pride themselves on knowing and understanding the art. They respect you if you teach them something. And, if you complain about them real things actually happen. You can turn an examiner red faced if they don’t understand a reference.
I am afraid the priority at the PTO is to have a Google shadow director who spends her time telling us that we don’t need patents instead of improving her primary function which is examination of patent applications.
the large Google driven anti crowd
This silly, endless smearing of Google and everyone who disagrees with you was old many, many years ago.
Reality: Google is very active lobbying to end patents. Reality.
True that.
It’s not going to be actionable as long as the IPR petitioner has a good faith basis for challenging validity, which is going to pretty easy to establish given the lower burden of proof at PTO. It’s a Noerr-Pennington issue and has been well established as to civil actions. Bringing suit is not an antitrust violation as long as their is a good faith basis for the suit. Because the PTO is an arm of government then the right to petition the government for redress under the First Amendment will still apply and Noerr-Pennington should control.
Presumably, because every person is harmed by invalid patents (i.e. through the necessarily anticompetitve effects of the patent monoply over an area that the arguably invalid patent should not apply), it should not matter whether the IPR petitioner is practicing or not, so I would think that Noerr-Pennington would be protect the IPR petitioner.
That is my initial thought too — the petitioning aspect.
Probably correct. But the fact pattern is interesting. Get’s at my favorite issue of the 7th amendment. This blackmail matter only arises because PTO and the AIA ultra virus authority to collaterally attack a final judgment of a court. Q: Would you feel more or less willing to settle the threatened IPR if former AG Holder (just as an example of a well connected and influential person) were the attorney working this angle.
At the very least PTO should be applying administrative estopple or even comity to issues previously litigated in court. You can bet on continued wackiness, influence peddling, director placements, favoritism, etc. so long as this constitutional anomaly continues.
I told people at my firm this would start happening. No one believed me; they told me I was too cynical and bitter.
Jordan, what can be abused, will be abused.
I called it “reverse trolling”. Hopefully that catches on.
gnillort?
“Or, it sees the patentee is in litigation and says, ‘give us a license (which we’ll turn around and use to license the defendants) or we’ll file an IPR.'”
I don’t think it’s typically true that a party who negotiates a license is entitled to further license the patent to another party. At least, any patentee who agrees to such an arrangement would probably be very gullible.
If a third party is requesting a license so that they can further license it to the defendant, then the patentee is basically backed into a corner–they have everything to lose either way, so they might as well roll the dice with the IPR.
I told everyone on this board that Alice was coming…. that we are dealing with Big Corp. Google bucks that don’t want patents. They laughed at me.
Assuming the IPR is colorable, which is the only question in my mind, the fact that you have done the work to understand that their patent is invalid is not manipulation, it’s accurate evaluation of the value of the company.
Fact of the matter is that if you have a claim to an invalid scope, you’re continuously hurting the public (as well as the particular defendant) by being able to assert it. None of these “trolling” maneuvers work when the patent is, in fact, valid. The correct thing to do is internally vet the patent before beginning litigation.
relying upon the lower burden of proof and broader claim construction that will apply in IPR,
Geeze, It’s almost like you can’t profit off of making ridiculous arguments and incredibly broad claims to the office anymore.
“Assuming the IPR is colorable, which is the only question in my mind, the fact that you have done the work to understand that their patent is invalid is not manipulation, it’s accurate evaluation of the value of the company.”
Exactly.
But it still seems kind of dirty shorting the stock after manipulating it yourself.
6, do you think there might be something wrong if someone asks for money else else she will reveal embarrassing but true information?
Those that focus too heavily on the so-called public interest in ridding the world of invalid patents have to see that what is going on here is, in fact, extortion.
link to en.wikipedia.org
“6, do you think there might be something wrong if someone asks for money else else she will reveal embarrassing but true information?”
There certainly may. But that’s probably going to depend a lot on local statutes.
And I’m not above saying that some instances of outright extortion have occurred. I was planning to simply manipulate the stock price (otherwise known as correctly judge the value of the stock from an outsider position) and sell short after the market agrees with me is all. There is no extortion there though there may be other laws.
do you think there might be something wrong if someone asks for money else else she will reveal embarrassing but true information?
That may be the law currently, but I’m not sure that this Supreme Court would find that to be outside the protection of the first amendment. Regardless, a statement of fact is not the same as a credible argument to a certain right.
But it still seems kind of dirty shorting the stock after manipulating it yourself.
It makes no more sense to vilify the public for asserting its rights (by preventing the privatization of a scope that belongs to them) than it does to vilify a patentee for asserting his. Then it’s merely a question of if you should be allowed to profit from being the first to properly evaluate something in the stock market. The answer is yes.
Interesting analysis.
We already have laws against the stock manipulation aspect of this. They are enforced by the SEC and its called insider trading. Rules 10b-5 and 10b-1 make it pretty clear that you would violate federal law by shorting a stock before filing a suit.
Are you sure that this would be an insider trading violation? I don’t claim to know either way, and it’s way outside of my legal expertise. My vague recollection from Corporations in law school is that the key to an insider trading violation is some sort of violation of a duty (e.g., to an employer, a client, etc.). Trading on nonpublic information is not, by itself, an insider trading violation.
Been a while since I took securities law, but that is about how I remember it too.
I also don’t think it’s insider trading. You have no information that isn’t gleaned from inside the company. You have the same IPR right and the same knowledge of the patent, as anyone else. Not to be trite but where’s the “inside” of “insider trading” there?
That is my recollection too but way outside my realm. I own stock… through my 401k…
“and its called insider trading.”
That’s what I thought, but you, a random member of the public bringing an IPR are not an “insider”.
“Rules 10b-5 and 10b-1 make it pretty clear that you would violate federal law by shorting a stock before filing a suit.”
I will look into those.
I can see a case being made under 10b-5. If you’re shorting the stock, you’re selling it, if you’re selling it, you’re an owner of it (sort of); and in any event if you’re selling stock AND you know you’re about to take an administrative action that will cause the stock price to sharply decline, you could be said to have made omissions the buyers would certainly have found to be material to their decision.
There has to be case law on this. (Or something very similar.)
“be said to have made omissions the buyers would certainly have found to be material to their decision.”
Not if you tell those buyers (but they don’t understand or don’t care) 🙂
Sure. But fundamentally, for this short to work as intended, you’ve already shorted the stock prior to pulling the trigger on the PGR (but knowing in advance you were going to do so).
True, but you could let them know where your trigger finger was.
Huh? Let’s say you were going to buy a public company. Before you announce, you secretly buy the stock in the public market – get as much as you think you can – and then announce your intent to buy the rest. I think this is perfectly ok. So how is the reverse not true?
Sorry for the delayed response. This:
“Before you announce, you secretly buy the stock in the public market – get as much as you think you can – and then announce your intent to buy the rest. I think this is perfectly ok. ”
Is actually not perfectly ok, unless the “as much as you think you can get” of the company’s shares is less than about 4 percent, I think. (Don’t recall exactly but I think the disclosure trigger is 5%)
It’s too early for me to think in depth about a creative solution to this creative problem.
It’s possible there are multiple distinct problems requiring different solutions. What exactly was the “problem” you were thinking of when you wrote that sentence?
I don’t see any “problem” per se with anybody filing an IPR to remove an improvidently granted patent from the system.
Of the different scenarios you described, the biggest ethical problem I see is with a patent attorney apparently capable of convincing himself or herself that a patent should never have been granted (thereby justifying the filing of an IPR) and then demanding a license to the patent in exchange for not acting on that belief, wherein the license on this presumably invalid patent will then be offered to a third party. If that’s not patent misuse, then what is?
Here’s a related scenario to contemplate: an associate at a big patent law firm or major patent holding company (or elsewhere) is aware of partner/CEO/boss withholding material information related to validity of a valuable patent. Associate approaches the partner/CEO/boss and says he/she is going to leave the firm and file an IPR (already prepared on the associate’s own time and ready to launch) and tank the patent unless the partner pays the associate, say, 10 million dollars (a fraction of what the patent is believed to be worth).
One measure that could and should be taken is mandatory disclosure of any and all controlling interests in a patent before the patent can be asserted or licensed, in addition to disclosure of any “offers” related to that patent made by the those parties (whether an offer to buy, an offer to license, or an offer to accept money in exchange for not filing an IPR). Of course the major offenders are going to object to this because … freedom (their freedoms, of course — never mind that overwhelming majority of people whose rights have been unjustly limited by the continued existence of the invalid patent).
If the problem is the general problem of “players” approaching each other with “offers” that have the net effect of increasing the number of invalid patents in the system (and surely there are far, far, more invalid patents in the system now then ever before in the history of this country) then one easy preventative measure is to start recording all those Examiner interviews (those that take place by phone; the ones that take place in person should be recorded on video).
“I don’t see any “problem” per se with anybody filing an IPR to remove an improvidently granted patent from the system.”
I was going to post along those lines but didn’t bother.
“If that’s not patent misuse, then what is?”
Good point.
And there may also be some stock manipulation laws or something being breached.
“Gotta love America.”
‘Merica! F yes!
“and sends it to the patentee with a note: “pay us or we’ll file this.” ”
Although I wasn’t going to extort them quite so blatantly. I was simply going to file it and then work things out with them and profit from their stock variation.
Yeah that was my plan lol
So corporations can play infinite games with shell companies (why are they allowed more than us other people? Shouldn’t we corporal based people get the same rights as corporations?) and removed a standing requirement form IPRs. So, this surprises who?
I would guess that IPRs reduced the value of a patent by about 80%.
A patent suit defendant cannot set up a shell company to file an otherwise time barred IPR.
What’s to stop them if you don’t know who the shell corp is?
Well, that’s the point 6, and with giant webs of corporations control isn’t clear.
Just image if anyone could sue you for a tree that is over in your neighbor’s yard.
Discovery,* sanctions, and disciplinary actions against attorneys making a false statedment on the IPR required statement of the real parties in interest and their “privies” which includes anyone being paid or controlled by another party.
*Almost all IPRs are in response to parallel D.C. litigation
I agree right now IPRs aren’t out of control. But, I don’t agree that you can track which party is actually responsible for the IPR. And, I know there was a case recently about this where they were busted for trying to hide it. But, it won’t be long before the big corp figures out how to IPR a patent with estoppel and then do it multiple times.