Guest Counterpoint by Prof. Sichelman: The Innovation Act’s Fee-Shifting is Biased against Patent Holders and Will Likely Increase PAE Activity

Ted Sichelman is a Professor of Law and Director of the Technology Entrepreneurship and Intellectual Proerty Clinic and Center for Intellectual Property Law & Markets at the University of San Diego School of Law. 

Representative Bob Goodlatte’s bill, HR 9 (the “Innovation Act”), has been receiving much attention in the press and on the Hill. The Innovation Act is largely identical to the one (HR 3309) that passed the full House in late 2013, so of all the pending patent reform bills, it is likely to receive the most play in Congress this term.

The Innovation Act includes what seems to be a neutral fee-shifting provision. Specifically, it would require a court to “award, to a prevailing party, reasonable fees and other expenses … unless the court finds that the position and conduct of the nonprevailing party or parties were reasonably justified in law and fact or that special circumstances (such as severe economic hardship to a named inventor) make an award unjust.”

Unfortunately, many commentators have focused the issue of whether this provision creates a presumption in favor of fee-shifting without carefully considering the many affiliated provisions in the bill. These additional provisions are particularly important because—contrary to the language quoted above—they significantly skew the effects of fee-shifting against patent holders. Given this lopsided effect, the fee-shifting provisions would probably increase patent assertion entity (PAE) activity. As I explain further below, this is because the provisions would most likely substantially reduce PAEs’ costs of acquiring patents.

A close reading of these additional fee-shifting provisions makes their skewed nature readily apparent. Take, for instance, the provision for “interested” third-party liability. It essentially makes those with a “direct financial interest in the patent . . . damages [award] or . . . licensing revenue” liable in the event a losing patent holder cannot pay a fee award (subject to certain exclusions). By its terms, the third-party liability provision only benefits “a prevailing party defending against an allegation of infringement of a patent claim” (emphasis added). So while third-party liability is quite expansive for those affiliated with losing patent holders, it is nonexistent for those affiliated with losing accused infringers.

Beyond discriminating against patent holders, the third-party liability provision further discriminates against non-practicing patent holders. Third-parties may only be joined in the event that the “prevailing party shows that the nonprevailing party has no substantial interest in the subject matter at issue other than asserting such patent claim in litigation.” This limitation would clearly capture non-practicing entities (NPEs), at least those who do not perform any R&D—although whether and when R&D is sufficient to meet the “substantial interest” threshold is undefined in the statute and thus unclear. If fee-shifting is truly designed to reduce low-quality suits, there is little basis to limit third-party liability only to NPEs. Anyone who has litigated knows that practicing entities, like NPEs, bring both strong and weak suits. There is a substantial economic interest in preventing frivolous suits regardless of the plaintiff’s business model.

Another example of the skewed nature of HR 9 is that settlement counts as a win for the accused infringer when the patentee “unilaterally extends to [the accused infringer] a covenant not to sue for infringement,” unless the patentee could have voluntarily dismissed the action without a court order. My understanding from experienced litigators is that these unilateral covenants tend to occur when the patent holder simply runs out of money and cannot continue to litigate. In this case, courts will often force the patent holder to provide a covenant not to sue in exchange for allowing it to drop the action. Presumably a patent holder providing such a covenant would sometimes not be able pay a fee award, which—if the patent holder is non-practicing—would allow the court to impose judgment on qualifying “interested” third-parties. On the other hand, if an accused infringer goes bankrupt, leading to a default judgment, the patent holder cannot join interested third-parties of the accused infringer when attorneys’ fees are owed.

The upshot of these provisions is to massively skew fee-shifting against the interests of patent holders, leading to an asymmetric risk that would very likely cause risk-averse inventors and assignees to avoid directly enforcing their patents, sometimes even strong ones. This is especially so because patent litigation is highly uncertain and costly, and the relevant test in the provision is the fairly open-ended “reasonably justified in law and fact” standard. Indeed, “reasonable fees and other expenses” in patent cases can be quite high—in large cases, well over $5 million—which would generally be a huge sticker shock to small companies and individual inventors with limited resources. Even a small percentage chance of a paying these fees could deter risk-averse inventors and assignees. In my personal experience running and dealing with many startups and individual inventors, they often are very risk averse when it simply comes to paying their own litigation expenses, much less the opposing party’s fees.

Oddly, the asymmetric nature of the Innovation Act’s fee-shifting provision may have the very opposite effect of what it purports to achieve by reducing so-called “patent troll” suits. As others have argued, the reason is straightforward: PAEs can more easily absorb the risk of bringing suit in the face of potential fee-shifting than startups and individuals. As I already pointed out, startups, individual inventors, and small companies are generally highly risk-averse patent holders. They would therefore fear liability being imposed on them for the direct enforcement of their patents (or if they simply retained an “interest” in a patent that was enforced by a third-party). As such, they would be more likely to sell their patents outright to PAEs instead of retaining a percentage in the litigation (as is standard today).

In fact, PAEs and their funders have already become savvy in this regard and often use single-purpose litigation entities with passive equity investors who cannot “influence, direct, or control” the litigation, removing these investors from liability under the Innovation Act. This approach makes the risk that the plaintiff would not be able to pay fee awards even more acute, leaving the original inventors on the hook if they retain a percentage stake of the proceeds (or probably even an equity stake in the single-purpose entity, because arguably the inventors can “influence” the litigation via their direct involvement). Indeed, even large companies and universities that monetize their patents via PAEs may decide to sell their patents outright to these PAEs, rather than retain a percentage stake, because of the unnecessary risk of placing their assets on the line. (Although the Innovation Act contains an escape valve whereby third parties can renounce all interest in the patents and avoid liability, it must be done very soon after a complaint is filed, which makes it of little use in a typical PAE deal.)

This shift from percentage deals to outright purchases would likely substantially drive down PAE patent acquisition costs. Because independent inventors and startups are risk averse—and some larger companies and universities likely are as well—these entities would expand the number of patents available for direct purchase by PAEs. This would likely push costs low enough that PAEs could afford to acquire much larger pools of patents, thereby increasing PAE assertions and reducing funds remitted back to original inventors and assignees.

Conversely, even though the Innovation Act is highly biased in favor of accused infringers, a risk-neutral PAE or large practicing patentee may be able to extract greater settlements from risk-averse accused infringers, such as startups and small companies, by credibly threatening to take a strong case to trial. This is contrary to the poorly reasoned analysis by organizations such as the Electronic Frontier Foundation, which wrongly assumes that PAEs are “patent trolls” that file “weak” suits and also seemingly forgets small companies are regularly sued by larger competitors. Thus, the Innovation Act’s fee-shifting provisions could very well hurt small companies and startups that are defendants accused of infringement.

In sum, the gains from the Innovation Act’s fee-shifting provision, may simply go to large, risk-neutral companies, regardless of whether they are the Intellectual Ventures or Ciscos of the world, just as scholarly analysis has shown how fee-shifting operates in other areas of the law. Perhaps that is why it is not a coincidence that the Intellectual Property Owners Association , which is dominated by large companies, does not oppose it, while the National Venture Capital Association effectively does oppose it. Like the America Invents Act, the Innovation Act’s fee-shifting provisions would probably shift today’s innovation footprint away from the radical and disruptive (associated more with startups and individuals) towards the incremental (associated more with large, established companies).

There is no solid evidence that the potential benefits of the Innovation Act’s biased fee-shifting provision would outweigh its likely substantial costs. These costs could be so large that that even if we include the touted benefits from all of the other provisions in the Innovation Act, some of which could prove useful, I doubt the Act is worth it. In the very least, we should not impose radical and potentially very costly changes in the patent system without very good evidence. As such, anyone who cares about innovation as a whole should oppose the Innovation Act as it stands.

130 thoughts on “Guest Counterpoint by Prof. Sichelman: The Innovation Act’s Fee-Shifting is Biased against Patent Holders and Will Likely Increase PAE Activity

  1. 9

    Ya so I get filing alerts every morning so I can keep track of the scam as it unfolds. Check these two, which means two (or many) more defendants will be out a whole bunch of money, for nothing, with no recourse, which helps the economy only when some lawyers buy new rims and bid up the price of beachfront real-estate. Utterly unproductive. Utterly silly on their face. Go ahead anon, defend your precious law for producing legal atrocities like these:

    US 8370199

    US5618045

    1. 9.1

      Martin, I suspect you don’t think a network of computers using a specific wireless topology is ineligible as abstract under 101, so what’s your argument against the ‘045 patent?

    2. 9.2

      One thing you should note Martin is utter lack of the anti-patent/judicial activist to push for improved patent quality.

      Lee has no experience in prosecuting patent applications and yet she is the darling of the anti-patent movement.

      1. 9.2.1

        Night,

        I’m sort of torn on this issue. On the one hand, I certainly agree with you that it would be bad if every judge on the Fed. Cir. had no background in prosecution.

        However, it doesn’t bother me so much if a few judges there come from outside the relatively narrow patent law bubble a lot of us live in.

        The holdings of the Fed. Cir. impact society at large, so I think it is okay if they have a non-technical background and can bring a broader perspective to the court.

        If you can’t explain your technology to a lay person, you’re doing it wrong, I think.

        1. 9.2.1.1

          The majority of Obama appointments have no science background. No interest in science until the opportunity for the life long grub wagon came along.

          1. 9.2.1.1.1

            Oh come on bro, any of the judges could just as easily have done something else in the legal world (and probably made more with less effort).

  2. 8

    The real issue here is that the Act is attempting to solve a problem that professor Sichelman ostensibly doesn’t believe exists, namely that the patent system is being abused in ways that actually undermine its principal objective of promoting invention. Those who believe this problem is serious and pervasive would naturally want to limit the profits that a patent holder can earn through such abuse. So in this way, it is not surprising at all that the Act creates advantages for defendants that are not shared by patent holders — that’s the whole point, and the professor seems to have missed it.

    1. 8.1

      EE,

      Rather than being missed my friend, that very nature is highlighted as being improper.

      It is you that misses the point that such a slanted view is not proper, no matter the ends desired.

    2. 8.2

      EE, please re-read the post. The professor didn’t say that he didn’t support reforms but that these reforms had serious problems.

      1. 8.2.1

        In case I wasn’t sufficiently clear, what I’m saying is that some of the “serious problems” he highlights — namely the Act’s pro-defendant slant — are in fact problematic only if you disagree with the proposition that many patent holders are relying on the high costs of litigation to extract licensing settlements for bad patents. On the other hand, if you think this is the most serious problem that needs to be addressed by patent reform, then a pro-defendant slant on fee shifting may not be problematic at all, and in fact may be the very result you hope to achieve.

        1. 8.2.1.1

          You were sufficiently clear.

          You also remain wrong as to the “any means to a desired end” that you engage in, missing the point that Prof. Sichelman uses.

        2. 8.2.1.2

          Anon and I agree here EE. One does not use a nuclear weapon when a rifle would do.

          Owen describes the opposition to the use of a rifle as coming from Pharma and IBM.

          IBM wants software and business method patents, so they are part of the problem, not part of the solution. This has to be well understood so that their views can be weighed appropriately.

          I am not sure why Pharma opposes going after software and business method patents, but instead favors the nuclear weapon that does a real number on startups.

    3. 8.3

      EE, the proponents explain that a principle source of the problem are business method and computer implemented patents of all sorts. I personally think the problem also extends generally to functional claims that essentially claim the work of others. Most of the proponents of the bill argue this is the problem in so many different ways.

      But there are big buck lobbies that want these kind of patents. IBM favors, of course, business method and computer implemented patents — as do many patent attorneys.

      My problem with the so-called reforms is that they demonstrably harm startups, the backbone of true innovation.

      We need to focus, in my view, on the source of the problem, not its symptoms.

      1. 8.3.1

        I agree completely Ned. Disturbing doctrines that have developed carefully for 150 years without treating the modern disease causing the (perceived) need for such distortions is a bad idea. Legislative fee shifting seriously distorting the American system seems like a nuclear option indeed- esp. with Octane/Highmark now in play. That’s why I think a software and business method carve-out and some trimming around PAE specific stuff like pleading standards, disclosure, and procedure would be a far better path. I imagine Pharma could live with that. Y’all know how I feel about IBM….

        1. 8.3.1.1

          Yes Mr. Snyder, I could well imagine your outrage at losing AND footing IBM’s legal bills…

          1. 8.3.1.1.1

            I’m also a RIA (registered investment advisor) and one of the basic laws of money holds: that which can’t be paid, won’t be paid….

            1. 8.3.1.1.1.1

              RIA or not, I’m sure you realize that they would be only to take everything you have.

              Is the difference all that satisfying for you?

  3. 7

    ” Indeed, even . . . universities that monetize their patents via PAEs may decide to sell their patents outright to these PAEs, rather than retain a percentage stake, because of the unnecessary risk of placing their assets on the line.”

    For public universities that are not litigants to the action, can they use sovereign immunity to shield themselves from liability for attorney fees?

    1. 7.1

      It would certainly provide an incentive to structure the university ownership that way.

  4. 6

    This is contrary to the poorly reasoned analysis by organizations such as the Electronic Frontier Foundation, which wrongly assumes that PAEs are “patent trolls” that file “weak” suits and also seemingly forgets small companies are regularly sued by larger competitors.

    I assure you, professor. We do not forget this. Some of the worst patent “bullies” are operating companies who — just like patent trolls — use the cost of patent litigation to extract undeserved settlements.

    Furthermore, I do not understand how the analysis you say is “poorly reasoned” given that the situation you point to as the reason for this statement (threatening to take a strong case to trial) already exists against small companies being sued by patent bullies? What options do small companies have given the current status quo? (setting aside your presumption that the patent is “strong”)

    Finally, I would encourage the Professor to look at some more of our blog posts, where we talk about some of the ridiculous patents that are being asserted against small companies. I would be happy to tell him of what we hear from people out there who, when faced with settlement demands or lawyer fees, are forced to settle even the most unmeritorious of cases.

    1. 6.1

      You know, Vera, let’s assume what you say is true. And I have defended small companies before.

      But, don’t you think that the patent system is far complex than this part of it? From my perspective, which is a complex one formed over 30 years of varied experience, patents are enormously helpful with some downsides. What bothers me about reform is that it does not seem to be crafted for intelligently identifying bad actors and figuring out how to handle them. Rather we get these reforms that are basically like carpet b@mbing patent law.

      1. 6.1.1

        NW reforms that are basically like carpet b@mbing patent law.

        This is a patent system where someone managed to successfully take a case all the way to the Supreme Court to determine if it was legal to protect a method of thinking about a correlation with a patent. And where numerous self-interested “experts” couldn’t figure out why the answer was surely “no”, where the PTO itself was completely clueless about what was going on and apparently remains completely clueless to this day, and where a bogus shell company that produces nothing and has contributed precisely squat to the progress of technology just won a half-billion (!!) dollar judgment against another company based on the “innovative” use of “payment-conditioned access rules”.

        You get what you deserve.

        1. 6.1.1.1

          The most depressing part is that the USPTO seems undeterred, they’re just going to keep granting obviously ineligible claims. I guess they’re just daring the rest of society to stop them?

          Check out 8972417, issued this Tuesday. Took 5 seconds to find this.

          Also, cherry on top: first action allowance.

          1. 6.1.1.1.1

            The proliferation of bad patents is the root of the problem, and until that is fixed, we will continue to see abusive behavior.

            Here’s claim 1 from the patent Go Arthur mentioned. Is this really promoting progress?

            1. A method for recommending an out-of-network communication recipient, the method comprising:

            determining a set of potential recommended members of a social networking service;

            determining for each particular member in the set of potential recommended members: a profile similarity score, the profile similarity score indicating a measure of how similar the particular member is to a previous target member of an out-of-network communication of a sending member;

            and a recommendation criteria score, the recommendation criteria score being a measure of how closely the particular member matches a recommendation criteria;

            determining a set of recommended members from the set of potential recommended members based upon the profile similarity scores and the recommendation criteria scores of the members in the set of potential recommended members;

            presenting the set of recommended members to the sending member;

            and sending an out-of-network communication to a selected member of the set of recommended member from the sending member.

            Garbage in, garbage out.

            1. 6.1.1.1.1.1

              I am very leery of any argument that a claim is a bad claim without a solid 102/103/112 argument.

              I was once a product manager that competed with products from companies like Apple, Nokia, etc. I found out just how powerful hindsight was. It amazed me that how obvious improvements to the products seemed to me once I saw them and yet a large team of us would miss them.

              Hindsight reasoning is incredibly powerful. The human mind is terrible, simply terrible at figuring out how hard something was. But actually go through it a couple of times and you learn.

              For those reasons, I am very leery about pasting a claim up and saying “junk.” And that is why Alice has to go.

              1. 6.1.1.1.1.1.1

                Ok, how about Millionaire Matchmaker?

                Go watch Bravo and then come back and tell me how this patent isn’t junk (FYI priority date is 2013)

                1. I know there are lots of junk patents. I note that the reforms (except for the one giving the PTO the ability to set fees and to keep the money) aren’t helping.

                  The funny thing is that outsiders to patents think that patent attorneys like junk patents. Real patent attorneys do not.

                  For example, I was looking through a large client’s portfolio the other day from our law firm. I noticed that about 1/2 the allowances were just allowances for no real good reason. About 1/2 the allowances were hard fought with claim amendments where the claims were good and deserved.

                  The first 1/2 anyone can do. A patent agent that knows nothing. The second 1/2 takes an experienced prosecutor.

                  Good patent attorneys embrace higher quality patents.

                2. I know there are lots of junk patents.

                  In fact, more junky information- and information logic-protecting patents have been granted in the past fifteen years than any time before in the entire history of the earth’s collected patent systems. And they are still flowing out of the office like never before.

                  And it’s those patents that we seeing being collected by “patent assertion entities” who don’t even pretend in most cases to contribute anything other to society except for patent lawsuits. Sure, they tell pleasing myths about helping “little guys” but those “little guys” are typically (1) not “little” at all compared to 99% of the population and (2) these professional trolls have, apparently, no problem at all increasing costs and making life more difficulty for all the genuinely small business owners out there.

                  It’s a transparent game of grift and you’ve been cheerleading these folks for years. Meanwhile, you accuse your critics of being just like “rapers and killers” and you can’t tell the difference between a patent and an actual device covered by the patent.

                  Give us a break, already.

                3. MM would you stop this blasting. How in the world could I ever have an exchange with Vera if you blast us with your stuff that is the same day in and day out. You know my answers to your bag of arguments.

              2. 6.1.1.1.1.1.2

                I am very leery of any argument that a claim is a bad claim without a solid 102/103/112 argument.

                Translation: “I can’t read, nor do I recognize the existence of subject matter eligibility restrictions on claims that recite ‘networks’.”

            2. 6.1.1.1.1.2

              And also Vera, if you believe that patent quality is the number one problem, then I think we should all be noting how terrible the reforms are at improving patent quality.

              Maybe the reforms should be geared towards modernizing the PTO (go back to TSM, which could be outsourced) and do better searches and training. A lot can be done.

              You know, funny thing is that real patent attorneys embrace higher quality examination. It makes what we do more valuable and we know (because we know patents work) that it will increase the rate of innovation.

              Consider that Obama appointed someone that is clearly not qualified to improve patent quality. How on earth can Lee someone with pretty much zero experience in prosecution hope to improve patent quality? It is not going to happen. The same can be said of Obama appointing none science majors to the Fed. Cir.

              So, Vera, maybe there is a lot we could work together on.

              1. 6.1.1.1.1.2.1

                Maybe the reforms should be geared towards modernizing the PTO (go back to TSM, which could be outsourced) and do better searches and training.

                Be specific. Tell us how, in your “modernized” system, the PTO is going to compare “new” information processing logic with “old” information processing logic when the underlying subject matter (data) is abstract and as infinitely shaded as the English language. Is “new” algorith “If data X then data Y” going to be patentable over “If data Y then data Z”? If so, under what circumstances and why?

                For comparison purposes, there’s absolutely no similarity between creating a database of this sort and training people how to use it and the creation of a database for, e.g., searching and examining novel nucleic acid or protein sequences. And we all know why there’s no similarity (you, at least, should know why because you’ve been educated on the topic numerous times).

                You’ve had 30 years to think about this, Mr. Expert. Go ahead and tell us how to do it. I can hardly wait.

              2. 6.1.1.1.1.2.2

                Maybe the reforms should be geared towards modernizing the PTO (go back to TSM, which could be outsourced)

                Only Night could argue for higher quality by asking the office to explicitly overrule the Supreme Court.

                1. Sidenote: From a practical standpoint, the office never moved off of the TSM standard.

                2. I am not asking the PTO to overrule the SCOTUS. First, the PTO could go back to TSM as a base case and still be in compliance with the SCOTUS. Second, we are talking about reform. Congress is supposed to be in charge of this despite the fact that the SCOTUS has taken over its legislative role.

                3. That isn’t true RandomGuy. TSM used to be the rule of law. Examiners looked for TSM and that was pretty much what we argued about.

                4. Examiners looked for TSM and that was pretty much what we argued about.

                  So much has changed!

                  Good grief.

                5. “Examiners looked for TSM and that was pretty much what we argued about.”

                  That’s pretty much what we still do 95% of the time over here in the useful arts. Except I let the attorneys do the arguing, I just send rejections or accept what they have to say, unless I work something out with them.

                6. You guys are n#ts. TSM is nowhere near as used as it used to be.

                  Be a good paper. Maybe Lemley could write it and find some way to spin everything so that new common law would be created that found TSMs really don’t need to be before the invention.

                7. “You guys are n#ts. TSM is nowhere near as used as it used to be.”

                  Maybe not in the non-useful arts. Over in the useful arts there’s mountains o evidence the contrary.

                8. Are those the useful arts that have barely grown in our GDP in the last 10 years while the information processing useful arts have been soaring due to the wonderful patent system?

                9. Examiners looked for TSM and that was pretty much what we argued about.

                  And the Supreme Court specifically said that is not a per se test.

                  TSM used to be the rule of law.

                  So was flash of inspiration. Maybe the PTO ought to go back to that test, it has as much legal basis now as TSM does, hahahaha.

                10. Sidenote: From a practical standpoint, the office never moved off of the TSM standard.

                  Echo consistency called – they were wondering if you ever heard of this thing called credibility.

                11. Random>So was flash of inspiration. Maybe the PTO ought to go back to that test, it has as much legal basis now as TSM does, hahahaha.

                  Random, first. No. TSM has lots of legal basis. Obviously you are not an attorney or a shill. Second, go back and read what I wrote.

            3. 6.1.1.1.1.3

              Vera: The proliferation of bad patents is the root of the problem, and until that is fixed, we will continue to see abusive behavior.

              Here’s claim 1 from the patent Go Arthur mentioned. Is this really promoting progress?

              1. A method for … (snip)

              Garbage in, garbage out.

              It may be difficult to have a reasoned policy debate in this forum but let me try.

              What exactly do you find objectionable about that patent claim? Please don’t be flip and sarcastic like certain other posters tend to. Be honest and thoughtful.

              Has it been done before? Make your 102 argument.

              Is it obvious to PHOSITA? Make your 103 argument.

              How do you define progress? If the claimed method is neither obvious nor old, is it nevertheless not progress?

              Is it because it’s a method? In your opinion, how should Congress instruct the PTO to discern between patentable methods and unpatentable methods? Alternately, do you believe Congress should strike “process” from 35 USC 101?

              Is it because the method involves data input, manipulation, and output? In your opinion, should all methods that involve data input, manipulation, and output be excluded from patentability?

              Is it because reading it makes you want to smack your forehead and say “Geez, that’s so trivial!” Do you believe 35 USC 101 should prohibit trivial inventions? Do you believe that trivial inventions can or cannot be easily disposed of via 35 USC 103?

              I will leave you with an example I have proposed here before. Suppose an engineer develops an algorithm for playing the content of existing Blu-ray discs on existing televisions with better fidelity and less motion blur, so action movies look better during playback. He writes software for Blu-ray players that is downloadable at the manufacturer websites as a firmware driver update. Should that be patentable?

              If so, how do you distinguish between “reading data from an existing Blu-ray disc, processing it according to novel/non-obvious algorithm X, and outputting it as a video signal to an existing display device” and the claim you quoted above, for purposes of deciding whether one or both are “garbage”?

              1. 6.1.1.1.1.3.1

                Is it because the method involves data input, manipulation, and output?

                There’s a pretty strong argument to be made that pure data input and manipulation is something that passed to the public when the generic computer’s term ran. It doesn’t make a lot of sense to say that the subject of the known processing power allows for a repatenting when you don’t get to repatent, for example, an old book which is written on a non-obvious subject, or an old flashlight that is shone upon a novel, non-obvious structure. That argument works on both a 101 and a 103 level.

                With respect to the particular claim, it seems pretty obvious that it is doing a mental step but simply “doing it on a computer.” That’s an Alice violation. Determining scores without limiting the manner in which the scores are determined are pretty clearly in violation of 112(a) because they’re overbroad. Further, anyone who has used either a social network or dating website in the past decade knows that everything other than the message send at the end is how all of these things work.

                If you tell your friend “I met a girl last night who also likes craft beer, you should call her” you’ve met like 70% of the limitations. Setting people up based upon similarities (profile similarity score) and desired traits (recommendation criteria score) has been around since…I dunno the Garden of Eden, if you believe in that sort of thing.

                1. Your first paragraph is a fair critique, but I’d suggest that it’s more apt in the 103 realm than in 101. If data input/manipulation was ever eligible for patenting, then it is still eligible for patenting “subject to the conditions and requirements of this title,” namely novelty and non-obviousness. Unlike the UK Patents Act, nothing in 35 USC 101 specifically disclaims any particular field of alleged invention. We’ve had to rely on the courts for that and they’ve been fairly unpredictable. That’s not a good way to run a major part of one’s economy.

                  And with respect, “Alice violation” is only apropos now because the courts have recently ruled in a particular way. I’m less concerned with what is the practical state of patent policy and more about what it should be.

                  Do you think improvements to operating system software should be patentable? Do you think they are, under current court and PTO precedent?

                  (For anyone who thinks “that’s easy,” go implement Nachos and then get back to me.)

                2. There’s a pretty strong argument to be made that pure data input and manipulation

                  Let me know when you see a claim that is this pure thing.

                  Is it anything like the pure lines and numbers on a measuring cup? Or the pure writing of numbers on a hat band?

                  Please tell. Do.

                3. Is it anything like the pure lines and numbers on a measuring cup? Or the pure writing of numbers on a hat band?

                  THE GREATEST INVENTIONS EVER MADE SO SAYETH THE SUPREME COURT

                  Except not.

                4. SlotGuy: We’ve had to rely on the courts for that and they’ve been fairly unpredictable. That’s not a good way to run a major part of one’s economy.

                  Another great reason why information processing logic doesn’t belong in the patent system — as has already been explained numerous times.

                  But don’t forget: that “unpredictability” can work quite awesomely for you if you have $1 billion to gain by asserting your patent against all the major players in an industry and just a tiny piddling percentage of that to lose because your investment costs are nada and produce zilcho except lawsuits.

                  Or haven’t you figured that out already? Of course you’ve figured that out already. That’s why you’re here.

                5. If data input/manipulation was ever eligible for patenting, then it is still eligible for patenting “subject to the conditions and requirements of this title,” namely novelty and non-obviousness.

                  That’s clearly not a per se rule, because both the method and the computer in Alice were at one point eligible, but by the time the Alice application was filed neither was enough to confer eligibility.

                  I think the way it should be thought about is as follows: At first X is novel and non-obvious and patentable. After that, when an applicant asserts that they invented X, the claim is eligible and fails 102/103. But at some point further than that, even the Applicant is aware (or can be taken to be aware) that X pre-existed, and he simply fails to assert subject matter that is new or improved upon it.

                  For example, at one point, there was no paper, and thus the making of paper was enough not only to confer eligibility but patentability. Then there was a period during which paper was eligible but not patentable. And now there are certain contexts (such as where one asserts a claim on a book with particular wording on it) where a fair reading of the spec shows an admittance by the applicant that paper preexisted, and paper no longer becomes a thing that inherently confers eligibility (and since the words don’t confer it either, the scope is ineligible). i.e. There exists a time when the “improvement” is not cognizable under patent law, and thus the claim asserts neither anything new nor improved.

                  And with respect, “Alice violation” is only apropos now because the courts have recently ruled in a particular way. I’m less concerned with what is the practical state of patent policy and more about what it should be.

                  Well with respect, Alice isn’t asserting any particular logical basis that isn’t in Morse. Alice articulated the particular two part test, but the overbreadth concern and logic thereto is no different with functionally claimed software than functionally claimed machinery.

                  Do you think improvements to operating system software should be patentable? Do you think they are, under current court and PTO precedent?

                  I assume you mean eligible and not patentable, as I think very little in software of the scopes that are routinely talked about are patentable. I have no problem with any type of software being eligible so long as the scope is proper. If you’re going to have someone properly apply KSR and Lizardtech, you don’t have to reach this 101 issue which is really just an overbreadth issue. I can’t discuss particular issues (like operating system improvements) unless I see a claim, because there are some narrowly tailored claims that don’t violate 101/112/103, and there are functional broad claims which violate all three.

                6. Greatest inventions?

                  Um, not sure where in the legal conversation such a “requirement” came up – oh wait, it didn’t.

                  Consistency of dissembling does not bring credibility.

                7. >There’s a pretty strong argument to be made that pure >data input and manipulation is something that passed to >the public when the generic computer’s term ran.

                  This is a ridiculous statement. It like saying the first time that a person learned that if you mixed carbon with iron you got steel that all other mixing of metals was dedicated to the public. Or the first time a person figured out how to make gun power all other chemicals compounds were dedicated to the public.

                  What I do find offensive about your post Random, is that it dismisses what is perhaps the hardest art unit to supposedly being trivial, which of course was Posner’s and Stevens’s game of saying you just put down on paper what you want and give it to a boy with a pizza and they will make it happen. Nothing. Could. Be. Further. From. The. Truth.

                  I would go so far as to say that your statements should disqualify you from any further discussion.

                8. It like saying the first time that a person learned that if you mixed carbon with iron you got steel that all other mixing of metals was dedicated to the public. Or the first time a person figured out how to make gun power all other chemicals compounds were dedicated to the public.

                  Chemicals are an unpredictable art, computer software is not. If chemicals obeyed the same KNOWN, PREDICTABLE RULES without fail the way software does, then of course a first mixing would render obvious all other mixings.

                  The fact that you think a software example “is like” a chemical one shows you don’t understand KSR or obviousness.

                9. Repeating your erroneous views on predictability does you no good.

                  Your logic path leads only to inventions for Oops-mistakes and Flashes of Genius.

                  That’s just not the law.

                  (Your falling prey to that evisceration thing again)

              2. 6.1.1.1.1.3.2

                SlotGuy, what is it about pretending that you were born yesterday that you believe makes a compelling argument for patenting information processing in functional terms completely divorced from any new technology?

                Serious question. Because if you aren’t pretending to be born yesterday, then you either were actually born yesterday or you’re stone ignorant.

                Suppose an engineer develops an algorithm for playing the content of existing Blu-ray discs on existing televisions with better fidelity and less motion blur, so action movies look better during playback. He writes software for Blu-ray players that is downloadable at the manufacturer websites as a firmware driver update. Should that be patentable?

                Nope. Any other questions? That one was easy.

                Are you going to sit there and tell us that people won’t improve Blu-Ray player processing if we don’t grant patents on algorithms? Go ahead and make that argument. It’s a joke argument and you have no evidence to support it and you never will but I’d love to see you make it.

              3. 6.1.1.1.1.3.3

                how do you distinguish between “reading data from an existing Blu-ray disc, processing it according to novel/non-obvious algorithm X, and outputting it as a video signal to an existing display device” and the claim you quoted above, for purposes of deciding whether one or both are “garbage”?

                Answer 1: there’s no “algorithm” in the claim above unless you want to stretch the term to include “scoring similarities” as a patent-worthy algorithm. Is that what you want do, SlotGuy? Promote progress in the “scoring similarities” arts? Please say yes. Please, please, please just say yes so we can all see where you’re coming from.

                Answer 2 (not my preferred answer but maybe you’ll like it): asssuming your algorithm is a bona fide recitation of some new math, one claim protects a “non-obvious” math equation (totally different from all those other “merely novel” math equations!!) used in a method of improving the accuracy with which stored data corresponding to captured moving images is displayed, where (1) the alleged improvement can be objectively measured and verified; (2) where the alleged improvement doesn’t involve abstract relationships, such as relationships between people or between people and other abstractions (e.g., “subscribers”; “belongers”); and (3) where the alleged improvement (an algorithm for converting digital data into moving images on a screen) has no utility outside of the dedicated machine (Blu-Ray player — and more specifically, the specific Blu-Ray player operating system that is improved by this specific algorithm).

                The junk claim that just got issued, on the other hand, is directed to deciding who gets to receive a message based on “scoring” some “similarities” “on a computer”. It merely purports to automate (“on a computer”) an otherwise ineligible process for communicating information on a machine that was designed for that purpose (i.e., “a computer”).

                So there you go. Could I come up with more distinctions? Probably. But how about you do the work for a change?

                The software patent lovers are always defending junk and asking everyone else to do the work for them. But isn’t that the way that the defenders of the lowest form of innovation have always behaved? It’s always so mysterious to these guys that everybody else doesn’t love and appreciate their awesomeness, not to mention their super awesome patents that are totally necessary because they say so.

                If you think that issued piece of junk we’re discussing is the exactly what our patent system should be protecting right now, then just come out and say so, SlotGuy! Celebrate it! Don’t be shy. Or if you think otherwise, then you tell us what makes it different. Or we can tell you what some possible differences are and then listen to you whine and cry about it, for the millionth time.

              4. 6.1.1.1.1.3.4

                I suspect the way to distinguish between the hypothetical BlueRay claim and the social network claim here has to do with the information which is transformed.

                The hypothetical BlueRay claim makes no mention of the information content of the movie, it is solely concerned with processing the stored bytes (not abstract) on the disk into pixels (not abstract) on the screen.

                The social network claim on the other hand processes abstract information into more abstract information. We would have to look further (in the light of Mayo) to see:

                1) Are each of the steps that process abstract information conventional? Yes. (determining, comparing). The information is novel, but the processing is not.

                2) Are the computer implementations of each of the steps conventional? Yes (determining and comparing with a computer).

                What I would like to say here is:

                Any computer implemented process in which each step transforms abstract (non tangible) information into abstract (non tangible) information in a conventional manner and where each step of the process is implemented on the computer in a conventional manner is an abstract idea of a process and not 101 eligible.

                But I cant say that!

                Instead I have to wander up and down a ladder of Alice abstractions to pick the correct abstract idea.

                1. Slashdot: 1) Are each of the steps that process abstract information conventional? Yes. (determining, comparing). The information is novel, but the processing is not.

                  2) Are the computer implementations of each of the steps conventional? Yes (determining and comparing with a computer).

                  What I would like to say here is:

                  Any computer implemented process in which each step transforms abstract (non tangible) information into abstract (non tangible) information in a conventional manner and where each step of the process is implemented on the computer in a conventional manner is an abstract idea of a process and not 101 eligible.

                  But I cant say that!

                  You certainly can say that, and you should. It seems entirely reasonable and consistent with the Supreme Court’s 101 decisions to date. The sticky point is this term “conventional” …

                2. Instead I have to wander up and down a ladder of Alice abstractions to pick the correct abstract idea.

                  And that would be different from 112 or 103 how?

              5. 6.1.1.1.1.3.5

                The best example I can think of is this:

                Claim 1: A bus that is improved by painting it a novel, non-obvious decorative and non-functional shade of purple.

                In this case the “new” or “improved” purple bus only differs from a bus in a manner that patent law does not recognize from the standpoint of a utility patent. It bears noting that 101 would likely be the only rejection one could make on the claim. I would assert that patent law views Claim 1 no different than Claim 2 –

                Claim 2: An old, unimproved bus.

                1. The best example I can think of… decorative and non-functional shade of purple.

                  Your “best example” only highlights the deception, as clearly, software is NOT a decorative, non-functional shade of color.

                  Software is EXPRESSLY functional – that is why it is manufactured in the first place.

                  Time to stop the dissembling.

                2. Your “best example” only highlights the deception, as clearly, software is NOT a decorative, non-functional shade of color.

                  Of course software is functional. The point I was making is that when the distinction between Old X and New Y is something patent law does not recognize, the thing that is colloquially “new” is, under patent law, still “old.”

                  When the difference between a generic computer and a “new” computer is described only by an idea, and an idea is not recognized as a patentable distinction, the claim isn’t describing something new under patent law. In your parlance, an oldbox and a newbox are different colloquially, the way my oldbus and newbus are, but under patent law there is no newbus (as patent law doesn’t “see” the difference) and no newbox unless newbox is described in a manner that patent law appreciates.

                3. Nice FAIL Random, as you well know (or should), words have patentable weight when there is a functional relationship.

                  I’ve shared several cases with you quite often. Cases even outside of your curse-ade target of software.

                  Your point is simply an invalid one, as patent law very much does recognize the correctness of my statements – and the error of yours.

                  Then you repeat the Malcolm error of wanting one optional manner of claiming to be the only manner of claiming…

                  That too, is plain error under the law; and that too I have explained in detail to you, with references to the Act of 1952, Frederico’s Commentaries on the Act as well as case law.

                  You have provided nothing but repetition of your conclusory statements.

                4. Random, what about

                  1. A system of traffic control signs including colors, shapes and words.

                  2. A system of mileage marker spaced a mile apart and having a number, the number being the number of markers to the gates of Rome.

                5. Nice FAIL Random, as you well know (or should), words have patentable weight when there is a functional relationship.

                  Always? Because I’m pretty sure the software of Alice had a functional relationship, but that wasn’t given sufficient weight to overcome 101, did it? See this is why I can say Scoreboard. You can spout platitudes, but it turns out those platitudes don’t hold up in court, which is the only place someone needs to win.

                  Then you repeat the Malcolm error of wanting one optional manner of claiming to be the only manner of claiming…

                  What I want is irrelevant. What is relevant is that a claim has to run a gauntlet of 101, 103 and 112, and some language is better able to do that than others, and the sooner people who fail to follow hundreds of years of law get that, the better off we’ll all be.

                  What about 1. A system of traffic control signs including colors, shapes and words.

                  2. A system of mileage marker spaced a mile apart and having a number, the number being the number of markers to the gates of Rome.

                  Let’s start by pointing out what I’m talking about here – the point I am making is that there are times when the law does not give weight such that we don’t have a “new” invention. That necessarily requires an inquiry into the state of the art, i.e. this is a time where you’re looking at prior art outside of the 102/103 context. It’s insufficient to simply give the claims without talking about what the art was prior to the claims.

                  If the art prior to the claims was that you could write words, paint and shape signs, then a claim to a PARTICULAR SYSTEM (i.e. not what Claim 1 is) would be eligible. But if the art was that you could write words, paint and shape signs and Claim 1 is presented as constituted (i.e. it only claims THAT A SYSTEM COULD BE MADE) then there is no eligibility, because it was in the nature of words/colors/shapes that they can convey meanings prior to this instant application. It makes no more sense to claim Claim 1 than it does to claim “using language to convey information.” Contrast Claim 1 with, for example, Morse Code. That’s a particular system. A particular system is eligible because now the invention is not that “information can be conveyed”, it’s that “this particular information conveys this particular thing”. You’ll note that this is the problem of functional language in general, which you’ve fallen prey to here.

                  Contrast that situation with a society that could not, for example, shape or write upon signs prior to this. Now the improvement described by the claim is an improvement to cause a structural change to a material – clearly eligible.

                  Contrast again with an applicant who admits he knew of the US traffic control system beforehand but did a patent search and found it had not been patented – this applicant has admitted not only a 102 rejection, but a 101 rejection as well – the applicant knows he is not an inventor, nor has he taken an act to create something new or improved. Here it is important to note that if Congress were to act to waive the requirements of 102/103/112 with respect to this particular application (something certainly within their power), we would have a constitutional rebuke of Congress’ authority, as the patent power does not extend to withdraw post-facto from the public what is theirs.

                  With the above in mind, Claim 2 ought to be easy – here we have a particular system, because you’ve given the requirement that the signs are a mile apart (I assume of course, it is new in the hypothetical – clearly that claim in this world is ineligible because one historically knows that system was, in fact, done). Contrast it with a claim such as “using writing on sign posts to express distance” which, if the art knew how to previously write on sign posts, would be ineligible. That would be a statement of “intended use”, providing no weight.

              1. 6.1.1.1.1.4.1

                Ahh I think the office brought it on themselves….

                And also, the Cloward-Piven Strategy expressly seeks a replacement institution to BETTER the mission, not destroy it…

                Ahistorical reference here..

              2. 6.1.1.1.1.4.2

                Not so much the PTO, but the historical Patent Bar/Rich alliance, although persistent expansion of patentable subject matter combined with a bias in favor of functional claims was not directly intended to do anything but benefit patent attorneys.

                1. anon, it is clear that as a co-drafter of the ’52 Act, Rich was trying to put his personal gloss on it regardless of the words of congress.

                  Something like that is going on now in the new Obamacare case at the Supreme Court where the government is trying to argue for an interpretation based upon intent and purpose of the drafters of the bill rather than on the words actually enacted.

                2. What is clear Ned is that you are turning your opinion (and known animosity to Rich) into a free-for-all denigration of the changes to patent law that Congress enacted.

                  Sorry, but your opinion of just what is “gloss” is far too biased to hold any credibility.

                3. …and in the particular issues often under discussion, the direct words of Congress are FAR more generous (pro-patent) than your interpretations which often require even further spin on judicial activism, and in particular to business methods, a Stevens-like actual re-writing of the direct words of Congress.

          2. 6.1.1.1.2

            1. A method for recommending an out-of-network communication recipient, the method comprising:

            determining a set of potential recommended members of a social networking service;

            determining for each particular member in the set of potential recommended members:

            a profile similarity score, the profile similarity score indicating a measure of how similiar the particular member is to a previous target member of an out-of-network communication of a sending member; and

            a recommendation criteria score, the recommendation criteria score including a measure of how closely the particular member matches a recommendation criteria;

            determining a set of recommended members from the set of potential recommended members based up on the profile similarity scores and the recommendation criteria scores of the members in the set of potential recommended members;

            presenting the set of recommended members to the sending member; and

            sending an out-of-network communication to a selected member of the set of recommended member from the sending member.

            Yes, let’s “score” some “similarities” using “criteria” and “send a communication” to a “selected” member of the “recommended” group. If only there was a step of using a “proxy server” to test the “sufficiency” of this awesome super techno method it’d be truly worthy of my admiration.

            What do you think, Professor Sichelman? “Weak patent” here?

            This is the stuff you seem to be worrying about it. This right here is the lifeblood of the “patent assertion entity” and there’s thousands upon thousands of more patents like this in the queue. You want to make it easier to assert “monetize” this stuff? Because doing to “promotes progres”? Let everyone know.

    2. 6.2

      Vera,

      If a startup accused of infringement goes to trial (or judgment) now, it would only have to pay attorneys’ fees to the patent holder for objectively baseless litigation under the Octane Fitness standard, which is fairly difficult for patent holders to meet.

      However, under HR 9, a defendant startup losing at trial would have to pay fees if its defenses were not “reasonably justified in law and fact,” which is pretty vague. Thus, there would likely be a much greater risk under HR 9 of a startup attempting to defend against a threat of patent litigation of paying not only damages–but also attorneys’ and related fees–if it lost. This means that risk-averse startups would pay much more to settle cases under HR 9 than now.

      As for weak suits filed by NPEs, I’m well aware of the many examples. However, I do not think all NPE suits are weak. Also, operating companies frequently file weak suits. I might be in favor of a fee-shifting provision that equally treated NPEs and operating companies that file weak suits, but this provision is tilted heavily against NPEs (especially when it comes to third-party liability, as I explain above). It is also heavily titled in favor of accused infringers, even if their defenses are weak. There is no legitimate policy reason for this lopsidedness–it is simply a result of lobbying efforts–and it could lead to substantial social costs.

      So until the one-side nature of the fee-shifting provisions are remedied, I’m opposing the bill.

      1. 6.2.1

        I do not think all NPE suits are weak.

        Which ones are weak and which ones aren’t? What criteria are you using? Do you understand subject matter eligibility? Show us some examples of weak NPE suits which are presently pending so we know where you are coming from, Ted.

        operating companies frequently file weak suits.

        No kidding.

        The question is: how frequently? Who are they filing the weak suits against and for what purpose? Were there serious negotiations for a license beforehand or did they first file 100 cases on the same day in East Texas against different infringers? How many “weak suits” are filed against companies who exist only to monetize patents? Show us some examples of a pending “weak suit” filed right now by an operating company so we can see what you have in mind.

    3. 6.3

      Vera, What we need is a contingent fee defense bar that takes on small firms accused of infringing junk patents, where their fees can be paid by the patentee upon demonstration in court that the patent was junk.

      Better, make it a federal tort.

      I would define the tort by stating that it is presumed that a patent is junk if it is directed to a business method or computer implemented anything, or if it is clearly anticipated by art provided by the accused infringer.

      1. 6.3.1

        Your tortious presumption has a major problem with the presumption that ALL granted patents have (in case that slipped your mind).

      2. 6.3.2

        I say that if a patentee can’t provide evidence of a working embodiment of the business method on a computer “invention” at any point in the patent’s history, it’s de-facto junk and unreasonable. This is supposed to be required by Best Mode, but now it’s neutered. An application should be rejected at the PTO, and it should constitute grounds for invalidity, if your “invention” has no embodiment which you can prove was real, working code at any point in time. Not just a bunch of 1990’s-era waterfall development software design diagrams no one uses in the real world anymore. Real functional code.

        This wouldn’t catch many junk patents, as usually its not that nothing was created, rather that the claims are far too broad relative to the creation from which the patent arises… but it would stop the pure non-technical patent speculator from claiming inventions they never got close to inventing or creating

        1. 6.3.2.1

          You then should carefully note Derpentine that what you say is EXPRESSLY not the law.

          Constructive reduction to practice and the lack of any actual requirement – along with the fact that our law allows improvement patents on those items belonging to others, for which a making may not BE allowed, all speak to that fact that what you “say” is simply untethered to how things are.

          1. 6.3.2.1.1

            I suggest you read more closely. I’m not saying this is how the law is, but a potential reform to the law.

        2. 6.3.2.2

          Derpentine, the problem with business method patents is not simply a lack of a working embodiment. Business methods are non statutory — and I say this with confidence regardless of Bilski. Business methods involve manipulation of information. Information is neither a machine, manufacture nor composition.

          Add a machine or article of manufacture, and perhaps we might have some new technology. But that is not ordinarily the case.

          However, you and I agree that functional claims are a major problem — and are especially prone to abuse in computer implemented patents. These patents are easy to write, do not actually have to have an implementation, and essentially cover the independent R&D of others. These patents are causing havoc, just as the Supreme Court said they would back in 1854 in the famous case of O’Reilly v. Morse.

          Until Donaldson, the function of a machine, manufacture or composition could not provide a basis for distinguishing the prior art. One had to put into the claim novel structure, etc. It would be nice if we could legislatively overrule Donaldson with an amendment to 112 that would state this principle simply.

          1. 6.3.2.2.1

            As for “functional claiming,” Ned, as we have discussed – it was Frederico (as opposed to Rich) that wrote opposite of your view here in discussing the actual words of Congress.

            On this point, you cannot even lean on your anti-Rich bias.

            1. 6.3.2.2.1.1

              actually, anon, had the Donaldson court consulted the remarks of Federico, they would have held the opposite. He opined that 112, then 3, would not apply to patentability considerations because the Office could not issue two claims that literally were the same or that literally read on the prior art — which is entirely possible if claim construction is conducted before one considers other patents and the prior art. Construction might avoid the prior art and the other patent’s claims, but because they are literally the same (or close enough) the claim itself cannot distinguish the invention.

              When one claims a structure further qualified by a function, it is presumed that prior art structures inherently have the same functional capability. If the function IS the novelty, then either one is really claiming a process adapted to run on the particular machine where novelty is not in the structure, but in its use; or one is claiming a result — all structure that does the same thing. In either case, the claim is indefinite per se.

              These principles were fairly well understood prior to Donaldson. Had they heeded Federico, that case would have been decided differently.

          2. 6.3.2.2.2

            I agree there are more serious problems with business method on a computer patents than merely lacking a working embodiment.

            But my personal philosophy on reform in the patent arena is that instead of these wild, huge changes (AIA, Alice, etc.), that small changes are implemented individually so that they can be evaluated on their impact on the target (so called patent bullies) versus innocent bystanders (university tech transfer offices, entrepreneurs). I think my proposed change would be helpful without rewriting the system in a huge way. That, and it’s easier to talk about one small change in a comment discussion than it is to talk about systemic problems

  5. 5

    As an initial matter, let’s note that as late as 2012 Professor Sichelman appeared to be completely clueless about what Prometheus v. Mayo was about (see, e.g., link to papers.ssrn.com). In that regard, there are several points in this article where “weak patents” and “strong patents” are mentioned. Does Professor Sichelman know the difference? Was Prometheus’ patent a “strong patent”? Answer: no, it was a piece of junk and a transparent attempt to use the patent system to protect information and logic (a fact that is completely absent from Sichelman’s analysis of the case). Keep that in mind as you read about Professor Sichelman’s concerns. Let’s turn now to some specific statements:

    In the very least, we should not impose radical and potentially very costly changes in the patent system without very good evidence.

    Does Professor Sichelman’s concerns about “radical changes” extend to (1) treating composition claims as if they were method claims and (2) treating logical steps and information as if they were “electronic structures”? Apparently not. Those radical changes — made completely without Congress’ input — are apparently just fine. Why? Oh, someone might be hurt! What about trying to fix the predictable problems presented to the patent system by promoting the lowest form of innovation (the patenting of information and information logic), specifically the rise of a class of patent attorneys who does nothing except “monetize” such patents at the expense of the credibility of the system and everybody else? Oh no! We mustn’t be hasty. Why? Someone might be hurt!

    anyone who cares about innovation as a whole should oppose the Innovation Act as it stands.

    That’s simply an obnoxious variation on the True Scotsman fallacy. It’s entirely possible to care about innovation “as a whole” and still support the Innovation Act. Here’s the deal: even if the Innovation Act does end up having a demonstrable deleterious effect on innovation (which it won’t), it’ll be easy to fix. The Innovation Act is unlikely to do what naked, radical “judicial activism” and agency coddling on behalf on software applicants has done, i.e., create and foster a class of wealthy, entitled, patent-addicted grifters who say things like “why are you opposed to innovation?” every time someone threatens to shrink their lollipop.

    the Innovation Act is highly biased in favor of accused infringers,

    Of course it is. That’s because the act is designed to negatively impact NPEs who are asserting junk patents that should never have been granted in the first place. In nearly every instance, those junk patents are incredibly junky computer-implemented patents indistinguishable from the one recently asserted by professional patent trolls against Apple to the tune of $500 million dollars.

    a risk-neutral PAE or large practicing patentee may be able to extract greater settlements from risk-averse accused infringers, such as startups and small companies, by credibly threatening to take a strong case to trial

    Both PAEs and large practicing entities can already do that, Ted. This is not a change in the status quo. Most intelligent and reasonable people who don’t drink the “more patents is better!” kook-aid and who run small businesses — like me, for example — understand this. That’s one of the main reasons that people like me want information and information logic patents to be expunged from the system. Maybe you should think about getting on board with that, Ted. Try to wrap your brain around Prometheus v. Mayo first. It’ll help you a lot.

    Also, please let everyone know when “a large practicing entity” sends out 10,000 letters to small businesses around the country threatening to sue them infringing a junky software patent.

    the Electronic Frontier Foundation, which wrongly assumes that PAEs are “patent trolls” that file “weak” suits

    That’s not a “wrong assumption.” It’s a correct assumption. Most PAEs are patent trolls that file weak suits on patents that should never have been granted. Most of those patents are computer-implemented junk. It’s not the EFF’s problem that they know the difference, Ted, and you apparently don’t. (Or maybe you do — perhaps you can share with everyone your thoughts on SmartFlash’s garbage claims so we can see where’ you’re coming from).

    Even a small percentage chance of a paying these fees could deter risk-averse inventors and assignees.

    That’s excellent news. People who should be deterred from asserting junky patents, particularly junky computer-implemented patents.

    PAEs and their funders have already become savvy in this regard and often use single-purpose litigation entities with passive equity investors who cannot “influence, direct, or control” the litigation, removing these investors from liability under the Innovation Act. This approach makes the risk that the plaintiff would not be able to pay fee awards even more acute, leaving the original inventors on the hook if they retain a percentage stake of the proceeds (or probably even an equity stake in the single-purpose entity, because arguably the inventors can “influence” the litigation via their direct involvement). Indeed, even large companies and universities that monetize their patents via PAEs may decide to sell their patents outright to these PAEs, rather than retain a percentage stake, because of the unnecessary risk of placing their assets on the line.

    Again: this is not a problem with patent reform. This is a problem with certain actors in the patent system (PAEs and their funders) who exist solely to monetize patents that are, in nearly every case, junky computer-implemented patents that should never have been granted in the first place. If what you predict turns out to be true, the answer is to take further measures to cripple the PAEs and, to the extent possible, go after their “passive equity funders”. That’s why one of the key elements of patent reform is to identify who these “passive equity funders” are, and who are the entities pulling the strings behind the myriad LLCs that have popped up to monetize junk patents.

    1. 5.1

      Hi MM,

      You may not have noticed it, but I was hoping you could clarify a post you made yesterday on the Smartflash thread. Of course this is ancient history in internet time, but I am trying to come up to speed on the existing disagreements and agreements on Patently-O and understanding the argument you made is one of the missing pieces. link to patentlyo.com

      1. 5.1.1

        MM,

        In your zest to get rid of software patents you would cast all of us who rely on patents in any technical discipline in with a few bad actors. That’s a pretty broad brush, indeed.

        There are literally tens of thousands of users of the patent system that rely on the protections of patents. Not in just a relatively few cases in the ED Texas, but every day in every city in every state these entities rely on those protections when making investment decisions, decisions to hire engineers, scientists and yes even programmers.

        The value wrapped up in high value quality patent portfolios in the aggregate is staggering and to negatively affect all of them so that you can address what is a very small number of bad actors is insane.

        Yes one-sided fee shifting would hurt shabby trolls, but not talented assertion entities in the slightest. In fact, with the opportunity to collect fees from multinational serial infringers in the high tech sector, who avoid FTO searches like the plague, and whose main defense is scorched earth litigation tactics, it couldn’t be a more target rich environment you would be creating for such entities.

        In fact it would only hurt undercapitalized startups and shabby trolls. I don’t know if you are familiar with patent litigation, but it is a crapshoot even with a highly innovative quality patent and a good case of infringement. Fact is, counter to the publicity floating around, the Fed Ckt has done a masterful job over the years of figuring out a myriad of ways to invalidate patents and the overwhelming majority of the caselaw they put out goes against patentees, in most cases who had a reasonable case, but due to technicalities lose out.

        So yeah, the little guy who is rightfully in possession of very good patents may feel more reluctant to bring suit if HR 9 passes and for a very good reason. Patent litigation and the outcome is risky and this will make it more risky. This effect on the small property owner is wrong and if you don’t think so then we have a philosophical difference on the value of the patent system and we can all just ignore you from now on.

        Result: Big Tech will create an even worse PAE problem than they already have. More patent speculators will pop up and less small innovators will grow into successful startups. Plain and simple.

        1. 5.1.1.2

          JB: In your zest to get rid of software patents you would cast all of us who rely on patents in any technical discipline in with a few bad actors.

          Pick your poison, JB.

          The value of getting those patents out of the system outweights the costs associated with keeping them in the system — costs which we are only beginning to see and which nearly all people who arent directly invested in the status quo are repulsed by.

          Are some “innocent” patentees with patents that cover actual prodcuts going to see some devaluation? Yes. Does that matter? Not really. Devaluation happens all the time. The world keeps turning. The stock market barely registers a tick. People adjust.

          If this bugs you, then work harder to get software patents out of the system because reforms like the Goodlatte bill are going to keep coming until that happens.

          It’s guaranteed. And it’s guaranteed for incredibly obvious reasons that I’ve been discussing here for years. To put it in the simplest terms: the patenting of information/logic spawns trolls like manure spawns maggots because there is no lower of “innovation”. Never was, never will be.

          1. 5.1.1.2.1

            Funny about Malcolm refusing to simply but his mouth where his money is and simply stop using the types of “lowest” innovations that he seeks to deny protection to.

            Maybe he just h@tes where this whole innovation thing has been going…?

            1. 5.1.1.2.1.1

              Anon,

              That argument doesn’t make any sense. One can think something is useful and that its sellers/producers should be able to sell them/make money and ALSO think that something shouldn’t be in the patent system.

              Absolutely nothing inconsistent with those positions.

              1. 5.1.1.2.1.1.1

                My ever polite friend Go,

                Despite your incessant cheerleading, the argument makes perfect sense.

                Malcolm’s position is simply NOT supported by the law as written and by the facts that innovation today is largely in the sphere of software.

                Plainly put, patent protection is meant to cover those things that a) have a certain utility and b) fall into purposefully broad categories.

                There is simply NO principled rationale for excluding software from protection as Malcolm desires under the law.

                It is ONLY by b@astardizing the law and spinning facts that the philosophy that Malcolm adheres to can be made to match what patent law was meant to protect.

                It is NOT so much that you cannot have an opinion that the law should be changed to exclude software from patent protection. You should NOT slip into a fallacy that I am speaking against having ANY opinions. But at the same time, you cannot engage in spin and purposeful misreading of the law and ig noring of plain facts in order to advocate a philosophy that you want to install in place of the current law and pretend that the current law is something other than what it is.

                1. Anon,

                  Respectfully, I disagree with your view of ‘the law.’ This issue relates to any legal issue, not just patent law or 101 though.

                  In my view, there is no such thing as static ‘law.’ To me, all statements about the law are educated guesses…probabilities really…about what a court will hold in the future.

                  Things like statutes, precedent and the like can all be used to better inform our guess about what a future court will hold.

                  Relating more specifically to ‘software patents,’ I think your view that the ‘law’ allows for software patents is inaccurate, then.

                  Consider the social networking claims I posted higher up in the thread. In my estimation, I’d say there’s at least a 80%+ chance that a district court would invalidate the claims under 101. Probably 50-50% at the Fed. Cir., Probably something like 95%+ at the Supreme Court.

                  Do you disagree? Why? If you don’t disagree with the probabilities I posted, how can we say ‘the law’ allows for such patents?

                2. Anon,

                  a) That’s a rude comment.

                  b) If you can’t tell that courts interpret statute, the same would apply to you.

                3. Don’t play the false umbrage game, Go.

                  There was nothing at all rude about the comment. Clearly, you need to recognize the difference between common law and statutory law – notwithstanding ANY court interpretation effects.

                  Being direct – and correct – is a help to you. Try to be able to recognize your learning opportunity.

                4. Anon,

                  I don’t see how the distinction between statutory law v. common law impacts anything I said, additionally.

                  I notice you didn’t respond to my questions. Do you disagree with my estimations, even given that patent law is ‘statutory?”

    2. 5.2

      MM, if we could limit the bill to “computer implemented” patents, then I would begin to agree.

      The problem mainly is the garbage being issued by the PTO, particularly since State Street Bank and In re Donaldson, a case that overruled prior cases that had held that one could not distinguish the prior art by reference to function.

      But the legislation is not so confined, and true innovation comes mainly out of the university and startup. The bill all but kills the value of patents to the small fry, and this cannot but harm true innovation.

      I don’t know where the professor was on State Street Bank and functional claims. But he is right here.

      1. 5.2.1

        Ned: true innovation comes mainly out of the university and startup.

        “True innovation”? Care to define that?

        Setting aside the fact that 99.99999% of the most valuable material that “comes out” of universities — i.e., data and educated people — is ineligible for patenting, what is the evidence that “most true innovation” comes from “start-ups”? Exactly what qualifies as a “start up” anyway? I see a lot of taco, grilled cheese and cupcake trucks around town. Are they the “true innovators”? Is it the use of organic butter that is innovative or is it the use of the Internet to post their menu to “subscribers” using “rules”?

        I see a lot of big numbers getting thrown around about these tens of thousands of start-ups whose super innovative and revolutionary and surely patent worthy ideas are going to be “stolen” by Apple and Google because “big companies don’t innovate” (<= a massive l1e if there ever was one).

        Lost in the shuffle is the fact that a good patent is still a good patent. You can still protect your patent-worthy innovation with it and you can still succeed and earn a decent living. Can you completely fail as a business and sell your patent for $100 million dollars? Maybe not. Is that something that should make me or anybody else sad? I don't see why. Then again, I'm not floating up there with the super rich people who stand to get richer by peddling all this pro-patent propaganda.

        1. 5.2.1.1

          MM, true innovation is the kind of innovation for which the patent system was created. Think telegraph, electricity, telephone, plane, vacuum tube, radio, transistor, integrated circuit, PC, cell phone, internet, etc. These inventions created wholly new products that replaced existing technology.

          Big firms resist fundamental change and favor incremental. This is a well established fact.

          Drugs, chemicals, and bio might be different in kind. But when dealing with machines, what I say here is generally true.

          The patent system has fostered true innovation in this country and this needs protection, not destruction.

          We can all agree that the patent system went seriously out of whack with the allowance of information processing patents. State Street Bank was a disaster. Ditto, Donaldson. I find it amazing that the people behind reform do not go directly to the root of the problem, but instead seem willing to attack the fundamentals of the patent system so as to make it all but unavailable to the startup, the very source of true innovation.

          1. 5.2.1.1.1

            ” I find it amazing that the people behind reform do not go directly to the root of the problem”

            That avenue is blocked by overwhelming opposition from IBM and big pharma. Pharma is willing to put its whole lobbying muscle into a single system with no exceptions in the hope of forcing it on India someday. The result is that we seek the avenues of reform that are open to us.

            A simple affirmative defense to infringement by proving that the accused product or method is software running on conventional hardware would be better, but we can’t get that.

            1. 5.2.1.1.1.1

              IBM has long been a major source of the problems in patent law. I was not surprised to see that the largest holder of business method applications impacted by Alice was none other.

              As to reforms directed to the root of the problem, we really should consider clarifying mixed subject matter claims, some of it eligible, some not. We could say that invention can only be in the eligible claim elements or where the ineligible modifies the eligible to produce in it a new physical state or thing. An eligible claim element is an element that is a machine, article of manufacture or composition of matter, a way of making these, or a way of using these to produce a new physical result.

              Regarding this definition, it could be made to apply to all pending applications and any new lawsuits.

              1. 5.2.1.1.1.1.1

                Regarding this definition, it could be made to apply to all pending applications and any new lawsuits.

                That leaves out the worst of the worst at the core of the bubble which we’ll have to sort out for the next 15 years. But it would be a decent start, I’ll grant you that.

          2. 5.2.1.1.2

            Ned: I find it amazing that the people behind reform do not go directly to the root of the problem

            “The people behind reform” are a diverse group and not everybody is on the same page about this “root”.

            Yet.

            Some of those “people behind reform” probably have some investment in that root themselves or they just believe, for whatever reason, that by some miracle, through piecemeal litigation by parties that are concerned about share value and nothing else, that a practical and clear line can be drawn between “good” logic patents and “junky” logic patents.

            1. 5.2.1.1.2.1

              “They” are invested in grifters.

              Money.

              Or something.

              (something that is definitely NOT a source of patent law, but it is something)

    3. 5.3

      Why do so many of your posts contain ad hominem attacks?

      “As an initial matter, let’s note that as late as 2012 Professor Sichelman appeared to be completely clueless about what Prometheus v. Mayo was about (see, e.g., link to papers.ssrn.com). In that regard, there are several points in this article where “weak patents” and “strong patents” are mentioned. Does Professor Sichelman know the difference? Was Prometheus’ patent a “strong patent”? Answer: no, it was a piece of junk and a transparent attempt to use the patent system to protect information and logic (a fact that is completely absent from Sichelman’s analysis of the case). Keep that in mind as you read about Professor Sichelman’s concerns.”

      Is there really a need to attack the person drafting the article, instead of actually arguing against what the article says?

      And how do you have time to write these diatribes?

      1. 5.3.1

        PatentBob: Why do so many of your posts contain ad hominem attacks?

        Why did you stop beating your wife, PatentBob

        Is there really a need to attack the person drafting the article,

        I attacked the statements in the article.

        As for the “attacks” on Professor Sichelman, I’m only pointing out facts about previous positions that he has taken about hugely important fundamental issues that affect the entire patent system. If he has difficulty understanding basic subject matter eligibility issues or articulating that understanding (and it certainly appears that he does) then it’s worth taking a closer look at what else he might be missing. And I did take that closer look.

        You and your software patent loving cohorts are relentless in your accusations of “bias this” and “bias that” and you have been relentless for years. That’s why I’ve had to put up with ridiculous tinfoil hat nonsense for years like “you must be an Examiner” or “Google must be paying you”. And where were you complaining about that, PatentBob? I mean, it still goes on here all the time and I never hear a peep from you about such nonsense. If you’re really concerned about “bias” then step up.

        People are entitled to know and they deserve to know when “expert” commenters take positions that are meaningful with respect to the big picture. Sichelman talks a lot about “weak patents” in his commentary but, as everybody knows, there are huge disagreements about what a “weak patent” looks like (or should look like). I’m trying to shine a light on this issue because it’s incredibly important.

        As I’ve said for years: get the garbage information and information logic protecting patents out of the system and these trolling and NPE problems will disappear right along with them. There’s more then one way to skin that cat, of course, but you have to first want to skin the cat and understand the need for it. Not everybody is on board yet but the train is getting fuller as more and more people “get it”. You can only shed so many crocodile tears for these rich grifters, after all. Go ahead and complain about these reforms. There’s more changes coming and they aren’t going to favorable to the lovers of software patents. They’re all necessary and inevitable changes, just as predictable as these reforms are.

        Watch and see.

  6. 4

    Good thinking, here professor.

    Your logic clearly demonstrates that the Goodlatte Bill will harm innovation in a major, major way by undermining the value of the university and startup patent.

    1. 4.1

      the Goodlatte Bill will harm innovation in a major, major way by undermining the value of the university and startup patent./i>

      If the value of university and start-up patents which aren’t computer-implemented junk patents is actually “undermined” by the bill, then some corrections can be made by Congress to address that issue.

      If Congress refuses to address information logic patents specifically, then it’s inevitably going to be the case that other types of patentess are going to be negatively impacted in some instances by laws which generally make it more difficult for a NPE/troll to assert dubious patents. As a general matter, that is a perfectly acceptable compromise if the result is to greatly diminish the participation of trolls and NPEs in the system.

      If the harm to non-NPE/trolls is too great, then Congress can tweak the law as necessary. But raising the possibility of such harm as an argument against the type of reforms in the Goodlatte bill should really be a non-starter where most of the alleged start-ups that are allegedly going to be “harmed” by these provisions are relying on junk patents to begin with.

      Yes, this means that those start-ups need to think about different ways to “start-up”. And investors need to think about different ways to minimize risk besides relying on junk patents and patent assertion entities.

      1. 4.1.1

        MM, the reform needs to be focused on getting rid of junk patents one way or another. For one thing, getting rid of the cause of those patents, the Federal Circuit might go a long way in the right direction. Another might be to add new clauses to 112 directed to functional claiming — for example, a clause declaring that a machine, manufacture or composition distinguished from the prior art by reference to its function is indefinite, and then make that legislation apply to any new lawsuits.

        After Octane Fitness, legislation in this area is not required. The district courts know a bad case when they see it.

        1. 4.1.1.1

          Much better than Goodlatte’s bill would be simply:

          A. Entities must be sued for infringement in a venue where they do business and have a physical nexus or distribute physical products. Small businesses (under 100 employees) must be sued in the district of their headquarters.

          B. The CAFC is returned to CCPA responsibilities and appeals are to regional circuits.

          That would go a long way to slashing abuses without disadvantaging anyone unfairly who has honest claims.

    2. 4.2

      [formattting fixed]

      Ned: the Goodlatte Bill will harm innovation in a major, major way by undermining the value of the university and startup patent.

      If the value of university and start-up patents which aren’t computer-implemented junk patents is actually “undermined” by the bill, then some corrections can be made by Congress to address that issue.

      If Congress refuses to address information logic patents specifically, then it’s inevitably going to be the case that other types of patentess are going to be negatively impacted in some instances by laws which generally make it more difficult for a NPE/troll to assert dubious patents. As a general matter, that is a perfectly acceptable compromise if the result is to greatly diminish the participation of trolls and NPEs in the system.

      If the harm to non-NPE/trolls is too great, then Congress can tweak the law as necessary. But raising the possibility of such harm as an argument against the type of reforms in the Goodlatte bill should really be a non-starter where most of the alleged start-ups that are allegedly going to be “harmed” by these provisions are relying on junk patents to begin with.

      Yes, this means that those start-ups need to think about different ways to “start-up”. And investors need to think about different ways to minimize risk besides relying on junk patents and patent assertion entities.

      1. 4.2.1

        MM, the focus has to remain on the junk quality of the patent, and should bend over backwards from the get-go not to impose gigantic defense costs on any patent holder who claims are otherwise meritorious.

        Junk patents. As I said, focus on “computer implemented,” business methods,” functional claims and the like. If the legislation were limited to these in some manner, then we would be in agreement.

        1. 4.2.1.1

          …because agreement with Ned can even make 6 into an Einstein…

          Ned’s lovely IMHO-Law alternate reality visits again.

  7. 3

    The argument about increased PAE activity doesn’t make a whole lot of sense. It may increase activity outside of litigation, i.e., demand letters. But all it really does in the litigation context is shift some of the initial costs of acquiring patents to become additional costs incurred by asserting bad patents in court or by litigating against poorly chosen defendants. PAEs that make poor choices in this arena will spend as much time in bankruptcy court as they do in patent litigation.

    As the law stands now, there may be a higher barrier to entry, but once a PAE acquires a patent, they can run amok with it consequence-free. Imposing a cost on the decision to litigate ensures that decisions on whether or not to litigate are carefully considered before every single lawsuit is filed.

    1. 3.1

      APoTU, no doubt that frivolous suit would make no economic sense whatsoever. But with Octane Fitness, that era is gone.

      However, if the fee shifts for well grounded but failed efforts, then we have a problem. The covenant not to sue provision is particularly problematic.

      As to increase in PAE activity — well if the PAE owns the patents and does not have to answer to risk adverse investors …?

  8. 2

    Yes, as I noted earlier, the Goodlatte bill does seems to shift the normal burden of proof for a punitive sanction to the party to be sanctioned.

    1. 2.1

      However, one also has to take into consideration [for this political decision] the huge litigation cost disparity between a patent suit by an NPE and the cost to fully defend against it.

      1. 2.1.1

        Nor does everyone agree that encouraging the standard practice [as this article claims] of major companies hiding behind NPE’s [which they effectively hire to sue on their patents for litigation revenues yet avoid any exposure or risk to themselves] is really that desirable?

    2. 2.2

      Paul, as I suggested before, there should be an obligation on a party asking for attorneys fees to move for summary judgment on liability soon after claim construction. If the case has merit, it moves on.

  9. 1

    This entire post is a good reason to let things settle for a while before doing anything else.

    1. 1.1

      What Would curmudgeon Say, given that practically ALL of the comments by Prof. Sichelman have not only been put on the table for discussion in blog comments, but done so by me?

      (Oh, my detractors won’t be happy with that fact)…

      1. 1.1.1

        LL of the comments by Prof. Sichelman have not only been put on the table for discussion in blog comments, but done so by me?

        What great news for Prof. Sichelman! He must be a really smart and serious guy — just like you, “anon”!

        LOL

      2. 1.1.2

        A curmudgeon would, of course, note the irony of getting excited that one patent law academic happens to agree with one of one’s personal views when one regularly trashs all views of all patent law academics.

    2. 1.2

      The good professor does not mince words, does he. Goodlatte and his backers are radicals.

    3. 1.3

      his entire post is a good reason to let things settle for a while before doing anything else.

      Love the sudden desire to “stop and think for a minute.”

      Too bad the CAFC didn’t bother doing that. And too bad you cheerleaded them as the pumped the system full of roids.

      1. 1.3.1

        I sense great h@tred of me from you MM. I think you need to realign yourself with your maker. It is not good to h@te. It is wrong.

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