[Adam Mossoff, guest-blogging, May 5, 2009 at 4:55pm] Trackbacks
Patent Thickets and Patent Trolls:

One of the features of the Sewing Machine War that makes it appeal to our modern sensibilities is that it is the first patent thicket in American history in which a non-practicing entity — the inimitable "patent troll" — played a fundamental role at each important point in the story.

With respect to the role of "patent trolls" in patent thickets, and in patent litigation generally, the parallels between Howe and modern non-practicing entities are palpable. An oft-cited example of a "patent troll" at work was the recent Blackberry litigation. In this case, the patent-holding company, NTP, Inc., successfully sued Research in Motion Ltd. (RIM), the manufacturer of the Blackberry, for infringing NTP's patents on wireless email communication. NTP was a non-practicing entity who was not actively commercializing its technology; its sole source of revenue was the royalties it was seeking from RIM. As such, many commentators believe that NTP is an exemplar of a modern "patent troll," since it was a non-practicing entity that used an injunction to compel RIM to pay for a license. In fact, in the "patent troll" debates, NTP is the most commonly cited example of a "patent troll." Thus it seems that NTP is one of the few examples, if not the only one, to which this term best applies (or at least applies without generating tremendous controversy).

If NTP was a "patent troll," then Howe certainly was a "patent troll" — a non-practicing entity using injunctions to compel licenses from actual manufacturers of the completed commercial product. As I noted in an earlier post, some commentators don't believe that it is legitimate to call Howe a patent troll, because he tried to commercialize his invention, or, as some put it, he was acting in "good faith." But if attempts to commercialize one's patented invention prevents one from being deemed a "patent troll," then NTP is not a patent troll either. NTP also tried to commercialize its technology, something it repeatedly pointed out in its court filings in its litigation against RIM. In fact, similar to Howe, NTP failed to find a firm willing to invest in its technology, and, similar to Howe, NTP belatedly discovered RIM's Blackberry several years later and initially demanded a license from RIM. As in Howe's lawsuit against Singer, NTP sought and successfully obtained an injunction against RIM only after RIM rejected NTP's request to enter into a license. Moreover, just as in Howe v. Singer, RIM tried to invalidate NTP's patents in separate hearings at the Patent Office (called "reexamination proceedings"). The correlation between Howe v. Singer and NTP v. RIM is strikingly robust.

In sum, if Howe is not a patent troll, then NTP is not one either, and thus we're left with an epithet that refers to few, if any, actual patent-owners in the real world. One problem is that a "patent troll" is often defined simply as a non-practicing entity that has no intent on manufacturing a product. But the problem with this definition is that it includes universities that license technologies created by their professors. Yet, among those who use the term "patent troll," no one seems to consider universities to be bad actors deserving of this epithet. Universities, like Howe, seem to be imbued with that aura of "good faith" that makes the "patent troll" epithet seem inappropriate.

If one then (re)defines a "patent troll" as an entity that did not invent the patented invention, but rather bought it from the actual inventor for the sole purposes of licensing it, then this just creates other problems for using this term. As a preliminary matter, it would now exclude NTP, which was a corporation solely owned by the inventor. In fact, many individual inventors incorporate themselves, and then transfer their patents to these newly formed holding companies, for liability and tax purposes. Moreover, this new definition would now include many corporations, such as IBM, which collect patents, not for manufacturing purposes, but to use them as a shield against patent infringement lawsuits. (Coincidentally, two commentators to my prior post on incremental invention mentioned IBM's practice of hoarding patents.) In sum, IBM, which has long been one of the largest owners of patents in the country, uses patents defensively. Its policy has been one of "mutually assured destruction," i.e., if someone threatens to sue it for patent infringement, then it promises that it can find a patent in its massive patent portfolio with which to countersue for infringement. This policy has worked marvelously well for IBM, which has mostly avoided patent infringement lawsuits and has been left free to devote its time, energy and money to developing new products and services that it offers in the marketplace. But IBM's policy of hoarding patents is certainly "patent troll"-like behavior — patents are being used solely for litigation purposes and not for development of actual products sold in the marketplace.

Another commentator mentioned that Jerome Lemelson was a patent troll, but this is mixing two different concepts in patent law — a "patent troll" and a "submarine patent." Lemelson exploited procedural loopholes in the regulations governing how patent applications are processed at the Patent & Trademark Office. Traditionally, patent applications were kept secret until the patent issued. The result of Lemelson's procedural machinations was that he was able to keep his patent applications secret for decades, while firms invested hundreds of millions of dollars in technology that they believed was in the public domain. Lemelson then let his patents issue, and he sued the companies for patent infringement. Many of the firms settled, but some fought back. Ultimately, the courts dealt Lemelson (or, more precisely, the company formed after his death) a blow when they used the doctrine of laches to prohibit his enforcement of his patents. Moreover, Congress changed the law on patent applications in 1999, and now patent applications are publicly disclosed 18 months from the date of filing.

So, the problem with Lemelson was not that he was a patent troll, but that he was using submarine patents — patents that were kept secret and then surfaced to sink established companies with the threat of litigation — to game the system in his favor. Courts and Congress have now closed the legal loopholes that made Lemelson capable of using submarine patents. Moreover, Lemelson was the inventor of all of his patents, and thus he would fail the other feature of a "patent troll" — the patent-holding company is not the inventor.

In sum, the problem is that the term "patent troll" is so amorphous and protean in its usage that it's effectively meaningless in conveying anything other than the fact that the person using the phrase thinks some practice in patet law is bad. But if this is the case, then one should precisely identify the practice that one thinks is improper, rather than use this epithet. The term "patent troll" is ambiguous and indeterminate, as its referents constantly change and nothing is constant except for its negative normative connatation. In this respect, the term "patent troll" is tantamount to what the logical positivists, such as A.J. Ayer, thought of all normative terms; in essence, the logical positivists believed that to call something "bad" was the cognitive equivalent of an emotional ejaculation, such as yelling, "Boo for that!" (Conversely, Ayer explained that to call something "good" was cognitively the same as yelling, "Yah for that!")

It seems as if the term "patent troll" confirms the logical positivsts' assessment of normative terms. It becomes impossible to respond to it, because whenever one thinks one has it nailed down in its meaning, it changes its referents to accommodate some other bad practice or to differentiate some practice people think is good for the patent system. The result is a game of normative whack-a-mole, and a vague general feeling that property-owners can act badly. But that's just a tautology, as the freedom provided by property rights permits people to act badly or properly, such as an annoying neighbor who uses property disputes (trespass, nuisance, etc.) as a proxy for his own personal grudges.

This point about landowners acting badly thus highlights the one feature of the "patent troll" debate that is noticeably absent — an actual sense of how bad "patent trolls" are and whether it's been empirically established that they now trump the benefits derived from the patent system generally. This is important, because most critics of "patent troll" behavior (whatever this might be) are calling for systemic changes to the patent system, whether it is changes to remedy doctrine, licensing rules, validity determinations, or all three. So, as Hamlet put it, here's the rub: Do we really want to make systemic and structural changes to the entire patent system based on an amorphous and ill-defined rhetorical epithet? Even assuming that "patent trolls" are an actual problem, are these calls for patent reform comparable to calling for systemic changes to our real estate system given the ability of some troll-like landowners to exploit trespass, nuisance and other doctrines so that they can harass their neighbors? Without definitive empirics to help us understand the scope of the problem — and the empirics will be almost impossible to come by as long as it remains virtually impossible to define the "patent troll" term with any precision — this is a dangerous game that we are playing with the system that is responsible for promoting and securing property rights in innovation.

In contrast to the widely accepted picture of difficult property-owners who hold out against all entreaties, requiring some type of public-ordering response from Congress, the courts or the Patent and Trademark Office, the Sewing Machine Combination confirms that voluntary patent pools are not just theoretically possible, but have occurred in the real world. There was no Patent Reform Act of 1856 that prompted the formation of the Sewing Machine Combination by eliminating Howe's ability to get injunctions, limiting his royalty payments, or imposing restraints on his or other patentees' commercialization rights. (At the time, such measures may have been deemed to have constituted an unconstitutional taking of the sewing machine patentees' property under the Fifth Amendment. For further elaboration, see here.)

The Sewing Machine Combination was initiated by private actors for their private benefit — within the governing rules of a property system that provided strong property protections to the relevant entitlement owners. For this reason, the Sewing Machine War and its resolution in the Sewing Machine Combination is an important empirical case study that teaches important lessons for understanding the theory of how non-practicing entities function within patent thickets.

In my next post, I will discuss the concerns expressed in the patent literature and in many comments to my prior posts about the allegedly unique problems with patent litigation today, such as the difficulties in determining what is a patented invention for computers. Alas, nineteenth-century case law is replete with similar complaints, which perhaps suggests that the old adage — all things old are new again — is actually true.