Victoria E. Luxardo, Towards a Solution to the Problem of Illegitimate Patent Enforcement Practices in the United States: an Equitable Affirmative Defense of "fair Use" in Patent

• Publication year: 2006

TOWARDS A SOLUTION TO THE PROBLEM OF ILLEGITIMATE PATENT ENFORCEMENT PRACTICES IN THE UNITED STATES: AN EQUITABLE AFFIRMATIVE DEFENSE OF "FAIR USE" IN PATENT

INTRODUCTION

A relatively new business model has emerged, more robust examples of which have been rearing their ugly heads in an increasingly litigious manner over the past decade. The model's supporters call it legitimate "patent enforcement." Victims of this latest craze in patent enforcement, as well as increasingly more judges, academics, legal practitioners, and media commentators call it by the more fanciful-and many would argue more accurately illustrative-phrase "patent trolling."

Roughly, patent trolling is a practice whereby a person or entity¹enforces a patent for which it was not the original patentee, and that it has not, does not, and will never use or practice. This kind of litigation practice is problematic for a number of reasons, not the least of which is that it collapses the traditional separation between client and advocate.²Patent trolling, in fact, makes the attorney the stakeholder, which raises ethical questions as well as questions as to whether there should be a cause of action divorced from any actual harm to the claimant.

The United States' patent law regime allows for almost no exception to patent rights. The argument follows that anything less than nearly absolute patent rights would be tantamount to freezing innovation, resulting ultimately in the disintegration of U.S. economic world dominance. Such a position is extreme and objectively false as proven by many industrialized states that do have tenable exceptions to patent rights. Further, there is significant textual support in the international treaty governing harmonization of intellectual property rights³for the proposition that patent trolling may run in contravention to international law. As recently as 2003, the U.S. Supreme Court has noted harmonization of intellectual property laws as an important policy to pursue and as a goal giving rise to the need to look outside the United States to foreign and international law. In light of all of the foregoing it is apparent that there must be a change in U.S. law, looking to foreign and international law for guidance, to put a stop to patent troll litigation practices.

This Comment seeks first to define what exactly is a patent troll beyond, "I know it when I see it,"⁴in Part I.A. Part I.B goes on to explain why patent trolling is illegitimate and the serious problems that this latest incarnation of patent enforcement presents, including: (1) undermining the policy and theory that serves as the foundation for the constitutional grant of patent protection and (2) creating economic inefficiency by incentivizing rent-seeking behavior. Part I.B.3 highlights a recent example of patent troll enforcement in federal court.

Part II.A undertakes an investigation as to how patent rights enforcement is treated under applicable international law, focusing on TRIPS,⁵to which the United States is a party. Part II.B. provides a concise survey of how foreign law, namely, that of some other G-8 states,⁶defines the scope of patent rights. Part II.C. then brings the story back to the United States, outlining the feasibility of using (1) the experimental use defense or (2) the equitable defense of "patent misuse" to defend against an infringement claim made by a potential patent troll.

Part III puts all the pieces together, suggesting that the combination of the seriousness of the problem at hand, together with standards set out by the U.S. Constitution, international law, and foreign law, demand a solution to put a stop to patent trolling. Part III.A. briefly addresses the recent Supreme Court ruling, eBay, Inc. v. MercExchange L.L.C.,⁷on permanent injunctions in cases arising under the Patent Act. It also reviews two of the strongest solutions presented thus far in the United States to stifle, if not fully eradicate, the patent troll practice. Part III.B. provides a proposal for what could be an equitable affirmative defense of fair use, created either by statute or judicial doctrine, to a claim of patent infringement.

Finally, the Conclusion recapitulates why, given all of the evidence established in Parts I, II, and III, creating an affirmative defense is not only necessary but also legitimate, even (perhaps especially) in the U.S. patent regime.

I. THE PROBLEM: PATENT TROLLS

A. Definition of Patent Trolls

There are several extant definitions of "patent troll." The first, according to Peter Detkin, then assistant general counsel to Intel Corp., is "somebody who tries to make a lot of money off a patent that they are not practicing and have no intention of practicing and in most cases never practiced."⁸Put somewhat more formally, so-called patent trolls are typically small firms formed exclusively to acquire and enforce patents.⁹At a conference in Washington, D.C. sponsored by the Intellectual Property Owners Association in March

2005, participants offered varying definitions for the term patent troll, but ultimately a few central characteristics emerged.¹⁰The agreed upon characteristics put a finer point on the already mentioned attributes, "trolls are not themselves inventors, but are always lawyers or investors who acquire paper patents from insolvent individuals or companies at fire-sale prices."¹¹

The manner in which certain enforcement firms acquire their patents is crucial to understanding what makes such a firm a "patent troll." These enforcement firms acquire their patents typically in one of two ways: they buy patents from failed businesses that are liquidating their assets, or "troll" the records of the U.S. Patent and Trademark Office (PTO) for "flimsy" patents that likely should never have been granted in the first place.¹²The patents bought from individuals or firms liquidating their assets often are "older patents, which may have been forgotten or overlooked (and thus cost less to acquire) but still play a roll [sic] in modern technology."¹³Another patent acquisition technique is executed when a firm or individual buys or files a speculative patent, sometimes referred to as a "submarine patent,"¹⁴in the hopes that a large company will unwittingly commit infringement by developing and commercializing the art in question.¹⁵

Once a patent troll has acquired a promising patent, regardless of whether the firm believes the patent is actually valid, it begins the next phase of its activity: enforcement. Patent trolls enforce within a triaged framework. The first stage consists of aggressive licensing fee extraction, typically coupled with an explicit threat of litigation if the fee is not paid.¹⁶The second stage, should an alleged infringer choose to stay its course, is costly and protracted litigation that, until recently, was likely to result in an injunction against the defendant.¹⁷Essentially, the system is one of "pay now or pay later," but the accused infringer almost inevitably does pay. The enforcement business is outstandingly lucrative, "[l]awyers in the field routinely charge contingency fees as high as 45 percent, and suits can settle for as much as $50 million."¹⁸

Patent trolling is attractive not only because it is lucrative, but also because it is practically a "sure bet" as the enforcers know that they are highly likely to succeed in extracting a licensing fee.¹⁹The reason the trolls pose a significant threat is that, unlike large patent holders,²⁰this breed of patent enforcer actually has nothing to lose because the holder only holds paper patents and is thus not vulnerable to counterclaims.²¹In stark contrast, large companies who own patents are less likely to instigate litigation against each other for reasons analogous to the restraint used by nuclear arms bearing states, as nicely illustrated by an allegory from a Financial Times article:

Big patent holders know how to deal with other big patent holders who want to sue them. They live in a world of mutually assured destruction, where everyone amasses as many patents as they can, often just for the deterrent value. Patent giants can make peace between themselves by cross-licensing to each other. Patents are like nuclear warheads-even if you never use them, they serve their purpose.

But trolls are a different story. Like rogue states, trolls have nothing to lose. Patent giants risk the business in a lawsuit but trolls risk only the patent itself.²²

Patent trolls, often referred to by those who favor the practice as a non- practicing entity (NPE), assert that their business practice is not only acceptable, but also necessary.²³NPE's, so the affirmation goes, are necessary to keep "patent giants" in check.²⁴The NPEs justification is simple and not altogether unsympathetic: it is more efficient for a large patent holder to plow ahead with a given practice of a small entity's patent,²⁵regardless of whether its behavior constitutes infringement, because those small entities are willing to settle even if they do demand that the large patent holder stop its infringing behavior. In the face of such egregious misconduct by large patent holders, who is to say that an NPE is abusing the system when it is simply beating the large patent holders at their own game by demanding royalties? This Comment shows how each element of the NPE's justification unravels under closer scrutiny and when paired with the proposed patent system solutions.

B. Problems Patent Trolls Cause

1. Foundational Policy & Theory of Patent Protection Undermined

The policy behind granting exclusive rights via patent is "to promote the Progress of Science and useful Arts."²⁶The patent quid pro quo is that an inventor gives something to society by disclosing an invention and society in turn gives the inventor exclusive rights in that invention for a limited time.²⁷

Patent trolls operate under a business model that seriously undermines the policy behind granting patents because they are currently allowed to...