Reforms to Address Patent Trolls Move Slowly
This summer has seen considerable discussion about one of the most controversial issues in patent law and policy—efforts of patent monetization entities (PMEs) also known to their detractors as "patent trolls"—to enforce patent rights.
PMEs—which have been defined as entities that acquire patents from others for the purpose of asserting them against alleged infringers—have been associated with a string of abuses. Typical of this view is a July 2013 report issued by the White House, Patent Assertion and U.S. Innovation, which asserts that PMEs "focus on aggressive litigation," "threatening to sue thousands of companies at once, without specific evidence of infringement against any of them; creating shell companies that make it difficult for defendants to know who is suing them; and asserting that their patents cover inventions not imagined at the time they were granted." Defenders of PMEs argue that those entities play an important role in allowing small inventors, academic institutions and others to benefit from patent rights that would otherwise never be enforced.
When Congress passed the America Invents Act, the latest significant revision of patent law, in 2011, it directed the Government Accountability Office (GAO) to conduct a study of the "consequences" of litigation of patent claims by PMEs. That study, with the awkward title Assessing Factors That Affect Patent Infringement Litigation Could Help Improve Patent Quality, was released on Aug. 22. Anyone who expected the GAO to add its voice to the critics of patent trolls likely was disappointed.
While the GAO found that the number of defendants in patent infringement lawsuits had increased significantly in recent years, it did not attribute that development to the activity of PMEs. Instead, it found the increase in litigation to be associated with the assertion of "software-related patents," a category the GAO defined to include business method patents. On that premise, the report concluded that a "focus on the identity of the litigant—rather than the type of patent—may be misplaced."
Noting the view that many software-related patents have "overly broad or unclear claims," the report's only conclusion was the anodyne recommendation—that the Patent Office "consider examining trends in patent infringement litigation, including the types of patents and issues in dispute, and…consider linking this information to internal data on patent examination to improve the quality of issued patents and the patent examination process." Not surprisingly, the Patent Office agreed to do so.
Many commentators have argued that the problems associated with patent trolls typically arise during periods of rapid technological change when it may be difficult for the Patent Office to avoid issuing overbroad patents. Writing on his blog in July, prominent jurist Richard Posner asserted that the "problem of patent trolls is a function in part of the promiscuity with which the patent office has issued patents in recent years, and the encouragement that such issuance has received" from the U.S. Court of Appeals for the Federal Circuit.
The perceived problems caused by patent trolls are nothing new. During a debate over patent legislation in 1878—considered a time of fast technological change and relatively liberal standards for the grant of patent rights—Michigan Senator Isaac Christancy complained about "patent-sharks among the legal profession" who bought "dormant patents" and used them to "extort" "millions" "from the people every year." Then, as now, troll suits increase the cost of running a successful business—the more successful a product, the more likely it is a target for patent infringement suits. Many companies make the rational decision to settle for an amount less than the cost of defense.
There is a strong argument that improving the quality of issued patents—particularly software and business method patents—would inhibit the abusive behavior critics associate with patent trolls. But those reforms will take time and are difficult to implement. In the meantime, both Congress and the Obama administration are considering legislation that would address these issues more directly. Proposals include requirements that parties asserting patent rights through demand letters or litigation disclose the identity of their owners and financial backers; changes to federal procedure to limit and focus discovery in patent infringement suits; expanded rights of manufacturers to intervene in patent litigation filed against their customers; and increased discretion for federal judges to award fees to prevailing parties in patent cases. At the same time, a series of Supreme Court and Federal Circuit decisions have limited the ability of plaintiffs in patent cases to obtain injunctions and large damage awards in cases where a patented invention is a small ingredient in a complex product.
None of these developments will put PMEs out of business. But increased attention, higher standards at the Patent Office, judicial vigilance and incremental legislative change are likely to reduce the chance that "trolls" can abuse the patent system.
In two opinions issued on the same day and involving the same defendant (Electronic Arts or EA), a U.S. Court of Appeals for the Ninth Circuit panel considered whether football players may sue when their likenesses are used in video games. Brown v. Electronic Arts, 2013 WL 3927736 (9th Cir. July 31, 2013), held that legendary Cleveland Browns player Jim Brown failed to state a Lanham Act claim—based on the use of his likeness in EA's Madden NFL game—under the test of Rogers v. Grimaldi, 875 F.2d 994 (2d Cir. 1989). Rogers recognizes that Lanham Act protections are limited by the First Amendment, particularly if the product involved is an expressive work. The Ninth Circuit found that Madden NFL is an expressive work, that Brown's likeness is artistically relevant to the game, and that use of his likeness did not mislead users to believe that Brown was associated with or sponsored the product.
In In re NCAA Student-Athlete Name & Likeness Licensing Litigation, 2013 WL 3928293 (9th Cir. July 31, 2013), however, the same judges rejected EA's First Amendment defense against the right of publicity claims of college quarterback Samuel Keller. The court refused to apply the Rogers test, reasoning that the right of publicity, unlike the Lanham Act, protects the rights of individuals rather than consumers. Instead, the court applied a flexible case-by-case approach that weighs an individual's interest in retaining his or her publicity right against the public's interest in free expression. Under that test, the court found that EA's use of Keller's likeness did not include sufficiently transformative elements to merit constitutional protection.
Evans v. Hewlett-Packard, 2013 WL 4426359 (N.D. Cal. Aug. 15, 2013), sustained Chubby Checker's trademark claim against Hewlett-Packard Company (HP) based on a risqué software application offered on HP's "App Catalogue." The application, named "The Chubby Checker," purports to estimate the size of a man's genitals based on shoe size. The court rejected HP's argument that plaintiff could claim only contributory, rather than direct, infringement because HP employed an application and approval process in order for an "app" to be offered in the HP App Catalogue.
The complaint sufficiently alleged that HP knew, or could have reasonably deduced, that the owner of the Chubby Checker mark would never have licensed the mark for "such a vulgar purpose." However, the court found that the safe harbor provision of Section 230 of the Communications Decency Act, which protects Internet service providers from suit based on material published by content providers, barred plaintiff's state law claims.