The Art of IP War

Global-Tech v. SEB -- I see, said the willfully blind man

2011-05-31T11:53:00.000-07:00

It's not that often when the Supreme Court takes a patent case -- and it's almost always when it thinks the Federal Circuit, who is supposed to take care of such matters, gets something seriously wrong.

Thus, the Supreme Court's decision today in the Global-Tech Appliances v. SEB, S.A. case, which at least appears to have tightened up the law on the mental state required to show infringement by inducement. However, the facts of this case show enough bad conduct that the Supreme Court may have felt the need to do something to the defendant, which may have resulted in a ruling which is confusing to say the least and may be almost impossible to apply in the real world.

SEB had invented an innovative deep fryer and obtained a U.S. patent. Sunbeam, its competitor, who was rapidly losing market share, asked its Hong Kong supplier Pentalpha, to provide a deep fryer which could compete with SEB's. Instead of doing the right thing, Pentapha simply bought an SEB fryer overseas (lacking, of course, any U.S. patent markings) and just copied it. It retained an attorney to do a patent search omitting, unsurprisingly, the fact that it had directly copied the SEB product. This attorney, for some reason could not find the SEB patent which covered the very same fryer that Pentapha had copied and issued an opinion letter saying there were no patent problems. Sunbeam started selling the Pentapha fryers under its own brand at a price that undercut SEB's.

SEB sued, and then settled, with Sunbeam. It then sued Pentapha, who had gone on to sell the fryers to other retailers who sold them under their respective trademarks, under a theory of induced infringement. Pentapha's defense was that it did not know about the SEB patent under Sunbeam's notification to Pentapha that it had been sued.

The question for the Supreme Court was the level of "knowledge" necessary to support a clain for induced infringement. The existing Federal Circuit law held that it was sufficient for a plaintiff to show that the accused inducer "deliberately disregarded a known risk" that its customer would be infringing. Pentapha argued, however, that actual knowledge of the patent was required, which it, of course, argued that it did not have.

Going back to the opinions of William Howard Taft, the Court ended up splitting the difference between those 19th century and early 20th century cases which basically imposed no "knowledge of infringement" standard and more recent law on the subject of contributory infringement which held that actual knowledge of the patent was required.

Now comes the headfake.

Pentapha's conduct was too egregious to let go unpunished, so the Supreme Court fashioned yet another rule to handle persons who are not aware of the patent but who still engage in bad behavior -- the "willfully blind" standard, imported from criminal law. Under this standard, even an accused inducer who does not know about the patent can be liable if it deliberately "shielded" itself from "clear evidence of critical facts." Specifically, the doctrine applies if (1) the defendant subjectively believes that there s a high probability that a fact exists and (2) takes deliberate action to avoid learning of that fact.

Pentapha's decision not to inform the attorney it hired to write the opinion letter that it was making a deliberate knockoff of the SEB fryer was, according to the Court, sufficient to satisfy the "willful blindness: test.

Justice Kennedy, alone in dissent, was confused at this results-oriented decision. He noted that the path the Court took to get to the "willful blindness" standard was nothing if not tortured. He also noted that the Supreme Court appeared to have endorsed the "willful blindness" standard for all criminal cases involving knowledge -- a massive change in jurisprudence be inappropriate for decision in a patent case.

So what does all this mean?

It means that, as far as the standard for knowledge in cases of induced infringement, basically nothing has changed. As a practical matter, "deliberate disregard" will now become "willful blindness." No one will really know the standard for knowledge in inducement cases. Bad conduct will continue to be punished.

But we have, however, been saved from the plague of knockoff deep fryers. And that's something.

Skyworks Dodges Patent Spat With Linear Technology

2011-05-30T13:10:00.000-07:00

Woburn-based Skyworks acquired Advanced Analogic this week for the eye-popping amount of $262 million. But what wasn't as well known was the fact that Advanced Analogic had been sued in the International Trade Commission for importing voltage regulator chips that Linear Technology claimed infringed its "sleep mode" patent. This wasn't Linear's first trip to the ITC against Advanced Analogic, as Linear had already obtained an exclusion order against the company, which it had claimed Advanced Analogic was violating.

However, a month before Skyworks' acquisition, Advanced Analogic settled its patent differences with Linear, thus clearing the way for the Skyworks' acquisition. Although, with a spate of "investigations" by law firms looking to bring a securities lawsuit attacking the merger, this transaction may not be out of the woods yet.

Why Samsung Gets a Look at the iPad3 and You Don't

2011-05-30T12:42:00.000-07:00

Well, first, they haven't actually gotten to look at it yet -- that's in the hands of Judge Koh of the Northern District of California. And, second, Samsung had to get sued by Apple for trademark and trade dress infringement to even get to ask for the right to see it, so unless you really want to get sued by Apple, you might want to just be patient.

This all came about because of Apple's lawsuit against Samsung's Galaxy line of smartphones and tablets. Apple claims that these products look too much like the iPhone and iPad and violate Apple's registered trademarks and trade dress. Samsung, of course, says that they have been using these designs for years and that Apple's trademarks are invalid, besides.

What this particular fight is about is that Apple asked for what is called "expedited discovery" (i.e. much faster than normal) against Samsung, asking for the designs of as-yet-unreleased Galaxy products to support a planned preliminary injunction motion.

Samsung fired back, asking for expedited discovery of Apple's unreleased iPhone and iPad designs so that it could defend itself by showing that there was no likelihood of confusion. Samsung argued that under the famous "goose/gander" rule, Judge Koh had already advised Apple firmly that any discovery in the case would be reciprocal.

This motion, just filed last Friday, has yet to be decided, but I don't think Judge Koh is going to make Samsung's attorneys line up outside the Apple store to get the discovery they need

Mirror World v. Apple -- The Entire Market Value Rule Strikes Again

2011-04-12T18:57:00.000-07:00

For damages purposes, this case is actually known for an apparent mixup, where the jury awarded damages per patent for essentially the same conduct -- a verdict that the plaintiff did not ask for, but later had to defend. However, the more interesting aspect of this decision [at least to me] is a fairly standard application of the entire market value rule.

The patents in this case related generally to the stacking and streaming of data. Virtually all of Apple's various products were accused (at least at first), though for the purposes of this analysis, the important accusation was that of the Mac OS X operating system -- particularly the functions Spotlight, Cover Flow and Time Machine, which the plaintiff claimed used the patented features.

Plaintiff's damages expert used as his royalty base not only the price of the software upgrade (to Mac OS X), but also the price of the hardware running that operating system (totaling $72 billion). He applied a royalty rate of 8.8% for the software upgrade and .81% for the hardware sales.

In analyzing whether the jury had properly considered the totality of Apple's hardware sales to calculate the reasonable royalty, the court examined whether the plaintiff's expert had employed the correct royalty base -- the revenue from the accused products. The court found that, although the plaintiff claimed not to have used the entire market value rule to construct its royalty base, the court found that it had, in fact, done so. Thus, the court had to determine whether this rule had been properly applied.

The plaintiff, in order to show consumer demand for the accused features of the Mac OS X, had commissioned a survey tracking consumer demand for various features of the Tiger-to-Snow Leopard upgrade. However, that survey did not cover two of the accused features -- Cover Flow and Time Machine.

Moreover, the surveys did not show that the patented features drove consumer demand for either the operating system or for the hardware -- thus making the plaintiff's use of the entire revenues for either the software or the hardware inappropriate under the entire market value rule.

Accordingly, the court found, the plaintiff "was obligated to properly apportion the royalty base to address the accused features, which it did not do." The court also found that it was inappropriate for the plaintiff to make such an apportionment simply by lowering the royalty rate (giving the rate a "haircut"), while applying that lowered rate to the revenues for the overall product -- the court thus threw out the damages award in its entirety.

On this last point, I personally disagree with the Mirror World court. I believe, as the Lucent v. Gateway court noted, that a royalty base based on the revenues for the "entire" product may be the only reliable royalty base, as "allocated" revenues are more likely to be speculative and inaccurate. I also do not believe, as the Mirror World court held, that Uniloc compels this result -- the Uniloc court's ruling in that regard, in my opinion, was case specific.

ePlus v. Lawson Software -- ResQNet Doesn't Let You Pick and Choose

2011-03-30T13:41:00.000-07:00

As the ResQNet decision continues to roll on through the world of patent damages, the scope of how and when to use settlement agreements to calculate a reasonable royalty is becoming, if anything, even more confusing.

In January, Judge Payne of the Eastern District of Virginia was presented with a plaintiff's expert who picked just the settlement licenses he liked as part of his reasonable royalty analysis -- and was confronted with a Daubert motion to exclude all of his testimony.

In this case, the plaintiff's expert had five settlement agreements that had previously been entered into by the plaintiff as part of the data he could use to make a determination under Georgia-Pacific factor 1 -- whether there was an established royalty.

Three of those agreements, with Verian, SciQuest and Perfect Commerce, were entered into shortly after the patent litigation began and were for relatively low amounts. The plaintiff's expert chose not to rely on them.

Instead, the plaintiff's expert relied on two other agreements, one of which (Ariba) was entered into after a jury returned a verdict of infringement and the other (SAP) was reached after a hung jury mistrial. Both of these settlements were for substantial amounts (10-20 times the amount of the other settlements). These were the settlements the plaintiff's expert chose to use, converting these two lump sum amounts to a running royalty.

On the Daubert challenge, the court hammered the plaintiff's expert.

First, the court condemned the plaintiff's choosing only to rely on the high value settlements, while ignoring the low ones -- no reason, the court noted, was given for this picking and choosing of data.

The court also criticized the expert's using the later (post-verdict) settlements at all, since they were entered into well after the date of the hypothetical negotiation. The court also noted that these licensing agreements contained extensive cross-licensing provisions which made them quite different than the hypothetical license being constructed for the litigation.

Finally, the court criticized the use of lump-sum licenses as a basis for determining a "running" reasonable royalty -- especially without a rigorous economic analysis as to how to convert one to the other (which the court found lacking here).

Finding that the plaintiff's damages expert's opinion was without sufficient economic basis, the court excluded it.

Note -- at trial, ePlus later got a verdict of infringement, but -- because its damages expert's testimony had been excluded -- no damages.

Sanofi-Aventis v. Glenmark -- After Uniloc, Where Does an Expert Start the Reasonable Royalty Analysis?

2011-03-28T21:23:00.000-07:00

In Uniloc, the Federal Circuit struck down the disfavored 25% "rule of thumb" (which held that, as a "starting place" an expert could start his or her reasonable royalty analysis by presuming that the plaintiff would take 25% of the infringer's profits on the infringing product). This rule had been kicking around for years, surviving almost universal condemnation from the academic community, by sheer inertia, until the Federal Circuit finally put it out of its misery, holding that using it would get a quick Daubert exclusion.

But where is an expert to start the Georgia-Pacific analysis (i.e. a staring point from which the factors could be applied, plus and minus) without walking into the same trap?

In Sanofi, the expert presumed that the parties would have split the profits 50-50 and was met with an objection that this analysis was just as arbitrary as the "25% rule" struck down in Uniloc. The Court noted the problems the Federal Circuit had with the 25% rule: 1) "it fails to account for the unique relationship between the patent and the accused product," 2) "it fails to account for the unique relationship between the parties," and 3) "the rule is essentially arbitrary and does not fit within the model of the hypothetical negotiation within which it is based."

In this case, however, the court noted that the expert had relied on game theory to come up with his 50-50 split and that he had considered "the facts of the case, specifically the relationship between the parties and their relative bargaining power, the relationship between the patent and the accused product, the standard profit margins in the industry, and the presumed validity of the patent."

Thus, even after Uniloc, an expert can pick a "starting point" for his or her reasonable royalty analysis, but must be careful to have a rational, economically sound, basis for it.

LaserDynamics v. Quanta -- Limits to Grain Processing's Non-Infringing Alternative

2011-03-28T20:41:00.000-07:00

In this case, LaserDynamics sued Quanta for infringing a patent for automatically determining the type os disk being used in a optical disk drive.

In the first trial, LaserDynamics received a verdict of $52 million, but could not hold on to it. Quanta filed and won a remittitur motion after which the court gave LaserDynamics a choice -- take $6.2 million or a new damages trial. LaserDynamics took the new trial.

In the new trial, Quanta's damages expert argued that the reasonable royalty would be relatively modest because Quanta had available to it an "acceptable non-infringing alternative," which would consequently have lowered the amount it would have licensed the patent for. The issue for the Court was whether the alternative was "available" to Quanta at the time of infringement under the Federal Circuit's decision in Grain Processing [which, although originally only applicable to lost profits analyses, has been used as part of a reasonable royalty analysis]

The LaserDynamics Court applied the Grain Processing test -- (1) could the defendant have readily obtained all of the material needed to implement the non-infringing alternative; (2) was the non-infringing alternative well known in the field at the time of infringement; and (3) did the defendant had all of the necessary equipment, know-how, and experience to use the non-infringing alternative.

The Court found that Quanta's expert had not shown that (1) the purported alternative was even on the market; or (2) even if it was on the Market, Quanta could have used it. The Court therefore excluded all of Quanta's damages expert's opinions to the extent they relied on an "acceptable non-infinging alternative" analysis.

Lear Automotive v. Johnson Controls -- Live or Die by the Survey?

2011-03-28T20:08:00.000-07:00

Although the Federal Circuit has stated repeatedly that surveys -- when done properly -- can provide valuable evidence for patent damages analysis, litigants must be careful of how they use them, lest their opponents turn the tables on them.

In Lear Automotive v. Johnson Controls, the patent involved garage door openers and the programming of such units -- the issue being whether users programmed one or two buttons (the latter infringing, while the former did not).

Johnson Controls' damages expert relied on a survey provided him by the company which polled customers as to how they used the allegedly infringing units. He opined, based on that survey, that the infringing use was not very popular with consumers and that, in the hypothetical negotiation, JCI would have only agreed to a "modest" royalty rate.

Lear, however, had a quite different problem. To show direct infringement (which would support its claim for inducement against JCI) it had to show that at least one consumer used the allegedly infringing item in an infringing manner -- programming more than one button. however, it had no direct evidence than any consumer had done so. Thus, it turned to JCI's survey, arguing that this survey, which showed that a modest percentage of users programmed more than one button, nevertheless satisfied its burden, at least circumstantially, that one user employed this feature.

JCI was put in the position of arguing that the very evident it had submitted and on which its expert relied was inadmissible hearsay and was too unreliable to support Lear's claim of infringement. The court disagreed, finding that the survey data was admissible under the "adoption by use" doctrine and allowed Lear to use the survey to prove infringement.

So, although surveys can be useful for a defendant trying to show that a patent is not valuable, that defendant needs to look over his shoulder to make sure it can't be turned against him.

The Continuing Saga of ResQNet -- How Discoverable are Patent Settlement Negotiations?

2011-03-24T16:55:00.000-07:00

Since the Federal Circuit's decision in ResQNet.com, Inc. v. Lansa, Inc., 594 F.3d 860 (Fed. Cir. 2010), holding that "litigation based" settlement agreements were at least potentially relevant to the determination of a reasonable royalty, there has been a substantial amount of controversy in the district courts as to how to apply it, or whether the issue could even be ignored altogether.

Since ResQNet represented a stark reversal of decades of authority holding that licenses entered into as settlement of actual or threatened litigation were somehow so "tainted" that they could not be used in any way in determining a reasonable royalty, there has been an understandable resistance to suddenly allowing parties to use these agreements at trial -- especially where sensitive settlement negotiations may be revealed. Indeed, defendants have started asking for -- any in some cases receiving -- discovery of settlement negotiations between plaintiffs in their own cases involving the very patents they were sued on.

This issue arose recently in two decisions by Magistrate Ashman of the Northern District of Illinois in MSTG, INC. v. AT&T Mobility LLC.

MSTG is what could broadly be described as a "patent troll" in the sense that it makes no products and its income is derived solely from licensing its patents (which are products of the research arm of the South Korean government). In discovery, it produced licenses for three of the patents-in-suit. AT&T, however, requested that it also produce documents relating to the settlement negotiations for those licenses. Judge Ashman held, however, that although ReQNet made the license agreements themselves relevant, AT&T had failed to show that ResQNet required the disclosure.

Now here's where it gets interesting.

Not to be dissuaded, AT&T moved for reconsideration -- and won.

AT&T's argument was that, because MSTG's expert stated that the prior license agreements should not be used as part of the hypothetical negotiation analysis because the rate was too heavily discounted, the actual settlement negotiations which led up to that agreement were relevant because they might show why the parties agreed on that rate. The court agreed.

This decision makes it clear that any settlement negotiations may be subject to discovery and that and plaintiffs in multi-defendant cases need to be extremely careful that their negotiations do not come back to bite them later, since they may not be able to hide behind carefully crafted agreements.

MasterObjects sues Google and Amazon on Instant Search Patent -- If It's Instant, What Took You So Long?

2011-03-13T00:09:00.000-08:00

This week, a Netherlands company called MasterObjects (not a troll -- they actually appear to have a product) finally got around to suing Amazon.com and Google for infringing their patent on "instant search" -- the function which annoyingly "guesses" what your search is going to be while you are still typing it in.

It's no big surprise that companies go after Google and Amazon for patent infringement -- they're big targets that can well afford to pay for that license you wanted. What's surprising is that they didn't choose to go after Apple and eBay, who also employ the same function (as the Techcrunch article on teh subject pointed out). They also waited almost nine months since their patent issued to bring suit. And, when they did sue, they filed in the Northern District of California -- instead of the fashionable Eastern District of Texas.

I'm sure that this delay is mostly explained by (finally) busted license negotiations, but you wouldn't think it would take almost a year to figure out that Amazon and Google aren't handing out bags of gold and they aren't very afraid of your threats of injunction.

Or maybe the Dutch are just too polite to play smashmouth patent litigation with the rest of us. Join the party, boys -- dutch treat!

Why Is the WSJ Being So Fair to Patent Marking Bounty Hunters? And How Did They Know What Qui Tam Means?

2011-01-24T19:57:00.000-08:00

I'll answer the second question first -- the WSJ Law Blog author, Ashby Jones, is a fellow University of Michigan law grad and therefore is awesomely smart and knows his latin.

The first question is more interesting. Plaintiffs have increasingly taken advantage of the Federal Circuit's 2009 decision in Forest Group v. Bon Tool, which changed the law to make the $500 penalty for false patent marking apply to each falsely marked product sold (a recovery which is split 50/50 with the government). As the WSJ notes, such suits have, in fact, "picked up steam." And such suits would, in fact, be a big threat to the banking industry if the case referenced in the article actually gets anywhere.

However, I thought, given the danger to the WSJ's prime readership, there would have been more coverage of the efforts to cut these cases down to size. In addition to the legislative effort he mentions, the present Congress' attempt to pass "patent reform" (a bipartisan effort that has, nonetheless failed in the last three Congresses) would give standing to bring a false marking case only to those who have suffered a "competitive injury" by the false marking -- i.e., nobody.

Given there is really no special interest other than a few law firms interested in the viability of false marking cases, I think this provision would have a more than decent shot at passage. So Ashby, throw us a line over here!

Kodak Loses its ITC Action Against Apple and RIM -- Having a Bad "Kodak Moment"

2011-01-24T16:34:00.000-08:00

Kodak, who has been surviving on its IP portfolio since the film business crashed and burned (Paul Simon, where are your product placement songs now?) suffered a big loss today as an administrative law judge at the International Trade Commission held that the patent it had asserted against Apple and RIM -- for previewing a low-resolution image -- was held invalid and not infringed. Although the same patent had been upheld by a different ALJ in Kodak's previous ITC action against LG and Samsung, enabling Kodak to reach agreements totaling $864 million, the market certainly recognized, driving Kodak stock down almost 9% that, even when you've got 1000 digital camera patents, that IP litigation for profit is a risky business.

Gradient Enterprises v. Skype: The Geek's Revenge?

2010-12-29T13:35:00.000-08:00

Last week was a bad week for Skype, it's true. A full day outage caused angry worldwide anguish ("What do you mean, my free international telephone system isn't working!?!?"). And they were sued for patent infringement by a company no one ever heard of by the name of Gradient Enterprises.

Although Gradient suffered the standard condemnation by the usual suspects (TechCrunch, who labelled it an "obnoxious troll," I'm looking at you), the truth is a lot more obscure than that.

The first clue is the venue -- the Northern District of New York. Doesn't this troll know that the epicenter of the patent world is Marshall Texas?

The second clue is its almost complete lack of any presence online. Even tiny trolls can be found with a little digging.

The truth appears to be that Gradient appears to be the creation of the inventor of the patent, Kristeps Johnson, a proud resident of Rochester, NY, where the complaint was filed. He appears to be a talented computer engineer, known for developing something known as Sysjail, which enables computer processes to be put in "jail" so that they can only access part of the file system.

So, it may be true that Mr. Johnson is seeking to hold up Skype for millions of dollars for infringing what looks to be a pretty broad patent, but an "obnoxious troll" he is not.

Infoblox figures out how to skin a Bluecat

2010-12-28T23:45:00.000-08:00

On Monday, one of the largest companies in the network infrastructure field, Infoblox, sued one of its smaller competitors, Bluecat Networks .for infringing its "Domain Name Service Server" patent. Evidently, Bluecat has been competing with Infoblox in the IP address management system field in a way that Infoblox found threatening. Infoblox was ready and wasted no time in bringing this suit -- the patent was only issued in October.

The rise of the non-profit troll -- Excelsior!

2010-12-27T20:41:00.000-08:00

Now, anyone who's been around patent litigation for even a few years gets used to Marshall, Texas being the center of the universe (check out Bodacious Bar B Que -- you'll thank me) and get's used to patent trolls from all over California setting up a shell company in Longview or Tyler to sue a bunch of Taiwanese and Korean electronics companies on another WiFi or smartphone patent. That's old hat these days.

But I must admit that the two cases brought the other day by a troll called Azure Networks against Nokia, H-P and the usual suspects surprised me. Named as a co-plaintiff (and, evidently the owner of the patent) is the non-profit Tri-County Excelsior Foundation, described as a "supporting organization" to a very worthy charity -- CASA of Harrison County (which helps abused kids). I don't know whether this is part of Azure's owner's tax planning strategy, a fundraising mechanism for CASA or both, but I did find this pretty unusual.

China comes to Tennessee to attack California spas

2010-12-27T19:49:00.000-08:00

In what has to be one of the odder patent lawsuits (or at least the one with the most exotic name) filed in the District of Tennessee, Zhongshan Rising Dragon Trading Company has sued Jacuzzi, the famous spa manufacturer, for infringing its patent (for which it is the exclusive licensee) for a jet barrel for a spa jet.

Although you certainly wouldn't know it from the name, Zhongshan (a Chinese spa manufacturer) is engaging in blatant "hometowning" -- with its US warehouse located in Sweetwater, Tennessee. Here's hoping that the Chinese pick up a little US litigation culture and learn that, sometimes the best way to break into a market is to sue your competitors.

But, by the way guys, if you're going to do business in Tennessee, you might think of renaming your US subsidiary "Bob's Screaming Eagle" instead. Just sayin'.

Battle of the Golf Bags-- Party at Club Glove!

2010-12-27T19:06:00.000-08:00

Today, two of the titans of golf bag manufacturing -- West Coast Trends (maker of the "Club Glove Last Bag," evidently used by most professional golfers) and Ogio International (who makes golf bags which, according to the company's website, can be strapped to a motorcyclist's back) -- have faced off in the Eastern District of Texas in a patent infringement lawsuit brought by West Coast. The patent, obtained in 2003 by West Coast's founder Jeffrey Herold, apparently enables to bag to resist wear, while still remaining flexible.

In a real departure for the Eastern District, the plaintiff is actually a company that makes and sells a product covered by its patent who has sued a competitor (and every retailer who sells its products) for the purpose of obtaining a competitive advantage by (a) holding a (supposedly) broad patent and (b) suing its competitor for infringement. Since around here, this is what we think patents are for -- we applaud you, Club Glove!

Apple's "Sexting" Patent: Parental Protection or Tool of Tyranny?

2010-10-14T22:27:00.000-07:00

Apple has gotten a lot of publicity over the last few days for a patent which many have applauded as supposedly enabling parents to prevent "sexting" by their children. This patent, US. Patent No 7,814,163 enables a user to "control the content of text-based messages sent to or from an administered device." In some embodiments, a message will be blocked if it contains "forbidden content" and in other embodiments the "objectionable content" will simply be removed.

Although Apple sells this technology in the patent by promoting the embodiments which allow parental control of a smartphone or which enable parents to help their children learn Spanish, John Dvorak, writing in PC Magazine, points out the darker side of this patent - the real potential for this technology to be used as a tool of political oppression.

Although one can certainly see this technology being used in a business setting -- with companies using their "administrator" privileges to block or censor text messages and emails -- this is at least understandable. If you don't want your emails censored, don't use your company's BlackBerry. A company may very well have a valid business reason for censoring communications on company-owned devices -- from combatting corporate espionage to preventing an HR disaster from "sexting" by adults who should know better.

However, once a country like Iran, China or Saudi Arabia decides that it wants to use a "super-administrator" privilege to simply block all political communications it does not like, this just becomes another way for such authoritarian regimes to shut down one of the few ways insurgents have to get their word out. As Dvorak notes, in many such countries, enabling "administrator control" by the government will quickly become a condition for selling these mobile devices at all.

What is tragic here, of course, is that this represents yet another surrender by a company who wants to be thought of as "cool" to the tyrants of the world just to make a buck [see, of course Google's capitulation to China]. In this case, Apple is not just knuckling under to pressure it is inventing a tool for governments to silence dissent. But, just look at the market for iPhones!

To bring it home, if this technology were widely available today, would you be able to text the phrase "Liu Xiaobo" in China? I think you know the answer to that one.

Microsoft's Strategic Alliance in the Smartphone Wars

2010-10-12T15:30:00.000-07:00

Preparing for the entry of Windows 7 Phone into the marketplace next week, Microsoft showed that it is more interested in protecting itself from the plethora of lawsuits in the smartphone market than taking an ideological stand against patent trolls. Microsoft this week licensed from a subsidiary of noted NPE Acacia Research a portfolio of patents which included smartphone patents from Palm and Palmsource.

Now, what does this mean for the smartphone wars? It may mean that the players may find it more useful to form strategic alliances with third parties who can help them. We may see more patent trolls making their money by licensing before suing rather than after.

Laserdynamics v. Quanta -- The Continuing Slow Death of the Entire Market Value Rule

2010-06-17T16:42:00.000-07:00

Last September in Lucent v. Gateway, the Federal Circuit finally took control of the law of patent damages by, with one hand, upholding the entire market value rule and, with the other hand, killing it. Former Chief Judge Michel made it clear that, before the courts were going to allow damages for infringement of a patent covering a small component or feature of a larger product to be based on the revenues for the sale of the entire product, the plaintiff had to prove that the patented technology was the reason that customers bought the product in the first place, i.e. that the "entire market value" of the product was the patented technology.

The Lucent decision has had a pretty good run since last September -- although it has mainly come up in decisions where new Chief Judge Rader has taken the district court bench.

However, last week, Judge Ward of the normally plaintiff-friendly Eastern District of Texas applied the new strict standard to cut Laserdynamics' $52 million award down to a mere $6 million.

In this case, the patent covered an optical disk reading method enabling a computer to identify an inserted disk and find the appropriate software to read or play it. The plaintiff’s expert testified the royalty should be 6% on stand-alone disk drives ($1.69/disk drive) and 2% on assembled computers containing the disk drive ($17.20/computer), using the entire market value rule. The jury’s verdict of $52 million was based on this analysis

Judge Ward held that the application of the entire market value rule was improper and ruled that the price of the finished computer should not be included in the verdict. He held that Laserdynamics had presented no evidence that its patented method drove the demand for QCI’s finished computers and noted that “the claimed invention embodied in the disc-drive is but one relatively small component of the entire assembled computer."

Ward further observed that “there is nothing in the record that shows the demand for QCI’s assembled computers was in any way driven by LaserDynamics’ disc-discrimination method patent” and that LaserDynamics “did not carry its evidentiary burden of proving that anyone purchased [the assembled computer] because of the patented method.”

Indeed, LaserDynamics pointed to no evidence that Quanta sold more of the assembled computers because it included drives practicing LaserDynamics’ patent.

So, if your patent covers the bell on the bicycle instead of the bicycle itself and you can't show that customers are streaming into the shop asking for your special bell, don't think you will get any sympathy from the bench. Because if a plaintiff can't cut a break in EDTex, it isn't going to happen anywhere.

Dow "Bags" a $62M Verdict From Nova Chemicals -- But Will it Hold Up on Appeal?

2010-06-15T19:58:00.000-07:00

Dow Chemicals convinced a Delaware jury today to award it $61.7 million in damages in its patent infringement lawsuit against rival Nova Chemicals in a lawsuit which involved Dow's patents for super-strong thin-film plastics used in grocery bags.

As readers here know, I applaud any damages award in patent infringement cases between competitors. In fact, $57.5 million of the award was for profits Dow claimed it lost because of Nova's sales of competing plastic products.

However, there is some reason to think that the Dow lost profits award may not hold up on appeal -- or even on a challenge in the District Court.

In order to obtain an award of lost profits, a plaintiff must satisfy the so-called Panduit test -- which requires the plaintiff to prove that there were no non-infringing alternatives to the infringing product. The theory behind this requirement is that, to be awarded lost profits, a plaintiff must show that, if the infringer's customer did not buy the infringing product, it would have bought the plaintiff's product instead -- thus, the infringement caused the sale to be "lost." [If the "alternative" is also infringing -- even if sold by another company -- it does not "count"]

According to Nova, in presenting its damages case, Dow did not properly consider the existence of alternatives to the infringing Nova product which Nova's customers could have selected. Dow's own expert, in fact, conceded that Exxon made a non-infringing alternative and that, in fact Nova also sold an alternative product which Dow admitted did not infringe.

Dow also based its claim that it would have captured 80% of Nova's sales of its infringing product, not on rigorous market research, but on the testimony of "enthusiastic" Dow salesmen -- not the kind of solid economic data the Federal Circuit demands.

It remains to be seen whether the economic testimony supporting this verdict will hold up at the Federal Circuit or whether the District Court itself may strike down the award.

Though Dow seems to think it has this verdict in the bag, it might want to check for holes in the bottom.

Marketing and Enforcing Your Intellectual Property – An Inventor’s Manifesto

2010-06-04T19:53:00.000-07:00

It is truthfully said that a piece of property, whether tangible or intangible, is only worth what someone will pay for it. However, if potential customers do not know the piece of property exists or how good it is, or how they can use it to their best advantage, the piece of property is still worthless.

Likewise, if a piece of property can be stolen or misappropriated by anyone without payment to the owner, that property is equally worthless – no one will pay for something they can get for free, without fear that anyone will pursue them for payment.

This principle is as true for patents and other forms of intellectual property as for a piece of land or a car – perhaps even more so. An inventor might have the best idea in the world and think that, as a result the world will come to his door with bags of gold for the right to use his invention, but as he will quickly discover, until he markets his invention – just like any other product – no one will pay him for his fantastic invention. And, until he decides to enforce his patent rights, the world will rip him off with impunity.

Far too many inventors spend years developing their inventions and thousands of dollars applying for patents without aggressively pursuing the next step – marketing their invention like they were selling a product. Far too many patent owners look helplessly on while large companies use their inventions without paying the “reasonable royalty” the U.S. Congress mandates.

The only solution is for inventors, the companies and universities that employ them to take action to ensure that their rights are fully protected and theat they get all the compensation they are entitled to for their invention.

Accordingly, I propose the following principles for this inventor manifesto:

1. Every invention must be protected from those who would steal it.

It is the job of the inventor and his employer to make sure that every available form of intellectual property protection is employed to ensure that no one uses the invention without payment. If you don’t know how to protect your invention – whether it’s a patent, trade secret or copyright – find out and get it done. If it was worth putting the time into developing, it’s worth spending the money to protect.

2. Every invention must be marketed like Apple

If no one knows about your great idea, no one will buy it or license it – simple as that. If the invention is not being used exclusively to support the inventor’s company monopoly in its product, it is the job of the inventor or his company to find the very best home for that invention -- someone who can utilize that idea for the greatest possible product. Being shy about promoting yourself or your great idea betrays the hard work you put into developing this idea in the first place and deprives the marketplace of the use of your great idea. Steve Jobs isn’t shy about finding the best possible market for Apple’s innovations – you should have the same enthusiasm for yours.

3. Intellectual property rights must be decisively enforced

Intellectual property rights – particularly patent rights – give the owner a monopoly on their use. However, those rights are worthless if they are not enforced. You may need to hire a lawyer to inform those who are using your patent that they are in violation of your sole rights and that they must “cease and desist” immediately. You may need to sue these infringers to protect your rights in your invention. You must be prepared to do this – and do it firmly and decisively – if you take your invention seriously and are willing to stick up for your rights in that invention.

Infringers and their flacks in the media will call you a “patent troll” and claim that you are “abusing the system” by asserting your legal right to stop infringers from stealing your invention and to be compensated for their infringement. Ignore them. These epithets should be reserved for those companies who scoop up other people’s patents for the sole purpose of bringing a lawsuit – people who have contributed nothing to the economy. The true innovators should proudly assert their patent rights against those who would appropriate them without compensation.

Patent owners who are not willing to let their years of work go to waste and be freely appropriated by their competitors and other sharks in the marketplace must sign on to and dedicate themselves to following this manifesto.

Hasbro v. Buzz Bee: Nerf Wars and Super-Soaker Nausicaans

2010-06-02T21:55:00.000-07:00

In a patent litigation development that I applaud, Hasbro sued two of its competitors -- Buzz Bee Toys and Lanyard Toys -- for what appears to be flat out copying of its Nerf-N-Strike and Super Soaker products. Whatever the merits of the patent claims, I have to look kindly on a competitor using its patents the way they were intended to be used -- to exclude a competitor from a market that the patent holder has legitimately monopolized. Hasbro is actually using its patents to protect its very profitable market segment and is punishing companies who are competing without expending the time and effort necessary to develop their own products.

Is Hasbro being a bully by using its patents to beat up on its smaller rivals? I don't think so. If you believe that patents have any economic worth, their primary utility is to enable a company to protect its competitive place in the market and that the damages caused by the infringement of a patent by a competitor are competitive injuries. This is how we know how much a patent is really worth -- by how much infringement of that patent harms the competitive position of the patentholder. It is this kind of patent lawsuit -- between competitors -- which validates the patent system in the first place. If a patentholder cannot use its patent to maintain the competitive position it gained by its patented innovation in the first place, I do not see much point in the patent system at all.

So, bravo, Hasbro -- just don't put these weapons into the wrong hands!

Microsoft vs. Salesforce.com: Troll, Alley Thug or Patent Warrior?

2010-05-21T18:12:00.000-07:00

Microsoft doesn't sue people very often for patent infringement -- at least not unless someone else sues them first.

Thus, it was quite an event when Microsoft chose to honor Salesforce.com with a patent lawsuit this week. Although the complaint alleges infringement of nine patents from to , what is really going on is that Microsoft has decided to use the hammer of patent litigation to achieve competitive ends, rather than simply throwing its weight around in the marketplace.

Although a lot of press on this case chooses not to focus on the particular patents involved and to concentrate on the particular market segment Microsoft is attempting to muscle into [customer relationship management] and noting that this shows that Microsoft is serious about something called "Dynamics, CRM and cloud computing" [a really good article on this subject is available here and here], this post chooses to focus on neither.

What is kind of exciting is that Microsoft has chosen, at long last, to actually use its patents to compete in the marketplace. Apparently Salesforce.com and Microsoft are hot competitors in the CRM marketplace and Microsoft is using this lawsuit to boost its presence in this market, to show that its product is innovative (and that Salesforce's is not). Microsoft is also using this lawsuit to create doubt in the marketplace about Salesforce's product and perhaps give Salesforce's customers pause before they deal with the company. Microsoft is using this lawsuit to trumpet its competitive position in the CRM and cloud computing marketplace and to show everyone else that it means business.

Not surprisingly, Salesforce.com's stock immediately dropped 5%.

Now, why is this a good thing? Maybe not a good thing for Salesforce.com (who knows whether they are infringing Microsoft's patents or not), but for the patent world? To answer this question, we have to look at what has happened to patent litigation lately

It is no mystery that in the past few years, patent litigation has largely been taken over by patent trolls -- companies that make no products and whose only economic interest in the patents they own is to sue. They create nothing and are nothing but an economic drain -- rewarding nobody other than the lawyers who litigate their case and the hotel and restaurant owners of Marshall and Tyler, Texas. These patents have no economic utility and are employed for no useful purpose.

Microsoft, whatever you may think of its competitive tactics, is actually using the patents it is suing on and is actually competing in the marketplace with the party it is suing. In doing so, it is using the patents for their proper purpose -- to exclude others from practicing the patented technology -- rather than simply to extort a license which no one really wants.

Salesforce.com's CEO, Mark Benioff, obviously also in a fighting mood, called Microsoft a "patent troll" and an "alley thug" for bringing this lawsuit. Whether or not you think that Microsoft is a "thug," (I think you'd get a lot of Microsoft's vanquished competitors to sign on to that description) there is no question that it is not a patent troll -- since Microsoft -- unlike the trolls, actually participates in the marketplace with its technology and uses its patents as a competitive weapon. For this, Microsoft should be congratulated.

So, three cheers for Microsoft -- patent warrior!

Turn Your Intellectual Property Into a Competitive Weapon

2010-05-21T17:44:00.000-07:00

“When a man knows he is to be hanged in a fortnight, it concentrates his mind wonderfully." – Samuel Johnson

The meltdown in the financial markets, the drying up of credit and the scarcity of investment capital makes it paramount that companies, particularly in the technology sector, “concentrate their minds” on immediately deploying their most valuable assets – their intellectual property.

A technology company’s patent and trade secret portfolio is the image that the company has of itself. These technological assets are what make their products prized in the marketplace. They are the product of millions of dollars and years of work spent on research and development. They are the most valuable assets the company has – and they are right at hand.

A technology company executive must ask him or herself -- How much is my patent portfolio worth? Have the R&D expenses and the lawyers’ fees been worth the investment? Can I get some competitive advantage – or, even better, some cold, hard cash, for my patents -- or are they just going to decorate the walls of the company headquarters?

Any rational businessperson will ask these questions -- and one more: How can I make the most money possible from my patent portfolio, whether through licensing or, if necessary, a lawsuit? Here are some suggestions of ways a company can maximize the value of its intellectual property portfolio and the return on that investment:

Concentrate on features your competitors need Contrary to what many think, a patent does not give the inventor “ownership” of an idea – just the right to exclude others from using the invention. The value of a patent, then, is what someone will pay to not be prevented from using the patent. The damages a patent infringer will be required to pay is directly related to how much that infringer needs that patent to stay in business. Thus, if you choose to wield your critical patent against your competitors, make sure that they know that you could easily shut them down and make them pay well for any license. The latest court decisions make it clear that the risk an infringer runs from using your patent is directly related to the value that patent has to that infringer.
Focus on features that are virtually impossible to design around A corollary to the first rule is to make it difficult, if not impossible, for an infringer to “design around” your patent. If a competitor can easily and cheaply gain the same competitive advantage by tweaking your invention in a way that does not infringe, your patent is virtually worthless. Make sure your engineers and patent attorneys anticipate these loopholes.
Make your patent part of a standard Making sure your patent is part of an industry standard is, obviously, easier said than done. However, the effect of the inclusion of your patent in such a standard can be a goldmine, as anyone who wants to practice the standard has to license your patent or else be barred from the market altogether. If possible, establish your own standard (Blu-ray, for example). Be careful, however, about properly disclosing your patents or “pooling” your patents with others who may be part of the standard -- the FTC has been known to cast a very dim eye on such practices.
Make a possible injunction devastating Many economists have decried the effect of “patent holdup” – where a patent is given a value far in excess of its intrinsic worth because of the threat of an injunction. If you can bar your competitors from selling their products because of your patent on one specific feature that cannot be removed or avoided, the amount you can demand for a license (or as damages in a lawsuit) can skyrocket.
Act like a troll Although so-called “patent trolls” have gotten a lot of bad publicity, especially in the technology sector, you may notice that many of them are quite successful in exacting quite substantial monetary returns from their patents. They pursue a profit-maximizing strategy which includes identification of vulnerable, profitable targets, relentless pursuit of those targets for possible licensing and a willingness to sue whenever necessary to exert maximum pressure. Indeed, if you actually use your patent in your product, you are in an even more powerful position than a troll. Although the courts have recently made it harder for companies who do not practice the patents they assert to get an injunction, an infringer’s competitor, on the other hand, has very little trouble obtaining this devastating relief from the court.

For the next few years, your company may be in survival mode. It may need to use whatever tools it has at its disposal to bring in cash and disrupt the activities of its rivals. Your IP portfolio – assets you have already paid for – may be the best and most effective weapon you have to weather the storm.

So, Why Doesn't Conan Own Pimpbot 5000?

2010-01-20T19:27:00.000-08:00

In the war between Conan O'Brien and NBC, the real orphans may not be Conan, his staff or even the viewers -- but may be an innocent bear, a dog and a robot, who may never have a home.

NBC is apparantly taking a hard line as to the characters created by Conan and his writers over the years and may try to prevent him from taking those characters to another show. Whether or not this is a good idea [what's NBC going to do with these puppets after he's gone -- give them to Brian Willliams?], how can NBC do this? Aren't these characters Conan's property if he and his production company created them?

Apparantly, this represents a failure of drafting of Conan's initial contract. Since the shows were broadcast on NBC, unless Conan had specifically reserved the right to ownership of these characters, they would revert to NBC on Conan's departure. The fate of Triumph the Insult Comic Dog, who was originated by writer Robert Smigel, is less clear.

This is not the first time such has dispute has arisen because of a departing NBC host, however.

In 1993, NBC attorneys tried to prevent David Letterman from taking intellectual property originated on "Late Night" to CBS. Letterman solved the problem by simply renaming bits "Viewer Mail" became "CBS Mailbag" and Larry "Bud" Melman began referring to himself by his real name, Calvert DeForest.

So this dispute may end up with an embarrassing bear in some NBC exec's closet or Conan may have to pay to bail him out.

However, it works out, it shows that you've got to read that contract carefully before you sign it!

Patent Owners Can Use Recent Patent Damages Allocation Rulings to Maximize Their Return

2010-01-19T15:27:00.000-08:00

Most of the efforts to “reform” the patent damages laws in the past few years have been designed to reduce the recovery patent owners can receive. The courts and Congress seem to believe that patentholders are engaged in a game in which they somehow trick juries into giving them much more than their patent is worth.

The present stick these reformers are using to reduce plaintiff’s damages awards is “damages allocation” and their strategy is to eviscerate what is known as the “entire market value rule.” This question boils down to one issue: how should infringement damages be awarded when a patent only covers a component of a larger product?

Many patentholders, in the press and before Congress, argue that there should be no such limits, arguing that, otherwise, the patentholder is not being properly compensated.

I believe, however, that this view is not politically viable, either in the courts or the Congress and will eventually lead to even more draconian measures being taken to reduce damage awards and the risk to technology companies.

However, the courts may have solved the allocation “problem” in a way which benefits patent owners by enabling them to receive full value for the value of the patent to each individual infringer and maximize a patentholder’s leverage in negotiations with prospective licensees.

The issue can be demonstrated by an example from the software industry.

Say you are a small software developer who has invented (and patented) a word processing program feature that enables the user to change the color of the font on a selected passage with just a keystroke, rather than laboriously highlighting the text and using the menu.

In Microsoft’s last version of Word, the company implemented this feature, along with 1200 other changes, some of which were intended to provide new functions to the user and others that, behind the scenes, made the software work more efficiently.

Assume further that the latest version of Word is held to infringe this patent and that the product sold 300 million copies with a retail price was $100.

What is the most equitable way of awarding damages in this situation that fully compensates the inventor for the value of his invention and still makes economic sense?

Clearly, the best way would be to determine the “value” of the patented feature to Microsoft and its customers. The more valuable Microsoft would have considered the feature to be to the users of Word, the more Microsoft would have paid the patentholder to be permitted to use it.

The parties could have determined the value (or the popularity) of this feature in a number of ways. They could have looked at Microsoft’s advertising and marketing literature to see if Microsoft highlighted the “color changing” feature as a way of selling its product. They could look at reviews of the product to see if the press thought that the feature was valuable or would be popular with consumers. They could commission consumer surveys to determine the importance Word customers gave to this feature and whether the presence or absence of this feature made any difference to their buying decision or to the price they would have paid to buy the product.

If including the patented feature increased Microsoft’s profits on Word by 2%, there would be a solid basis to argue that Microsoft would have paid a royalty representing half of those profits to the patentholder. Such a result would be equitable, sensible and would make complete economic sense.

Nobody does this.

Nobody.

This year, however the courts took a big step in solving the allocation problem in two cases – one involving Cornell University’s case against H-P and the other pitting Lucent against Microsoft.

The patent in the Cornell case claimed technology that covered an “instruction reorder buffer,” which was part of a computer processor, which , in turn, was part of a CPU module that, combined with other components, became a “CPU brick.” Sets of CPU bricks were , in turn, incorporated into a “cell board,” which was then inserted into H-P’s server.

Judge Rader, future Chief Judge of the Federal Circuit, sitting by designation, became frustrated with Cornell’s insistence that damages be based on the price of the server when Cornell made no effort to show how valuable the buffer was to H-P or its consumers or any reason why Cornell should be able to collect damages on the entire H-P product instead of the component alone. Judge Rader threw out the expert’s testimony and, on his own, based Cornell’s damages award on the “hypothetical revenues” of the processor – a speculative figure, given that the processor had never been sold alone.

Thus, Cornell’s initial $900 million damages claim was reduced to $54 million.

The Lucent v. Gateway case presented allocation issues even more severe than those in the Cornell case. The patent covered a method for entering information into fields without using a keyboard. The "date-picker" calendar tool in Microsoft Outlook was held to infringe this patent and Lucent was awarded $357 million in damages.

In striking down the award, the Federal Circuit court set a theme that provides the rationale for the entire opinion on damages – the critical importance of consumer choice and the consequent value of the patented technology to the parties to the license agreement.

Most important was Judge Michel’s discussion of the entire market value rule. Like Judge Rader in Cornell, Judge Michel took particular offense at the results-oriented testimony of Lucent’s damages expert. Initially, Lucent had taken the position that the proper royalty base for Outlook’s date-picking feature was the entire price of the computer in which it was installed -- $1000 on average – employing a royalty rate of 1%.

Once that royalty base was struck down, Lucent’s damages expert changed his focus, testifying that the proper royalty base was, instead, the market value of Outlook, but increased the royalty rate to 8%, unsurprisingly, reaching exactly the same total royalty amount he had come up with in the first place.

To Judge Michel’s obvious irritation, Lucent’s expert could not provide any economic justification for choosing the larger royalty base, the smaller royalty base or either royalty rate. He could not explain the importance of the date-picking feature to Microsoft or its customers or even its importance to the functioning of Outlook .

The court put the focus of the reasonable royalty analysis where it should be – on the actual value of the patented feature to Microsoft and its customers and how often they use that feature. As the court made clear, “the damages award ought to be correlated, in some respect, to the extent the infringing method is used by consumers.”

Judge Michel, instead, applied an economically realistic approach that could actually be employed by courts and juries. He noted that, in the real world of licensing, the parties do not lock themselves into preconceived notions of what royalty rates “ought to be” and then construct complicated scenarios to calculate hypothetical revenues for the patented feature to determine the proper royalty vase to apply this royalty rate to.

Instead, they just take the royalty base for which figures are most easily obtained and which are easiest to verify – the revenues for the “entire commercial embodiment” -- and simply adjust the royalty rate to reflect the actual value of the patented feature. As the court noted, “sophisticated parties routinely enter into license agreements that base the value of the patented inventions as a percentage of the commercial products’ sales price. There is nothing inherently wrong with using the market value of the entire product, especially when there is no established market value for the infringing component or feature, so long as the multiplier accounts for the proportion of the base represented by the infringing component or feature.”

How does this help patent owners who are trying to get a fair return from an infringer?

When attempting to license his patent every patentholder must focus on is the value of his patent to each individual licensee. He must not only “sell” the value of his patent to that target, but must develop a convincing case that, because of this particular target’s use of the patent owner’s particular technology that the licensee is particularly at risk. The patent owner must do its research and determine how the prospective licensee actually uses its technology and the extent to which consumer demand is based on this use.

In sum, every patent owner, when licensing its patent or suing an infringer, must make sure that when damages are “allocated,” those damages are allocated to the patent owner’s technology. In that way, patent holders can use the Cornell and Lucent opinions to make sure that they receive the highest possible return for their technology.

Patent Marking Outlaws Watch Out! There's a Qui Tam Plaintiff on Your Trail!

2009-12-30T14:25:00.000-08:00

As if there were not enough parties trolling through the patent world looking for infringers, the Federal Circuit gave a big Christmas present to parties searching for companies who have intentionally marked their products with a patent number the product is not entitled to. Under this decision, their reward could run into the millions.

A relatively obscure patent statute, 35 U.S.C. § 292, provides that, where a party marks an unpatented article with a patent number with the intent to deceive the public, “any person” may sue that party to recover a statutory penalty of $500 for “each such offence.” Known as a “qui tam” action, a successful plaintiff must split his recovery with the United States government.

This statute, dating back to the late 1800’s was rarely used, since, for the last century, it was understood that an “offense” was committed when the defendant produced a new model – not every time it sold a product.

On December 28, this all changed and this statute became a whole lot less obscure when the Federal Circuit issued its decision in Forest Group v. Bon Tool Company, which started out as a garden variety patent infringement case.

Forest Group owned the ‘515 patent, which covered an improved spring-loaded stilt of the type used in construction and sued Bon Tool for infringement; Bon Tool counterclaimed for a declaratory judgment of invalidity and for false patent marking. In August 2007, Bon Tool successfully moved for summary judgment of non-infringement and the court then held a bench trial on its false patent marking counterclaims .

The court found that since in another case brought by Forest Group, the court had made a non-infringement summary judgment ruling which made it clear that Forest’s own product was not covered by the ‘515 patent. The fact that Forest subsequently placed an order with its supplier for this same product – marked with the ‘515 patent number – showed to the court’s satisfaction that Forest had falsely marked its products with the intent to deceive the public.

Since Forest was held to violate the statute, the only really important issue was the amount of the penalty. Was it to be $500 for each “decision to mark,” as the district court determined? Or was it to be $500 for each sale of an improperly marked article, as Bon Tool requested?

The Federal Circuit examined the long history of the statute, going back to the 1870 Patent Act (which imposed a $100 penalty) through the 1952 Patent Act, which raised the penalty to $500. It looked at every possible rationale the courts have used to impose penalties under this statute over the years It looked at the public policy of the statute. And came to a decision which will empower a new category of trolls – the bounty hunter.

The Federal Circuit noted that, as early as 1910, the First Circuit had decided that “continuous” false marking under the statute would constitute only one offense on the grounds that “it can hardly have been the intent of Congress that penalties should accumulate as fast as a printing press or stamping machine might operate.” This rationale had been applied, the court noted, by a number of district courts since.

Other district courts, the Federal Circuit noted, had imposed what the court called a “creative” time based approach, imposing a penalty per week or per day.

All of these approaches, however, are contrary to the “plain language” of the statute, the Federal Circuit held, which “clearly requires a per article fine.”

This per article approach, contended the Court, was supported by good public policy. The false marking statute was intended to give the public notice of patent rights – false marking “deters innovation and stifles competition in the marketplace by deterring potential competitors from entering the market. The Court’s rationale for applying the penalty to every article was that “the more articles that are falsely marked the greater the chance that competitors will see the falsely marked articles and be deterred from competing. Applying a $500 fine for continuous marking would not, according to the Court, accomplish this public purpose.

The Court recognized the monster it may have created, noting that this decision would create a new “cottage industry” of false marking “trolls” since, under the statute, anybody can bring a false marking claim, whether they have suffered any damages or not. The Court’s only response was to note, in the face of 100 years of contrary precedent, that “this is what the clear language of the statute allows.”

The Court’s only solution for the problems this new “industry” will cause was to note that the statute does not require that the full $500 be imposed per article, but that a court might well impose a penalty of a fraction of a penalty. Cold comfort, obviously, to a target of such bounty hunter litigation who is faced with a threat of a verdict in the hundreds of millions and who will legitimately feel itself extorted into an excessive settlement.

So what can patent owners do in the face of this ruling? The only real solution is to be vigilant – watch closely for expiring patents and make sure that patent numbers are removed immediately. Watch for ambiguous rulings in patent cases you bring which, like this case, may result in a later determination that you “knew” that your product was not covered by a valid patent and that you “must have” intended to deceive the public.

For the new bounty hunters, looking to be the Boba Fett of the patent world – the only suggestion is “good hunting.”

Perfect Web -- When a patent is so obvious even a caveman could invalidate it

2009-12-03T19:40:00.000-08:00

Now, I don't take very seriously the press that the patent system is "broken" and that the PTO is so overburdened that they'll let you patent a peanut butter sandwich. [Oh, wait, they did.]

But I have a hard time believing that a patent this dumb actually made it all the way to the Federal Circuit.

The plaintiff, Perfect Web, managed to get a patent on a bulk email distribution system which had four steps:

1. Match the target profile with a group of target recipients

2. Send the emails

3. Count the emails that were successfully received

4. If you don't get as many successful hits as you want, send out the emails again.

Remember, this is a patent, which would give Perfect Web the right to stop anyone else from doing this and to sue infringers for damages.

On top of everything else, the first three elements were held to be within the prior art, meaning that the patentability of this "invention" rested solely on the fourth element -- if it doesn't work the first time, try again.

Thank God for Judge Ryskamp of the Southern District of Florida, who threw this patent out on summary judgment. Perfect Web, however, appealed to the Federal Circuit.

The Federal Circuit started out its analysis by invoking the "common sense" standard from the Supreme Court's KSR decision, which makes it unnecessary to cite to particular art which would make a patent obvious if the court finds that "ordinary skill and common sense" would have led a person of ordinary skill to develop the claimed invention. The court found that what it described as the "try, try again" element would have been obvious as a matter of common sense, that performing the first three steps more than once was "one of the inferences and creative steps that a person of ordinary skill would employ" and that no expert testimony was necessary to invalidate this patent.

If you are interested in an excellent analysis of this decision in light of KSR from someone whose perspective is different than mine (but who comes to the same conclusion -- that this patent is dumb) go over to IPWatchdog.

The court also rejected Perfect Web's argument that the patent satisfied a "long felt unmet need" because it could not show that the supposed "need" was "long felt" or that the invention even met that need. Indeed, Perfect Web could not show that the invention actually reduced marketing costs, its supposed purpose.

So, I suppose the Federal Circuit comes through again. But it's a shame they had to waste their time on this one.

TS Tech revisited -- I've got a ticket to ride (out of Marshall)

2009-12-03T16:02:00.000-08:00

As patent defendants who have been dragged into EDTex courtrooms against their will well know, the Fifth Circuit's recent decision in TS Tech has changed the landscape dramatically. Although the Eastern District judges are still pretty reluctant to let a patent case go if they think there is a good reason to keep it, even those judges know that cases that (1) have no contact whatever to East Texas and (2) clearly belong someplace else should be transferred -- and they have been.

The Federal Circuit has also taken up the cudgel of transfer and, in the recent case of In re Hoffman-La Roche, gave its views as to the weight that should be given to the convenience of the parties -- something that, in our online age, has been given less weight as of late.

In this case, Novartis, a California company, brought suit in the Eastern District of Texas against Fuzeon, a resident of North Carolina, for infringing its patent through its manufacture and sale (through Hoffman-La Roche) of an HIV inhibitor drug. Fuzeon objected, claiming that there were no witnesses within 100 miles of the Eastern District of Texas and that the key documents were all in North Carolina. Novartis argued that the witnesses were spread our all over the country and that, for some of them, Texas would be more convenient. Novartis had also been careful to move 75,000 pages of documents into its attorneys offices in Texas, so that it could claim that most of the important documents were in the jurisdiction.

Judge Folsom took pity on Novartis, holding that the case was inappropriate for transfer because the case was "decentralized" and that the president of Fuzeon could be compelled to come to Texas for trial.

The Federal Circuit gave pretty short shrift to Judge Folsom's decision, however.

First, in a nod to defendants who are in a fix like Fuzeon's, the Federal Circuit indicated that it would be open to writs of mandamus on transfer issues, noting that it would be an "inadequate remedy" for a party in an inappropriate vene to have to wait for judgment to challenge it.

The court noted several factors which, it held, warranted sending the case to North Carolina: (1) the accused drug was developed and tested in North Carolina; (2) the claim "calls into question to work and reputation" of residents of that district; (3) there are four non-party witnesses who live within 100 miles of that district who could be compelled to attend both deposition and trial; (4) the North Carolina docket was less congested.

Two important points the court raised, which should put parties on notice:

Shipping documents into the Eastern District in order to "manufacture" venue is not a good idea. The courts see right through it and it just makes them mad.
The fact that you can subpoena the defendant's witness for trial does not give you the "absolute subpoena power" referred to in the Fifth Circuit's Volkswagen case -- to have this power, you need to have the ability to subpoena all material party and non-party witnesses for deposition and trial. This was not the case here.

So, all of you defendants looking for a "ticket to ride" out of the Eastern District, you might consider going to the ticket window in Washington DC, if they are not selling them in Marshall.

Patent plaintiffs can win the declaratory judgment forum battle far from home

2009-12-02T19:54:00.000-08:00

Normally patent holders like to sue their victims in one of two places -- (1) their home town; or (2) beautiful downtown Marshall or Tyler, Texas. They like to pick their forum for either their own convenience or to benefit from the plaintiff friendly (or so it is thought) wilds of East Texas.

Accused infringers, obviously take the other tack -- if they know they are going to be sued anyway, they will often bring a DJ (declaratory judgment) action in their own home district before they can get sued in a place the plaintiff has picked.

This conflict can often result in quite a battle, but in a recent district court decisions from the Northern District of California, the patentholder was able to successfully move the case out of the defendant's chosen forum by proving that there was simply no jurisdiction over them in that district.

In Smugmug, Inc. v. Virtual Photo Store LLC, 2009 WL 3833969 (N.D. Cal. Nov. 16, 2009), before Judge Wilkin, the plaintiff, a resident of the Northern District, brought a declaratory relief action with respect to the patent owned by the defendant (a resident of Chicago) for digital image management.

In response to the defendant's claim that there was, in fact, no jurisdiction over it in the Northern District, Smugmug claimed that there was general jurisdiction over Virtual Photo in California based on (1) Virtual Photo's solicitation of business in California through its website; and (2) because it was the alter ego of its law firm, which allegedly had contacts in California

Smugmug also claimed that there was specific jurisdiction over Virtual Photo because of its extensive patent licensing program in California -- 20 solicitations and 5 licenses, one of which required the licensee to pay ongoing royalties. Indeed, a substantial portion of the defendant's revenue was earned from these California licensees.

The court rejected these arguments, even given the Federal Circuit's decision in Autogenomics, Inc. v. Oxford Gene Tech Ltd., 566 F.3d 1012 (Fed. Cir. 2009) that enforcement activities related to the patent could subject a patentholder to jurisdiction. The court noted that (1) cease and desist letters, by themselves, cannot subject a patentholder to specific jurisdiction; (2) the letters sent to prospective patent licensees were not even cease and desist letters but, rather, "invitations to license."

Surprisingly (at least to me) the court rejected the plaintiff's argument that the defendant's licenses with California companies and its earning of substantial revenue from these licenses on the very patent which was the subject of the lawsuit would not justify jurisdiction. As the court noted, such non-exclusive licenses constituted "commercialization" of the patents, rather than "enforcement activities," which, according to the court, were not sufficient under Autogenomics to justify jurisdiction.

So if you're a defendant who feels threatened by a patent plaintiff and you want to avoid being either home-towned on the other guy's turf or eating lunch at Porky's Smokehouse in Marshall, make sure you check out where you can actually get jurisdiction over your opponent.

What if Microsoft actually did patent Sudo? Is open source safe from patent lawsuits? Should it be?

2009-11-13T19:16:00.000-08:00

The big controversy in the Unix/open source community this week arose from a post on Groklaw opining that Microsoft's "rights elevator" patent was a patent on the well-known and much beloved Unix "Sudo" command, which gives a user temporary "godlike" powers.

The horror in that tight-knit group, who make it their business to distrust anything that somes out of Redmond, was palpable. By the end of the week, some of the concern had faded, with many experts stating that there was nothing to fear -- that Sudo was still safe.

Notably, this this not the first time Microsoft has been accused of trying to monopolize something the open source community believes belongs to all -- See the post "Did Microsoft Just Patent Sudo? -- Holy crap I think they did" from 2007.

However, the controversy itself raises three important questions. (1) What would be the impact on the software industry in general and on the open source software industry in particular if Microsoft was able to successfully patent one of the core functions of Unix? (2) Could the open source community "work around" Microsoft in a way that would prevent a Microsoft lawsuit from gaining any traction? (3) What kind of monetary recovery could Microsoft expect if the patent held up and it could prove infringement?

And what effect might a SCOTUS Bilski decision that weakens software patents have on all this?

Frankly, I think if Microsoft is trying to strangle Linux by these tactics, they need better tactics. The open source community has proven that it can adapt very quickly and easily to virtually any attack. If Microsoft were to truly be able to patent something that was core to Unix, I think that there would be a lot of sturm und drang at the beginning, but that the industry would adapt in fairly short order -- and Microsoft would have just bought itself a bunch of new enemies.

If Microsoft were to start bringing lawsuits against open source vendors based on a patent like this, I think it would have pretty tough sledding. The open source industry -- led by companies like Red Hat and organizations like OIN -- has proven itself very adept at finding devastating prior art and making sure it is published. I believe that Microsoft would regret the day it tried to enforce such a patent, as there would be hundreds devoted to invalidating it.

In terms of any financial recovery -- assuming that the patent survived an invalidity attack and was found infringed -- Microsoft's ability to recover damages for any patent attacking open source software would be severely hampered by the very adaptability of open source. If there was an open source alternative to something like Sudo, even if it was not quite as good, Microsoft's recovery would be very limited since, if an infringer could get around the patent easily by switching to another open source alternative, the "reasonable royalty" for the Microsoft patent would be low.

And if the Bilski decision substantially weakens software patents, something like this "Sudo patent" might be thrown right out the window anyway.

Could Bilski Eliminate Damages for Method Claims Covered by Open Source Software? Maybe!

2009-11-10T19:05:00.000-08:00

If you've found this article, I don't have to give you a primer on Bilski. By the time the SCOTUS is through, we should have a much better idea of the metes and bounds of what kinds of intangible intellectual property is patentable.

Given the tart comments by the various justices at the hearing on the viability of busines method claims -- from Justice Scalia's speculation about the availability of "horse whisperer" patents in the 1840's to Justice Breyer's wishing he could get a patent on his technique of teaching antitrust law to sleepy law students -- it appears that there will be a drastic narrowing of the scope of allowable business method patents that do not involve computers.

Now, in the courts, you don't really see the kind of business method patents you see in Bilski -- hedging risk in commodities trading. So, if the Bilski ruling does nothing more than strike down those types of patents, it may have little effect on big time patent litigation.

However, if some, like Red Hat, have their way and software patents are substantially weakened -- or even eliminated -- this could have a huge effect on the damages a plaintiff might be able to get for infringement of a method claim. Especially if that method is normally performed by software. Especially if that method can be performed by open source software.

For the most part, damages are awarded in patent cases based on what the jury finds to be a "reasonable royalty." That royalty is determined by looking at how much the infringer would have paid to license the plaintiff's patent if the parties had met and negotiated when the infringer started using the plaintiff's technology.

The more valuable the patented technology was to the infringer, the more he would have paid for the right to use it -- and the higher the "reasonable royalty."

If, however, the infringer didn't really need the plaintiff's technology or it didn't give him much economic benefit, the infringer would not have paid very much to license the patent and the "reasonable royalty" would be quite low.

One big reason that the infringer might not have put much value on the patented technology, is if he could have acquired that same -- or similar -- technology (which did not infringe) from some other source for less, or even for free; thsi is known as a "non-infringing alternative." If -- as in the Red Bend v. Google case recently filed -- the defendant could convincingly argue that he could replace the patented techology with free open source software, the "reasonable royalty" may well be minimal -- or even zero.

Now what does this have to do with Bilski?

If the Supreme Court weakens or elminates software patent protection, this will dramatically increase the viability of free open source software, as companies like Red Hat will largely be able to operate without the constant danger of being sued by a software patent plaintiff. The open source industry will no doubt take full advantage to increase their "market share." Tux the Linux Penguin will have a party!

So what happens to your damages case if you own a patent and are suing on a non-software method claim that can be implemented in software? And what if a similar function is performed in a non-infringing way in some piece of open source software that came out of the post-Bilski flood of open source? And what if the infringer could just pop that open source module into its product and perform the same function as claimed in your patent without losing a sale?

As Tux would say -- You're fragged and you go home with nothing.

Think this can't happen? Watch the skies for the Bilski decision and wait.

TSMC v. SMIC: When Chip Foundries Go to the Dark Side

2009-11-03T21:01:00.000-08:00

Chinese chip foundry SMIC, who paid $175M a few years ago to settle a claim of trade secret theft from its Taiwanese rival TSMC still couldn't keep its hands out of the cookie jar and is now looking at over $1B in damages for continuing to steal its trade secrets.

SMIC evidently hung its hat on trying to prove that the technology it stole wasn't really a trade secret. For 63 out of the 65 claimed trade secrets, the jury didn't buy it.

More to come on how damages will be calculated in this case -- the jury will consider this phase of the case starting Thursday -- but the usual method is to look at how the defendant was unjustly enriched.

Big win for Keker. Big big loss for Wilson, Sonsini (for those of you keeping score on the law firm side), who really needs to find better clients.

More to come as we get more information.

Nokia v. Apple -- FRAND and the Standards Wars

2009-11-01T16:27:00.000-08:00

Erica Ogg over at CNET explained what is really going on on the business side in the big Nokia/Apple patent blowout -- The biggest handset maker, fallen on hard times, competes in the courtroom with the up-and-comer, seeking to add $6-12 per phone to Apple's costs

But, when the parties actually get to court, what is this case really going to be about and how will it get resolved? For the answer, you have to look at the history of how the imposition of technical standards throws a big monkey wrench into both patent litigation and antitrust law.

After Teddy Roosevelt got through with the "trusts" which strangled the economy in the late 19th Century, it became illegal for competitors to get together to fix the prices of the goods they sold -- in fact you can go to jail for it. In fact, the Justice Department doesn't like competitors getting together to do much of anything.

This applies equally to licensing of patents -- competitors can't get together to set the rates at which they will license their patents.

However, this posed a problem for some industries in which the products of all companies have to work in the same way -- all electronic appliances have to use the same shape plug, for example.

In the present high-tech world, where many different types of computers have to equally work over the Internet, having a set of common standards has been critical.

And in the communications field, where every phone has to be able to talk to every other phone, without standardization, you could only talk to phones made by the same company that made your phone -- totally unacceptable.

So, there are various US and international bodies who come up with standards (like 3G) that will enable everyone to talk to everyone else. These standards are constructed from the patents submitted by the various industry leaders.

Sometimes, these patents are licensed in one portfolio with the blessing of the antitrust authorities (like the well-known MPEG-LA group).

But in many cases, like this one, the various contributors to the standard claim that their patents are "essential" to the standard -- i.e., that if your product practices the standard, you must be infringing their patent.

The determination that patents are "essential," however, is not made by the standards group -- but is simply declared unilaterally, by each company. The deal the companies make with the standards group (to get the group to include their patents in the standard) is that they will license the patents to all comers at Fair, Reasonable And Non-Discriminatory rates (known as FRAND.

As with the decision as to whether a patent is "essential," the determination that the rate offered by the patentholder is "fair" and "reasonable," is made unilaterally and usually secretly.

So, what is really going on between Apple and Nokia in the lawsuit and how might it be resolved?

Personally, I disagree with Jason Schultz, quoted in Ogg's article, that Apple will try to show that Nokia does not own the patents or that the patents are invalid -- proving either is too hard and there are simply too many of them.

I believe that Apple's strategy will be two-fold: (1) To show that the Nokia patents asserted in the lawsuit are not really "essential" to the GSM, 3G or WiFi standards; and (2) to show that the rates demanded by Nokia are neither "fair" nor "reasonable" and that the patents are relatively insignificant to the standards. Under a recent Federal appeals court decision (Lucent v. Gateway), the lower courts are instructed to limit a plaintiff's recovery of damages to the value the patent actually has.

It's obvious that Apple doesn't have as high an opinion of these patents as Nokia does.

Showing that Nokia may not have real confidence in either the value of its patents or its ability to compete with Apple in the marketplace, it is also trying to recover damages for Apple's appropriation of Nokia's market share.

The Lazy Patent Licensee, Lady Duff and Tom Waits -- If You Take a License, You Need to Get Out There and Sell!

2009-10-30T18:08:00.000-07:00

The First Circuit came down with an opinion yesterday [Sonoran v. PerkinElmer, if you're keep ing score], which should give pause to companies which may take a patent license with an ongoing royalty obligation.

The Sonoran case involved a sale of Sonoran's "computer to plate printing technology" business to PerkinElmer -- a deal which was made because Sonoran could not make a go of the business on its own. The deal was that PerkinElmer would pay $3.5 million for the company's assets (which was to go to pay off creditors), but would also give the company a cut of the sales of future units which used the technology. There was no "best efforts" clause in the contract and PerkinElmer had no specified duty to sell these units in the future.

As so often happens, PerkinElmer also failed at this venture and, as you might expect, was sued by Sonoran and its shareholders for not using its "best efforts" to promote the sales of machines which used Sonoran's technology. PerkinElmer objected, saying that under the contract, it had no such duty to Sonoran.

The First Circuit disagreed, holding that Massachusetts law (which applied here) applied the so-called "Lady Duff rule" (created by Justice Cardozo in 1917 in the Wood v. Lady Duff Gordon case), cited in the Sonoran case. The court held that, under the "implied covenant of good faith and fair dealing," which, in Massachusetts, is implied in every contract, PerkinElmer had a duty to promote the sale of machines which used Sonoran's technology, even though the written contract imposed no such duty. The First Circuit sent the case back down to the lower court to decide whether PerkinElmer had actually violated that duty.

Thus, it could very well be argued that, under the Lady Duff Rule, a licensee of a patent who had agreed to a running royalty might actually have an implied duty to actually practice that patent -- especially if that license was exclusive.

Does this rule also apply in California? Yes!

The California courts have recognized this same rule in the context of the long-standing California "implied covenant of good faith and fair dealing" rule.

This came up in a case involving the singer Tom Waits. [Third Story Music, Inc. v. Waits 41 Cal.App.4th 798, 48 Cal.Rptr.2d 747 (1995), if you're interested in the cite]. In that case, Waits had evidently sold the rights to some of his music to the plaintiff music company, which had licensed back the right to promote the music to Waits and Warner Bros. Third Story later claimed that Waits and Warner were not promoting the music Third Story owned, preferring to promote Waits' later music (for which Waits and Warner presumably made more money)

The court recognized the Lady Duff rule and held that there was an implied duty on the part of Waits and Warner to promote the music owned by Third Story, but held that that duty had been satisfied by a set royalty the parties had agreed to. The court noted that the royalty was pretty low -- especially for a major recording artist like Waits -- but noted that Third Story had agreed to it and that they really had nothing to complain about.

Presumably, this would also apply to patent licensing agreements , but would be subject to the same constraints as the Waits court imposed -- if you actually agree to accept a certain amount of money, you may not be in a position to complain if it gets paid.

So, lazy patent licensee who thinks that the language of the contract will protect him, remember the words of Tom Waits: "The large print giveth and the small print taketh away."

Boring rich patent troll sues Apple for infringement of digital camera patent -- World (other than Apple) yawns

2009-10-29T23:53:00.000-07:00

St. Clair Intellectual Property Consultants (apparently two lawyers who bought a patent covering digital cameras selectively storing pictures in different formats) has now sued Apple, after having sued just about every digital camera manufacturer in the world.

In the troll world these guys are pretty well behaved (they tend to sue in small groups and in Delaware) and have made hundreds of millions of dollars off their original $100K investment.

Red Bend v. Google Chrome -- No Damages?

2009-10-28T22:56:00.000-07:00

Matt Asay over at CNet had an interesting idea in terms of the ability of patent plaintiff's ability to collect damages over Google's use of open source software. He opined that under the proposed patent reform act, plaintiffs would be unable to collect damages for patent infringement because, under the proposed legislation, damages would be calculated based on the difference between using the infringing technology and using the next best non-infringing substitute. He theorized that this might be the reason that Google was supporting patent reform.

In my view, however, this same result would occur even under current law. Currently, damages are calculated (or are supposed to be) based on a "hypothetical negotiation" between the patentholder and the infringer. Damages are supposed to be awarded based on what the parties would have licensed the patent for in that negotiation. If, in the Red Bend situation, Google could have replaced the Red Bend compression algorithm with another open source algorithm at no cost (other than the cost of changing the algorithm), it would have paid very little to Red bend to license the patented algorithm -- in fact, in that situation, the patent would be virtually worthless. The damages awarded for the infringement of a worthless patent which is easily worked around are very low -- even under current law.

Thus, if Google does its damages analysis right, it should be able to get out of this case cheaply.

And, if open source software provides lots of low cost or free substitutes, the same should apply across the board.

Second Life: First Enters the Serpent, then the Serpent's Lawyers

2009-09-20T18:06:00.000-07:00

Now I must admit that I have not been keeping track of Second Life. I wasn't really interested in having an avatar with a fox head or flying to virtual Obama rallies. And I thought it had really jumped the shark right about the time Dwight Shrute from The Office created a doppelganger avatar because "my life was so great that I literally wanted a second one."

So I thought I'd seen everything.

Until I saw the trademark infringement lawsuit by the Second Life sex toys vendor against Linden Labs (who runs Second Life) for allowing some other Second Life sex toys vendor to "infringe" its brand.

Eros LLC purveyor of the "SexGen" brand of virtual beds, rugs, sofas and, apparently even a coffin for avatars to have virtual sex in or on or under, claims that its customers are being confused by the proliferation of "knockoff" SexGen products which "do not function in the ways they expect SexGen products to function."

Whether or not this case is covered by the DCMA (most people think it is), the concept of trademark and copyright infringement totally within a virtual world is something truly innovative.

But letting lawyers into Second Life -- or any other virtual world, for that matter, is something that should bear a lot of thinking

World of Warcraft's Toughest Battleground -- Marshall Texas?

2009-09-16T18:54:00.000-07:00

When it purchased two patents covering data-sharing technology in 2002, PalTalk probably didn't think that it would bring the warriors from Halo to their knees and take on everyone from orcs and wizards to WWII snipers. But that is exactly what is happening in Marshall, Texas.

Paltalk owns patents which, it claims, cover the technology which enables players in massive online games to all see the same environment at the same time -- critical to the user's enjoyment of the battle experience and essential for many of the games, like World of Warcraft and Call of Duty where online players fight in teams.

In 2006, Paltalk decided to take on the biggest of the big boys -- Microsoft -- for its XBox Halo games. After a three year struggle, Microsoft settled mid-trial and took a license to the patents -- giving PalTalk virtually unlimited health points and all the weapons and spells it could possibly use to take on the rest of the online gaming industry.

Now Paltalk has sued virtually everyone else in the marketplace -- from Activision's Call of Duty to Blizzard's World of Warcraft -- on the same patents, hoping that these grizzled fighters will see that PalTalk's got the big stick.

With the smash release of the Beatles version of Rock Band, can the assault on Ringo be far behind?

Broadcom v. Emulex: The Jilted Suitor Takes His Revenge

2009-09-15T12:37:00.000-07:00

After the busted Broadcom-Emulex hostile takeover of a couple of months ago. Emulex probably thought it had seen the last of this aggressive boyfriend. Emulex had said throughout the takeover process that its prospective business in the fibre channel over ethernet (FCOE) world made it a much more attractive prospect than Broadcom thought it was.

Now, Broadcom apparently thinks that, if Broadcom can't have Emulex, then no one else can, either and has sued Emulex for infringing Broadcom's patents on high speed data and storage networking technology.

According to the Wall Street Journal, both Broadcom and Emulex see FCOE as the "next big thing," but, because of a lack of standards, this technology hasn't taken off yet. Emulex, however, has started to get design wins at some of those big customers, including IBM, that Broadcom would like to get.

How do you slow down Emulex and make it less attractive to the other boys? Sue them and make the other suitors think they may get sued, too.

Broadcom is no stranger to using the courts for competitive ends, so this is undoubtedly the right strategy for them.

And, who knows, Emulex might even see that hanging out with Broadcom isn't so bad, after all

Lucent – Microsoft: The Federal Circuit Finally Takes Control of the Patent Damages Debate

2009-09-14T12:10:00.000-07:00

Everyone agrees that the way that juries have been awarding damages in patent damages cases has become just about unworkable. Patentholders complain that they are being shortchanged for the value of their innovation. Defendants argue that the so-called “entire market rule” results in unfair windfalls to plaintiffs. Congress has proposed legislation to solve this problem three times since 2004 – with no success whatever. Parties involved in patent litigation and licensing have been left with virtually no direction from either the courts or Congress as to how patent damages should be awarded.

Someone had to be the grownup. And the Federal Circuit finally stepped in and took control.

In throwing out the $358 million jury award to Lucent, the Federal Circuit not only eviscerated the evidence presented by both sides in support of their respective damages cases, it set forth a common-sense structure for economic analysis which can, and should, be applied in every case and which defuses the pointless political wrangling which has tied up patent reform for years.

The damages dispute here arose from a Lucent patent on a “date picker” feature that Lucent claimed was used in Microsoft Outlook (as well as in other Microsoft programs). For the purpose of the damages analysis, there was no dispute that this feature was actually included in the accused Microsoft software (although the court noted that there was “little, if any, direct evidence of infringement) but there was no showing as to how valuable the feature was to the individual user or how often the feature was used. Indeed, neither party seemed to think this fact was particularly relevant to the damages inquiry.

Instead, each party relied almost exclusively on other licenses between Microsoft and other parties, each arguing that the “hypothetical license” between Lucent and Microsoft determining the reasonable royalty was similar to the ones it had selected. On appeal, Lucent’s task was further complicated by having to justify the jury’s verdict, which was based on a “lump sum: license (i.e., a set amount paid up front no matter how many products were sold) even though, at trial, it had relied on quite different licenses with a “running royalty” (i.e. where the licensee has to pay royalties only on the products it sells).

On appeal, the Federal Circuit more or less threw up its hands and told the parties to start over, noting that the evidence presented by both parties had little or no relationship to the actual economic principles underlying patent damages law. In the process, however, the court set out self-evident economic principles that, hopefully, should guide counsel and the courts – and hopefully silence those in Congress who had hoped to legislate basic economic in the courts.

The Federal Circuit concentrated its analysis on two issues – the use of licenses in determining a reasonable royalty and the viability – and proper use – of the “entire market value rule.”

The court noted that, if a party is going to use a royalty contained in an existing license to show what the parties would have agreed to in the “hypothetical negotiation” setting a reasonable royalty, the actual licenses must be for a technology which bears at least some relationship to the technology involved in the litigation. If the technologies are not comparable, the licenses are of little value in determining what the parties would have agreed to in determining the royalty for the technology involved in the lawsuit.

More importantly, the “real world” licenses must be of the same type as the license on which the reasonable royalty will be based or the parties must provide some basis on which the two types of licenses can be compared.

The court noted that the parties variously presented lump sum licenses to justify running royalty rates and used running royalty licenses to justify lump sum verdicts – all without any explanation of how to “convert” from one to the other, or apparently any indication that any such conversion was even necessary. The court explained, however, that there is no problem with a party presenting various types of license agreements to support its damages case – as long as the party explains the how that license agreement values the technology at issue and how to apply that value to the patent involved in the litigation.

The much more important ruling, however, was on the much-maligned “entire market value rule.” This rule is, on its face, fairly simple – if the patented technology is the sole reason consumers buy a certain product, royalties may be awarded based on sales of the entire product. For example, if I had a patent on technology that made bicycles fly, it would be reasonable to assume that the only reason consumers would buy flying bicycles was because of my patented technology (i.e., the “entire market value” of the product would be my patent).

If, however, I had a patent on a bell that was used on a flying bicycle, damages should be based on the value of that particular component to the consumer. For example, if the bell only enabled the seller to raise his price 1% or only 3% of the consumers bought the product because of the bell, the royalty should be adjusted accordingly.

The problem with the “entire market value rule,” however, has been its misapplication by parties, juries and courts and the misunderstanding of the rule by Congress and many commentators. It is thought by some to be “unfair” for a jury to base its royalty on a percentage of an entire product’s sales where the patent only applies to a small component and it is thought by others to be a “ripoff” of the inventor class to do anything else.

However, the Federal Circuit made the common sense observation that the actual royalty amount is the percentage royalty as applied to the royalty base and that there may be good and proper reasons that the parties may want to use the revenues for an overall product to compute royalties under a license for a patent on a component – such as ease of obtaining revenue figures and ease of auditing.

The issue of “allocation” of the value of a component can be handled, as the court noted, by simply adjusting the royalty percentage to reflect the value of the patented technology. It reflected that, for all of Microsoft’s complaints about the size of the royalty base (the price of the computer vs. the price of Windows), it would have had little issue with the result if the base had been left alone but the royalty percentage was 0.1% instead of 8%.

So, perhaps the controversy over “allocation” can now come to an end and the courts can simply handle awarding damages based on the value of a technology in the economically common sense way suggested by the Federal Circuit.

Cell Plus Sues Cingular Over Ringback Ad Patent. Worst. Idea. Ever.

2006-09-19T21:14:00.000-07:00

I've been reading Stephen King's book "Cell." For those
who have not read it, the plot involves a "pulse" transmitted through all of the world's cell phones, turning anyone who has a cell phone to their ear, first into a homicidal maniac and then into a telepathic zombie. Ever since I started it, I keep giving my own cell phone sideways looks, waiting for the thing to turn on me.

I can only assume that the folks at Perceptive Impressions have read the same book and are desperately trying to keep everyone from using what one character in the book calls the "devil's intercom." This outfit has, I kid you not, patented technology which will permit cell phone companies to force you to listen to advertising when someone else's phone is "ringing" -- what, in the trade is called a ringback tone. As all sane cell phone users will immediately abandon their phones, crushing them under their feet upon being subjected to this unnecessary torture, we will all be saved from the fate of the unlucky "phone crazies" in King's book.

Indeed, Perceptive Impression appears to know something the rest of us don't know about the dangers of the internet if its extremely annoying website is any gauge.

In any event, Perceptive Impressions, through its subsidiary, Ring Plus (located on Rodeo Drive in Beverly Hills) has sued Cingular for infringing its patent on this life-affirming idea. It appears that Perceptive Technology may be a troll, however, as its press release announcing the action ominously notes that the music industry may also be "possible targets for infringement litigation."

Scanner Technologies Blasts the nVidia Pixie! Clap If You Believe in Ball Grid Arrays!

2006-09-19T20:16:00.000-07:00

New Mexico-based Scanner Technologies Scanner Technologies has announced that it has sued graphics card manufacturer nVidia for infringement of its patents on "methods of three-dimensional inspection" to allow more efficient manufacture of ball grid array devices. Ball grid arrays being evidently a more advanced method of packaging integrated circuits used in graphics cards. Why Scanner chose to go after this cute winged CGI demo is unknown, but we are awaiting the next lawsuit against Cap'n Hook and the Lost Boys.

Bally Wants "Great Balls of Cash" from IGT in Slot Machine Patent Battle

2006-09-05T23:11:00.000-07:00

Not wasting a second to take the next shot in its never-ending patent battle with IGT, Bally has sued its rival for infringing its "Indicator wheel system" patent the very day it was issued -- natch, in the District of Nevada. These companies, who seem to enjoy these battles, have been suing each other back and forth for years. Indeed, IGT's "20 monumental ideas in the history of the slot machine" cites not one but two critical Bally stumbles in establishing a slots portfolio: Bally's failure to patent video poker and allowing IGT to steal the stepper motor patent for virtual reel slot machines from under its nose.

Stay tuned as these behemoths ratchet up the game another notch.

What I found odd about this story was that the infringing slot machines included games I had never even dreamed existed -- a Regis Philbin game, "Drew Carey Great Balll of Cash," and most disturbingly a Dilbert slot entitled "Dilbert Wheelbert!"

What's next? Dubya's White House Casino?

Tag, You're It! RFID World Takes on the World -- Or, At Least Wal-Mart's Part of It

2006-09-01T00:04:00.000-07:00

In what may be the beginning of the "RFID Wars," a small company called RFID World, whose business appears to be owning U.S. Patent No. 6,967,563 -- "Inventory Control System" -- is taking on the world of RFID users. RFID World has brought suit against Wal-Mart, Gillette, Michelin, Home Depot, Target and Pfizer in (surprise!) the Eastern District of Texas for these companies' use of those tiny "tags" used for, among other things, inventory control. Although Bormaster's patent lists as embodiments such pedestrian uses as finding a golf club removed from a bag, or locating a lost cow, he now apparently sees an opportunity in suing everyone who may be using this technology in any form. Although there is some controversy as to whether he may have prior art problems, his attorneys are confident that he may have filed early enough and broadly enough to "tag" the entire retail industry.

Hey, it worked for Jerry Lemelson -- why not here?

The Sound of One Hand Clapping -- Creative Zen and Apple Achieve Enlightenment

2006-08-31T22:48:00.000-07:00

In a move which should give everyone pause, Steve Jobs has managed to find a way to make paying $100 million to settle a patent case work for him. The settlement last week of the Creative Zen iPod patent case against Apple, with Apple agreeing to pay that large chunk of change, also included a clause which gave Apple the ability to recover some of that sum if Creative manages to license the patent to other MP3 manufacturers. Thus Apple, caught by the early Creative Zen patent, benefits both ways. Creative sues Apple's competitors at its own expense, making those competitors incur legal expenses and putting their products at risk, while Apple sits back and lets them fight it out and gets a cut of whatever Creative takes in.

Looks like they don't call Jobs the "Visual Zen Master" for nothing.

Woohoo! Sprint Settles VoIP Patent Case with TheGlobe.com But Not with Vonage -- Is It the Song?

2006-08-31T22:08:00.000-07:00

In a VoIP patent case which was filed in Kansas, of all places, Sprint settled with two of the defendants, TheGlobe.com and tglo.com who apparantly found Sprint's licensing terms finally too hard to resist. The fight goes on, however, against the real competitive threat -- Vonage, who has had its own recent financial problems as well as another patent infringement case brought by Verizon. For the telcos, clearly they have learned the lesson Intel learned years ago -- if you can't beat 'em in the marketplace -- sue 'em.

BTW, the song in the Vonage commercials is, I swear, called "The Woohoo Song" and is "performed" by the 5, 6, 7, 8s. This, directly from the Vonage website, since you cannot make this stuff up.

Licensing Competitors: A Knife in Your Rival’s Hand or the Monopolist’s Best Friend?

2006-08-17T23:32:00.000-07:00

Intellectual Asset Management, since “Rembrandts in the Attic” and “Edison in the Boardroom,” has become big business. Accounting firms, law firms and consultants have descended on anyone with a patent portfolio, encouraging them to “monetize” their intellectual property asset by any means possible: licensing, sale and even giving the assets away to charity for the tax write-off. Companies as large as IBM have engaged in extensive licensing programs to try to wring the last penny out of the sometime gargantuan patent portfolios which had hitherto been gathering dust. Texas Instruments, in fact, took this a step further, cutting a well-known swath through the semiconductor industry in the mid-1990s aggressively litigating their portfolio,

For those companies with more modest ambitions – and who are willing and able to make their own decisions about how best to deploy their intellectual property assets, the question remains – what will be the competitive impact of launching, for example, a patent licensing campaign? Who should I be licensing to and why? Should I license everyone available or are there some companies I should not license to? Could the financial benefit I might receive from licensing my patents end up giving my competitors a club to beat me with? Or, might I gain a greater competitive advantage by licensing not one, but all of my competitors?

For most companies, licensing your core patents to a direct competitor simply to increase revenue is extremely dangerous and, in many cases, simply foolhardy. Jeff Weedman, VP of Proctor & Gamble, points out the competitive risks of this practice which, for some reason, P&G is willing to incur: “We will license to our competitors . . .. The fact that we´re going to license technology means that we´re no longer simply competing with the innovations of our competition, but we´re also competing with ourselves. This forces us to run faster and innovate faster to stay ahead.” Although this practice may work for P&G, deliberately allowing your competitors the right to use your core inventions so that they can gain a competitive advantage against you is an economic trade-off that most companies would regret in very short order.

A poorly drafted license to a competitor can pose even more serious dangers. Your competitor may end up sublicensing your patent to yet other companies – without compensating you – or may develop improvements to your invention, which it could then patent and use to threaten – or even sue – you.

And, just as a basic rule of business, it is often a poor idea to give your competitors access to the very thing that makes you distinct – your core intellectual property – simply to gain a short term bump in the bottom line. Apple has kept its distinctiveness by refusing to license the MAC operating system, for example. Although it has, perhaps, sacrificed licensing revenue, it has more than made up for it by being able to keep its own margins high. You will rarely, if ever, be able to charge enough for a license to substantially increase your competitor’s costs and you will devalue what makes your company special.

There are, however, unique circumstances under which licensing your patents to a competitor can work to your advantage: establishing or maintaining a monopoly and setting a technological standard.

As Sony learned with Betamax, sometimes being “special” does not work to your competitive advantage. No one disputed that the Betamax was technologically superior to the VHS format, but Sony, by refusing to share its intellectual property with its competitors, allowed them to set the standard for videotape formats and cost them dearly.

Indeed, the sharing of intellectual property – under the watchful eye of the antitrust regulators, of course – can often work to the advantage of the largest players in an industry, who usually dominate the standards-setting committees (through, for example, the IEEE) and license each other the patents to technologies they are already working on, to their mutual advantage – and to the disadvantage of their smaller rivals. Sometimes, as with the high definition TV wars, competing groups of competitors race to establish their own standards, hoping that their cabal will prevail.

Indeed, if you move fast enough, you may even be able to become the standard for your technological niche – a tactic successfully employed by RIM for its Blackberry technology (before it stepped into some quite different patent trouble).

The all time champion in using this latter strategy is, of course, Microsoft, who has leveraged the licensing of its software into a complete monopoly of most consumer applications software. Although Microsoft’s dominance of the operating system market is long standing, it is its practice of developing and licensing the use of its application software, such as Word and Excel for use on competing operating systems, such as Apple’s which is particular interesting. Although it might appear that it would not be to Microsoft’s competitive advantage to encourage the use of a competing operating system by allowing Mac users the ability to use these popular programs, what Microsoft has done is almost completely precluded anyone else from gaining a toehold, however, small, in the word processing market by developing a “Mac-based” word processing product – thus maintaining Microsoft’s monopoly in that market.

However, just because Microsoft may be able to use its dominance to counter the competitive disadvantages of licensing competitors doesn’t mean that you can, or should even try.

So, in short, it is not always a good idea to listen to the siren song of the consultants and lawyers who want you to license everything to everybody. Pick your licensees carefully and don’t sell your biggest rival a knife he will later use to stab you in the back.

Babaloo! Havana Club v. Havana Club Rum Battle Invades Delaware Courts

2006-08-16T21:12:00.000-07:00

In this (at least to me) confusing fight between two giant liquor importers, the dispute is which rum should be able to sport the name "Havana Club" -- the Havana Club (marketed by Pernod Ricard USA, who sells of Chivas Regal and Beefeater gin) which is actually made in Cuba or the Havana Club marketed by Bacardi, which is made from an old Cuban recipe from the 1930's, but which is actually made in Puerto Rico.

What makes the story even more interesting is that, at least according to Bacardi, rum based on the Bacardi recipe was developed by a family-owned Cuban company, Jose Arechabala SA, but that Castro's government seized the plant and the trademark and started producing rum on its own under the Havana Club label (though, according to Bacardi, under a different recipe). In fact, Cuba obtained a registration for the mark in the US (although the USPTO has recently refused to renew it. Cuba then hooked up with Pernod Ricard and gave them the right to sell the rum around the world (except for the US, of course, because of the embargo).

Pernod has sued (in Delaware) to stop Bacardi from using the name Havana Club, claiming that it is misleading consumers into thinking that the rum is made in Cuba. Bacardi, for its part, is evidently going to try to stop Pernod from distributing Havana Club in the US if the embargo is lifted.

Palomar and Candela in Laser Patent Duel in Boston -- Who Has the Force?

2006-08-15T22:43:00.000-07:00

Massachusetts-based Palomar Medical Technologies continues to cut a swath through its competitors in the cosmetic laser marketplace by bringing a third patent infringement action against yet another medical laser company, Candela -- who promptly sued Palomar right back. Palomar, who in quick succession settled its patent litigation against one laser rival -- Cutera --then, in quick succession sued another, Alma Laser, and then another -- Candela, who is clearly not taking this lying down.

Palomar, who licensed its patent from Massachusetts General Hospital, is clearly showing those MD's some new Jedi mind tricks!

It's a Blackboard Jungle Out There! Will Desire2Learn Have to Walk the Chalk Line?

2006-08-14T22:05:00.000-07:00

Blackboard, Inc., a Washington D.C. company which appears to believe
that it has patented "learning stuff over the Internet," has sued its
Canadian rival Desire2Learn amid howls from the online learning
community. Blackboard, which brought its action in the
ever-popular Eastern District of Texas [this place never seems to get old!] the day it annouced its 44 claim patent on learning management systems, appears, by all accounts to be looking to leverage this dominance world-wide. Hiring high-powered McDermott, Will & Emery, Blackboard appears to be in this for high-stakes.

The online learning community -- especially the open source folks
-- are counterattacking, however, establishing a site [No
Education Patents!] designed to accumulate prior art to defeat the
Blackboard patent before it "clearcuts" the rest of the industry.

Troll Attack! McKool Smith Comes "Rumbling" After Nintendo and XBox [Again]

2006-08-08T22:06:00.000-07:00

In a replay of its 2004 attack on 3D game technology, Texas firm
McKool Smith has now taken aim - on behalf of previously
unknown troll Anascape and inventor Brad Armstrong (no,
not the pro wrestler) - at Nintendo and Microsoft (although,
interestingly, not Sony) for their "rumble" console technology.
This lawsuit, filed in the always popular Eastern District of Texas,
appears to be another attempt by this firm to make a name for
itself in this niche. This may be a rich area to mine however, after
Irell's Morgan Chu managed to tag Sony's PlayStation for over $90
million last year for violation of its "force feedback" technology.
However, at least Immersion uses its technology - unknown how
the very productive Mr. Armstrong [33 patents so far, with at
least 34 more in the pipeline] keeps himself busy -- other than inventing
clubs to beat people with.

P&G's Lightning Strike Against Private Label "Copycats" -- Or, How Even the Largest Companies can Litigate like "Operation Cobra"

2006-08-03T21:13:00.000-07:00

"Operation Cobra" was one of the the most efficient movements of
troops and materiel of WWII, marking the "breakout" of Allied troops from Normandy after D-Day. The lightning movement of the normally lumbering Allied armies over the 11 days from July 24 to August 4, 1944 made possible the liberation of France.

Although not nearly so altruistic, P&G has also engaged in its own lightning strike against private label manufacturers which it considers copycats of its signature products. Within the last four months, P&G has brought trade dress and patent infringement actions agsinst McLane (Nyquil), Vi-Jon (mouthwash), Ramir (toothbrushes) and Perrigo (Olay products). And, as P&G's Vice Chairman of global operations, Bob McDonald , told Reuters, "There are more coming,"

I guess P&G has given up on that private patent court idea its inhouse attorneys cane up with about 10 years ago.

Microsoft's "Atomic Bomb" Licensing Campaign for U2 Technology -- It's the ITC for Belkin

2006-08-02T20:15:00.000-07:00

Microsoft, having successfully avoided an injunction in the first post-eBay decision (from the Eastern District of Texas, no less!), has discovered the rich man’s loophole – the ITC. Microsoft has engaged in what appears to be a pretty heavy-handed licensing campaign for its “U2” technology, which enables a computer to immediately recognize a peripheral device. This week, it filed a patent case in the ITC against mouse manufacturer Belkin who allegedly uses U2 technology. This action, designed to keep Belkin from importing mice manufactured overseas into the US, gives Microsoft the ability to accomplish through the ITC what it probably could not accomplish in the courts – a permanent injunction.

Incidentally, this case was filed the same week as Microsoft outlined its strategy for its "iPod killer" product -- Zune. Is it a coincidence that Belkin is one of the largest manufacturers of iPod accessories?

Microsoft has obviously learned that moxie, muscle and the financial ability to force a domestic opponent into the meat grinder that is the ITC is a great incentive for the next guy to give a loooong look when the Microsoft license salesman comes calling.

Boston Scientific Settles With St. Jude -- or why Medical Device Litigation is Like the Battle of Verdun

2006-07-31T21:46:00.000-07:00

The Battle of Verdun was the longest battle of WWI -- 10 months long -- and the second bloodiest -- 250,000 killed and 500,000 wounded. The German general, Erich von Falkenhayn, believed that he could defeat the French if they suffered enough casualties. He planned to attack a position from which the French could not retreat and fight a battle of attrition. After massive artillery fire and the use of poison gas, the battle ended with the German army being forced back to its starting position, with both the French general and the German commander long having since been sacked.

I was reminded of this battle when I saw, in the Minneapolis Star Tribune, that medical device giants Boston Scientific and St. Jude have finally decided to stop the biggest waste of corporate resources - one case going back to 1996 - and the greatest goldmine for patent litigators since Lemelson invented the submarine patent. Famous for spending more time and money suing each other than inventing pacemakers, and, with their interlocking series of cross-country battles, basically fighting each other to a standstill, someone clearly finally got some sense.

Now, this blog is dedicated to the economic utilization of patents. And I'm never one to shy away from a good fight. But this particular sumo match did nothing for competition or innovation, as far as I can tell, and benefited no one but the lawyers.

Launching a Successful Patent Licensing Campaign After eBay v. MercExchange

2006-07-28T18:21:00.000-07:00

The clever combatant imposes his will on the enemy, but does not allow the enemy's will to be imposed on him.

Sun Tzu – The Art of War

The epic battle between Research in Motion, makers of the Blackberry, and NTP, owners of a patent which covered that product, ended when the trial judge, wielding the threat of an injunction which could have shut down the Blackberry email system, forced RIM to settle. The pressure which the judge was able to impose –an injunction -- would virtually have put the company out of business -- forced RIM into a settlement of over $600 million, even though it had already persuaded the US Patent Office to reject two of the patents NTP had asserted in the litigation.

A sea change in the relative bargaining positions of patent owner and target occurred when the United States Supreme Court decided eBay v. MercExchange. In that case, the court reversed long-standing precedent holding that a patentholder was automatically entitled to a permanent injunction after winning at trial and gave trial judges the discretion to decide whether a patent owner has suffered “irreparable harm” sufficient to warrant an injunction. Indeed, the first district court to consider this issue – the normally plaintiff-friendly Eastern District of Texas – denied a plaintiff an injunction to prevent Microsoft from using infringing “product activiation” software.

This may prove a difficult burden to meet where a patent owner’s primary current asset is its patent portfolio or where the patent owner has not begun selling products in substantial quantities. Indeed, it may prove difficult for a patentholder to obtain an injunction where the patent owner and the infringer do not compete.

The question, for companies seeking to license their inventions, is how to effectively persuade infringers to take a license to their patents when the threat of an injunction has been dramatically lessened. The answer is for patentees to intelligently select targets who pose the greatest competitive threat – 1) those who are, or will be, in the same market niche as the patentholder or 2) those who can, in some manner, interfere with the patent owner’s ability to compete.

With a significantly lessened injunction threat, a patentholder must be even smarter in order to snag potential licensees. A patent owner must not only be vigilant in identifying potential infringers, it should be careful to avoid sending “invitations to license” to every company in an industry without investigating whether the potential target actually uses the patented technology. These letters are usually ignored – costing the patentholder time, effort and energy. After all, a months-long delay in licensing a patent will not impress the next target and in-house attorneys do talk to each other.

The better strategy, now that the threat of an injunction is less credible, is to do a comprehensive analysis, before sending out any letters, of which targets are the most likely to be economically threatened by your patent portfolio and which pose the greatest competitive threat to you. After the targets have been approached, the initial inquiries should be followed up aggressively – the potential infringer should know that you are serious and that you will take action if your initial inquiries are ignored or rejected. Infringers of your patents should know that for them, despite the eBay decision, there are still consequences – including the real threat of an injunction – of failing to take a license to your patents.

Massachusetts Pair Teams With Intellectual Ventures

2006-07-24T14:54:00.000-07:00

A former TV producer and a former sculptor have teamed up with Nathan Myhrvold's Intellectual Ventures -- widely rumored as a developing patent troll -- to "churn out" inventions for IV's portfolio. According to the Berkshire Eagle, so far, the Pittsfield, MA pair have developed

New ways for parents to control video game play.

A way to address the lack of drinkable water in many parts of Africa.

A device that stores and analyzes data and predicts outcomes for Major League Baseball teams. (Fein is a huge Red Sox fan. "I was never good enough to help them on the field, but this idea is a way I can help them win games.")

A new technology for more efficient harnessing of wind power.

Mhyrvold appears to be holding fast to his vision of developing a patent portfolio through working with inventors over the long term, rather than the
typical troll pattern of of simply acquiring patents for the sake of lawsuits.

Boston Communications Settles Case With Freedom Wireless

2006-07-21T23:03:00.000-07:00

After being hit with a $128 million verdict by a Boston jury last year, prepaid wireless company Boston Communications settled its patent infringement action today against Phoenix-based Freedom Wireless, a tiny company founded by inventors Douglas Fougnies and Dan Harned, allows customers making prepaid calls to avoid dialing identification codes or calling toll-free numbers. The large verdict exceeded Boston Communications revenues and had threatened to
send the company into bankruptcy.

One unusual facet of the case, reported last year in The Recorder
was that Freedom Wireless was represented on a continency basis by Los Angeles litigation powerhouse Quinn Emmanuel.

The case had already proven extremely expensive for the 400-employee Boston Communication, which had already expended over $15 million in legal fees by October 2004.

Two excellent biographical sketches of the ultimate submariner -- Jerome Lemelson

2005-08-24T21:37:00.000-07:00

I particularly liked this quote:

"Like Thomas Edison, he regarded a patent as a right to sue" This article is more, however, the story of the battle between Lemelson's attorney, Gerald Hosier, and his nemesis, Robert Shillman, head of Cognex Corp.
http://www.zwire.com/site/news.cfm?newsid=15082858&BRD=1817&PAG=461&dept_id=222087&rfi=6 [Part 1]
http://www.zwire.com/site/news.cfm?newsid=15082845&BRD=1817&PAG=461&dept_id=222087&rfi=6 [Part 2]

A much more critical view -- with fewer colorful quotes and fantasies of physical violence comes from the Scotsman site.

http://news.scotsman.com/international.cfm?id=1826712005

Nathan Myhrvold claims patent 'problem' is myth -- "and patent trolls don't exist either"

2005-08-24T21:13:00.000-07:00

Former Microsoft wunderkind, amateur paleontologist and accused "patent troll" Nathan Myhrvold opines that the US patent system is functioning quite well.

"Patent litigation represents only three per cent of federal lawsuits and there has been a steady decline in the number of lawsuits filed per patent, Myhrvold said at Progress & Freedom Foundation national conference on Tuesday. "Almost everything you have heard about patent litigation statistics is not true," he said. "Patents are the least litigious part of intellectual property law."

Although, clearly, Myhrvold has a distinct financial interest in strengthening the patent laws, as his latest endeavor, Intellectual Ventures, is in the business of enforcing other people's patents, this self-interest should not, in my view, devalue the central thrust of his remarks -- patents are no good to anyone unless they are enforced and there is nothing inherently wrong with a third party who intends to enforce those patents purchasing that intellectual property from an inventor who either cannot or will not spend the time and money for enforcement.
http://news.com.com/Ex-Microsoft+CTO+claims+patent+problem+is+myth/2100-1030_3-5842261.html

Generics Defeat Pfizer in Gabapentin Litigation

2005-08-24T19:45:00.000-07:00

Generic drug manufacturers, including Ivax Corp. and Teva Pharmaceutical Industries defeated Pfizer, Inc. on the generics' summary judgment motion of non-infringement Monday. Judge John Lifland, of the District of New Jersey, ruled that the generic version of gabapentin, the key ingredient in Pfizer's epilepsy drug Neurontin, did not infringe Pfizer's patent. The generics' motion to invalidate the patent on the grounds of indefiniteness was denied, however.

This follows Ivax's successful turning back of Pfizer's preliminary injunction motion last August.

This result is a substantial blow to Pfizer, whose sales of Neurontin had dropped from $782 million a year earlier to $161 million in the first half of this year.