Patent trolls hurt R&D say scholars in letter to Congress

“Be careful about changing patent law — it could harm innovation,” is a favorite talking point for those who oppose plans to reform to America’s troubled patent system. But what if the opposite is true? What if it’s the status quo, in which patent trolls sock productive companies with abusive lawsuits, that is hurting innovation?

That’s the position of more than 50 law professors and economists, who submitted a letter to Congress, encouraging elected officials to do something about the current mess. In one striking passage, the academics suggest patent trolls (also known as PAE’s) are wreaking havoc on both R&D and venture capital investing:

“An econometric analysis finds that the more R&D a firm performs, the more likely it is to be hit with a patent lawsuit, all else equal. Another study associates lawsuits from PAEs with a decline of billions of dollars of venture capital investment; another found that extensive lawsuits caused small firms to sharply reduce R&D spending; and yet another found that costly lawsuits caused publicly listed defendant firms to substantially curtail R&D spending,” said the letter (the cited studies can be found in the letter below).

Such a finding stands in sharp contrast to the patent troll lobby, which argues that the current system is effective for promoting innovation. That system often involves investors and lawyers teaming up to create shell companies that acquire old patents, and then threatening lawsuits against hundreds or thousands against businesses.

This model is effective because patent trolls exploit an economic asymmetry in which patent lawsuits are relatively cheap to file, but extremely expensive to defend, which prompts companies to simply pay the trolls to go away.

The trolls can also strike it rich by seeking out favorable jurisdictions like East Texas, where juries last month granted a $533 million verdict against Apple, and another for $16 million to a troll who claims to own Bluetooth.

The scholars’ letter calls the wisdom of this system into further question. Its signatories include economists and some of the country’s most prominent intellectual property scholars, including Mark Lemley of Stanford University, Pamela Samuelson of University of California, Berkeley and Robert Cook-Deegan of Duke University.

The letter comes at a time when Congress is attempting patent reform for the third time in five years. The previous two attempts floundered, despite bipartisan support, after trial lawyers and other special interest groups pressured former Senate Majority Leader Harry Reid (D-Nv) to scuttle key bills.

Supporters of the measure are optimistic that the third time will be the charm. A source familiar with the process predicts reform will gain momentum if Sen. Chuck Schumer (D-NY), a long-time patent troll opponent, supports a reform bill that is expected to be introduced this month by Sen. John Cornyn (R-Tx). Rep. Bob Goodlatte (R-Va) already introduced such a bill in the House of Representatives in February. The White House is in favor of patent reform as well.

Here’s the letter from the scholars, which was circulated by Jim Bessen and Mike Meurer of Boston University, and Brian Love of Santa Clara, in order to refute suggestions there is no empirical evidence about flaws in the patent system:

IP Scholars’ Letter to Congress

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TiVo buys Aereo name, auction fetches under $2M

Aereo, the streaming start-up that was poised to upend the TV industry until the Supreme Court shut it down, has been sold for scraps.

Aereo’s assets fetched under $2 million at auction, according to a person familiar with the sale. The figure is a far cry from the $90-$100 million that media mogul Barry Diller and other investors put in the company as part of high stakes gamble on copyright law.

“We are very disappointed with the results of the auction. This has been a very difficult sales process and the results reflect that,” said William Baldiga, counsel for Aereo and partner at Brown Rudnick, in a statement.

This outcome likely reflects the legal sword that continued to hang over Aereo even in bankruptcy, as broadcasters pressed their claims for huge copyright damages. As a result, Aereo was sold off in pieces rather than as a company.

The primary winner of the auction appears to be TV recording service TiVo, which acquired Aereo’s trademark along with customer lists and unspecified other assets.

Meanwhile, the holding company RPX, which is a patent troll of sorts, has acquired Aereo’s patents.

The person familiar with Aereo said the company has yet to sell certain other assets, and that it is still looking for other opportunities. (It’s unclear what other assets could be left, one guess is trade secrets and other know-how from the company’s engineering team.)

The person also suggested that the broadcasters, including ABC, NBC, CBS and Fox, were determined to bury Aereo’s technology rather than see it emerge under a new business model.

Until it was shut down last fall, Aereo offered consumers a means of watching and recording TV on mobile devices. While some Aereo content came via partnerships with stations like Bloomberg TV, most of the shows came via over-the-air TV.

Aereo, which provided subscribers with a remote antenna and DVR, claimed it was simply offering consumers a technology akin to a VCR, which is legal under copyright law.

An appeals court judge in New York initially agreed with Aereo’s position, noting that the service was akin to cloud-based DVR’s which courts have found to be legal. The broadcasters prevailed at the Supreme Court, however, in a controversial decision that appears set to sow further confusion over copyright.

Aereo Sale Doc by jeff_roberts881

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An earlier version of this story referring to RPX linked to an unrelated story. The link has been updated.

Study shows patent licenses don’t lead to tech transfer

It’s been another bad week for America’s benighted patent system: a Texas jury ordered Samsung to pay a patent troll $16 million for using Bluetooth — even though the “inventor” admitted Bluetooth had been on the market for years before he patented it. The system is a mockery.

Still, its defenders say, the system is working because it facilitates “tech transfer” and the passing of critical knowledge from inventors to companies. But now even that justification is collapsing in light of a new study that suggests patent licensing often does nothing at all to promote research or new products.

The study, titled “Does Patent Licensing Promote Innovation?,” is by Mark Lemley of Stanford and Robin Feldman of UC Hastings, and is based on a survey of 188 people whose job involves negotiating patent licenses at major companies and elsewhere.

The results, to put it mildly, are depressing. The screenshot below relates to patent trolls, and shows how often the survey respondents say that deals with the trolls result in technology transfer (top graph) and in personnel transfer (bottom graph):

Lemley/Feldman

In other words, those who paid patent trolls (which are responsible for the lion’s share of legal activity around patents these days) for a license say they received virtually zero benefit from doing so.

This is significant because the patent troll industry — which consists of a coterie of law firms, investors, judges, insurance fixers and so on — likes to claim that patents induce inventors to share knowledge that they would otherwise keep to themselves. But as the survey suggests, the licenses do no more than force companies to pay a tax for old technology, or for products they’re making anyways. Here is how two respondents, quoted in the survey, expressed it:

“Virtually every license my company has taken has been to ensure freedom of action for products or services we already offer. We have never received any value from a patent license other than to avoid litigation.”

“[Trolls] do not have any of the details worked out and they do not put any capital at risk developing any product, service or market. NPE’s simply exact a tax . . .”

The paper also notes that the same phenomenon, in which licensees pay money for nothing, is also pervasive when universities are the ones wielding the patents. Instead, as with the trolls, university patent deals rarely lead to meaningful tech transfer or innovation. The findings could have important implications at a time when more universities, including MIT and Boston University, are using decades-old patents to demand money from Apple and other big companies.

While the study doesn’t offer specific prescriptions for reform, it does repeatedly raise the fact that many of the (apparently useless) patents at issue are being asserted at the end of their life-cycle. This points to a solution in the form of shorter patent terms or, as Professor Brian Love has suggested, the President could order the Patent Office to change its fee structure so as to discourage trolls from hoarding patents on obsolete technologies.

The paper notes that its sample size is small, and that more study is needed, but the survey could still gain attention in light of the provenance of the authors.

Feldman has been instrumental in revealing the massive trolling operation, involving hundreds of shell companies, carried out by Intellectual Ventures, the standard bearer for the patent trolling business. Lemley, meanwhile, is one the country’s most prominent antitrust and intellectual property scholars, whose work has shown how patents and innovation are not one and the same, and that many of the conventional justifications for awarding patent monopolies are false.

The study also comes at a time when Congress is trying for a third time to pass a bipartisan bill to reform the patent system.

Katy Perry lawyers try again, file trademark claim for Left Shark

What happens when the unstoppable force of an internet meme meets the immovable object of a celebrity’s lawyers? We could find out as Katy Perry lawyers try anew to claim the flash-in-the-pan phenomenon known as Left Shark.

In the latest turn of fate for Left Shark, who came to fame for his drunken dance during the Super Bowl, Perry’s lawyers have filed for trademarks on “left shark,” “right shark,” “drunk shark” and, inexplicably, “basking shark.”

The new applications come after the lawyers fell on their faces trying to assert copyright claims against Shapeways, a small 3D printing company where model designer Fernando Sosa had been selling a replica of Left Shark.

The problem, as copyright scholars pointed out, was that costumes can’t really be copyrighted and, in any case, there was no evidence the singer owned rights to Left Shark in the first place.

Hence, the new trademark claims. Unlike copyright, which covers artistic works, trademarks are intended to protect brands and denote original ownership. There’s more than one way to own a shark, goes the thinking of Perry’s lawyers.

Left Shark, as it appeared Thursday on Thingiverse.

Left Shark, as it appeared Thursday on Thingiverse.

Alas, they appear set to go 0-for-2 in their intellectual property adventures since, in the words of lawyer Roberto Ledesma, it’s not easy to own an an internet meme.

“It arrived out of something that came out of the internet. What is her claim to ownership of the mark?” said Ledesma, a former trademark examiner, by phone.

He said the Trademark Office may reject the marks on “failure to function” grounds — meaning it doesn’t do what a trademark is supposed to do, which is point to a source of origin. Ledesma says the issue is novel, but similar problems have arisen when people have tried to claim rallying cries like”Boston Strong” or “Je Suis Charlie.”

That doesn’t mean, however, that Perry’s lawyers can’t prevail. Ledesma points out that they may simply use the trademark applications (even if they are doomed) to bully companies like Shapeways and Etsy where artists to sell their wares.

Perhaps it is time for Perry to step in and put her lawyers back in their tanks, and give the money she has been spending on them to a shark protection foundation.

This story was updated at 9:45am ET to correct a misspelling of Roberto Ledesma’s name. Also an earlier version incorrectly suggested that Ledesma said it is not possible to own an internet meme.

“YODA law” would ensure devices can be resold free of copyright

Cue the “pass this law, we must” jokes. On Wednesday, lawmakers reintroduced the “You Own Devices Act” (YODA) to make sure that manufacturers can’t use copyright mind tricks to prevent consumers from selling or giving away the connected devices they own.

The need for YODA comes about because of the fact that we typically don’t own software. Instead, we simply license it pursuant to terms handed down by a company via the internet — that’s why many people are surprised to learn they don’t actually own the iTunes songs or Kindle books they buy, but are instead using them at the pleasure of Apple and Amazon.

While this licensing quirk often doesn’t matter for practical purposes, it does when you die and can’t pass on your books or music collection.

But more importantly, the potential scope for companies to make mischief is getting much bigger as many more devices come with software inside: cars, coffee makers and even clothes are getting connected to the internet, which provides that many more opportunities for abusive licensing.

Consider, for instance, the connected bra that detects cancer. In the (admittedly unlikely) event that its owner chose to sell or give it away, the bra maker could claim that doing so violated their resale right in the copyrighted code inside it, and sue the bra’s original owner for copyright infringement.

That’s why Representatives Blake Farenthold (R-Tx) and Jared Polis (D-Co) are pushing the YODA bill as a way to put such worries to rest. What the bill would do is amend the Copyright Act, by adding a provision that includes the text:

if a computer program enables any part of a machine or other product to operate, the owner of the machine or other product is entitled to transfer an authorized copy of the computer program, or the right to obtain such copy, when the owner sells, leases, or otherwise transfers the machine

Though there’s no word if this bill is going anywhere (last year’s version died quietly), the underlying idea is a good one, and one that other politicians can embrace as a way to show they understand the connected world.

For more on the bill and the underlying IP issues, Professor Dennis Crouch had a good rundown in September on PatentlyO.

As Uber, Lyft, and Sidecar count patents, warning signs ahead

Government regulators and the taxi industry can’t stop Uber — but maybe a patent can. At least that’s the hope of Sidecar, a small rival of Uber whose founder obtained a patent related to mobile ride hailing way in 2002, and who claims he thought up today’s version of the industry way back in the 1990s.

Meanwhile, Uber itself has been busy on the intellectual property front. The company has filed more than a dozen patent applications that seek a monopoly on not just Uber’s hated “surge pricing,” but also on other basic aspects of the car hire business such as dispatching and calculating tolls.

All this raises the question of whether a patent battle, like the epic one between Apple and Google that roiled the smartphone industry, could break out among the car companies.

Meet the patents

At first glance, Sidecar’s patent looks like it could bring Uber’s cars to a screeching halt. Titled “System and method for determining an efficient transportation route,” the patent describes the use of GPS-tracking to plot routes and connect drivers with passenger pick-up locations.

The patent, which confers on Sidecar the right to exclude others from using the invention until 2020, includes a drawing that shows a wireless network linking a car and passenger via satellite:

Sidecar patent

As for Uber, it doesn’t own any patents yet, but a Google search reveals it has filed more than a dozen applications since 2010 for car-related patents that list the company or CEO Travis Kalanick as the inventor. (It’s likely that Uber has filed even more applications since, under Patent Office procedures, an application typically remains secret months for 18 months before it is laid open – meaning any applications filed in 2014 have yet to come to light.)

Uber’s earliest patent application, filed in 2010, is titled “System and method for operating a service to arrange transport amongst parties through use of mobile devices,” while others refer to more specific features of the company’s operations, which are based on consumers using an app to summon nearby drivers.

The later patent applications include the infamous one for surge-pricing or, in Uber’s words, a method for “a user to verify a price change for an on-demand service.” It includes this diagram:

Uber surge pricing screenshot

Other applications include one published in 2013 that describes a system for rating Uber drivers through a star-system, and one that turned up late last year that describes the use of location data points to include tolls in a passenger’s final fare, and that refers to this diagram:

patent for tolls

All of these claims — related to tolls, driver-rating, services to “arrange transport” and so on — are for now just applications. But if the Patent Office grants Uber even some of these patents, the company could be in position to threaten its competitors, including Lyft and Sidecar, with the prospect of injunctions or multimillion dollar jury awards.

A spokesperson for Uber declined to state how the company plans to use any patents that the Patent Office might bestow.

As for Sidecar, the company simply replied “Yes” in response to an question as to whether it would exercise its 2002 patent.

Owning the ideas of Adam Smith

While patents in theory confer powerful 20-year monopolies, the reality can be different, especially when it comes to claiming abstract ideas.

“This application is really seeking to claim the basic idea of pricing and service, which is a concept Adam Smith discussed 200 years ago. The notion that’s a new idea in this day and age is far-fetched,” said Michael Strapp, a patent lawyer with Goodwin Procter, in a recent phone interview.

His comment was addressed specifically to the surge-pricing patent application, but Strapp is also skeptical that Sidecar’s patent or any of Uber’s proposed patents would stand up to scrutiny. His doubts stem in large part from recent rulings from the Supreme Court that have set stricter standards for the Patent Office.

Alice said tying a well-known idea to a computer or smartphone is ineligible,” said Strapp, referring to Alice v. CLS Bank, a seminal decision from last year that called into doubt the validity of thousands of computer-related patents.

This means that Sidecar’s swagger with its 2002 patent could be a bluff, given that Uber or another defendant may have a good chance to invalidate it under the patent law doctrines of “obviousness” or “ineligible subject matter.” And likewise, the Patent Office may point to the stricter standards in order to deny Uber’s applications altogether.

But despite what looks like a weak hand, Sidecar or another ride-booking service could try to start a patent war anyways.

Doing it on the cheap

While patents can invoke images of “eureka” moments and grand invention, in practice they’re typically just another tactic — like talent raids or squeezing suppliers — by which businesses try to get the upper hand on competitors. And while the legal costs of a full-blown patent case can reach tens of millions of dollars, a company can also wield patents on the cheap.

“If Sidecar was going to decide as a business matter that they were going to raise investment or look like a more viable competitor, they could [file a patent lawsuit] and take initial steps without a lot of costs, especially if they find a lawyer willing to operate on contingency,” according to Strapp, the lawyer.

In this context, a Sidecar lawsuit could amount to leverage against Uber, either to encourage acquisition talks, or else to further founder Sunil Paul’s narrative that Sidecar is the real, original ride-booking company. The risk of course is that Uber or Lyft might respond with an aggressive legal approach of their own, perhaps by buying patents to launch a countersuit (Facebook used this approach successfully when Yahoo sued it in 2010 over the rights to social networking).

And in the event Uber, which is known for bare-knuckle business tactics, succeeds in obtaining patents (or buys Sidecar), it has the deep pockets to hire as many lawyers as it thinks would help it to wipe every other car service off the map.

For consumers, this would be a bad thing since the costs of a patent war in the ride-booking industry would be passed on to them. But for now, it’s too soon to fear the worst. Not only are patents in this area still few and far between, changing attitudes to patents among courts and entrepreneurs (remember what Tesla’s Elon Musk did last year) mean that war is less likely in the first place.

SiriusXM hopes a legal blast from the past will fix Oldies mess

SiriusXM recently suffered a series of disastrous courtroom defeats that threaten to harm not just its own digital radio service, but other companies — from YouTube to FM radio — that also play oldies from before 1972. In response, SiriusXM is pinning its hopes on an oldie of its own, in the form of a 1940 copyright case.

The case in question concerns phonograph records, and SiriusXM is asking a New York judge to use it as a basis to reconsider her finding in November that based on state laws, performers from the band The Turtles deserve an unprecedented copyright payout when companies play their old songs.

According to Litigation Daily (sub. required), SiriusXM believes U.S. District Judge Colleen McMahon overlooked the phonograph decision’s significance. A further report, meanwhile, suggests the company scored a point when the judge this week said she hadn’t considered the case and that it “might require her to rethink the ruling.”

Penned by the famous jurist Judge Learned Hand, the 1940 decision concluded that a radio station did not have to pay an orchestra band leader, in addition to the song composer, each time it played a recording of his performance.

Learned Hand wrote that state law should not let performers, once a phonograph was sold, control how and when it was played:

we think that the “common-law property” in these performances ended with the sale of the records and that the restriction did not save it; and that if it did, the records themselves could not be clogged with a servitude.[my emphasis]

Now, 65 years later, the case could prove decisive in the high stakes dispute between SiriusXM and the music industry. If the 1940 rule does not stand, and the Turtles’ position prevails instead, it will mean bring higher music prices for everyone, and yet another expansion of U.S. copyright law.

Closing a loophole or imposing a tax?

The New York dispute over the phonograph ruling is just one piece of a greater game in which the Turtles and record labels are trying to pry more royalties from digital radio services like SiriusXM and Pandora.

So far, the Turtles won the first round in New York as well as two similar rulings in California. And already, they have tried to build on these victories by bringing a class action suit over pre-1972 recordings against the digital radio service Pandora.

The Turtles claims are also just the tip of the iceberg, since every other performer (or their heirs) will be in a position to make claims over unpaid per-1972 royalties too. This could represent a major financial blow to radio stations and to music websites like YouTube and Vimeo, and would likely lead them to simply pull most oldies music from their playlist altogether.

Consumers, meanwhile, would face the prospect of higher music rates and diminished access to their favorite songs. So far, however, the potential implications of the Turtles’ victories has not been widely recognized.

This may be due to the fact labels have portrayed the lack of performance payments for pre-1972 songs as a “loophole” rather than something, as the 1940 decision shows, that never existed in the first place. Also, in their public statements, the labels have also been careful to omit the fact that SiriusXM and others do pay royalties for these songs in the form of payments to the songwriter, and when they purchase the songs in the first place.

Overall, the call to create new pre-1972 payment obligations may be less about closing a royalty loophole, and more about imposing a new copyright tax. This is especially the case given that copyright is supposed to provide an incentive for artists to create new work — rather than offer new rewards for work performed more than four decades ago.

In the case of showing respect for the oldies, then, SiriusXM and the rest of us should hope that respect extends to judges like Learned Hand too.

Non-Microsoft Nokia launches Android N1 tablet with Foxconn

Here’s a shocker — Nokia, not to be confused with its former handset business that is now owned by Microsoft — has unveiled an Android tablet. And the details illustrate how Nokia will deal with the consumer market in the coming while.