Tuesday, December 27, 2005

More on NTP/RIM; MercExchange/eBay

Of the idea RIM’s case with NTP is different, not only does it affect the nerds and geeks, but the everyday 3 million American Blackberry users, remember that patent infringement cases circa 1910 over the Selden patent for cars affected lots of everyday users. Nothing new here...

Of the positions -->

Against the patentee, from BlackBerry Cool: RIM’s Case The Catalyst For Patent Reform:

Over the past few years, there’s been a lot of talk about how broken down the patent system is, examples like Amazon patenting a “1-click” checkout or ActiveBuddy who successfully patented instant messaging in 2002. Both of these patents had something called “prior art” which means they should have not been granted because the technology has already been readily available. [OK, how come BN (Barnes&Noble) LOST its case?] Anyone that used ICQ during its popularity would tell you that, but somehow it went unnoticed at the patent office.

Now we’re not against the idea of a patent, an inventor should get rewarded for their hard work. However the NTP case is different and you can say that for many other technology patents. Many of these technology patents are the equivalent of a “land grab”, just file something very crude and broad and hopefully it gets approved by the USPTO. That’s the case with NTP, a company that was founded to exploit the patent system. This Virginia-based company has no employees other than co-founder Donald Stout who happens to be a patent-infringement lawyer or any real products. It has never tried to build a real business or product out of its patents, hell they don’t even have a website. In the patent world, these companies are called “patent trolls” and they are becoming more prominent, 3,000 multi-million lawsuits were filed, double the amount that was filed 15 years ago.

You may say to yourself, what a bunch of crooks but what they are doing is completely legal. These companies depend on the broken down patent system, a department that is under funded and under staffed. When the USPTO actually puts some time and resources in to investigating a patent they become sensible. And now we come full circle with the RIM/NTP case, under enormous media pressure and most likely political, the USPTO had made the NTP patents priority, re-examining them and invalidating 3 out of 5, and most likely the other 2 very soon.[All claims have been rejected in non-final Office Actions] However it may be all for nothing, Judge Spencer has went on record that he wants to get the case over with as soon as possible and it’s not sure if he’s going to allow new evidence.

Unfortunately the worst case scenario of a Blackberry blackout would probably be the tipping point for patent system reform but RIM will never allow that. So ironically, RIM would probably have to settle with NTP on the patents they infringed on which were later decided invalid patents.

For the patentee, Richard Epstein:

Typically, popular sentiment sides with David when he does battle with Goliath. But not when MercExchange (as David) must lock horns with Ebay (as Goliath). Their struggle is now before the United States Supreme Court, as ME tries grimly to hang on to an injunction stopping Ebay from making a wilful infringing use of ME’s patent technology to run its own fix-priced auctions. EBay thinks that the trial judge should use sound discretion to decide whether to grant that injunction or simply to require the payment of a royalty set by the court. The traditional rule routinely grants the injunction.

Ebay has a lot of supporters in clarion call for wide discretion. Patti Waldmeir’s FT column is sympathetic to Ebay. A distinguished group of 35 law professors took up Ebay’s cause in urging the Court to undertake its broad review.
The Supreme Court should reaffirm the traditional view. The impulse for the fresh look at doctrine lies in the evident (but hardly novel) holdout potential that strong patent rights give to a prior inventor. The concrete fear is that greedy holdouts will be able to shut down valuable devices that incorporate multiple patented technologies, such as those ubiquitous Blackberrys. Better, we’re told, to preserve the status quo by ordering the wrongdoer to pay the inventor a fair royalty, with no holdout potential.

That argument is not wrong in isolation. But it is fatally incomplete. Start with the particulars of this case. Ebay did not commit inadvertent infringement, because it was unaware that ME’s patent covered its pricing tools. Quite the opposite, Ebay had wilfully infringed the patent when it and ME came to a bargaining impasse over royalty terms.

Now the plot thickens. Just as we don’t like some holdouts after the fact, we also don’t like firms that take the law into their own hands by consciously deciding that it is cheaper to infringe than to purchase. Yet once the use of the injunction is relaxed at the back end of a transaction, then every firm can circumvent the law, hoping to profit from its own wrong. A veritable deluge of infringements can descend on ME, until endless litigation saps its incentive to innovate. Both Ms Waldmeir and the amicus professors never discuss wilful infringement, but work from an unstated and incorrect assumption that patent infringements won’t multiply like rabbits if injunctions aren’t routinely granted. Yet what’s to prevent Ebay from building a whole network out of infringing elements?

The problem is not new to the law, for the identical problem has arises in land encroachment cases. Suppose one landowner builds a large office structure located six inches on the land of the neighbour. After the fact, it looks as though ripping down the building is a huge social waste. Yet most courts will routinely order that destruction for any wilful encroachment. It’s important to force potential encroachers to enter into voluntary transactions to obviate the deluge of lawsuits if hapless owners get only trifling damages for repeated invasions. The holdout problem is only one form of abuse. Deliberate infringement is the far greater risk.

The same logic carries over to patents. It is wrong to insist that injunctions have to be denied in patent cases to spur innovation. Innovation depends on the work of multiple inventors through the entire technology chain, not just those at the back end. Why make it less attractive for ME to innovate to help out Ebay? Nor should it make the slightest difference that ME chooses to operate solely through licenses, rather than using its patented technology to fabricate its own equipment. No one strips a landowner of all protection if he decides to lease it out instead of building on it himself. We will get efficient make-or-license decisions in the patent context, as elsewhere, only if keep legal protection constant regardless of how the patent holder chooses to exploit its invention.

A strong tradition in all IP areas has rightly granted injunctions for wilful infringement except in rare circumstances. Once the remedy is up for grabs, courts will have to work their way through endless fact patterns, with the unhappy consequence of increasing costs and reduce the predictability. The strong injunction has worked so well on a systematic level, that not one judge on the specialised patent court, the Federal Circuit, saw fit to re-examine the basic rule. There might come a time for a fresh look if some innocent infringement threatens to shut down a complex operation which otherwise has scrupulously used only licensed technologies. But that inquiry is not needed when Ebay has only its own wilful misconduct to blame for the mess it created for itself.

Lawrence B. Ebert Your comment is awaiting moderation.
December 27th, 2005 23:36 1Any idea that patent infringement affecting “everyday users” is a new thing is wrong. Think back to automobile buyers at the time of Henry Ford and the Selden patent, with ads like “Don’t buy a lawsuit.” And, in the copyright area, we have the RIAA and the Grokster decision.

Of the text –under enormous media pressure and most likely political, the USPTO had made the NTP patents priority, re-examining them and invalidating 3 out of 5, and most likely the other 2 very soon.– the re-examinations were initiated by RIM, and the initial results in non-final Office Actions are claim rejections. (information on IPBiz, including
http://ipbiz.blogspot.com/2005/04/smuckers-us-6004596-is-under-re.html) There are rejections under 112, 102, and 103.

However, recall that in the re-examination of the Eolas/Berkeley patent, there were two sets of USPTO rejections, both of which were overcome by the patentee, in large part through declarations made by university professors at Princeton and Michigan. And remember the Amazon one-click patent was never invalidated.

[Post 1100]


Blogger Matt Davis said...

Interesting that neither spotted the connection between both matters...

The NTP v. RIM spectacle that has dominated the press recently is a done deal. It's over....Kaput. And eBay is who put the dagger in the beastly thing - much to the chagrin of NTP and to the delight of almost everyone else.

For those of you going "Huh?", here's the key....

...All people behave predominantly the same, regardless of whether they're one of the unwashed masses, a Federal Judge, a PTO examiner, a Congressman, or even a Supreme Court Justice. And what a surprise -- self interest almost always is the motivation for that behavior.

So in understanding things, you need look no further than what's happened to date in the pathetic RIM saga and consider the self-interest motivating the various parties involved.


Okay, nobody liked NTP to start with, and lots of folks like Blackberries. But, alas -- there are patent laws to deal with - and from a distance it sure is easy to take the high moral ground. Plus, everyone thought RIM would just end this thing one way or another before it actually would have any effect on us.

Unfortunately, RIM pretty much screwed up every step of the way - expert witnesses who got mauled on cross examination, corporate officers whose testimony the Federal Circuit later called "fraudulent", the filing of a barrage of ridiculous motions...etc. The result was a guilty verdict and a really pissed off Federal Judge Spencer.

Still, no one really cared - guilty just meant expensive for RIM, and Spencer's aggravation was his problem. So for everyone else, there were still no worries - RIM will settle.


Unsurprisingly, based on their Larry, Curly & Moe act at trial, RIM's Appeal to the Federal Circuit was soundly rejected. So was their subsequent request to the Supreme Court.

Still no big deal -- RIM will settle...they'd better settle.


Anyone wondering whether it's possible to completely botch a deal where you're handing the other side $450 million on a silver platter got their answer this summer, when NTP reneged on what RIM had publicized as a binding settlement agreement*.

Judge Spencer, obviously still steamed at RIM for their trial shenanigans, invalidated the agreement as well when RIM moved to have it enforced.

Suddenly things were getting messy -- and blackberry-lovers started getting worried.

* Note: why in the world RIM would tie its fortunes, $450 Million and the future of the company to the contents of a 1/2 page fax is a separate question...

Today's Trivia Topic: "MOTIVATION"
Q. Who loves their Blackberry's?
A. Hmmm.....Lawyers & Politicians?


To its credit, at least RIM made the smart move to launch a secondary attack at NTP by petitioning the Patent Office to re-examine the NTP patents at issue, hoping that the PTO would invalidate them all and make everything else a non-issue.

To the Patent Office, a re-exam is a lot like being asked to go back to Divorce Court and re-assemble one more time the list of horrid things you did that led to your ex-wife getting that big alimony settlement. Not particularly enjoyable, but unavoidable when requested.

You see, a re-exam has only 2 possible outcomes -- the PTO didn't screw up the first time around (which is what they are supposed to do), or the PTO did screw up the first time and now has to put that screw-up on public display. Needless to say, not the kind of scenario that makes it compelling for an examiner to move a re-exam to the top of his "to do" list.

Also, as anyone familiar with the PTO knows -- expediency-wise, the Patent Office makes the DMV look downright speedy. Nothing moves thru the PTO quickly - especially a re-exam and this one was no exception - the NTP re-exam process just plodded along as usual.


As the reality of an actual injunction that would halt Blackberry service started becoming a probability, what a surprise -- the number of cooks in the kitchen started growing....

Congress got involved and tossed in their two cents. The Dept. of Justice started squawking, too. Flurries of opinions, all "outraged" started hitting the press.

The overwhelming position: "There's nothing wrong with injunctions in theory, or even in practice when they affect other folks, but guys -- this one hits a bit too close to home..."


As all the above was taking place, over in another universe eBay was busy fighting its own demon - namely an irritating little patent troll named Tom Woolston and his company MercExchange, LLC.

After a surprising guilty verdict in Norfolk's Federal District Court, followed by an immediate eBay appeal, the Federal Circuit split the baby - reversing one infringement ruling, confirming another. The appellate court also found that the District Court had erred in waiving the imposition of an injunction against eBay. eBay took that part of the ruling to the Supreme Court, asking them to review the question of whether or not an injunction should be automatically entitled to a patent holder who was infringed, especially if the patent holder didn't actually practice the patent, or whether there should be a little "wiggle room" for Federal Judges to make the call on a case by case basis.

Against ridiculous odds, the Supreme Court agreed to eBay's request. Tentatively scheduling March, 2006 to hear arguments from both sides.

Suddenly, all the players in the RIM debacle had found the white knight they desperately needed. eBay had just accidentally saved the Blackberry world.

Note: the fact that the Supremes agreed to hear a matter relating to the only issue that could save RIM's rear end probably doesn't have a darn thing to do with who the Justices have lunch with in Washington or how much those lunchtime companions really like their Blackberries.....


Remember when Paul McCartney said Yoko Ono was a bitch? Didn't you just know that the Beatles were history?

Or when that photo of Dukakis showed up in the papers with him in the tank, wearing that ridiculous army helmet? Admit it, you thought "He's Toast", didn't you?

Well, once the Supreme Court agreed to hear the eBay case, NTP was toast, too. Dead & buried - batter-fried and sent to Done-ville.

You connect the dots...

* By granting cert, the Supremes let everyone know that automatic injunctions for patent trolls aren't gonna happen anymore. The only thing they didn't do to make that clear was to wink when they announced it.
Want more evidence? They also said, "Let's all take another look at Continental Paper Bag Co. v. Eastern Paper Bag Co. while we're at it" - the landmark case that set the precedent for injunctions back in...1876! Do you know how often that happens? When the court reviews "sacred" precedents that are as long-standing as that one?

Never. Well, almost never.

Forget how they ultimately phrase their ruling, or what reasons they give to support it - when it all plays out, the bottom line is "no more of that crap".

* Judge Spencer makes his move based on that message:
"Today, a federal judge ordered both sides in the bitter Blackberry battle to file court briefs by Feb. 1, setting the stage for a possible injunction if the case can't be settled."
This allows him both to save face on his "urgency" position (...when I say we're gonna resolve this quickly, I mean it - Feb 1. is quick, really.) and still allow him to stay things at that point when the eBay matter is due to be heard by the Supremes in the following few weeks.
* NTP acts as well - licensing the patents to Visto (out of the blue) taking an ownership stake in a company that actually practices the patents in an attempt to get around the inevitable eBay ruling. They also then have Visto sue Microsoft as a second front, and also ask the PTO for more time on the whole re-exam proceedings.
* The PTO acts, too - in the most telling move of all. Absurdly, the PTO announces that not only are they denying NTP's requests for more time, but that...
"The US Patent and Trademark Office said it will try to complete a review with "special dispatch" of patents that could result in the shutdown of Research In Motion Ltd's Black-Berry e-mail device in America.

The patent office initiated the review in 2002 after then-Director James Rogan received letters of complaint from Congress about the possible shutdown because of a jury verdict.
"Given the district court's concerns that the office has delayed the proceedings and the outstanding public interest in ensuring that these proceedings are acted upon with special dispatch, the office has assigned a dedicated examining team to handle all of the co-pending proceedings," the patent office said last week.

The patent office was responding to a request by NTP to give it more time to respond to actions by the agency. The patent office shortened the normal 60-day response time to 30 days. The agency, in rejecting NTP's request, said the 30 days was all that was required by law. "

You gotta be kidding!
Let me get this straight - 3 years after it starts its review, the PTO suddenly decides to hit the turbocharger and cites the "outstanding public interest" as the reason - as if that just dawned on them now?
After "receiving complaints" from the same guys who provide its funding?
And then tosses out the old "all that's required by law" excuse as its basis for denying NTP's request?
I'll bet you can count on one hand the number of times that the PTO has enforced that 30 day clause - and not use your thumb.
* And of course, RIM takes action itself. In a "well-written" petition, RIM requests that the Supreme Court hear its appeal of the Federal Circuit's decision that was decided in NTP's favor in August, 2005. The petition relates to a completely different set of questions than the eBay matter, but still puts RIM's name on the courts "to-do" list - just so it can be scratched off once eBay is ruled on.
The last rites are the appearance of a last-gasp flurry of press releases, butt-coverings, bravado, finger-pointings and I-told-you-so's by everybody involved - all of which try to spin things in preparation for the inevitable...the beast is dead.

So what can we learn from this little soap opera?
1) People really do pretty much act the same way, usually in their own best interest.
2) Nobody wants to lose their favorite gadget - especially lawyers & politicians.
3) Judge Spencer didn't want to be the one who caused them to lose it.
4) The PTO doesn't want to piss off the guys who fund it.
5) The Supreme Court likes happy folks to eat lunch with.
6) NTP shoulda realized it wouldn't get squat if it threatened this many folks.
7) eBay gets lucky - they get the Supreme Court ruling they want (and probably never otherwise would get if the RIM injunction didn't hit so close to home)
8) RIM dodges a big bullet in spite of itself.

All of which, in some convoluted way, is righteous, just, and absolutely the way it should have ended.

5:27 PM  

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