The article begins:
Vonage, a leading Internet telephony company, appears before a federal appeals court today [April 24] to argue that it should be allowed to continue signing up new customers while it appeals the recent verdict that its products infringe three of Verizon's patents. A Virginia jury last month ordered Vonage to pay Verizon $58 million for infringing the patents, and Vonage was barred from signing up new customers. Given Vonage's precarious financial position, a permanent ban on signing up new customers would effectively be a death sentence for the company.
The case raises some troubling questions about America's patent system, which seems to allow a deep-pocketed incumbent to drive an innovative competitor out of business. Vonage pioneered the Internet telephony market, and has enticed more than two million customers away from Verizon and other telephone industry incumbents. But while Verizon hasn't been able to stop Vonage's momentum in the marketplace, they've found more success in the courtroom.
It's likely true that Verizon has lots more cash than Vonage. The issue is whether the Verizon patents are valid patents. If the patents are valid and infringed by Vonage, then Vonage should not be in the marketplace without a license from Verizon. "Plagiarize with pride" should not be a motto for business, contrary to the teachings of the Harvard Business Review.
Lee also wrote:
Theoretically, the patent office is only supposed to award patents for "non-obvious" patents, and the concept of converting between an IP address and a phone number certainly seems obvious. In an ideal world, the patents that were issued would be narrow enough that companies could "invent around" others' patents if they were unable to come to acceptable licensing terms.
Unfortunately, our patent system has long since departed from this ideal. In recent decades, the courts have dramatically lowered the bar for obviousness. As a result, some of the patents being granted are so broad that inventing around them is practically impossible. The patents that allowed NTP to win a $612 million settlement from BlackBerry maker Research in Motion, for example, essentially covered the concept of transmitting new email notifications wirelessly. There's no way RIM could have "invented around" that.
It's not clear at all that courts have dramatically lowered the bar for obviousness. The CAFC has required that, when multiple references are used against a patent claim, there be a "motivation to combine" the references written down, in order to prevent hindsight reconstruction. Thus, the KSR v. Teleflex case is tricky in that the CAFC didn't say the invention at stake wasn't obvious, they merely said the district court hadn't written down a motivation to combine.
Tim Lee also made the "nuclear arms race"/Dr. Strangelove analogy:
Technology companies have responded to this proliferation of bad patents by engaging in the patent equivalent of nuclear stockpiling. By obtaining dozens, hundreds, or even thousands of patents, a company can develop a credible deterrent against patent lawsuits: if someone sues it for patent infringement, it will be able to find a patent the other company has infringed and countersue. Vonage's fundamental mistake was that it chose not to join this arms race. As a result, when Verizon sued, it was completely defenseless.
Lee didn't mention that the patent quality/"proliferation of bad patents" story is based on a methodology that allows the patent grant rate to be in excess of 100%. This shell game has been likened to three card monte. See Getting the Patent Reform Wars on Track. As to a general strategy of obtaining lots of patents and seeking cross-licensing, that's been around for years. Ask the petroleum companies or IBM. See also John R. Allison et al., Valuable Patents, 92 Geo. L.J. 435 (2004).
Lee also writes:
It's not clear how any of this promotes "the progress of science" as required by the Constitution. Because of the high cost and uncertainty of the patent system, most software companies don't even try to find patents they might be infringing. Instead, they sign cross-licensing deals with as many companies as possible, and they pray that the remaining companies won't sue them before they've had time to develop a patent war-chest of their own. This is great for patent lawyers, but it's not clear how anyone else benefits.
Lee neglects to mention how the purported "reformers" Jaffe and Lerner proposed a post-grant opposition system, which will create greater uncertainty and advances the prospects for patent lawyers. On that irony, see Post-Grant Opposition: a Bad Idea.
The court should also take advantage of Microsoft v. AT&T to reinstate the principle that software is not eligible for patent protection. That was the rule that was applied until the 1980s, when a series of rulings by the newly created Court of Appeals for the Federal Circuit effectively legalized software patents. The Supreme Court has never ratified that judicial innovation, and Microsoft v. AT&T gives the courts an excellent opportunity to remedy the Federal Circuit's mistake.
Patent stockpiling is a wasteful and counterproductive form of competition. If the Supreme Court and Congress choose to leave the current rules in place, we're likely to see a lot more cases of software companies being forced to spend their resources on patent lawyers instead of engineers.
There was NOT a previous principle that software was ineligible for patent protection, and one might note, depending upon what one means by software, software per se currently is not eligible for patent protection (but see copyright). We're really talking about "business methods" here. Further, one might contemplate what Microsoft v. AT&T is about.
The law review article "Valuable Patents" has the text:
A second explanation for the prevalence of small entities in
litigation is rather more pessimistic than the first. Individuals and small entities
may be more likely to sue than large companies because they have little to
lose from entering into patent litigation. n145 Large companies in many
industries hold patents for defensive purposes -- to deter other large companies from suing them. n146 The result is a sort of "mutually assured destruction" in
which very few companies [*469] actually sue for patent infringement because
they know that, if they do, their opponents will also be able to sue them for
patent infringement. If there are any patent disputes at all between these
companies, they tend to end in royalty-free cross-licenses. n147
Footnote 146 --> See, e.g., John H. Barton, Reforming the Patent System, 287
SCI. 1933 (2000) (discussing this defensive patenting practice); Hall & Ziedonis,
supra note 7, at 107-10; Lemley, supra note 2, at 1504-05; Mark A. Lemley,
Reconceiving Patents in the Age of Venture Capital, 4 i. SMALL &
EMERGING Bus. L. 137, 143 (2000) ("One of the major reasons that companies get
patents is that they're afraid that their competitors have them, and they don't want to be the only one left who doesn't have the ability to play in this game.").
Footnote 147 --> See, e.g., Lanjouw & Schankerman, Empirical Analysis, supra
note 28, at 4 ("Patentees with a large portfolio of patents to trade . . . more
successfully avoid court actions."); Lemley, supra note 2, at 1505.
There is no footnote to the "mutually assured destruction" remark in this March 2004 law review article.
One notes a post by Chris Oakes on 3 March 2000 which includes the text:
"It's what I like to disparagingly refer to as 'mutually assured crap,'" said Greg Aharonian, a patent researcher and an oft-quoted critic of the U.S. Patent and Trademark Office. "It's like the Cold War strategy of mutually assured destruction."
If the context is "mutually assured crap," then one is dealing with a world in which everyone has bad patents which have claims that are being infringed by others. Of Lee's remark: --By obtaining dozens, hundreds, or even thousands of patents, a company can develop a credible deterrent against patent lawsuits: if someone sues it for patent infringement, it will be able to find a patent the other company has infringed and countersue--, a patent deterrent is only "credible" if the patent is valid and infringed.
W. David Gardner wrote:
The announcement reverberated immediately in Europe, where bitter campaigns over patents have been going on for months. Citing the OSDL patent commons project, Florian Mueller, founder of Europe's NoSoftwarePatents.com campaign, said: "It will only be a true protective shield if they gather patents that they can use to countersue the enemies of open source. The software patent game is like the Cold War: The only thing that protects you is the concept of mutually assured destruction."
A question posed to Dan Ravicher by Peter Williams on 5 Aug 2004:
Are any of these patents also violated by other operating systems which could lead to a Cold War stand-off based on 'mutually assured destruction' so that patents are not applied from any side?
A posting on 5. oktober 2004 included text:
Can we defend against patents by preparing to go on the offense?
During the cold war, nuclear catastrophe was averted by a policy of
mutually assured destruction ("MAD"). If any country dared to start a
nuclear war, the theory went, the devastation wreaked upon that country
would be many times worse. Not just the nuclear powers were so protected.
Through treaties and alliances, the allies of the great powers survived
under a defensive MAD shield.
So too, in the field of patents, do large patent portfolios serve the
role of stockpiled nuclear weapons. If a company with a large portfolio
is sued, it will likely own other patents that are essential to the
company that dared to sue. "Sue me," they say, "and I'll sue you back
even worse for patent infringement." In this way, a patent portfolio can
be a defense to litigation, because few will dare sue and risk their own
Patents in an open source world, July 26, 2004
Lawrence Rosen also wrote:
Conduct a reasonably diligent search for patents we might infringe. At least search the portfolios of our major competitors. (This, by the way, is also a great way to make sure we're aware of important technology advances by our competitors.) Maintain a commercially reasonable balance between doing nothing about patents and being obsessed with reviewing every one of them.