Saturday, February 08, 2014

Apple takes on the patent assertion entity (“PAE”)

A Los Angeles Times post Apple complains of 'patent trolls' obliquely refers to Apple's amicus brief in Highmark v. Allcare.

Cited within the amicus brief is Mark A. Lemley, Are Universities Patent Trolls?, 18(3) Fordham Intell. Prop. Media & Ent. L.J. 611 (2008) as to the text:

No bargaining chip is more valuable than the “lack of a quick and reasonably priced method for resolving disputes regarding the bounda- ries of the rights,” id. at 258—in other words, the enormous cost of patent litigation. And altogether too many PAEs are in the business of leveraging this feature of patent litigation “to capture not just the value of what they contributed to an invention, but also a disproportionate share of somebody else’s product.” Mark A. Lemley, Are Universities Patent Trolls?, 18(3) Fordham Intell. Prop. Media & Ent. L.J. 611, 613-14 (2008). Economists call this rent seeking. Securities lawyers call it strike litigation. The most appropriate label might be extortion.

And the next paragraphs have allusions to James Bessen:

Allcare illustrates how PAEs have reduced this profiteering to a science. To begin with, their very defining feature—that they do not practice their patents—is an adaptation meant to tilt the bargaining table. For operating companies, the risk of a coun- tersuit factors heavily into the decision whether to file suit against a competitor. But an entity that never makes anything can never be counter-sued. Bessen & Meurer, supra, at 29. This means PAEs have less at stake during litigation than the operating companies they target, and far lower discovery costs. Id. Their greater tolerance for drawn-out liti- gation makes PAEs’ in terrorem demands all the more credible.

PAEs then amplify this advantage through two primary strategies. Some are volume scorers. These PAEs live in the “gap between what is truly innova- tive and what is permissibly patented and asserted.” Merges, supra, at 1589. They buy up weak or vague patents and assert them against dozens of operating companies. See Bessen & Meurer, supra, at 8, 20. Because the patents are of low quality, the PAEs are often “willing to settle for small payments, often no more than the amount a defendant would spend on legal fees to defend the case.” Id. But “[i]f a fraction of these attempts succeed, a revenue stream can be developed without resort to litigation.” Chien, Liti- gation of High Tech Patents, supra, at 1580.

Judge Richard Posner is mentioned:

A party’s motivations in litigation may not be readily apparent in every case, but in some it is all too obvious. In Highmark, for instance, Allcare used the explicit threat of exorbitant litigation costs from the get-go to gain the upper hand. It had conducted no pre-suit investigation, so its litigation cannot pos- sibly have been motivated by the bona fide desire to protect its patent rights. And even after its position was exposed as wholly untenable, Allcare persisted, a decision that can be explained only as an attempt to run up its opponent’s costs. Highmark has all the markings of a case in which one party litigated pure- ly for what Judge Posner called “strategic purposes.”

Apple's conclusion:

For the foregoing reasons, the Court should adopt a test for determining whether a case brought under the patent laws is “exceptional” that takes in- to account the nature and motivations of the parties to the litigation, the merits of the parties’ positions, and the parties’ conduct both before and during liti- gation.

Cross-reference There’s a Secret War on Apple Few Know About by Victor Luckerson


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