Lawmakers have failed to make a distinction between NPEs that are good for the innovation and those that are bad.
Nebraska Attorney General Jon Bruning’s ambitious legislative agenda for 2014 includes criminalizing several dangerous activities affecting the constituents of his state: soliciting child pornography, selling designer drugs, and patent trolls.
Yes, that’s right, patent trolls are on the same list of criminals as pornographers and drug dealers. Mr. Bruning, along with Attorney Generals in several other parts of the U.S., are seeking harsher penalties for dubious patent holders who prey on unwitting businesses or consumers with demands to pay up or be sued.
In a settlement announced yesterday by the New York State Attorney General’s office , MPHJ Technology Investments LLC, a notorious NPE accused by Mr. Bruning and others of writing dozens of bad faith letters threatening consumers, has agreed to repay licensing money received from companies in New York state, and has had a number of other requirements imposed upon it.
Criminalizing blatantly frivolous patent enforcement that targets end-users, such as small businesses, especially if the enforcer has no intention of filing suit, can make sense. It will not dissuade patent holders with valid rights that are being infringed from legitimately enforcing them, but it may eliminate some of the bottom-feeders.
Typically, patent enforcement is not about mailing thousands of letters, 16,465 in the case of MPHJ, and targeting consumers. Doing so has a limited upside. No legitimate NPE with quality patents is interested in dialing for dollars, and according to a post by Joe Mullin in Ars Technica, this strategy did not prove to be very effective for MPHJ. For some, it may be a way to get to the product
manufacturer, in this case a scanner business. Mr. Bruning said that MPHJ, in order to generate licenses, “had sent vague letters to scores of Nebraska businesses, like choirs and plumbers accusing them of infringing a patent for scanning documents into an email.”
It would be easier to support criminal penalties for those who abuse the system in this way if executives of businesses that systematically infringe — and there are many of them — would also be subject to similar punishment. Mr. Bruning, who the Omaha World Herald reports underwent surgery last month to remove 8 inches of his colon and 23 lymph nodes, is to be applauded for his determination to protect Nebraska’s businesses. But he may want to think of its innovators, too.
I hope he and other lawmakers are able to separate the truly heinous from those merely acting in bad faith, and apply the law fairly to all who abuse the patent system, regardless of industry or ownership. I fear, however, that distinctions between NPEs and patent quality are not being made, and that legitimate, innovation-enhancing enforcement is likely to be thrown out with the bath water.
Painting bad faith patent enforcers with the same brush as child pornographers and illicit drug makers is worrisome. You would hope that someone with good sense would step up and remind lawmakers that NPEs differ, and that MPHJ is the (rare) exception, and not the rule.
It is difficult to know what motivates Mr. Bruning. Nebraska has been even more aggressive on patent abuse than Vermont and Minnesota may have something to do with the surprising number of historically anti-patent, anti-monetization industries located in the Cornhusker state.
Finance and insurance, and professional, scientific and technical services constitute the largest and fastest growing sectors of the Nebraska economy. Berkshire Hathaway and Mutual of Omaha (both are Fortune 500) are located there, as are First National Bank (the nation’s largest privately held bank), TD Ameritrade and First Data. Nebraska currently still depends significantly on its rapidly diminishing agricultural industry.
Many executives in the financial and services industries believe that for them to grow sustain an advantage, it will help to have weaker patents and more difficult enforcement. According to Wikipedia, “Berkshire Hathaway, Mutual of Omaha and TD Ameritrade, make Omaha one of the highest density clusters of the financial sector in the country.”
Criminal penalties may provide the right stimulus to shock the patent system, all parts of it, into consciousness. They already exist for copyrights, trademarks and trade secrets, although they are infrequently deployed. There is something about the potential of jail time that strikes fear in the hearts of business executives and boards of directors everywhere.
Little patent assertion behavior is criminal. Only a fraction of it is relegated to frivolous enforcement activity. At the same time, every day, hundreds of companies, wittingly and unwittingly, steal inventions and infringe patents without detection. Most could do a better job of searching for possible patent holders before they sell products. Many could do a more thorough prior art search before filing their own, sometimes dubious patents.
Demonizing bad patent behavior by associating it with child pornography and selling illicit drugs will not achieve the improvements in the patent system that most reformers hope. Making the activity criminal might.Shaking down unwitting businesses or consumers with threatening letters that have no substance should be eradicated. At the same time, so should stealing inventions from inventors, universities and companies, or using them without permission.
Educating consumers to understand right from wrong in IP will help. So will helping lawmakers to understand that when it comes to bad behavior associated with patents, NPEs do not have a lock on criminal activity.
Illustration source: easybranches.us; arstechnica.com