Two Santa Clara Law professors are among the most active academics exploring the problems in today’s patent system

By DEBORAH LOHSE

Some believe companies that buy up patents in order to squeeze royalties from infringers are serving an essential function in the patent world—providing liquidity to innovators.

But others say such companies are a dangerous drag on innovation, especially “patent trolls,” nonpracticing companies that buy up often-dubious patents and aggressively assert them in dozens or even hundreds of suits that generally settle for less than the cost of mounting even the slightest defense.

The battle to understand, quantify, and improve the patent system—including its “trolls”—has been led by two of academia’s brightest stars.

TROLL TALES

Starting a decade ago, Santa Clara Law Associate Professor Colleen V. Chien would tell people she was a patent law professor, and she would be surprised by their strong reaction.

Everyone, it seemed, had a story about how their company had been pursued by aggressive companies demanding royalties for patents the accused company was unaware of. In some cases, they paid up just to make the case go away—sort of like paying the troll under the bridge in a fairy tale.

“It was striking that, whether I was talking to someone at a startup, VC firm, or larger company, the story was the same. Some startups and small companies that couldn’t afford a lawyer were getting patent demands out of the blue and didn’t know what to do about it,” recalls Chien. That experience troubled her so much that it set her on a years-long quest to empirically study and document patent litigation trends—including the behavior of companies known colloquially as patent trolls, for which she would later coin the term “patent assertion entities” or PAEs. The phrase PAEs, in fact—first used in her influential law journal article “From Arms Race to Marketplace”—would be later adopted into law and become widely used by policymakers and in general parlance.

At about the same time, Assistant Professor Brian J. Love was having his own troll “aha moment,” working as a patent litigator in Dallas defending companies sued for patent infringement.

He noticed a strange preponderance of cases being brought in certain East Texas towns, especially Tyler and Marshall—not far from where he grew up—in a part of the country better known for annual fire ant and rose festivals than for any patent-worthy innovations. Turns out, he was practicing just across the border from the “Planet of the Patent Trolls”—the Eastern District of Texas—so named by a local law journal because trolls considered it to be a mighty favorable place to file their lawsuits.

Love’s research nearly a decade later would help change the rules for the Eastern District as a venue for trolls. But at the time, “innovative companies were spending lots of money to defend cases brought by entities that had purchased very broad patents, which never should have been issued in the first place,” Love recalls. He felt he had to choose sides—part of the problem, or part of the solution.

“I felt that by litigating patent cases I was indirectly contributing to the problem,” he said. “Because patent litigators of all stripes were benefitting financially from the explosion of suits, it seemed like solutions were most likely to come from outside the patent bar.” So Love moved into academia.

 

FIRST, ASSESS THE DAMAGES

His first scholarly works, though, weren’t on trolls, but on another hot topic of the time: how litigation damages should be apportioned in technology patent disputes. With high-tech companies amassing huge numbers of patents and new devices often incorporating many thousands of patented technologies, the question arose: how much money can any one patent holder demand if they prove infringement?

“When I was considering academia, scholars were starting to grapple with problems created by the mismatch between the complexity of modern technology and the fact that many patent law doctrines seem to assume a ‘one patent to one product’ ratio,” he said. “This tension was particularly apparent in the context of remedies. The way damages were calculated often gave patentees a piece of the pie that was much larger than their incremental contribution to the product.”

If each of the 250,000 individually patented technologies in a Samsung phone were to be valued in the same way by the patent system, Samsung would have to charge $2 million per phone “just to break even.”

— Assistant Professor Brian Love

Brian Love

ASSISTANT PROFESSOR BRIAN LOVE has spent years studying the topic of complex product damages. His work has been cited well over 100 times in the academic literature, as well as in key reports from the Department of Justice and the Congressional Research Service.

Love has since spent years studying the topic of complex product damages. His work has been cited well over 100 times in the academic literature, as well as in key 2010 reports from the Department of Justice and the Congressional Research Service.

When the Apple vs. Samsung Electronics Co. case exploded into the public consciousness— especially when a jury awarded Apple more than $1 billion in damages for Samsung’s use of certain patented technology —Love was quoted explaining the case in dozens of stories in The New York Times, Reuters, CNN, and countless others. In an op-ed in the Los Angeles Times, he criticized the verdict, noting that if each of the 250,000 individually patented technologies in a Samsung phone were to be valued in the same way by the patent system, Samsung would have to charge $2 million per phone “just to break even.”

But he never stopped working on the problem that had driven him to academia, trolls.

In 2013, he co-wrote an op-ed titled “Tax the Patent Trolls” in USA Today, arguing that making patent trolls pay more for the patents they scoop up on the cheap, and requiring them to pay legal fees if they lose their claim of infringement, would slow nuisance-value patent assertion. He based the piece in part on research conducted with SCU Economics Professor Christian Helmers, analyzing why the UK has so many fewer patent trolls than the United States.

HEADFIRST INTO THE BIGGEST PATENT PROBLEMS

Both Chien and Love have been among the most active academics studying the patent system’s most persistently nettlesome problems. Each has written dozens of scholarly papers and opinion articles in the national press, and contributed to numerous bills attempting to reform the complex and problem-plagued U.S. patent system.

Among their prolific areas of study:

  • Startups and Patent Demands: studying the toll imposed by patent demands on small, young companies
  • Venue: or how to ensure that patent courts don’t favor one side or another
  • Comparative Patent Quality: lessons for the U.S. from patent law in other countries
  • Inter Partes Review:the true effect of Congress’s 2011 decision to allow the patent office to re-review disputed patents for improper issuance, including whether it is succeeding in culling low-quality patents that shouldn’t have been granted
  • Patent Term: researching how long patent protection should exist to promote innovation with maximum efficiency
  • Maintenance Fees: studying ways to adjust the cost of patents to make it expensive for trolls to buy older patents and file dubious patent claims against users
  • Fee Shifting: studying the prospect of forcing those who unsuccessfully sue for patent violations to pay the legal fees of the winning party

“Brian and I are both interested in empirical methods to measure and quantify the impacts of particular policy interventions, and whether or not they are having their intended effects,” said Chien.

That interest led Chien to organize a 2012 conference at Santa Clara, “Solutions to the Software Patent Problem,” which drew upon the expertise of her and Love’s work, as well as 11 other high-powered patent law professors including Mark Lemley of Stanford, Peter Menell and Jennifer Urban of U.C. Berkeley, and others. Each panelist wrote an op-ed in Wired supporting their views, with Chien writing on ways to reform the patent system so it works for both one-patent industries like pharmaceuticals as well as for the complex, multi-patent technology industry. Love’s op-ed called for an economic approach: charging trolls much more to maintain the right to the patents they bought, and making it less profitable for them to buy aging patents to squeeze royalties out of huge numbers of users of the technology.

“A lot of the ideas that were developed at that conference actually became policy initiatives,” said Chien. Among them: The Supreme Court moved to tighten “functional claiming,” as Lemley recommended in his Wired op-ed and accompanying law review article; and the United States Patent and Trademark Office adopted a “dictionary pilot,” as Menell recommended in his Wired op-ed. Many of the ideas in a January 2013 article by Chien in the Houston Law Review, discussing the striking parallels between current and historical incidents of patent nuisance suits, came to be reflected in executive and congressional proposals and court action.

Colleen Chien

ASSOCIATE PROFESSOR COLLEEN CHIEN served in the White House Office of Science and Technology Policy as a senior advisor on tech and innovation to the chief technology officer. She was the first specialized IP senior adviser to hold such a role.

 

WHEN THE WHITE HOUSE CALLS…

In 2011 Chien, known as a rising star in IP law, was invited to witness President Barack Obama signing the America Invents Act. That act gave priority to patents based on the date entities filed for patent, not the date they were presumed to have invented the patented product. It also expanded the ways that patents could be reviewed for validity after issuance.

Shortly thereafter, in 2013, she was tapped by the Obama Administration to serve in the White House Office of Science and Technology Policy as a senior advisor on tech and innovation to the chief technology officer. She was the first specialized IP senior adviser to hold such a role, and her work was cited extensively in the June 2013 White House report Patent Assertion and U.S. Innovation, which outlined the challenges and potential solutions to perceived abuses by PAEs.

“Brian and I are both interested in empirical methods to measure and quantify the impacts of particular policy interventions, and whether or not they are having their intended effects.”

— Associate Professor Colleen Chien

Indeed, Chien’s extensive research on patent assertion entities had helped frame the issue for policymakers generally. The International Trade Commission (ITC) began tracking various forms of nonpracticing entities, following Chien’s work in this area. She twice testified before the House Judiciary Committee of Congress, as well as numerous times before the DOJ, the FTC, and PTO on this body of work, which she disseminated through numerous op-eds she authored or co-authored for the New York Times, Wall Street Journal, Washington Post, TechCrunch, Wired, IP Watchdog, and Patently O.

ITC ABUSES

Before her term at the White House, Chien also helped educate Congress about the problem of companies abusing the International Trade Commission to keep foreign-based competitors out of the U.S. They did so by complaining to the quasi-judicial federal agency that the competitors were infringing a U.S. company-owned patent, and should be barred from bringing their product to the U.S. market. This was a particular problem for companies making the complaint for patents considered “essential” to a technology “standard”—meaning it would normally be the subject of friendly industry agreement.

Following Chien’s research—presented through a law review article with Lemley, Congressional testimony, and an op-ed in The New York Times—the Department of Justice, Federal Trade Commission, and the Patent and Trademark Office issued policy statements warning against the abuse of the ITC. But in 2013, the ITC nonetheless decided to bar imports of smartphones that Samsung claimed were violating their patents. In a highly rare move, the Obama Administration’s overseer of the ITC, the U.S. Trade Representative, vetoed that ITC ban—a victory for innovation-friendly patent policies, in the eyes of many. One patent law blogger called the decision “a victory for consumers and fair competition.”

“It was the first time in nearly 30 years that there had been a presidential veto and it was a big deal,” said Chien.

 

TROLL DEMANDS

Chien’s research and advocacy in the area of patent assertion entities and their rampant “demand letters” also helped sway policy nationwide. She wrote numerous scholarly papers and columns on the topic, including in the Wall Street Journal and TechCrunch. Her nationally influential 2012 Stanford Technology Law Review article, “Startups and Patent Trolls,” showed that patent demands were having a quantifiable impact on the business operations of their targets. That article, as well as her piece from the Wake Forest Law Review, was among the first to notice that a large share of the demands were being made of companies who did not make, but merely used technology.

Chien’s publications contributed to more than 30 states passing laws making it illegal to send demand letters that allege a claim of patent infringement in bad faith.

Such works contributed to more than 30 states passing laws making it illegal to send demand letters that allege a claim of patent infringement in bad faith. The USPTO and White House also adopted the recommendation she made in testimony to Congress and established a patent demand letter information website.

PATENT REFORM FEVER STRIKES WASHINGTON

In 2013 and 2014, Congress—building on the work of academics like Chien and Love—began to propose a slew of bills to reform the patent system, attempting to thwart abusive patent troll behavior, firm up the patent system overall, and preserve patents as a tool to further innovation.

Love spearheaded two scholarly letters in support of congressional patent reform measures at the time. One argued patent litigation raised the cost of innovation and inhibited technological progress; the other warned of the distorting impact of patent troll litigation on the patent system. He also testified before the California Assembly Select Committee on High Technology, which was considering its own actions to curtail patent trolls.

Love’s impact was especially prevalent in the area of the “customer suit exception,” which tackled the question of who should be subject to lawsuits for alleged patent infringement: end users or manufacturers? In 2013, he wrote a scholarly paper with his former Wilson Sonsini colleague and Santa Clara Law Lecturer James C. Yoon entitled “Expanding Patent Law’s Customer Suit Exception.” In it, they argue that trolls often take advantage of the fact that the law allows patent owners to sue any entity that sells or uses allegedly infringing technology, even parties that merely resell or use technology produced by others. Those being sued included hotels and coffee shops that offered common wi-fi technology, as well as small online retailers that utilized allegedly patented mobile-purchasing applications.

Love and Yoon argued that it should be easier for the manufacturers of those technologies to step up and halt lawsuits filed against their downstream customers by challenging the validity of the troll’s patent or contesting its infringement allegations in a declaratory judgment action. But doing so requires an exception to the general rule that, between two related lawsuits, the one that was filed first should take precedence. A manufacturer seeking an exception to this rule must pass a stringent legal test, which few can do.

“Our paper explained why we should modernize the test, and make it less restrictive, so that manufacturers can step into the customers’ shoes more often in patent litigation” said Love. “Manufacturers, not customers, are experts on the accused technology. They have the information and incentive necessary to defend suits. Retailers and end users are much more likely to cave and pay nuisance value settlements.”

Lawmakers latched onto the idea. Some variation of Love and Yoon’s proposal was included in several patent reform bills that were being promulgated by Congress in 2012 and 2013, including the promising Innovation Act, which generated great excitement when it passed the House, but failed to make it out of the Senate.

SUPREME COURT DEALS A BLOW TO TROLLS

The importance of Love and Chien’s work was on full display in the recent landmark Supreme Court decision TC Heartland v. Kraft Foods.

The Supreme Court, in a unanimous decision issued in May 2017, overruled a 27-year-old Federal Circuit ruling that had essentially allowed those alleging patent infringement to file lawsuits wherever they had a “personal jurisdiction.” In essence, that meant they could file suit almost wherever they wanted.

Love and Chien were among four leaders of an amicus brief, signed by 56 law and economics professors, arguing that the Federal Circuit loophole was legally unsound and should be overruled.

Although the TC Heartland case before the Supreme Court didn’t involve trolls directly, it was well known that trolls—as Love had witnessed firsthand as a practicing attorney—liked to use that Federal Circuit loophole to file their cases in the troll-friendly Eastern District of Texas.

The Supreme Court ruling in TC Heartland put the brakes on that, saying suits now must be filed in the jurisdiction where the defendant resides.

Chien had co-authored a paper about the Eastern District problem with Michael Risch of Villanova, “Recalibrating Patent Venue,” which was cited by numerous amicus briefs and in oral arguments in the TC Heartland case. The pair studied about 1,500 cases to see what would happen to patent lawsuits if the Federal Circuit loophole didn’t exist. They concluded that 58 percent of troll lawsuits would have to be re-filed, potentially in jurisdictions that are less troll-friendly.

Love, meanwhile, had co-authored an important study of the district in the Stanford Technology Law Review. The study analyzed why trolls flock to the Eastern District, concluding that the court’s procedures tend to favor trolls by raising the cost of defending patent suits filed there in numerous ways. That paper was cited in several amicus briefs filed to the Supreme Court on the case, as well as in an op-ed in Wired by Sen. Orrin Hatch.

After the Supreme Court decision, Chien testified before a House Judiciary Subcommittee on the issue based on her research with Risch, calling it a “sea change” that lawsuits must now be filed “on defendant’s turf, not plaintiff ’s.” She also noted that this would lead to major shifts in where patents cases were filed—from Texas, to Delaware and the Northern District of California. Early reports suggest that case trends have, in fact, gone as Risch and Chien predicted.

WHAT’S NEXT?

Despite the mad flurry of patent-reform legislation a few years ago, most bills never made it into law. “It’s really hard to get things done legislatively, for many reasons,” said Chien. “We have one patent system, but different industries are using it in very different ways and often cannot agree on reforms. It stymies progress on legislation.”

So now, Love and Chien are hard at work studying how to use other levers in the patent system to solve longstanding problems.

One such lever is fee shifting, or making it easier for courts to force patent asserters who lose in court to pay legal fees for the winners. Love is working on another paper right now with Helmers that studies the impact of a reform capping fee awards in the UK’s I.P. Enterprise Court. The pair is also working on projects that analyze the effectiveness of “troll defense” insurance and the effect that inter partes reviews have on copending litigation asserting the challenged patent.

Chien, who was awarded the 2017 American Law Institute Young Scholar Medal for her contributions to the field of IP law, is working on using patent data to understand innovators, not only innovation; trends in inequality; artificial intelligence; civic engagement; and a forthcoming book on the design of patent law with University of Minnesota Law Professor Tom Cotter and recently retired U.S. Circuit Judge Hon. Richard Posner.

Love says there is significant progress. “Today we see a lot less of some of the most egregious conduct, like widespread demand letter campaigns and assertion of vague software business method patents,” said Love. “There has been a good deal of improvement in recent years.”