The issue of a technical standard versus a patent has raised its head in the Verizon v Vonage case, according to this story from PC World (Validity of Verizon’s VoIP Patents Challenged):
Two of the three Verizon patents a jury upheld in a March decision were described in a standards group called the VOIP Forum before Verizon filed for the patents, said Daniel Berninger, who had a hand in launching Vonage but now works as a telecom analyst for Tier1Research.com. The VOIP Forum described the name translation call-processing step in an open standard developed in 1996, and Verizon applied for the two patents in March 1997 and February 2000, he said in an interview about the case.
Verizon’s patents focus on using name translation to connect VOIP calls to traditional telephone networks. But without name translation, no VOIP calls could be completed, and all Verizon VOIP competitors are in danger of getting sued, Berninger said. “If you translate these patents so ridiculously broadly, then there’s nothing left,” he said. “Everybody infringes.”
And so it continues . . .
The Federal Trade Commission (FTC) and Justice Department have issued the second report based on their examination of anti-trust and intellectual property laws. The first report (issued by FTC only) To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy was a path breaking study with numerious recommendations for patent reform.
This second report – Antitrust Enforcement and Intellectual Property Rights: Promoting Innovation and Competition – looks at the enforcement side, which is split between Justice and the FTC. The report’s conclusions include the following:
* Antitrust liability for mere unilateral, unconditional refusals to license patents will not play a meaningful part in the interface between patent rights and antitrust protections. Antitrust liability for refusals to license competitors would compel firms to reach out and affirmatively assist their rivals, a result that is in tension with the antitrust laws.
* Conditional refusals to license that cause competitive harm are subject to antitrust scrutiny.
* Joint negotiation of licensing terms by standard-setting organization participants before the standard is set can be procompetitive. Such negotiations are unlikely to constitute a per se antitrust violation. The agencies will usually apply a rule of reason analysis when evaluating these joint activities.
* The agencies evaluate the competitive effects of cross-licenses and patent pools under the rule of reason framework articulated in the 1995 Antitrust-IP Guidelines.
* Combining complementary patents within a pool is generally procompetitive. A combination of complementary intellectual property rights, especially those that block the use of a particular technology or standard, can be an efficient and procompetitive way to disseminate those rights to would-be users of the technology or standard. Including substitute patents in a pool does not make the pool presumptively anticompetitive–competitive effects will be ascertained on a case-by-case basis.
* The agencies apply a rule of reason analysis to assess intellectual property licensing agreements, including non-assertion clauses, grantbacks, and reach-through royalty agreements.
* The Antitrust-IP Guidelines will continue to guide the agencies’ analysis of intellectual property tying and bundling. The agencies consider both the anticompetitive effects and the efficiencies attributable to a tie, and would be likely to challenge a tying arrangement if: (1) the seller has market power in the tying product, (2) the arrangement has an adverse effect on competition in the relevant market for the tied product, and (3) efficiency justifications for the arrangement do not outweigh the anticompetitive effects. If a package license constitutes tying, the agencies will evaluate it under the same principles they use to analyze other tying arrangements.
* The agencies consider both the anticompetitive effects and the efficiencies attributable to a tie or bundle involving intellectual property.
* The starting point for evaluating practices that extend beyond a patent’s expiration is an analysis of whether the patent in question confers market power. If so, these practices will be evaluated under the agencies’ traditional rule of reason framework, unless the agencies find a particular practice to be a sham cover for naked price fixing or market allocation.
* Collecting royalties beyond a patent’s statutory term can be efficient. Although there are limitations on a patent owner’s ability to collect royalties beyond a patent’s statutory term, see Brulotte v. Thys Co., 379 U.S. 29 (1964), that practice may permit licensees to pay lower royalty rates over a longer period of time which can reduce the deadweight loss associated with a patent monopoly and allow the patent holder to recover the full value of the patent, thereby preserving innovation incentives.
As an analysis of enforcement issues, the report will have less of an impact on the patent law reform debate. However, as the lawyers starting parsing the specifics, issue may creep into the legislative arena as people what to alter the enforcement activities.
Today, Senator Patrick Leahy, Chair of the Senate Judiciary Committee and Representative Howard Berman, Chair of the House Judiciary Subcommittee on Courts, the Internet, and Intellectual Property are scheduled to introduce new patent reform legislation. The introduction of this bill will mark the next step in the process of patent reform in the 110th Congress. In February, Berman held a packed-house hearing on the issue – American Innovation at Risk: “The Case for Patent Reform.” (Note: the line up of that hearing was similar to a 2005 Athena Alliance event Is the US Patent System Endangering American Innovation?)
The bills being introduced today are expected to be similar to legislation introduced in the last Congress. That process got bogged down, due in part to a disagreement between the IT and pharmaceutical industries as to the nature of the reforms needed. The IT industry needs a way to sort through the explosion of patents and the problem of inadvertent infringement. Their problems stem from the fact, as they claim, that it is almost impossible to innovate without tripping over someone else’s patent. For pharma, the patents are much clearer. The descriptions of the chemical formulas are usually more precise, so it is easier to know what is or is not covered by the patent. Pharma is looking for clear enforcement of existing patents.
The dynamics of the issue seems to have changed from last year. As today’s Washington Post points out (Patently at Odds):
The shift in political control on Capitol Hill coupled with the Supreme Court’s newfound interest in taking patent cases has energized a congressional drive to revamp the patent system for the first time since the 1950s.
(For those of you new to the issue, the Post story is a good summary of these two contenting points of view).
We will see if there real has been a change from last year — and if that change is enough to move a bill forward. One of the ideas that could break the dead lock has been constantly sidestepped during the debate. Brian Kahin and others have raised the possibility of move away from a unitary patent system, i.e. the same system for all industries. Kahin organized a conference last fall at the University of Michigan Law School: Patents and Diversity in Innovation.
I don’t think the Congress is quite willing to wade into the issue of a non-unitary patent system. There are major issues to be addressed as to how to create flexibility for different industry situations within a consistent framework. But this conference has begun the process of building the foundation for the next wave of patent reform.
Of course, we still have to get this version of reform through the Congress. There are many other obstacles beyond the IT-pharma split. As the Post points out:
Congressional initiatives to revise the patent system have drawn intense interest from sectors including traditional manufacturers, universities, banks and financial services, and small businesses. The industries vying to sway the outcome have dramatically ramped up their campaigns, engaging some of Washington’s most prominent lobbying firms since the start of the year.
So, one step at a time. But keep an eye on the future as well.
From today’s Wall Street Journal – High Court Seeks U.S. View In LG Patent Dispute
The high court, acting on an appeal filed by Quanta Computer Inc., Compal Electronics Inc. and First International Computer Inc., signaled possible interest in the case by asking the U.S. Solicitor General’s office to file a brief on the underlying legal issues. The case will be reviewed again by the Supreme Court later this year after the filing is made.
. . .
At issue in the lawsuits is whether the patent licenses between LG and Intel sufficiently spelled out limits on the patents.
. . .
The Federal U.S. Circuit Court of Appeals, a special patent appeals court based in Washington, ruled in favor of LG Electronics last year, saying the company had the right to seek patent royalties from the Taiwanese computer makers.
In their appeal, the Taiwanese companies accused LG Electronics of trying to double-dip. “This court has consistently held for more than a century that no patent owner is entitled to more than one royalty on the sale of a patented article,” attorneys for the companies said in the appeal.
The case is Quanta Computer Inc. v. LG Electronics, 06-937.
This seems unlike previous cases where the patent itself was at the center of attention. If I read this right, it may be more of a contract law case. But we will wait to see what the Solicitor General has to say.
This story from Reuters this morning – Gates Foundation billions change pharma landscape:
The billions of dollars thrown at global health problems by the Bill & Melinda Gates Foundation are changing the game in drug discovery, posing big challenges to the world’s top drugmakers, according to a report on Tuesday.
Pharmaceutical information group IMS Health Inc. said the emergence of megabuck philanthropy was both a threat and a collaboration opportunity for manufacturers.
“Pharma companies need to develop an explicit strategy to deal with this phenomenon,” IMS said in its annual Intelligence.360 report on factors shaping the industry.
We have been watching with keen interest the various experiments in alternative research mechanisms. Looks like they are beginning to have an impact.
The term “UXB” usually refers to “unexploded bomb”. That is what might be lurking in the patent wars over email technology (think Blackberry – NTP patent case). According to a story in the New York Times, E-Mail Innovator Plans to Enlist in the Wireless Campaign of the Patent Wars, there is a new development that could invalidate a number of patents:
Nicholas Fodor is about to dive into the patent wars that have tangled up the business of wireless e-mail. But his weapon of choice is not a lawsuit. It is a new e-mail service he is developing using the knowledge gained from years of experience with e-mail software.
Mr. Fodor, 43, a French computer programmer, said that in the early 1990s he worked on “push” e-mail services that predated the filing of important patents in this area.
He intends to test his claims as soon as next month by introducing Freedom Mail, a simple free service that he says will make it possible to view and respond to messages sent to almost any e-mail account on a cellphone or other mobile device.
. . .
If it works as promised, Freedom Mail will compete with highly profitable services like those provided by Research in Motion, and could also undermine the lucrative patent portfolios of NTP and Visto, two firms that have won hundreds of millions of dollars in court with claims that they invented the idea of wireless electronic mail and mail synchronization.
“Visto could have some real problems,” said Gregory Aharonian, publisher of Internet Patent News Service, an industry newsletter, and an intellectual property consultant who has worked with Visto in the past. He said that once the service became widely available, “everyone they are suing is going to slap them with discovery requests to find out how much they knew about Mr. Fodor’s software.”
Mr. Fodor, who founded SetNet in Florida in 1993, said he was the first to offer a commercial product that could synchronize e-mail between machines.
He demonstrated e-mail synchronization in 1996 at an industry conference, three years before Visto received its first patent for the idea of synchronizing “work spaces” over a network in 1999.
SetNet’s software, which was sold in partnership with Hewlett-Packard beginning in 2002, could be viewed as important “prior art” in the intellectual-property wars that have pitted Visto and its investment partner, NTP, against Seven Networks and Motorola’s Good Technology Group, as well as Microsoft and Research in Motion.
Keep an eye on this one!
NBER held its annual Innovation Policy and the Economy session in Washington last week with a number of interesting papers (available on their website):
Wes Cohen and John Walsh on Real Impediments to Academic Biomedical Research;
Robert Litan, Lesa Mitchell and E.J. Reedy on Commercializing University Innovations: A Better Way (looking at alternative technology transfer mechanisms);
Shane Greenstein on Economic Experiments and Industry Know-How in Internet Access Markets;
Carl Shapiro on Patent Reform: Aligning Reward and Contribution;
Jean Tirole and Joshua Lerner on Public Policy toward Patent Pools.
I was especially interested in Shapiro’s conclusion that a stronger patent law is not always a good thing. Rather, what is needed is a stronger procedure for ensuring that the rights of all parties are protected. As he sums up:
Introducing an independent invention defense in patent infringement cases would predictably reduce excessive rewards. Strengthening the procedures by which patents are re-examined after they are issued would have a similar effect in aligning rewards and incentives, especially for patents licensed to multiple competing firms. Several other proposed reforms relating to patent infringement litigation also look promising using the reward/contribution framework: limiting the use of injunctions, clarifying the way in which damages based on “reasonable royalties” are defined, and narrowing the doctrine of willful infringement. Recent empirical work suggests that all of these reforms would affect important, real-world situations that frequently arise. The economic reasoning supplied here suggests that these reforms would enhance economic efficiency and promote innovation.
Many of these are to be found in proposed patent reform legislation. That legislation, however, seems to be stalled in Congress similar to what happened last Congress. Let’s hope that research work like Shapiro’s can help break the logjam. But, I doubt it. The issue appears to be interest group politics — and that is rarely influenced by research findings.