Archives For litigation

Recently, the en banc Federal Circuit decided in Suprema, Inc. v. ITC that the International Trade Commission could properly prevent the importation of articles that infringe under an indirect liability theory. The core of the dispute in Suprema was whether § 337 of the Tariff Act’s prohibition against “importing articles that . . . infringe a valid and enforceable United States patent” could be used to prevent the importation of articles that at the moment of importation were not (yet) directly infringing. In essence, is the ITC limited to acting only when there is a direct infringement, or can it also prohibit articles involved in an indirect infringement scheme — in this case under an inducement theory?

TOTM’s own Alden Abbott posted his view of the decision, and there are a couple of points we’d like to respond to, both embodied in this quote:

[The ITC’s Suprema decision] would likely be viewed unfavorably by the Supreme Court, which recently has shown reluctance about routinely invoking Chevron deference … Furthermore, the en banc majority’s willingness to find inducement liability at a time when direct patent infringement has not yet occurred (the point of importation) is very hard to square with the teachings of [Limelight v.] Akamai.

In truth, we are of two minds (four minds?) regarding this view. We’re deeply sympathetic with arguments that the Supreme Court has become — and should become — increasingly skeptical of blind Chevron deference. Recently, we filed a brief on the 2015 Open Internet Order that, in large part, argued that the FCC does not deserve Chevron deference under King v. Burwell, UARG v. EPA and Michigan v. EPA (among other important cases) along a very similar line of reasoning. However, much as we’d like to generally scale back Chevron deference, in this case we happen to think that the Federal Circuit got it right.

Put simply, “infringe” as used in § 337 plainly includes indirect infringement. Section 271 of the Patent Act makes it clear that indirect infringers are guilty of “infringement.” The legislative history of the section, as well as Supreme Court case law, makes it very clear that § 271 was a codification of both direct and indirect liability.

In taxonomic terms, § 271 codifies “infringement” as a top-level category, with “direct infringement” and “indirect infringement” as two distinct subcategories of infringement. The law further subdivides “indirect infringement” into sub-subcategories, “inducement” and “contributory infringement.” But all of these are “infringement.”

For instance, § 271(b) says that “[w]hoever actively induces infringement of a patent shall be liable as an infringer” (emphasis added). Thus, in terms of § 271, to induce infringement is to commit infringement within the meaning of the patent laws. And in § 337, assuming it follows § 271 (which seems appropriate given Congress’ stated purpose to “make it a more effective remedy for the protection of United States intellectual property rights” (emphasis added)), it must follow that when one imports “articles… that infringe” she can be liable for either (or both) § 271(a) direct infringement or § 271(b) inducement.

Frankly, we think this should end the analysis: There is no Chevron question here because the Tariff Act isn’t ambiguous.

But although it seems clear on the face of § 337 that “infringe” must include indirect infringement, at the very least § 337 is ambiguous and cannot clearly mean only “direct infringement.” Moreover, the history of patent law as well as the structure of the ITC’s powers both cut in favor of the ITC enforcing the Tariff Act against indirect infringers. The ITC’s interpretation of any ambiguity in the term “articles… that infringe” is surely reasonable.

The Ambiguity and History of § 337 Allows for Inducement Liability

Assuming for argument’s sake that § 337’s lack of specificity leaves room for debate as to what “infringe” means, there is nothing that militates definitively against indirect liability being included in § 337. The majority handles any ambiguity of this sort well:

[T]he shorthand phrase “articles that infringe” does not unambiguously exclude inducement of post-importation infringement… By using the word “infringe,” § 337 refers to 35 U.S.C. § 271, the statutory provision defining patent infringement. The word “infringe” does not narrow § 337’s scope to any particular subsections of § 271. As reflected in § 271 and the case law from before and after 1952, “infringement” is a term that encompasses both direct and indirect infringement, including infringement by importation that induces direct infringement of a method claim… Section 337 refers not just to infringement, but to “articles that infringe.” That phrase does not narrow the provision to exclude inducement of post-importation infringement. Rather, the phrase introduces textual uncertainty.

Further, the court notes that it has consistently held that inducement is a valid theory of liability on which to base § 337 cases.

And lest you think that this interpretation would give some new, expansive powers to the ITC (perhaps meriting something like a Brown & Williamson exception to Chevron deference), the ITC is still bound by all the defenses and limitations on indirect liability under § 271. Saying it has authority to police indirect infringement doesn’t give it carte blanche, nor any more power than US district courts currently have in adjudicating indirect infringement. In this case, the court went nowhere near the limits of Chevron in giving deference to the ITC’s decision that “articles… that infringe” emcompasses the well-established (and statutorily defined) law of indirect infringement.

Inducement Liability Isn’t Precluded by Limelight

Nor does the Supreme Court’s Limelight v. Akamai decision present any problem. Limelight is often quoted for the proposition that there can be no inducement liability without direct infringement. And it does stand for that, as do many other cases; that point is not really in any doubt. But what Alden and others (including the dissenters in Suprema) have cited it for is the proposition that inducement liability cannot attach unless all of the elements of inducement have already been practiced at the time of importation. Limelight does not support that contention, however.

Inducement liability contemplates direct infringement, but the direct infringement need not have been practiced by the same entity liable for inducement, nor at the same time as inducement (see, e.g., Standard Oil. v. Nippon). Instead, the direct infringement may come at a later time — and there is no dispute in Suprema regarding whether there was direct infringement (there was, as Suprema notes: “the Commission found that record evidence demonstrated that Mentalix had already directly infringed claim 19 within the United States prior to the initiation of the investigation.”).

Limelight, on the other hand, is about what constitutes the direct infringement element in an inducement case. The sole issue in Limelight was whether this “direct infringement element” required that all of the steps of a method patent be carried out by a single entity or entities acting in concert. In Limelight’s network there was a division of labor, so to speak, between the company and its customers, such that each carried out some of the steps of the method patent at issue. In effect, plaintiffs argued that Limelight should be liable for inducement because it practised some of the steps of the patented method, with the requisite intent that others would carry out the rest of the steps necessary for direct infringement. But neither Limelight nor its customers separately carried out all of the steps necessary for direct infringement.

The Court held (actually, it simply reiterated established law) that the method patent could never be violated unless a single party (or parties acting in concert) carried out all of the steps of the method necessary for direct infringement. Thus it also held that Limelight could not be liable for inducement because, on the facts of that case, none of its customers could ever be liable for the necessary, underlying direct infringement. Again — what was really at issue in Limelight were the requirements to establish the direct infringement necessary to prove inducement.

On remand, the Federal Circuit reinforced the point that Limelight was really about direct infringement and, by extension, who must be involved in the direct infringement element of an inducement claim. According to the court:

We conclude that the facts Akamai presented at trial constitute substantial evidence from which a jury could find that Limelight directed or controlled its customers’ performance of each remaining method step. As such, substantial evidence supports the jury’s verdict that all steps of the claimed methods were performed by or attributable to Limelight. Therefore, Limelight is liable for direct infringement.

The holding of Limelight is simply inapposite to the facts of Suprema. The crux of Suprema is whether the appropriate mens rea existed to support a claim of inducement — not whether the requisite direct infringement occurred or not.

The Structure of § 337 Supports The ITC’s Ability to Block Inducement

Further, as the majority in Suprema notes, the very idea of inducement liability necessarily contemplates that there will be a temporal separation between the event that gives rise to indirect liability and the future direct infringement (required to prove inducement). As the Suprema court briefly noted “Section 337(a)(1)(B)’s ‘sale . . . after importation’ language confirms that the Commission is permitted to focus on post-importation activity to identify the completion of infringement.”

In particular, each of the enforcement powers in § 337(a) contains a clause that, in addition to a prohibition against, e.g., infringing articles at the time of importation, also prohibits “the sale within the United States after importation by the owner, importer, or consignee, of articles[.]” Thus, Congress explicitly contemplated that the ITC would have the power to act upon articles at various points in time, not limiting it to a power effective only at the moment of importation.

Although the particular power to reach into the domestic market has to do with preventing the importer or its agent from making sales, this doesn’t undermine the larger point here: the ITC’s power to prevent infringing articles extends over a range of time. Given that “articles that … infringe” is at the very least ambiguous, and, as per the Federal Circuit (and our own position), this ambiguity allows for indirect infringement, it isn’t a stretch to infer that that Congress intended the ITC to have authority under § 337 to ban the import of articles that induce infringement that occurs only after the time of importation..

To interpret § 337 otherwise would be to render it absurd and to create a giant loophole that would enable infringers to easily circumvent the ITC’s enforcement powers.

A Dissent from the Dissent

The dissent also takes a curious approach to § 271 by mixing inducement and contributory infringement, and generally making a confusing mess of the two. For instance, Judge Dyk says

At the time of importation, the scanners neither directly infringe nor induce infringement… Instead, these staple articles may or may not ultimately be used to infringe… depending upon whether and how they are combined with domestically developed software after importation into the United States (emphasis added).

Whether or not the goods were “staples articles” (and thus potentially capable of substantial noninfringing uses) has nothing to do with whether or not there was inducement. Section 271 makes a very clear delineation between inducement in § 271(b) and contributory infringement in § 271(c). While a staple article of commerce capable of substantial noninfringing uses will not serve as the basis for a contributory infringement claim, it is irrelevant whether or not goods are such “staples” for purposes of establishing inducement.

The boundaries of inducement liability, by contrast, are focused on the intent of the actors: If there is an intent to induce, whether or not there is a substantial noninfringing use, there can be a violation of § 271. Contributory infringement and inducement receive treatment in separate paragraphs of § 271 and are separate doctrines comprising separate elements. This separation is so evident on the face of the law as well as in its history that the Supreme Court read the doctrine into copyright in Grokster — where, despite a potentially large number of non-infringing uses, the intent to induce infringement was sufficient to find liability.

Parting Thoughts on Chevron

We have some final thoughts on the Chevron question, because this is rightly a sore point in administrative law. In this case we think that the analysis should have ended at step one. Although the Federal Circuit began with an assumption of ambiguity, it was being generous to the appellants. Did Congress speak with clear intent? We think so. Section 271 very clearly includes direct infringement as well as indirect infringement within its definition of what constitutes infringement of a patent. When § 337 references “articles … that infringe” it seems fairly obvious that Congress intended the ITC to be able to enforce the prohibitions in § 271 in the context of imported goods.

But even if we advance to step two of the Chevron analysis, the ITC’s construction of § 337 is plainly permissible — and far from expansive. By asserting its authority here the ITC is simply policing the importation of infringing goods (which it clearly has the power to do), and doing so in the case of goods that indirectly infringe (a concept that has been part of US law for a very long time). If “infringe” as used in the Tariff Act is ambiguous, the ITC’s interpretation of it to include both indirect as well as direct infringement seems self-evidently reasonable.

Under the dissent’s (and Alden’s) interpretation of § 337, all that would be required to evade the ITC would be to import only the basic components of an article such that at the moment of importation there was no infringement. Once reassembled within the United States, the ITC’s power to prevent the sale of infringing goods would be nullified. Section 337 would thus be read to simply write out the entire “indirect infringement” subdivision of § 271 — an inference that seems like a much bigger stretch than that “infringement” under § 337 means all infringement under § 271. Congress was more than capable of referring only to “direct infringement” in § 337 if that’s what it intended.

Much as we would like to see Chevron limited, not every agency case is the place to fight this battle. If we are to have agencies, and we are to have a Chevron doctrine, there will be instances of valid deference to agency interpretations — regardless of how broadly or narrowly Chevron is interpreted. The ITC wasn’t making a power grab in Suprema, nor was its reading of the statute unexpected, inconsistent with its past practice, or expansive.

In short, Suprema doesn’t break any new statutory interpretation ground, nor present a novel question of “deep economic or political significance” akin to the question at issue in King v. Burwell. Like it or not, there will be no roots of an anti-Chevron-deference revolution growing out of Suprema.

Yesterday, the International Center for Law & Economics, together with Professor Gus Hurwitz, Nebraska College of Law, and nine other scholars of law and economics, filed an amicus brief in the DC Circuit explaining why the court should vacate the FCC’s 2015 Open Internet Order.

A few key points from ICLE’s brief follow, but you can read a longer summary of the brief here.

If the 2010 Order was a limited incursion into neighboring territory, the 2015 Order represents the outright colonization of a foreign land, extending FCC control over the Internet far beyond what the Telecommunications Act authorizes.

The Commission asserts vast powers — powers that Congress never gave it — not just over broadband but also over the very ‘edge’ providers it claims to be protecting. The court should be very skeptical of the FCC’s claims to pervasive powers over the Internet.

In the 2015 Order, the FCC Invoked Title II, admitted that it was unworkable for the Internet, and then tried to ‘tailor’ the statute to avoid its worst excesses.

That the FCC felt the need for such sweeping forbearance should have indicated to it that it had ‘taken an interpretive wrong turn’ in understanding the statute Congress gave it. Last year, the Supreme Court blocked a similar attempt by the EPA to ‘modernize’ old legislation in a way that gave it expansive new powers. In its landmark UARG decision, the Court made clear that it won’t allow regulatory agencies to rewrite legislation in an effort to retrofit their statutes to their preferred regulatory regimes.

Internet regulation is a question of ‘vast economic and political significance,’ yet the FCC  didn’t even bother to weigh the costs and benefits of its rule. 

FCC Chairman Tom Wheeler never misses an opportunity to talk about the the Internet as ‘the most important network known to Man.’ So why did he and the previous FCC Chairman ignore requests from other commissioners for serious, independent economic analysis of the supposed problem and the best way to address it? Why did the FCC rush to adopt a plan that had the effect of blocking the Federal Trade Commission from applying its consumer protection laws to the Internet? For all the FCC’s talk about protecting consumers, it appears that its real agenda may be simply expanding its own power.

Joining ICLE on the brief are:

  • Richard Epstein (NYU Law)
  • James Huffman (Lewis & Clark Law)
  • Gus Hurwitz (Nebraska Law)
  • Thom Lambert (Missouri Law)
  • Daniel Lyons (Boston College Law)
  • Geoffrey Manne (ICLE)
  • Randy May (Free State Foundation)
  • Jeremy Rabkin (GMU Law)
  • Ronald Rotunda (Chapman Law)
  • Ilya Somin (GMU Law)

Read the brief here, and the summary here.

Read more of ICLE’s work on net neutrality and Title II, including:

  • Highlights from policy and legal comments filed by ICLE and TechFreedom on net neutrality
  • “Regulating the Most Powerful Network Ever,” a scholarly essay by Gus Hurwitz for the Free State Foundation
  • “How to Break the Internet,” an essay by Geoffrey Manne and Ben Sperry, in Reason Magazine
  • “The FCC’s Net Neutrality Victory is Anything But,” an op-ed by Geoffrey Manne, in Wired
  • “The Feds Lost on Net Neutrality, But Won Control of the Internet,” an op-ed by Geoffrey Manne and Berin Szoka in Wired
  • “Net Neutrality’s Hollow Promise to Startups,” an op-ed by Geoffrey Manne and Berin Szoka in Computerworld
  • Letter signed by 32 scholars urging the FTC to caution the FCC against adopting per se net neutrality rules by reclassifying ISPs under Title II
  • The FCC’s Open Internet Roundtables, Policy Approaches, Panel 3, Enhancing Transparency, with Geoffrey Manne​

In its February 25 North Carolina Dental decision, the U.S. Supreme Court, per Justice Anthony Kennedy, held that a state regulatory board that is controlled by market participants in the industry being regulated cannot invoke “state action” antitrust immunity unless it is “actively supervised” by the state.  In so ruling, the Court struck a significant blow against protectionist rent-seeking and for economic liberty.  (As I stated in a recent Heritage Foundation legal memorandum, “[a] Supreme Court decision accepting this [active supervision] principle might help to curb special-interest favoritism conferred through state law.  At the very least, it could complicate the efforts of special interests to protect themselves from competition through regulation.”)

A North Carolina law subjects the licensing of dentistry to a North Carolina State Board of Dental Examiners (Board), six of whose eight members must be licensed dentists.  After dentists complained to the Board that non-dentists were charging lower prices than dentists for teeth whitening, the Board sent cease-and-desist letter to non-dentist teeth whitening providers, warning that the unlicensed practice dentistry is a crime.  This led non-dentists to cease teeth whitening services in North Carolina.  The Federal Trade Commission (FTC) held that the Board’s actions violated Section 5 of the FTC Act, which prohibits unfair methods of competition, the Fourth Circuit agreed, and the Court affirmed the Fourth Circuit’s decision.

In its decision, the Court rejected the claim that state action immunity, which confers immunity on the anticompetitive conduct of states acting in their sovereign capacity, applied to the Board’s actions.  The Court stressed that where a state delegates control over a market to a non-sovereign actor, immunity applies only if the state accepts political accountability by actively supervising that actor’s decisions.  The Court applied its Midcal test, which requires (1) clear state articulation and (2) active state supervision of decisions by non-sovereign actors for immunity to attach.  The Court held that entities designated as state agencies are not exempt from active supervision when they are controlled by market participants, because allowing an exemption in such circumstances would pose the risk of self-dealing that the second prong of Midcal was created to address.

Here, the Board did not contend that the state exercised any (let alone active) supervision over its anticompetitive conduct.  The Court closed by summarizing “a few constant requirements of active supervision,” namely, (1) the supervisor must review the substance of the anticompetitive decision, (2) the supervisor must have the power to veto or modify particular decisions for consistency with state policy, (3) “the mere potential for state supervision is not an adequate substitute for a decision by the State,” and (4) “the state supervisor may not itself be an active market participant.”  The Court cautioned, however, that “the adequacy of supervision otherwise will depend on all the circumstances of a case.”

Justice Samuel Alito, joined by Justices Antonin Scalia and Clarence Thomas, dissented, arguing that the Court ignored precedent that state agencies created by the state legislature (“[t]he Board is not a private or ‘nonsovereign’ entity”) are shielded by the state action doctrine.  “By straying from this simple path” and assessing instead whether individual agencies are subject to regulatory capture, the Court spawned confusion, according to the dissenters.  Midcal was inapposite, because it involved a private trade association.  The dissenters feared that the majority’s decision may require states “to change the composition of medical, dental, and other boards, but it is not clear what sort of changes are needed to satisfy the test that the Court now adopts.”  The dissenters concluded “that determining when regulatory capture has occurred is no simple task.  That answer provides a reason for relieving courts from the obligation to make such determinations at all.  It does not explain why it is appropriate for the Court to adopt the rather crude test for capture that constitutes the holding of today’s decision.”

The Court’s holding in North Carolina Dental helpfully limits the scope of the Court’s infamous Parker v. Brown decision (which shielded from federal antitrust attack a California raisin producers’ cartel overseen by a state body), without excessively interfering in sovereign state prerogatives.  State legislatures may still choose to create self-interested professional regulatory bodies – their sovereignty is not compromised.  Now, however, they will have to (1) make it clearer up front that they intend to allow those bodies to displace competition, and (2) subject those bodies to disinterested third party review.  These changes should make it far easier for competition advocates (including competition agencies) to spot and publicize welfare-inimical regulatory schemes, and weaken the incentive and ability of rent-seekers to undermine competition through state regulatory processes.  All told, the burden these new judicially-imposed constraints will impose on the states appears relatively modest, and should be far outweighed by the substantial welfare benefits they are likely to generate.

[First posted to the CPIP Blog on June 17, 2014]

Last Thursday, Elon Musk, the founder and CEO of Tesla Motors, issued an announcement on the company’s blog with a catchy title: “All Our Patent Are Belong to You.” Commentary in social media and on blogs, as well as in traditional newspapers, jumped to the conclusion that Tesla is abandoning its patents and making them “freely” available to the public for whomever wants to use them. As with all things involving patented innovation these days, the reality of Tesla’s new patent policy does not match the PR spin or the buzz on the Internet.

The reality is that Tesla is not disclaiming its patent rights, despite Musk’s title to his announcement or his invocation in his announcement of the tread-worn cliché today that patents impede innovation. In fact, Tesla’s new policy is an example of Musk exercising patent rights, not abandoning them.

If you’re not puzzled by Tesla’s announcement, you should be. This is because patents are a type of property right that secures the exclusive rights to make, use, or sell an invention for a limited period of time. These rights do not come cheap — inventions cost time, effort, and money to create and companies like Tesla then exploit these property rights in spending even more time, effort and money in converting inventions into viable commercial products and services sold in the marketplace. Thus, if Tesla’s intention is to make its ideas available for public use, why, one may wonder, did it bother to expend the tremendous resources in acquiring the patents in the first place?

The key to understanding this important question lies in a single phrase in Musk’s announcement that almost everyone has failed to notice: “Tesla will not initiate patent lawsuits against anyone who, in good faith, wants to use our technology.” (emphasis added)

What does “in good faith” mean in this context? Fortunately, one intrepid reporter at the L.A. Times asked this question, and the answer from Musk makes clear that this new policy is not an abandonment of patent rights in favor of some fuzzy notion of the public domain, but rather it’s an exercise of his company’s patent rights: “Tesla will allow other manufacturers to use its patents in “good faith” – essentially barring those users from filing patent-infringement lawsuits against [Tesla] or trying to produce knockoffs of Tesla’s cars.” In the legalese known to patent lawyers and inventors the world over, this is not an abandonment of Tesla’s patents, this is what is known as a cross license.

In plain English, here’s the deal that Tesla is offering to manufacturers and users of its electrical car technology: in exchange for using Tesla’s patents, the users of Tesla’s patents cannot file patent infringement lawsuits against Tesla if Tesla uses their other patents. In other words, this is a classic deal made between businesses all of the time — you can use my property and I can use your property, and we cannot sue each other. It’s a similar deal to that made between two neighbors who agree to permit each other to cross each other’s backyard. In the context of patented innovation, this agreement is more complicated, but it is in principle the same thing: if automobile manufacturer X decides to use Tesla’s patents, and Tesla begins infringing X’s patents on other technology, then X has agreed through its prior use of Tesla’s patents that it cannot sue Tesla. Thus, each party has licensed the other to make, use and sell their respective patented technologies; in patent law parlance, it’s a “cross license.”

The only thing unique about this cross licensing offer is that Tesla publicly announced it as an open offer for anyone willing to accept it. This is not a patent “free for all,” and it certainly is not tantamount to Tesla “taking down the patent wall.” These are catchy sound bites, but they in fact obfuscate the clear business-minded nature of this commercial decision.

For anyone perhaps still doubting what is happening here, the same L.A Times story further confirms that Tesla is not abandoning the patent system. As stated to the reporter: “Tesla will continue to seek patents for its new technology to prevent others from poaching its advancements.” So much for the much ballyhooed pronouncements last week of how Tesla’s new patent (licensing) policy “reminds us of the urgent need for patent reform”! Musk clearly believes that the patent system is working just great for the new technological innovation his engineers are creating at Tesla right now.

For those working in the innovation industries, Tesla’s decision to cross license its old patents makes sense. Tesla Motors has already extracted much of the value from these old patents: Musk was able to secure venture capital funding for his startup company and he was able to secure for Tesla a dominant position in the electrical car market through his exclusive use of this patented innovation. (Venture capitalists consistently rely on patents in making investment decisions, and for anyone who doubts this need to watch only a few episodes of Shark Tank.) Now that everyone associates radical, cutting-edge innovation with Tesla, Musk can shift in his strategic use of his company’s assets, including his intellectual property rights, such as relying more heavily on the goodwill associated with the Tesla trademark. This is clear, for instance, from the statement to the LA Times that companies or individuals agreeing to the “good faith” terms of Tesla’s license agree not to make “knockoffs of Tesla’s cars.”

There are other equally important commercial reasons for Tesla adopting its new cross-licensing policy, but the point has been made. Tesla’s new cross-licensing policy for its old patents is not Musk embracing “the open source philosophy” (as he asserts in his announcement). This may make good PR given the overheated rhetoric today about the so-called “broken patent system,” but it’s time people recognize the difference between PR and a reasonable business decision that reflects a company that has used (old) patents to acquire a dominant market position and is now changing its business model given these successful developments.

At a minimum, people should recognize that Tesla is not declaring that it will not bring patent infringement lawsuits, but only that it will not sue people with whom it has licensed its patented innovation. This is not, contrary to one law professor’s statement, a company “refrain[ing] from exercising their patent rights to the fullest extent of the law.” In licensing its patented technology, Tesla is in fact exercising its patent rights to the fullest extent of the law, and that is exactly what the patent system promotes in the myriad business models and innovative

I share Alden’s disappointment that the Supreme Court did not overrule Basic v. Levinson in Monday’s Halliburton decision.  I’m also surprised by the Court’s ruling.  As I explained in this lengthy post, I expected the Court to alter Basic to require Rule 10b-5 plaintiffs to prove that the complained of misrepresentation occasioned a price effect.  Instead, the Court maintained Basic’s rule that price impact is presumed if the plaintiff proves that the misinformation was public and material and that “the stock traded in an efficient market.”

An upshot of Monday’s decision is that courts adjudicating Rule 10b-5 class actions will continue to face at the outset not the fairly simple question of whether the misstatement at issue moved the relevant stock’s price but instead whether that stock was traded in an “efficient market.”  Focusing on market efficiency—rather than on price impact, ultimately the key question—raises practical difficulties and creates a bit of a paradox.

First, the practical difficulties.  How is a court to know whether the market in which a security is traded is “efficient” (or, given that market efficiency is not a binary matter, “efficient enough”)?  Chief Justice Roberts’ majority opinion suggested this is a simple inquiry, but it’s not.  Courts typically consider a number of factors to assess market efficiency.  According to one famous district court decision (Cammer), the relevant factors are: “(1) the stock’s average weekly trading volume; (2) the number of securities analysts that followed and reported on the stock; (3) the presence of market makers and arbitrageurs; (4) the company’s eligibility to file a Form S-3 Registration Statement; and (5) a cause-and-effect relationship, over time, between unexpected corporate events or financial releases and an immediate response in stock price.”  In re Securities Litig., 430 F.3d 503 (2005).  Other courts have supplemented these Cammer factors with a few others: market capitalization, the bid/ask spread, float, and analyses of autocorrelation.  No one can say, though, how each factor should be assessed (e.g., How many securities analysts must follow the stock? How much autocorrelation is permissible?  How large may the bid-ask spread be?).  Nor is there guidance on how to balance factors when some weigh in favor of efficiency and others don’t.  It’s a crapshoot.

In addition, focusing at the outset on whether the market at issue is efficient creates a market definition paradox in Rule 10b-5 actions.  When courts assess whether the market for a company’s stock is efficient, they assume that “the market” consists of trades in that company’s stock.  This is apparent from the Cammer (and supplementary) factors, all of which are company-specific.  It’s also implicit in portions of the Halliburton majority opinion, such as the observation that the plaintiff “submitted an event study of vari­ous episodes that might have been expected to affect the price of Halliburton’s stock, in order to demonstrate that the market for that stock takes account of material, public information about the company.”  (Emphasis added.)

But the semi-strong version of the Efficient Capital Markets Hypothesis (ECMH), the economic theorem upon which Basic rests, rejects the notion that there is a “market” for a single company’s stock.  Both the semi-strong ECMH and Basic reason that public misinformation is quickly incorporated into the price of securities traded on public exchanges.  Private misinformation, by contrast, usually is not – even when such misinformation results in large trades that significantly alter the quantity demanded or quantity supplied of the relevant stock.  The reason private misinformation is not taken to affect a security’s price, even when it results in substantial changes in quantities demanded or supplied, is because the relevant market is not the stock of that particular company but is instead the universe of stocks offering a similar package of risk and reward.  Because a private misinformation-induced increase in demand for a single company’s stock – even if large relative to the  number of shares outstanding – is likely to be tiny compared to the number of available shares of close substitutes for that company’s stock, private misinformation about a company is unlikely to be reflected in the price of the company’s stock.  Public misinformation, by contrast, affects a stock’s price because it not only changes quantities demanded and supplied but also causes investors to adjust their willingness-to-pay or willingness-to-accept.  Accordingly, both the semi-strong ECMH and Basic assume that only public misinformation can be assured to affect stock prices.  That’s why, as the Halliburton majority observes, there is a presumption of price effect only if the plaintiff proves public misinformation, materiality, and an efficient market.  (For a nice explanation of this idea in the context of a real case, see Judge Easterbrook’s opinion in West v. Prudential Securities.)

The paradox, then, is that Basic and the semi-strong ECMH, in requiring public misinformation, assume that the relevant market is not company specific.  But for purposes of determining whether the “market” is efficient, the market is assumed to consist of trades of a single company’s stock.

The Supreme Court could have avoided both the practical difficulties in assessing market efficiency and the theoretical paradox identified herein had it altered Basic to require plaintiffs to establish not an efficient market but an actual price impact. Alas.

This was previously posted to the Center for the Protection of Intellectual Property Blog on October 4, and given that Congress is rushing headlong into enacting legislation to respond to an alleged crisis over “patent trolls,” it bears reposting if only to show that Congress is ignoring its own experts in the Government Accountability Office who officially reported this past August that there’s no basis for this legislative stampede.

As previously reported, there are serious concerns with the studies asserting that a “patent litigation explosion” has been caused by patent licensing companies (so-called non-practicing entities (“NPEs”) or “patent trolls”). These seemingly alarming studies (see here and here) have drawn scholarly criticism for their use of proprietary, secret data collected from companies like RPX and Patent Freedom – companies whose business models are predicated on defending against patent licensing companies. In addition to raising serious questions about self-selection and other biases in the data underlying these studies, the RPX and Patent Freedom data sets to this day remain secret and are unknown and unverifiable.  Thus, it is impossible to apply the standard scientific and academic norm that all studies make available data for confirmation of the results via independently produced studies.  We have long suggested that it was time to step back from such self-selecting “statistics” based on secret data and nonobjective rhetoric in the patent policy debates.

At long last, an important and positive step has been taken in this regard. The Government Accountability Office (GAO) has issued a report on patent litigation, entitled “Intellectual Property: Assessing Factors that Affect Patent Infringement Litigation Could Help Improve Patent Quality,” (“the GAO Report”), which was mandated by § 34 of the America Invents Act (AIA). The GAO Report offers an important step in the right direction in beginning a more constructive, fact-based discussion about litigation over patented innovation.

The GAO is an independent, non-partisan agency under Congress.  As stated in its report, it was tasked by the AIA to undertake this study in response to “concerns that patent infringement litigation by NPEs is increasing and that this litigation, in some cases, has imposed high costs on firms that are actually developing and manufacturing products, especially in the software and technology sectors.”  Far from affirming such concerns, the GAO Report concludes that no such NPE litigation problem exists.

In its study of patent litigation in the United States, the GAO primarily utilized data obtained from Lex Machina, a firm specialized in collecting and analyzing IP litigation data.  To describe what is known about the volume and characteristics of recent patent litigation activity, the GAO utilized data provided by Lex Machina for all patent infringement lawsuits between 2000 and 2011.  Additionally, Lex Machina also selected a sample of 500 lawsuits – 100 per year from 2007 to 2011 – to allow estimated percentages with a margin of error of no more than plus or minus 5% points over all these years and no more than plus or minus 10% points for any particular year.  From this data set, the GAO extrapolated its conclusion that current concerns expressed about patent licensing companies were misplaced. 

Interestingly, the methodology employed by the GAO stands in stark contrast to the prior studies based on secret, proprietary data from RPX and Patent Freedom. The GAO Report explicitly recognized that these prior studies were fundamentally flawed given that they relied on “nonrandom, nongeneralizable” data sets from private companies (GAO Report, p. 26).  In other words, even setting aside the previously reported concerns of self-selection bias and nonobjective rhetoric, it is inappropriate to draw statistical inferences from such sample data sets to the state of patent litigation in the United States as a whole.  In contrast, the sample of 500 lawsuits selected by Lex Machina for the GAO study is truly random and generalizable (and its data is publicly available and testable by independent scholars).

Indeed, the most interesting results in the GAO Report concern its conclusions from the publicly accessible Lex Machina data about the volume and characteristics of patent litigation today.  The GAO Report finds that between 1991 and 2011, applications for all types of patents increased, with the total number of applications doubling across the same period (GAO Report, p.12, Fig. 1).  Yet, the GAO Report finds that over the same period of time, the rate of patent infringement lawsuits did not similarly increase.  Instead, the GAO reports that “[f]rom 2000 to 2011, about 29,000 patent infringement lawsuits were filed in the U.S. district courts” and that the number of these lawsuits filed per year fluctuated only slightly until 2011 (GAO Report, p. 14).  The GAO Report also finds that in 2011 about 900 more lawsuits were filed than the average number of lawsuits in each of the four previous years, which an increase of about 31%, but it attributes this to the AIA’s prohibition on joinder of multiple defendants in a single patent infringement lawsuit that went into effect in 2011 (GAO Report, p. 14).  We also discussed the causal effect of the AIA joinder rules on the recent increase in patent litigation here and here.

The GAO Report next explores the correlation between the volume of patent infringement lawsuits filed and the litigants who brought those suits.  Utilizing the data obtained from Lex Machina, the GAO observed that from 2007 to 2011 manufacturing companies and related entities brought approximately 68% of all patent infringement lawsuits, while patent aggregating and licensing companies brought only 19% of such lawsuits. (The remaining 13% of lawsuits were brought by individual inventors, universities, and a number of entities the GAO was unable to verify.) The GAO Report acknowledged that lawsuits brought by patent licensing companies increased in 2011 (24%), but it found that this increase is not statistically significant. (GAO Report, pp. 17-18)

The GAO also found that the lawsuits filed by manufacturers and patent licensing companies settled or likely settled at similar rates (GAO Report, p. 25).  Again, this contradicts widely asserted claims today that patent licensing companies bring patent infringement lawsuits solely for purposes of only nuisance settlements (implying that manufacturers litigate patents to trial at a higher rate than patent licensing companies).

In sum, the GAO Report reveals that the conventional wisdom today about a so-called “patent troll litigation explosion” is unsupported by the facts (see also here and here).  Manufacturers – i.e., producers of products based upon patented innovation – bring the vast majority of patent infringement lawsuits, and that these lawsuits have similar characteristics as those brought by patent licensing companies.

The GAO Report shines an important spotlight on a fundamental flaw in the current policy debates about patent licensing companies (the so-called “NPEs” or “patent trolls”).  Commentators, scholars and congresspersons pushing for legislative revisions to patent litigation to address a so-called “patent troll problem” have relied on overheated rhetoric and purported “studies” that simply do not hold up to empirical scrutiny.  While mere repetition of unsupported and untenable claims makes such claims conventional wisdom (and thus “truth” in the minds of policymakers and the public), it is still no substitute for a sensible policy discussion based on empirically sound data. 

This is particularly important given that the outcry against patent licensing companies continues to sweep the popular media and is spurring Congress and the President to propose substantial legislative and regulatory revisions to the patent system.  With the future of innovation at stake, it is not crazy to ask that before we make radical, systemic changes to the patent system that we have validly established empirical evidence that such revisions are in fact necessary or at least would do more good than harm. The GAO Report reminds us all that we have not yet reached this minimum requirement for sound, sensible policymaking.

Below is the text of my oral testimony to the Senate Commerce, Science and Transportation Committee, the Consumer Protection, Product Safety, and Insurance Subcommittee, at its November 7, 2013 hearing on “Demand Letters and Consumer Protection: Examining Deceptive Practices by Patent Assertion Entities.” Information on the hearing is here, including an archived webcast of the hearing. My much longer and more indepth written testimony is here.

Please note that I am incorrectly identified on the hearing website as speaking on behalf of the Center for the Protection of Intellectual Property (CPIP). In fact, I was invited to testify soley in my personal capacity as a Professor of Law at George Mason University School of Law, given my academic research into the history of the patent system and the role of licensing and commercialization in the distribution of patented innovation. I spoke for neither George Mason University nor CPIP, and thus I am solely responsible for the content of my research and remarks.

Chairman McCaskill, Ranking Member Heller, and Members of the Subcommittee:

Thank you for this opportunity to speak with you today.

There certainly are bad actors, deceptive demand letters, and frivolous litigation in the patent system. The important question, though, is whether there is a systemic problem requiring further systemic revisions to the patent system. There is no answer to this question, and this is the case for three reasons.

Harm to Innovation

First, the calls to rush to enact systemic revisions to the patent system are being made without established evidence there is in fact systemic harm to innovation, let alone any harm to the consumers that Section 5 authorizes the FTC to protect. As the Government Accountability Office found in its August 2013 report on patent litigation, the frequently-cited studies claiming harms are actually “nonrandom and nongeneralizable,” which means they are unscientific and unreliable.

These anecdotal reports and unreliable studies do not prove there is a systemic problem requiring a systemic revision to patent licensing practices.

Of even greater concern is that the many changes to the patent system Congress is considering, incl. extending the FTC’s authority over demand letters, would impose serious costs on real innovators and thus do actual harm to America’s innovation economy and job growth.

From Charles Goodyear and Thomas Edison in the nineteenth century to IBM and Microsoft today, patent licensing has been essential in bringing patented innovation to the marketplace, creating economic growth and a flourishing society.  But expanding FTC authority to regulate requests for licensing royalties under vague evidentiary and legal standards only weakens patents and create costly uncertainty.

This will hamper America’s innovation economy—causing reduced economic growth, lost jobs, and reduced standards of living for everyone, incl. the consumers the FTC is charged to protect.

Existing Tools

Second, the Patent and Trademark Office (PTO) and courts have long had the legal tools to weed out bad patents and punish bad actors, and these tools were massively expanded just two years ago with the enactment of the America Invents Act.

This is important because the real concern with demand letters is that the underlying patents are invalid.

No one denies that owners of valid patents have the right to license their property or to sue infringers, or that patent owners can even make patent licensing their sole business model, as did Charles Goodyear and Elias Howe in the mid-nineteenth century.

There are too many of these tools to discuss in my brief remarks, but to name just a few: recipients of demand letters can sue patent owners in courts through declaratory judgment actions and invalidate bad patents. And the PTO now has four separate programs dedicated solely to weeding out bad patents.

For those who lack the knowledge or resources to access these legal tools, there are now numerous legal clinics, law firms and policy organizations that actively offer assistance.

Again, further systemic changes to the patent system are unwarranted because there are existing legal tools with established legal standards to address the bad actors and their bad patents.

If Congress enacts a law this year, then it should secure full funding for the PTO. Weakening patents and creating more uncertainties in the licensing process is not the solution.


Lastly, Congress is being driven to revise the patent system on the basis of rhetoric and anecdote instead of objective evidence and reasoned explanations. While there are bad actors in the patent system, terms like PAE or patent troll constantly shift in meaning. These terms have been used to cover anyone who licenses patents, including universities, startups, companies that engage in R&D, and many others.

Classic American innovators in the nineteenth century like Thomas Edison, Charles Goodyear, and Elias Howe would be called PAEs or patent trolls today. In fact, they and other patent owners made royalty demands against thousands of end users.

Congress should exercise restraint when it is being asked to enact systemic legislative or regulatory changes on the basis of pejorative labels that would lead us to condemn or discriminate against classic innovators like Edison who have contributed immensely to America’s innovation economy.


In conclusion, the benefits or costs of patent licensing to the innovation economy is an important empirical and policy question, but systemic changes to the patent system should not be based on rhetoric, anecdotes, invalid studies, and incorrect claims about the historical and economic significance of patent licensing

As former PTO Director David Kappos stated last week in his testimony before the House Judiciary Committee: “we are reworking the greatest innovation engine the world has ever known, almost instantly after it has just been significantly overhauled. If there were ever a case where caution is called for, this is it.”

Thank you.

The Center for the Protection of Intellectual Property is hosting a teleforum panel on end-user lawsuits in patent law on Thursday, August 29, at Noon (EST). Here’s the announcement with the program information:

End-User Lawsuits in Patent Litigation: A Bug or a Feature of Patent Law?
A Teleforum Panel
(Free and Open to the Public)

Thursday, August 29, 2013
Noon – 1pm (EST)

In the patent policy debates today, one issue that has proven a flash point of controversy is patent infringement lawsuits against consumers and retailers, such as coffee shops, JC Penney, and others.  These are now called “end-user lawsuits,” and various bills in Congress, including the Goodlatte Discussion Draft released last May, would mandate a “stay” of such lawsuits in favor of suing upstream manufacturers.  The federal judiciary currently vests stay decisions within the discretionary authority of trial judges, who have long controlled and directed complex litigation in their courtrooms.  While anecdotes of cease-and-desist letters against “mom-and-pop stores” abound in public commentary, there has been no discussion of the systemic effects of the proposed mandatory stay provisions.  Are end-user lawsuits a recent phenomenon or are they a longstanding feature of the patent system?  Why has approval of a motion to stay litigation rested within the discretionary authority of a trial judge?  Are there are any unintended consequences of adopting a mandatory stay rule for end-user lawsuits?  This teleforum panel brings together scholars and representatives from the innovation industries to discuss the history, function and policy implications of end-user lawsuits within patent litigation.

This is a live, in-person panel presentation in which the panelists and audience members participate via a conference bridge.  It is free and open to the public (audience members simply call the 800 number below).  Audience members will be able to ask questions of the panelists in an interactive Q&A format.  The teleforum panel also will be recorded and posted as a podcast.


Christopher Beauchamp, Assistant Professor of Law, Brooklyn Law School
David Berten, Founder and Partner, Global IP Law Group
John Scott, Vice President of Litigation, Qualcomm Inc.

Moderator: Adam Mossoff, Professor of Law and Co-Director of Academic Programs of the Center for the Protection of Intellectual Property, George Mason University School of Law


Thursday, August 29, 2013
Noon – 1pm (Eastern Standard Time)


Telephone Number: (800) 832-0736
Access Code: 1346613


[Cross Posted to the Center for the Protection of Intellectual Property]

In its recent decision in Douglas Dynamics v. Buyers Products Co. (Fed. Cir., May 21, 2013), the Federal Circuit was forced to reverse a district court’s abuse of its discretion because the trial judge injected an anti-patent bias into the legal test for determining whether a patent-owner should receive a permanent injunction against an infringer. As highlighted in a blog posting, the Federal Circuit explained that district courts should not read the eBay four-factor test such that it eviscerates “the public’s general interest in the judicial protection of property rights in inventive technology” (to quote from the Douglas Dynamics opinion).

A scant two months later, the Federal Circuit again reversed another district court’s denial of an injunction and again had to explain why the equitable test for issuing injunctions should not be applied in a way that undermines the property rights secured in patented innovation.  In Aria Diagnostics, Inc. v. Sequenom, Inc. (Fed. Cir., Aug. 9, 2013), the Federal Circuit reversed a district court’s denial of the patent-owner’s request for a preliminary injunction, holding that the district court improperly balanced the multi-factor test governing issuance of preliminary injunctions. 

In Chief Judge Randall Rader’s opinion for a unanimous panel in Aria Diagnostics, the Federal Circuit criticized the district court’s denial of Sequenom’s request for a preliminary injunction against Aria Diagnostics.  In this case, Sequenom countersued Aria Diagnostics following Aria Diagnostics declaratory judgment lawsuit against it, alleging that Aria Diagnostics infringes its patented diagnostic test for identifying trisomy disorders (U.S. Patent No. 6,258,540).  Trisomy disorders are genetic disorders that can result in a range of complications during and after pregnancy—from death of a fetus to down syndrome in a newborn.  The evidence submitted to the district court established that Sequenom’s patented tests eliminated the need for risky amniocenteses and “presented fewer risks and a more dependable rate of abnormality detection.”

Following its countersuit for patent infringement, Sequenom requested a preliminary injunction and the district court denied its request.  In the proceedings below, as the Federal Circuit explained, the district court rejected Sequenom’s request for a preliminary injunction because it simple assumed that Sequenom would not suffer irreparable injury given that it would easily profit from its radically innovative test.  On the basis of this assumption, the district court concluded that “the erosion to Sequenom’s price and its loss of market share were not irreparable.”

The Federal Circuit pointedly identified the implicit anti-patent bias in the district court’s rarefied reasoning from such misguided and unproven assumptions:

While the facts may show that damages would be reparable, this assumption is not sufficient. In the face of that kind of universal assumption, patents would lose their character as an exclusive right as articulated by the Constitution and become at best a judicially imposed and monitored compulsory license. (original emphases)

In short, district courts should not read the multi-factor tests for injunctions so as to eviscerate the constitutional fact that a patent is a property right, and thus de facto convert a patent into merely a regulatory entitlement to a compulsory license. Property rights secure more than just a “reasonable” rate of profit as determined by either a court or a regulatory agency. As pointed out in Aria Diagnostics, the case law on injunctions have well established that “price erosion, loss of goodwill, damage to reputation, and loss of business opportunities are all valid grounds for finding irreparable harm,” which can and should justify an injunction (after these harms are appropriately balanced against the harms to the alleged infringer) to secure a property right in innovative technology.

The Federal Circuit further criticized the district court because, while finding that a preliminary injunction might put Aria Diagnostics out of business as a justification to deny Sequenom’s request for the injunction, the “district court made no findings on the harm that would accrue to Sequenom’s R&D and investment in the technology, undermining work and money spent developing, validating, and commercializing any covered product.”  The Federal Circuit emphasized that the balance of hardships in the legal test for issuing an injunction requires courts to not only assess harm to alleged infringers, but also to assess the harms to the patent-owner, such as “price erosion, loss of goodwill, damage to reputation, and loss of business opportunities.” 

In short, the district court failed to weigh the relevant harms to both the patent-owner and the alleged infringer, and instead the district court relied solely on the harm to the alleged infringer (Aria Diagnostics) as balanced against its pure conjecture of massive profits for Sequenom in some undetermined future. Thus, the district court denied Sequenom’s request for a preliminary injunction. But this was an entirely inappropriate application of the equitable inquiry required in issuing or denying a preliminary injunction.  In effect, the district court placed a large thumb on the judicial scale in favor of the alleged infringer in its equitable analysis—a violation of the fundamental principles of equity. For this reason, the Federal Circuit reversed and remanded the case back to the district court for it to make the appropriate fact findings under the appropriate application of the multi-factor test for issuing a preliminary injunction.

The significance of Aria Diagnostics is that the Federal Circuit continues to push back against the ongoing misinterpretation of the equitable tests for issuance of injunctions in patent infringement cases, whether by academics, federal officials or district courts.  In doing so, the court is providing some much-needed guidance to district courts in what facts they should consider in assessing the relevant harms to each party in issuing or denying an injunction.


[Cross posted at The Center for the Protection of Intellectual Property]

In a prior blog posting, I reported how reports of a so-called “patent litigation explosion” today are just wrong.  As I detailed in another blog posting, the percentage of patent lawsuits today are not only consistent with historical patent litigation rates in the nineteenth century, there is actually less litigation today than during some decades in the early nineteenth century. Between 1840 and 1849, for instance, patent litigation rates were 3.6% — more than twice the patent litigation rate today.

(As an aside, we have to hold constant for issued patents in computing litigation percentage rates because more patents are issued now per year than twice the total population of New York City (NYC) in 1820 — 253,315 patents issued in 2012 compared to 123,706 residents in NYC in 1820.  Yet before someone says that this just means we have too many patents today, as Judge Posner blithely asserts without any empirical evidence, one must also recognize that the NYC population in 2013 is 8.3 million, which is far beyond merely double its 1820 population — NYC’s population has grown by a factor of 67!  A simple comparison to population growth, especially taking into account the explosive growth in the innovation industries in the past several decades, could as easily justify the claim that we haven’t got enough patents issuing today.)

Unfortunately, the mythical claims about a “patent litigation explosion” have shifted in recent months (perhaps because the original assertion was untenable).  Now the assertion is that there has been an “explosion” in lawsuits brought by patent licensing companies.  I’ll note for the record here that patent licensing companies are often referred to today by the undefined and nonobjective rhetorical epithet of “patent troll.”  In a recent study of patent licensing companies that exposes many of the unsound and unproven claims about these much-maligned companies – such as that patents owned by these companies are of lower quality than those owned by manufacturing entities – Stephen Moore first explained that the “troll” slur is used today by academics, commentators and the public alike “without a universally accepted definition.” So, let’s dispense with nonobjective rhetoric and simply identify these companies factually by their business models: patent licensing.

As with all discriminatory slurs, it’s unsurprising that this new claim about an alleged “explosion” in so-called “patent troll” lawsuits is unproven rubbish.  Similar to the myth about patent litigation generally, this is just another example of overwrought and empirically unsound rhetoric being used to push a policy agenda in Congress and regulatory agencies. (Six bills have been on the Hill so far this year, and FTC Chairwoman Edith Ramirez has announced that the FTC intends to begin a formal § 6(b) investigation of patent licensing companies).

How do we know that patent licensing companies are not the sole driver of any increases in patent litigation?  Contrary to the much-hyped claim today that patent licensing companies are the primary cause of most patent lawsuits in district courts in 2012, other serious and more careful reviews of the litigation data have shown that the primary culprit is not patent licensing companies, but rather the America Invents Act of 2011(“AIA”). The AIA created numerous new administrative proceedings for invalidating patents at the Patent & Trademark Office, which created additional incentives to file lawsuits in certain contexts.  Moreover, the AIA expressly prohibited joinder of multiple defendants in single lawsuits.  Both of these significant changes to the patent system has produced the entirely logical and expected result of more lawsuits being filed after the AIA’s statutory provisions went into effect in 2011 and 2012. In basic statistics terms, the effect of these statutory provisions in any study of patent litigation rates that does not take them into account is referred to as a “confounding variable.”

Even more important, when the data used in one of the most-referenced studies asserting a patent litigation explosion by patent licensing companies was tested by a highly respected scholar who specializes in statistical and empirical analyses of the patent system, he reported that he found no statistically significant results. (See Dave Schwartz’s testimony at the DOJ-FTC Workshop (Dec. 10, 2012), starting at approximately 1:58 at this video. Transcript available here.)  At least the scholars of this disputed study made their data available for confirmation, according to basic scientific norms. Other prominently cited studies on patent licensing companies have relied on secret data from companies like RPX, Patent Freedom, and other firms who have a very large dog in the litigation and policy fight, and thus this data has all of the trappings of being unreliable and biased (see here and here)

The important role that the AIA is playing in increasing patent lawsuits by patent licensing companies is ironic if only because the people misreporting the patent litigation data are the same people who were big proponents of the AIA (some of them even attended the AIA’s signing ceremony with President Obama in September 2011).  Among non-patent scholars, this is called trying to have your cake and eat it, too.  Usually such efforts fail, especially when children always try to get away with this logical fallacy.  It shows the depths to which the patent policy debates have sunk that the press, Congress, the President and many others don’t seem to care about this one bit and instead are pushing ahead and repeating – and even drafting legislation based upon – bad “statistics” with serious methodological problems and compiled from secret, unreliable data.

With Congress rushing headlong to enact legislation that discriminates against patent licensing companies, it’s time to step back and start asking serious questions before the legal system that makes possible the innovation industries is changed and we discover too late that it’s for the worse.  It’s time to set aside rhetoric and made-up “statistics” based on secret data and to ask whether there really is a systemic problem.  It’s also time to start asking serious questions about why these myths were created in the first place, what does the raw data actually say, who is providing the data and funding these “troll” studies, and who is pushing this rhetoric into the public policy debates to the point that it has become a deafening roar that makes impossible all reasonable and sensible discussion.

[NOTE: minor grammatical and style changes were made after the initial posting]