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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.

Rhetoric

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.

Conclusion

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.

PANELISTS:

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

PROGRAM INFORMATION:

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

CONFERENCE BRIDGE INFORMATION:

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