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More and more, the price of innovation is litigation

I'm getting my BlackBerry this morning. It's part of the age-old ritual of starting a new job in the District. You get half a dozen keys, cards, secret handshakes and other means of gaining access to your office, your building, your block and your lifestyle in general. You get your business cards, albeit only after a lengthy negotiation over the precise wording and, in some cases, spelling of your job title.

And you get your new BlackBerry.

Mine comes in this morning. It was ordered last week, back in the day when it was uncertain whether BlackBerries would even continue to exist this morning, whether they would be rendered outrageously expensive paper weights.

You see, in 2001, the company that invented the BlackBerry, the uncomfortably named Research in Motion or RIM, was sued by NTP, a Virginia-based company that holds a number of patents that they claimed defined, or at least alluded to, the technology that powers the ubiquitous wireless e-mail appliances that you see being used everywhere from trains to airports to grocery stores to the bedrooms of married couples who long ago lost whatever feeble spark of passion once colored their lives.

In 2001, the court in which NTP sued RIM -- there are going to be a lot of three-letter acronyms here, so just get used to it -- found that RIM had infringed on NTP's patents and ordered RIM to pay $23 million in damages.

Now here's the fun part.

RIM appealed the decision on a jurisdictional argument. The Court of Appeals laughed and laughed, and in 2005 RIM offered NTP a settlement for $450 million. Yeah. Nearly twenty times the value of the court-ordered damages.

The case bounced back and forth in the courts for another year, until finally, last Friday, RIM announced that the dispute had finally been settled in full. The terms? RIM cut a check to NTP for $612 million, twenty-six times what the trial court had ordered the company to pay in restitution.

BlackBerries and BlackBerry users are held in a certain disdain by the public at large. The devices are seen as elitist and unnecessary and the people who use them are seen as self-obsessed and oblivious. And all of that is true, at least to a certain extent. But no one can argue that the BlackBerry wasn't a major innovation in the white-collar world. It allowed people in information jobs -- everything from the law to government to marketing to sales -- to be more nimble, more responsive, more effective all around. And that's a good thing, both for them and for the economy as a whole.

So when a company comes along and says, "Wait a minute. We own that technology, and we're not going to let you continue to use it. Shut it down," that's obviously a gross abuse of the patent system in this country.

According to the Constitution, the government of the United States is empowered to grant patents in order to "promote science and the useful arts." The patent system was originally intended to encourage innovation, not to give small men with small minds the ability to stifle it. But like any other government program, certain unscrupulous souls have figured out how to game the system. Because sometimes it can be far more lucrative to come up with an idea, patent it and wait for somebody to infringe upon that patent. Sue them, reach a settlement, cash a big, fat check. Money for nothing.

In fact, some companies like Virginia-based NTP exist for no purpose other than to hold patents. These corporations -- little more than shell companies; in the case of NTP, the company employs no one and holds no assets other than the patents -- contribute nothing, existing only to license intellectual property to companies that have the resources and the vision to capitalize on the ideas.

Yes, the patent system is necessary. It doesn't just promote science and the useful arts; in an age when it seems like all the easy inventions have been invented already, the progress of life and industry is dependent on the willingness of investors and companies to spend millions, sometimes billions, on basic research. Without that investment, we'd all just be waiting around for brilliant people to think of things nobody's ever thought of before, just idly in their spare time. We'd all be gathered around the apple tree, waiting for the next Newton to get hit on the head.

But surely there's some middle ground. Congress should open the debate on proposals to refine -- not reform, and certainly not remake, but refine -- the patent system in this country so disputes like the RIM/NTP case don't continue to slow the pace of innovation. Maybe patents that go unimplemented for a period of time -- twelve months, five years, whatever -- should be seized by the government and auctioned off to the highest bidder. Maybe companies should be required to license their intellectual property to all comers if they're not using it themselves.

And maybe we should all just move to Russia and hoist the hammer-and-sickle while we're at it, because that's where that train of thought is heading.

Yes, the patent system in this country stinks. But for all the complaining by armchair lawyers and technocrat elites, the system works. This country is driving innovation at a pace unseen since the Renaissance. And if the price we pay for that is the occasional lawsuit that makes the front pages, so be it.

Because at least I've got my BlackBerry.

Jeff Harrell blogs at The Shape of Days.


Comments (15)

Wanna bet none of this woul... (Below threshold)
Dave:

Wanna bet none of this would have happened if RIM was an American company?!?

This is what patent searche... (Below threshold)
jpm100:

This is what patent searches are for.

The government even has a website which is relatively easy to use. However, there are professionals whose job it is to perform searches.

http://www.uspto.gov/

What you're suggesting could be harmful. As an individual, I could not put into production many things I could patent. I don't have the resources. I have the knowledge for the design, but a dayjob prevents me from developing it into a real consumer product. Not to mention not have distribution channels, etc.

The only chance of making any money on one is to sell the idea. However, companies could just wait for my ownership to expire.

Many companies buy patents to resell or simply just bury the technology. The beauty is that it then becomes game in 20 years. Meanwhile the technology is open for the public to see and gain insight.

Which brings us to another course of action that RIM could have used. Build their technology to avoid patent infringement.

My guess is that RIM developed this for Europe, knowing full well there was a US patent on some of the technology. Technology they could have stolen because the patents were US only and not international. When they found they were incredibly popular, they decided to enter the US market and chance it. They should have cut their deal before entering the US market.

What you describe as a 'gro... (Below threshold)

What you describe as a 'gross abuse of the patent system' is in fact the way the system ought to work.

Property rights are supposed to be one of the foundations of our society. We conservatives shouldn't only object when it is the government that seeks to take our property, we ought to complain when a private party tries to do the same. RIM was judged to have violated another's property rights so why should they be allowed to keep selling their product and making money?

Having commercialized a product/concept, as RIM did with the Blackberry, ought not to be a defense against a patent claim, nor should it be an excuse to avoid having to stop infringing upon another's property rights. Neither should a company be able to avoid its day of reckoning because its customers might be inconvenienced a bit (like having to go and buy a Treo). Likewise, property rights are property rights and the structure of the company that 'owns' the patent ought to be irrelevant - one's ability to enforce patent rights should not be dependent on the size or the activity of the patent holder.

I won't argue that some fine tuning of the patent process could be appropriate. There could be more of an exception for independently invented concepts as well as a requirement that the patent holder be more aggressive in seeking out violations.

BTW, I couldn't help but notice the Google Ads for Blackberry and RIM at the bottom of my screen. Coincidental I am sure, but amusing nonetheless.

The U.S. Patent system has ... (Below threshold)
Mac Lorry:

The U.S. Patent system has a number of problems and weaknesses, but holding companies like NTP are not one of them. Lots of individuals come up with new and useful ideas, but don't have the means to develop, manufacture and market their inventions. Getting a patent lets an inventor attempt to sell their idea to companies that can bring it to market without having others steal it once it's been demonstrated.

Most inventors never find a company willing to develop and market their invention. However, some companies, like NTP, purchase patents as an investment and continue to look for buyers long after inventors have given up. These holding companies serve a legitimate business need in our economy. They provide capital to inventors and take the risk that the patent will never make any money. The fact that some company infringes on a patent being held by such a company doesn't minimize the importance of the function these companies perform.

Whether you are the original inventor or you purchased a patent as an investment, you would be nuts to not enforce it. Much of the $612 million paid to NTP will end up in the hands of inventors as NTP continues to invest in patents for inventions that are ahead of their time.

What's more interesting in this case is that the patent office was in the process of invalidating NTP's patents. The judge wasn't willing to wait for the glacier-like progress of the patent office and that's what forced RIM to settle the case. However, it seems likely that the NTP patents will be rescinded in time. At that point, can RIM sue NTP to get it's money back?

I guess the closest analogy... (Below threshold)
jpm100:

I guess the closest analogy is concerning copyrighted material.

It would be if you wrote a book and if you didn't sell the movie rights within a few years, someone would be entitled to make a movie out of it.

Patents do indeed "promote ... (Below threshold)
George:

Patents do indeed "promote science and the useful arts."
Who would bother to invest in development if the fruit of their
effort could simply be taken for free by anybody else?

Perhaps we should force Microsoft to give away Windows XP
and Microsoft Office for free. Think of all the people who
could benefit! But the benefit would be short lived as
Microsoft would stop developing new software.

I can pretty much guarantee that NTP did not get the patent
for free. They most likely bought it from someone who either
preferred a quick return or didn't have the resources to
enforce their patent. You can't fault NTP for that.

By the way, the original award was $23 million PLUS a royalty
on Blackberry sales. That "twenty-six times" figure cannot be
considered fully accurate.

How exactly do companies li... (Below threshold)

How exactly do companies like NTP's abuse of the patent system contribute to innovation? How can I see their behaviour as anything other than legalized extortion?

I too could abuse the patent system if I wanted to. I have plenty of ideas which are not viable yet, and which take virtually no effort to think up (being obvious) yet I could patent them, wait for the idea to become viable, let someone do all the hard work of developing the ideas into designs, implementing those designs, then sue them for a couple of billion dollars.

However, my conscience would bother me so I don't. Hell, my conscience bothers me over the few patents I hold. I wish I had never filed for them now that I realize that I could be stifling someone else's innovation.

I see value in having a patent system, but the way it's built right now is just not right. It should protect true inventors, but it shouldn't be a trading system for mostly obvious ideas.

The U.S. is a "first to inv... (Below threshold)
Just a Patent Attorney:

The U.S. is a "first to invent" country, and the first inventor is entitled to the grant of a patent through the USPTO. If the first inventor / patentee stands as a road block to a particular company or industry in commercializing a particular product, then the company or industry has several options: license the technology, design around the existing technology, or innovate / create competing technology.

As for the NTP v. RIM case in particular, not many people have thoroughly investigated the nature of the case and the issues involved. The significant issue on appeal was NOT jurisdictional. The significant issue was "extraterritoriality", which is the principle that one sovereign does not impose its laws upon a citizen of a foreign sovereign unless the citizen acts in a manner to implicate the domestic sovereign's laws.

In 35 USC sect. 271(a) (the main code section at issue in the district and appellate court), infringement is defined both in manner and in place. An infringement of a patent MUST occur within the territorial bounds of the US (and includes US territories). Thus, unless a competitor makes, uses, sells, or offers to sell or imports a patented item within the territorial bounds of the US, then the competitor is not liable for patent infringement in the US. Seems obvious.

This is complicated when you have patents covering methods and systems, esp. the patents held by NTP. At issue (originally) were at least five patents held by NTP covering various methods and systems of generating and communicating electronic mail messages (in excess of 1000 claims). A tangible device (such as a box - assume there is a patent covering the box) if made, used, and / or sold in the US does not pose any conceptual difficulty. A system for generating and communicating email is a different conceptual game, since "steps" of a method or system may be performed outside the US. In NTP v. RIM, the makers of BlackBerry(R) [RIM] utilized a relay tower that was located in Waterloo, Ontario, Canada. In strictly interpreting the statutue (271(a)), and utilizing well over 150 years of patent specific precedent, including several US Supreme Court cases, the meaning is clear: any step performed outside the US is NOT patent infringement under 271(a) (other sections of 271 may be implicated, though).

However, the district court and later the Court of Appeals for the Federal Circuit (CAFC - the patent appellate court) found RIM liable for direct patent infringement under section 271(a). The CAFC opinion gives an "interesting" twist to the analysis, introducing a new line of reasoning and analysis for patents esp. covered by method and / or system claims. That recitation and explanation would require another 10 posts to cover it correctly and dissect the problems of the CAFC's "new standard".

As for the settlement, I am interested to see if RIM reserved the right to back out of the agreement if and / or when NTP's patents are invalidated by the USPTO on reexamination. At the early stage, all five of the patents contested in litigation have been rejected by the examiner(s) (which is not unusual - NTP may be able to amend the claims to a more narrow set, thus maintaining one or all of the patents, and still cover the RIM product). If the patents are ultimately and finally rejected by the USPTO on reexam, NTP will still be able to appeal to the Board of Patent Appeals and Interferences, or may choose to appeal directly in federal court, thus the fight would not be over. But, at the end of the day (which seems years away), if NTP has no patent rights to enforce, then RIM should have an "out" or two to remove the yoke of this settlement.

[quote=George]I can pretty ... (Below threshold)
Just a Patent Attorney:

[quote=George]I can pretty much guarantee that NTP did not get the patent for free. They most likely bought it from someone who either preferred a quick return or didn't have the resources to enforce their patent. You can't fault NTP for that.[/quote]

I do not have the material in front of me, but IIRC the five patents at issue in NTP v. RIM were invented by the same man, and he assigned his rights to the US patents to NTP. The inventor is deceased, and thus, his wife holds a controlling interest in the shares of NTP.

This reminds me of something I forget to include in my post above: RIM has submitted evidence that suggests the patented technology that NTP possesses was, in fact, anticipated and obvious in light of existing prior art.

I will be surprised if NTP's patents: (a) survive and (b) if one or all survive, then the patents maintain the breadth of coverage that the patents currently cover.

Welcome, Jeff, to the Brot... (Below threshold)

Welcome, Jeff, to the Brotherhood of the Electronic Leash.

A couple of facts:... (Below threshold)
jack:

A couple of facts:

First, to jpm100, who postulated that RIM developed the Blackberry for Europe: no, they did not. They developed it to operate on a dedicated wireless data network here in the US that BellSouth owned (and which was recently sold to Sprint Nextel). The original two pieces of hardware were called the RIM 950 and the RIM 957. Blackberry was originally software which ran on those platforms. Later RIM realized that the cellular networks were deploying data overlays on their voice networks and would ultimately provide them with a far broader market reach.

Second, Jeff, NTP is a patent holding company, but the patents were originally developed by one of the co-founders, Thomas Campana, now deceased. He developed the technology while he was working under contract for a paging company in the Midwest. The paging company folded and Campana received the patents as settlement for money owed him under the contract.

Third, Jeff, the original judgement against RIM was $23M plus royalties. RIM was required to set aside the settlement amount and to accrue royalties during the appeals process. Candidly, given RIM's sales figures, the accrued royalites and RIM's very strong cash position, even $612M is a bargain.

Fourth, NTP approached RIM very early on, long before filing suit, and started a licensing discussion. RIM didn't agree to license NTP's patents, either because they didn't think they'd infringed or didn't believe they'd lose a lawsuit, so NTP sued.

Frankly, I find it suitably ironic that a company who sued an awful lot of people for patent infringement (RIM) wound up getting the same treatment. RIM sued Palm and a variety of other people for infringing on features like keyboard layout. I personally know of several products which were developed by small companies which could have competed favorably against RIM's products but were never launched for fear of RIM's deep pockets and apparently having their IP lawyers on speed dial.

WRT the patents themselves, there was a lot of work being done in the early days of wireless data and paging networks centered around email -- Capana wasn't the only guy working on it by any means. Sweden, Norway and Finland all had dedicated wireless data networks which were sending messages, and the US and Canada had them early on, too (but after Scadanavia). A small company called RadioMail actually had a system up and running here in the US very early on. The email server was on a Unix platform housed in the founder's spare bedroom in a townhouse in Silicon Valley, down the street from SRI. The email client ran on HP95 palmtops and worked over either the Mobitex network run by RAM Mobile Data (which BellSouth later bought) or the DataTAC network run jointly by Motorola and IBM.

Since I know many of the folks involved with this, it's hard for me to take sides. I know that patent holders must actively defend their IP or risk losing it, so NTP did what it had to. On the other hand, given the history of wireless email, I'm not sure the patents should have been issued to Campana in the first place. RIM's management team is smart and not a little bit arrogant, and dragged this thing out far longer than others would have; my guess is that they thought they could outspend NTP. In the end, the US patent system, for all its flaws, appears to have worked as designed. Are the patents worth $612M? Maybe not to everybody, but they are to RIM.

I can't help but smile at t... (Below threshold)
Tom Lefebvre:

I can't help but smile at this part:

"BlackBerries and BlackBerry users are held in a certain disdain by the public at large. The devices are seen as elitist and unnecessary and the people who use them are seen as self-obsessed and oblivious. And all of that is true, at least to a certain extent"

In the telephone companies, Blackberries are embedded. In fact, in my company, people standing next to the wall looking at their hands and oblivious to their surroundings are described as being in the "praying position".

irst, to jpm100, who pos... (Below threshold)
jpm100:

irst, to jpm100, who postulated that RIM developed the Blackberry for Europe: no, they did not. They developed it to operate on a dedicated wireless data network here in the US that BellSouth owned (and which was recently sold to Sprint Nextel). The original two pieces of hardware were called the RIM 950 and the RIM 957. Blackberry was originally software which ran on those platforms. Later RIM realized that the cellular networks were deploying data overlays on their voice networks and would ultimately provide them with a far broader market reach.

My mistake, must have confused a different technology. Regardless, RIM doing the work for a US telcom company, they should have been in an even better position to have done the necessary homework to avoid infringement.

I've read the articl... (Below threshold)


I've read the article and comments in awe. It's obvious that none of you have ever had to deal with either the US or Canadian Patent offices, that none of you really have a clue about how the system works (or doesn't work).

Well, I get to put up with it daily. The system in both countries is broken, and needs repair. But it doesn't need the sort of rushed repair that many of the big tech companies seem to prefer, all they want to do is paper over the cracks in the wall.

If you are interested in the patent system I'd suggest checking the articles in my blog.

Uh, Wayne, I am QUITE famil... (Below threshold)
Just A Patent Attorney:

Uh, Wayne, I am QUITE familiar with the patent system. I am a patent attorney, and have drafted and prosecuted well over 150 patent applications.

I also have an LLM in IP degree.

I also wrote my masters thesis on the BlackBerry case.

In short - I have a clue.

But thanks for the condescending remarks, nonetheless.




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