The paper, Patent Trolls: Evidence from Targeted Firms, by Umit G. Gurun and Scott Duke Kominer assumes that NPEs are enforcing patents of questionable validity. However, the paper offers no proof of this and does not even try to justify this position. Once you start with that position, it is a foregone conclusion that any litigation is unjustified and wastes resources. However, the initial assumption is not proven and in fact many papers have shown the opposite. If you do not start with this assumption then the paper’s whole argument falls apart. Litigation losses by operating companies are a justified return to the inventor and their investors. The operating companies are not victims, but victimizers and the return to inventors and their investors encourages more inventive activity.
The paper’s big conclusion is:
“Specifically, in the years following litigation, firms against whom cases are dismissed produced spent on average $211 million (t = 1.96) more on R&D expenditures than firms that lost to NPEs. These firms also spent on average $49 million more (t = 2.95) to acquire more in process R&D from outside.30 Furthermore, in the years following litigation, firms against whom cases are dismissed produced 63.52 more new patents (t = 2.96), and these new patents received 723.98 more citations (t = 3.45), relative to the group of firms that suffered the cost of NPE litigation.31 These large differences in R&D expenditure, patent production and in the quality of produced patents do not appear until after NPE litigation.”
Inherent in this statement is that anytime an operating firm that loses a patent litigation case to a NPE is a bad result. If the firm was stealing an invention, then the fact that they lost is a good thing.
The companies that lost in litigation spend less on R&D according to the paper. Perhaps that is because they were not as inventive to start with, perhaps it is because they decided to focus on manufacturing and purchasing their R&D from outside inventors, and perhaps it is because they lost a substantial amount of money. These are not dire results or unexpected results or necessarily bad results.
The paper implies that NPE lawsuits result in less spending on R&D, but just because firms that lose patent lawsuits spend less on R&D in the years immediately following, does not mean that total R&D is down. When inventors see their rights are upheld then they are encouraged to spend more time inventing. Unless you measure the amount spent by independent inventors or inventive firms who now see their rights upheld, you cannot draw that conclusion. These comments also apply to the citation differences. The authors are only looking at the microeconomic system that they care about, but you cannot draw the macroeconomic conclusions they do, because they don’t consider all the macroeconomic effects.
The paper does not define what a NPE is. It starts with this surprising conclusion, “We show that NPEs on average target firms that are flush with cash (or have just had large positive cash shocks).” They needed a study to tell them that? Of course NPEs focus on companies with cash on hand, why would they waste their time suing companies that could not pay them? Especially after the eBay decision, in which they are unlikely to get an injunction.
The paper goes on to state:
“A new organizational form, the non-practicing entity (hereafter, NPE), has recently emerged as a major driver of IP litigation. NPEs amass patents not for the sake of producing commercial products, but in order to prosecute infringement on their patent portfolios.”
Edison, Tesla, Bell, Amstrong ‘amassed patents.’ In fact, most of the US’s greatest inventors were just inventors. They did not create patents ‘for the sake of producing commercial products.’ They specialized in being inventors and let manufactures concentrate on manufacturing. All of them were involved in numerous lawsuits. The difference between them and today’s inventors is that the courts were much more likely to uphold their rights to their inventions. As a result, manufacturers were much quicker to license inventions. In fact, one study showed that in the late 1800’s an inventor’s chance of monetizing their invention if they received a patent was around 85%. In other words they made money specializing as inventors. Today that figure would be less than 2%. Because courts allow companies like Google, Microsoft, Samsung, etc. to get away with stealing other people’s inventions, they make the calculated risk that it is better to go to court than pay an inventor a licensing fee. As a result, inventors often have to team with someone with a deep pocket in order to get large corporations to pay them the licensing fees they deserve. In fact, large companies such as IBM, Microsoft and others will also often team with people who are experts in licensing or litigation.
Division of labor is generally considered a positive in economics. The fact that this paper is arguing against it means that it has to give extraordinary proof for its extraordinary claim. The attack on NPEs is really an attack on the profession of inventing. A uniquely American profession.
This is not an academic paper, it is a propaganda paper pretending to be science.
Patent Trolls: Evidence from Targeted Firms, by Umit G. Gurun and Scott Duke Kominer
The paper, The True Story of How the Patent Bar Captured a Court and Shrank the Intellectual Commons, has a number of errors that show its conclusions are flawed. The author’s errors in a related article, entitled How Many Jobs Does Intellectual Property Create? were well documented by Adam Mossoff and Mark Schultz in Intellectual Property, Innovation and Economic Growth: Mercatus Gets it Wrong. This paper’s title purports to show the Court of Appeal for the Federal Circuit has been captured by patent attorneys, but never actually provides any evidence to support this assertion. Below I will detail a number, but not all the other errors in this paper.
1) The article states. “Just as other property rights internalize the social benefits of improvements to land, automobile maintenance, or business investment, patents incentivize the creation of new inventions, which might otherwise be undersupplied.”
This is the utilitarian model of property rights. The US was not founded on the Utilitarian model it was founded on natural rights, which are incorporated the Declaration of Independence and into Blackstone’s Commentaries which formed the basis of US common law for the first century of the US. In fact, Blackstone specifically states that patents and copyrights are property rights based on Locke’s formulation. See The Second Treatise of Civil Government; 1690; John Locke; CHAP. IX., Of the Ends of Political Society and Government.
There is no such thing as balancing test for property rights as implied by the author, this is a Utilitarian formulation of property rights.
2) The article states. “A single, politically captured circuit court with exclusive jurisdiction over patent appeals has consistently expanded the scope of patentable subject matter. This expansion has resulted in an explosion of both patents and patent litigation, with destructive consequences.”
The myth of an explosion in patent litigation has been debunked many times. As pointed out in the article The “Patent Litigation Explosion” Canard,
“First, it’s simply untrue. Award-winning economist, Zorina Khan, reports in her book, The Democratization of Invention, that patent litigation rates from 1790 to 1860 fluctuated a lot, but averaged 1.65%. Today’s patent litigation rates are around 1.5%. As Yoda would say: patent litigation explosion this is not, hmm, no. In fact, for three decades in Khan’s study patent litigation rates were higher than today’s litigation rate. From 1840-1849, for instance, patent litigation rates were 3.6% —more than twice the patent litigation rate today.”
Second there has not been an explosion in the number of issued patents. The number of patents issued to US inventors in 1980 were 37,355 and in 2011 there were 108,626 that is a 3.5% increase in the number of patents per year, hardly an explosion in the number of issued patents.
The research and development cost per patent has increased from around $1.2 Million per patent to around $4 Million per patent from 1955 to 2005 and GDP per patent over the same time period in constant dollars has increased from 60 million per patent to around 170 million per patent. According to a paper by the Federal Research Bank of San Francisco, real industrial R&D has been growing at 3.7% per year between 1953 and 2000, while the number of patents per capita has been growing at 1.7% per year over the same period. The number of citations per patent increased 3.3% per year over the 25 year period from 1975-1999.
3) The article states. “As early as 1951, Simon Rifkind, a former federal judge in New York City, warned in a prescient essay that then-current proposals to create a specialized patent court would lead to “decadence and decay.”
This was the time period in which a Supreme Court Justice in 1948 would write “the only patent that is valid is one which the Court has not been able to get its hands on.” Jungerson v. Ostby and Barton Co., 355 US 560. This was also when the Supreme Court was applying its “flash of genus standard to patents.” If Rifkind meant that it would result in courts that did not have this utter disdain of patents he was right. However, this is hardly an objective measure.
4) The article states. “Using a dataset of district and appellate patent decisions for the years 1953–2002, economists Matthew Henry and John Turner find that the Federal Circuit has been significantly more permissive with respect to affirming the validity of patents.”
Well given the Supreme Court’s attitude the only patent that is valid is one which the Court has not been able to get its hands on that is hardly a surprise. One of the first things that Reagan did upon becoming president, was to create the Court of Appeals for the Federal Circuit. This court does hear all patent appeals and actually had about half the Justice that were actually trained in patent law. In order to be legally or factually competent as a patent attorney you have to have a technical background in science or technology, which none of the present Supreme Court justices have. In addition, patent attorneys have to pass a separate bar exam that has one of the lowest pass rates in the US. Patent law is a highly technical and specialized area, just like quantum mechanics is highly specialized and technical. You would not ask an English professor how to solve a problem in quantum mechanics and expect anything sensible. The same is true for patent law.
5) The chart in the article is a lie. It shows the number of patents linearly, which would show any compound growth as an exponential. In fact the number of issued patents has grown at a rate 3.5% from 1980 to 2011, hardly an explosion.
6) The article states. “They estimate that patentees are three times more likely to win on appeal after a district court ruling of invalidity in the post-1982 era. In addition, following the precedents set by the Federal Circuit, district courts have been 50 percent less likely to find a patent invalid in the first place, and patentees have become 25 percent more likely to appeal a decision of invalidity.”
The 1970s was a period of time in which several appeals circuits had not upheld the validity of a patent in 25 years. The FTC had a policy of nine no-nos of what you could not do with your patent without running afoul of the antitrust laws. It is hardly surprising that Reagan and Congress wanted to strengthen the property rights of inventors.
7) The article states. “The U.S. Supreme Court reversed the Court of Customs and Patent Appeals, holding that mathematical algorithms (and therefore software) were not patentable subject matter.”
Here the Supreme Court showed their complete ignorance of what a computer is and what software does. Any electrical engineer knows that any device implemented in software can be implemented in hardware. In fact, software just wires an electronic circuit (computer) to create an application specific device. Engineers choose between these options based on the need for flexibility and lower cost (software) and speed (hardware) and have several choices in between.
In order to be logically against software patents, one has to be against all patents for electronic circuits. This is the sort of nonsense you get from a court that does not understand the underlying technology.
8 ) The article states. “State Street Bank v. Signature Financial Group (1998), the Federal Circuit broadened the criteria for patentability of software and business methods substantially, allowing protection as long as the innovation “produces a useful, concrete and tangible result.”
35 USC 101 states “Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.” A computer implemented invention is a new and useful machine and useful process. Seems like the Federal Circuit got it right.
9) The article states. “The GAO estimates that more than half of all patents granted in recent years are software-related.”
The GAO counted any invention that includes some sort of software, firmware, or related. Let’s see, a procedure to sequence DNA would probably use a machine that had software or firmware and therefor met the GAO’s definition. A chemical patent that used any computer controlled machinery would count as a software patent under this definition. Today most transmission systems are computer controlled and therefore meet this definition. This standard is so loose as to meaningless.
10) The article states. “While more patents have not resulted in faster economic growth, they have resulted in more patent lawsuits.”
This statement will take some unpacking. First of all the 1980s and 1990s saw significantly faster growth than the 1970s, which had a significantly weaker patent system. Second of all the patent laws were weakened starting in 2000 with the Patent Act of 2000. This trend has continued to this day. In 2002, we passed Sarbanes Oxley which made it almost impossible for startups to go public, which starved startups and VCs of capital. Economic growth did not start to fall off until around 2000. So actually the data is consistent. Weaker patent laws are associated with weaker economic growth. Third, the patent system cannot function in a socialist system. The US by CATO’s estimate takes 60% of the GDP today. What does it mean to own your patent in a world where the EPA can take your land at any time, in which the eminent domain can be used to take your property for a project that promises higher tax revenue, a world in which the government publishes your invention for the whole world to see before they provide you any patent protection, a world in which the government does not accept any limits to tax you or regulate you? The author is right that a patent system cannot cause economic growth in the USSR, which tried to implement a patent system. A patent system is based on a system of property rights. Since 2000 we have created a patent system that supports crony socialism (capitalism), not surprisingly our inventors and entrepreneurs are not creating economic growth.
The macroeconomic evidence is overwhelming for patent systems creating growth. Those countries with the strongest patent systems are the most inventive and have the greatest technological dispersion and are the wealthiest in the world. While those with the weakest patent systems do not contribute any inventions and have very poor technological dispersion and are some of the poorest countries in the world.
I for one am very disappointed that the CATO Institute would publish such a poorly researched and reasoned article.
 Wilson, Daniel, “Are We Running Out of New Ideas” A Look at Patents and R&D”, FRBSF Economic Letter, Number 2003-26, September 12, 2003.
We are beginning to see the absurd results from Alice in the case Digitech Image Technologies, LLC v. Electronics For Imaging, Inc., Case No. 13-1600 (Fed. Cir. July 14, 2014), the Federal Circuit affirmed a district court decision invalidating all claims of Digitech’s patent (U.S. Patent No. 6,128,415). The invention tags digital images with particular information about the camera and its color/spatial image qualities in a form that is device-independent. The patent includes claims directed to both a “device profile” and a “method of generating a device profile.” The Court found the claims invalid under 35 USC 101. Independent Claim 1 states:
1. A device profile for describing properties of a device in a digital image reproduction system to capture, transform or render an image, said device profile comprising:
first data for describing a device dependent transformation of color information content of the image to a device independent color space; and
second data for describing a device dependent transformation of spatial information content of the image in said device independent color space.
According to Patently O:
At the Federal Circuit, the patentee argued that one of skill in the art would understand that the claims required hardware or software within a digital image processing system. However, in an implicit claim construction, the appellate panel rejected that argument – finding that the claims are not so limited. “The claims encompass all embodiments of the information contained in the device profile, regardless of the process through which this information is obtained or the physical medium in which it is stored.” The underlying problem with this analysis is the reality that data is always stored in a physical form lest it disappear.
The court disagreed and found the patent was directed to an Abstract Idea, a term that the Supreme Court has refused to define. Logically all inventions are directed to an abstract idea, in that they abstract the invention from the particular or specifics. The only logical definition of Abstract Idea is a thought or conception that is separate from concrete existence or not applied to the practical. Here the invention is clearly drawn to the practical and is being widely used.
You can argue that patentee wrote the claims incorrectly, but the Supremes would then counter than cleaver draftmanship will not save you from 101. Of course the Supremes then look to the claims to determine 101 eligibility. This is circular reasoning on the part of the Supremes.
Claims are supposed to define the invention, they are not the invention. A definition should not have extraneous information that does not add meaning. Here the physical structure would not have added anything to the definition. This is why I have been arguing that 101 should really be about the specification. Here the patentee clearly describes an invention. Patent law is devolving back to the 1940s and now we are all talking about how many angels can dance on a pinhead.
The long awaited decision by the Supreme Court in Alice v. CLS Bank came out on June 19, 2014, while I was away giving a talk at Atlas Summit 2014, which is why this post has been delayed. Even in the statement of the question presented in the case the Court got it wrong:
The question presented is whether these claims are patent eligible under 35 U. S. C. §101, or are instead drawn to a patent-ineligible abstract idea.
Abstract ideas are not an exception to section 101, despite a long line of nonsense by the court. Every invention is an abstract idea in that it describes a class of things, not a specific instance. The failure (purposeful) of the Court to define what they mean by an “abstract idea” has resulted in an incomprehensible standard.
An abstract idea is a thought or conception that is separate from concrete existence or not applied to the practical. From this definition, it is clear that if an inventor were to describe an “abstract idea” it would be a section 112 issue, not a 101 issue. In this case, Alice describes and claims a concrete existence that is applied to the practical problem of settlement risk that saves billions of dollars a year. Note using any rational definition of abstract idea, means it would not be a “process, machine, manufacture, or composition of matter.” Therefore the abstract ideas exception is just redundant. But the Court is unable to think logically, so instead of applying the statute, they make up the law as they go along.
In any event, we need not labor to delimit the precise contours of the “abstract ideas” category in this case. It is enough to recognize that there is no meaningful distinction between the concept of risk hedging in Bilski and the concept of intermediated settlement at issue here. Both are squarely within the realm of “abstract ideas” as we have used that term.
Biliski did not claim or describe “risk hedging” and Alice did not describe “intermediate settlement” any more than the patent for the LASER described “light making.” The Court’s characterization of these inventions with two word tag lines is intellectually dishonest.
Note the Court admits that they refuse define what they mean by abstract idea. Failure to define one’s terms is the hallmark of charlatans and tyrants. The Court’s statement means that no one can know what will be considered an abstract idea until the Supreme Court rules. This is a judicial power grab.
Below the Court tries to justify what is clearly an absurd position.
The fact that a computer “necessarily exist[s] in the physical, rather than purely conceptual, realm,” Brief for Petitioner 39, is beside the point. There is no dispute that a computer is a tangible system (in §101 terms, a “machine”), or that many computer-implemented claims are formally addressed to patent-eligible subject matter. But if that were the end of the §101 inquiry, an applicant could claim any principle of the physical or social sciences by reciting a computer system configured to implement the relevant concept.
But what petitioner characterizes as specific hardware—a “data processing system” with a “communications controller” and “data storage unit,” for example, see App. 954,958, 1257—is purely functional and generic. Nearly every computer will include a “communications controller” and “data storage unit” capable of performing the basic calculation, storage, and transmission functions required by the method claims.
A computer is a machine and those are covered by 101. The Court is intellectual dishonest or just plain stupid when they state “an applicant could claim any principle of the physical or social sciences by reciting a computer system configured to implement the relevant concept.” Alice never said any such thing, but because the Justices are incompetent in reading claims and computer technology, they ignore the claims and description, and come up with their own characterization.
Here they again prove they cannot read the claims and instead paraphrase them, of course ignoring any part they find inconvenient.
The representative method claim in this case recites the following steps: (1) “creating” shadow records for each counterparty to a transaction; (2) “obtaining” start-of-day balances based on the parties’ real-world accounts at exchange institutions; (3) “adjusting” the shadow records as transactions are entered, allowing only those transactions for which the parties have sufficient 8resources; and (4) issuing irrevocable end-of-day instructions to the exchange institutions to carry out the permitted transactions. See n.2, supra.
The Court then proceeds to suggest that there is some sort of balancing test to 35 USC 101.
The former “would risk disproportionately tying up the use of the underlying” ideas, id., at ___ (slip op., at 4), and are therefore ineligible for patent protection. The latter pose no comparable risk of pre-emption, and therefore remain eligible for the monopoly granted under our patent laws.
Balancing tests are inherently unconstitutional. A nation of laws is based on Natural Rights and clearly delineated laws. A balancing test turns that into a nation of men. Judges like them because they are the “men” so it is an inherent power grab. The Constitution requires the Rights of Inventors be secured. It does not allow for judicial balancing of inventors’ rights.
The Court then ignores the 1952 Patent Act and deconstructs the claims, which not only violates 35 USC 103, but is illogical (every invention is a combination of existing elements – conservation of matter and energy). In addition, it brings back the discredited idea of “inventive concept”, which the 1952 Patent Act specifically was directed at eliminating.
To answer that question, we consider the elements of each claim both individually and “as an ordered combination” to determine whether the additional elements “transform the nature of the claim” into a patent-eligible application. Id., at ___ (slip op., at 10, 9). We have described step two of this analysis as a search for an “ ‘inventive concept’”—i.e., an element or combination of elements that is “sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the [ineligible concept] itself.” Id., at ___ (slip op., at 3).
It would be nice if the Justices could actually read a statute.
The following statement shows the intellectual dishonesty of the court.
A claim that recites an abstract idea must include “additional features” to ensure “that the [claim] is more than a drafting effort designed to monopolize the [abstract idea].” Id., at ___ (slip op., at 8–9). Mayomade clear that transformation into a patent-eligible application requires “more than simply stat[ing] the [abstract idea] while adding the words ‘apply it.’” Id., at ___ (slip op., at 3).
Alice’s patent application never said any such thing. The Justices should be impeached for this sort of outrageous characterization.
Here again, the Justices prove they have no idea how to read a claim.
On their face, the claims before us are drawn to the concept of intermediated settlement, i.e., the use of a third party to mitigate settlement risk. Like the risk hedging in Bilski, the concept of intermediated settlement is “ ‘a fundamental economic practice long prevalent in our system of commerce.’” Ibid.; see, e.g., Emery, Speculation on the Stock and Produce Exchanges of the United States, in 7 Studies in History, Economics and Public Law 283, 346–356 (1896) (discussing the use of a “clearing-house” asan intermediary to reduce settlement risk).
The claims are not drawn to anything. This is just an attempt to ignore the limitations of claims to smear the invention. The LASER is a part of the fundamental practice of creating light that has been known before for millions of years. Does that mean it should not have been patentable?
The bottom line on this case is the Court is opposed to patents that cover financial products. Alice and Biliski are Wall Street protection act decisions. It is impossible to draw any conclusions broader than the Court will not allow patents on financial products. This is not logic and it is not law. It is time that we withdraw the Supreme Court’s jurisdiction over patent cases. Not one of the Justices or their aides are legally or factually competent to be patent attorneys, and the consequences of their incompetence are just too high.
An academic paper claims that the cost for royalties ($120 per phone) is about the same as the cost of the components in a smartphone. This was accompanied by a number of articles suggesting this was outrageous and unsustainable. For example see:
* The $120 Smartphone Patent Tax: Patent Royalties Cost More Than The Actual Hardware In Your Phone: This one from my favorite patent Luddite site, Techdirt.
The logical flaw underlying all these articles is that the value of products is determined by the amount of physical labor and/or the cost of the underlying materials. On this basis, the actual material costs of a cell phone are probably less than $5 and the labor (unskilled labor in the US is worth perhaps $10/hr) involved in making the phone might be worth $5, let’s throw in $10 for distribution and the hard costs of a smartphone are about $20.[i] The rest of the costs are the result of intellectual property, much of which is in the form of patents, but some is in the skilled labor, copyrights and trademarks. The actual cost of the intellectual property in a smartphone is closer to $380.00. Much of these costs are hidden. For instance, when Intel sells a microprocessor they charge you $50, for example, but the labor cost and material cost of the microprocessor is pennies. The reason they can charge $50 is because of the intellectual property, which means patents. From an economic point of view you are paying a dollar or so for the manufacturing and $49 in patent royalties.
Another logical flaw in these articles is that this is an unsustainable business model. First of all the underlying paper points out that sales of smartphones and tablets is now bigger than all the rest of the consumer electronics space, with over a billion smartphones sold in 2013. Clearly the business model is not falling apart. Second of all, the cost of Microsoft Office Home and Business 2013 is $219.00 and none of that is manufacturing cost. The cost of Microsoft Office is essentially all IP (Patents, Copyrights, etc.). Solidworks, which is 3D CAD software, cost $4000.00 and also has essentially no manufacturing costs, which means you are paying the equivalent of $4000 in royalties. The argument that the model is unsustainable is absurd.
The paper that started this economic stupidity is The Smartphone Royalty Stack: Surveying Royalty Demands for the Components Within Modern Smartphones. The paper is clearly designed to sway public and Judicial opinion in a manner that will be beneficial for Intel. Namely, Intel wants a patent system that emphasizes manufacturing, not inventing. Another goal of the paper is to get courts to reduce the amount of royalties that inventors receive.
“In particular, there has been significant recent focus on “royalty stacking,” in which the cumulative demands of patent holders across the relevant technology or the device threaten to make it economically unviable to offer the product.”
This statement is absurd on its face, as the paper itself points out.
“The market for smartphones has exploded. Smartphones sales for 2013 topped one billion units globally for the first time ever. In addition, global revenues for smartphone and tablet sales in 2013 are estimated to have surpassed for the first time revenues for the entire consumer electronics markets (e.g., televisions, audio equipment, cameras, and home appliances).”
Here is the real point that this paper is pushing:
“Further, the available data demonstrate a need for licensees to advocate and courts to rigorously apply methodologies for calculating royalties that focus on the actual value of a claimed invention put in context of the myriad other technologies in a smartphone and the components in which the technologies are implemented.”
I will admit that having courts set royalty rates is not ideal and the results can be squirrelly, which is why eBay should be reversed. The courts used to just prohibit the infringer from using the patented technology and then the parties had to work out a deal. But the Supreme Court decided that enforcing the only right you get with your patent is an injunction – actually it is not an injunction it is an exclusion order requiring the infringer to not trespass on (use) the patent owner’s property.
The paper admits that its methodology is limited and the actual cash cost going to pay royalties could be higher or lower. For instance, the paper does not track cross licensing, pass through, or patent exhaustion, all of which could significantly reduce the actual royalties paid. They clearly made an error if they did not account for patent exhaustion. If patent exhaustion was part of the royalty costs, then almost every high value component’s price is mainly due to patents. Correctly accounting for patent exhaustion would show a royalty per smartphone closer to the $380.00 per phone as explained above.
The paper is just dishonest when discussing the growth in the number of patents issued and the number of patent lawsuits. It shows in 20 years the number of patents issued in the US has increased from 100,000 per year to 250,000 per year. The implication is that this is an absurd increase in the number of issued patents, but if you do the math this turns out to be a 4.75% annual increase, about the same as the increase in worldwide GDP over the same time period. The paper also shows a graph depicting the number of patent lawsuits exploding around 2011. This increase is due to the America Invents Act, which limited the joinder of defendants in patent lawsuits. This has been well documented, as in the article The America Invents Act at Work – The Major Cause for the Recent Rise in Patent Litigation. The paper’s failure to point this out is just outright fraud. The fraud is perpetrated again when the paper points to the increase in the number of NPE lawsuits. These authors seem to have gotten their training from Al Gore and French economist Thomas Piketty.
[i] In fact you can buy cell phones for less $30.00 on the Internet. The cost of materials in a smartphone and a $30 cell phone is essentially the same. The material costs in a cell phone include the plastic which costs several cents, the metal for the conductors which might be worth a dollar, the silicon which in its raw form is worth almost nothing.
Reading the transcript of the oral argument at the Supreme Court in this case is like listening to bunch of stoned college freshman debating Jonathan Livingston Seagull. Not one person involved in the discussion would pass a first semester law school class in patent law. None of the people involved are patent attorneys, none of them have a solid technical background, none of them understand how a computer works, none of them of legally or factually competent to be patent attorneys. Everyone of the people involved in this oral argument should have recused themselves as incompetent
Alice’s attorney failed for three reasons: 1) he is not a patent attorney, 2) he tried to make sense of the Supreme Court’s earlier decisions, which a full of logical contradictions, 3) he failed to define what an invention is and what an abstract idea is. CLS’s attorney was unscrupulous and played fast and loose with the law and the facts as I will explain below.
Because the oral argument was so incoherent, I will just highlight the parts that I found outrageous, interesting, or nonsensical.
Abstract Idea: Justice Breyer is using the technique of all charlatans and refusing to define what an abstract idea is. He should be thrown off the court for this stunt. The abstract idea exception to 35 USC 101 is illogical. Any truly abstract idea would not meet the requirements of 35 USC 112 and that is where this issue should be dealt with. But Justice Breyer is not interested in logic, he likes using an undefined phrase that he can manipulate to attack any patent.
Justice Breyer’s use of analogies is against the law. An invention is defined by its claims and the claims must be taken as a whole (35 USC 101 and Conservation of matter and energy). The reason Breyer uses analogies is because he is too stupid to be able to understand the actual invention and is incapable of reading a claim.
Here is an example of this
I mean, imagine King Tut sitting in front of the pyramid
10 where all his gold is stored, and he has the habit of
11 giving chits away. Good for the gold, which is given at
12 the end of the day. And he hires a man with an abacus,
13 and when the abacus keeping track sees that he’s given
14 away more gold than he is in storage, he says, stop.
15 You see?
16 Or my mother, who used to look at my
17 checkbook, when she saw that, in fact, I had written
18 more checks than I had in the account, she would grab
19 it. Stop. You see?
20 So what is it here that’s less abstract that
21 the computer says, stop?
Using analogies to inventions is completely useless. The law requires the invention be evaluated on the patent, not on some absurd analogy. I warned Alice about this. Alice’s council should have refused to deal in hypotheticals and pointed to the law. They also should have defined what an invention is and what an abstract idea is. An invention is a human creation that has an objective result. Here Alice’s invention is a specially programmed computer. Those do not exist separate from man. Therefore Alice’s invention is a human creation. Alice’s invention has an objective result of affecting a transaction if all the conditions are satisfied and not affecting a transaction if any of the conditions are not satisfied.
Here is an excellent analogy to the absurdity of Justice Breyer’s statements that using a computer to implement the invention is irrelevant, by my good friend and patent attorney Peter Meza, “A new idea for a current mirror does not become patent eligible merely by tacking on a transistor to carry it out.”
Another idiotic statement by Breyer when Alice’s counsel suggests Breyer’s analogy is caricature.
JUSTICE BREYER: Of course it’s a
20 caricature. It’s a caricature designed to suggest that
21 there is an abstract idea here. It’s called solvency.
There is an abstract idea in every invention. That is like saying the LASER is abstract because it uses the ‘abstract idea’ of stimulated emission. Breyer is an idiot. He uses analogies because he is totally incompetent in the technology, so he has to bring up something he does understand.
Justice Sotomeyer seems to be creating a new exceptions to 35 USC 101
JUSTICE SOTOMAYOR: I’m sorry. But but
20 what it appears to be, it sounds like you’re trying to
21 revive the patenting of a function. You used the word
22 “function” earlier, and that’s all I’m seeing in this
23 patent is the function of reconciling accounts, the
24 function of making sure they’re paid on time. But in
25 what particular way, other than saying do it through a
1 computer, is this something new and not function?
Was there ever a rule against patenting a function. Patent law allows, actually requires that well known complex functions not be described in detail. Thus we do not claim the transistors, resistors, capacitors in a low pass circuit or a transceiver. Claiming a low pass filter is claiming a function: claiming a transceiver is claiming a function. These Justices are idiots. The function of error correction code is to correct errors. A patent on an error correction code is a patent on the function of correcting error in the transmission of data. The claims do not recite I claim intermediated settlement (whatever that is – note this is not a standard term used in banking)
Justice Scalia seems to be slowly learning some patent law. Here he recognizes that this case in not about novelty.
JUSTICE SCALIA: Well, I’m not saying use a
5 computer is is much of a novelty. I mean, that’s
6 that goes to whether it’s novel or not. If you just say
7 use a computer, you haven’t invented anything. But if
8 you come up with a serious program that that does it,
9 then, you know, that may be novel. But that’s a novelty
10 issue, isn’t it.
Note the claims never say “use a computer” but these people are too ignorant to read claims.
Justice Kennedy shows he knows nothing about patent law. Alice’s attorney should have force him to analyze the claims. He should have said to Kennedy and Breyer the invention is defined by the claims, if you wish to discuss this invention then you must look at the claims and tell me what it is you are referring to.
JUSTICE KENNEDY: Suppose I thought and,
9 again, it’s just a thought because I don’t have the
10 expertise that any computer group of people sitting
11 around a coffee shop in Silicon Valley could do this
12 over a weekend. Suppose I thought that.
Here both Alice’s attorney and Justice Sotomeyer, who is suppose to be a copyright attorney, prove their ignorance of a concept any law student taking copyrights should know the answer to – my only caveat to this is perhaps this was a backhanded way of saying Alice never wrote any code. While CLS makes this claim, I seriously doubt it is true.
JUSTICE SOTOMAYOR: Is your software
16 MR. PHILLIPS: No, I don’t believe so.
Of course the software is copyrighted. This is the incompetent leading the incompetent.
Alice’s counsel attempts to force Justice Kagan to look at the claims, but she proves her ignorance of patent law by ignoring the claim limitations.
MR. PHILLIPS: I’m saying both actually. I
15 mean, I’m making both of those arguments. I I
16 believe that if you analyze the claims and you don’t
17 caricature them and you don’t strip them out of the
18 limitations that are embedded in there, this is not some
19 kind of an abstract concept. This is not some kind
20 it’s not an abstract idea. It’s a vary
21 JUSTICE KAGAN: So putting the computer
22 stuff aside completely
Here Alice’s attorney attempts to get back on track.
So my suggestion to you would be follow that
15 same advice, a liberal interpretation of 101 and not a
16 caricature of the claims, analyze the claims as written,
17 and therefore say that the solution is 102 and 103 and
18 use the administrative process. If you
This might be a hopeful sign. Justice Scalia is pointing out that not all the Justices agree on this interpretation of an abstract idea.
JUSTICE SCALIA: And four is not five
10 anyway, right?
11 MR. PHILLIPS: That’s true.
12 JUSTICE SCALIA: Four is not five.
Another hopeful sign by Justice Scalia.
JUSTICE SCALIA: By the way, we we have
16 said that you can’t take an abstract idea and then say
17 use a computer to implement it. But we haven’t said
18 that you can’t take an abstract idea and then say here
19 is how you use a computer to implement it
Justice Kagan proves she can’t read a claim or a specification and has no intention of doing so.
JUSTICE KAGAN: Well, how are you saying the
5 how? Because I thought that your computers that your
6 patents really did just say do this on a computer, as
7 opposed to saying anything substantive about how to do
8 it on a computer.
Justice Kagan proves she is incapable of reading claims or the patent statute
JUSTICE KAGAN: No, but exactly. I mean,
22 the claim would have said something along the lines of,
23 you know, there’s this process by which people order
24 products and we want to do it over the Internet, we want
25 to do it electronically, and we will use a computer to
1 do that, to essentially take the process of mail order
2 catalogues and make it electronic.
Mr. Phillips lies to himself and the court about his ability to write claims. Mr. Phillips is not a patent attorney and I am sure has never written a claim in his life. He does not have the technical background to write claims and does not have the legal knowledge to do so.
MR. PHILLIPS: I could certainly I think
4 I could write a claim a set of claims that I believe
5 would satisfy 101. And and to the extent that
6 you’d that you’d think those are no different than
7 the ones I have here, then my argument is simply I think
8 I satisfy 101 with the claims we have before us,
Here is blatant lie by Mr. Perry.
On the abstract idea, Justice Ginsburg, you
8 asked Mr. Phillips what’s the difference between hedging
9 and this claim. There is no difference. This is
10 hedging. It is hedging against credit default rather
11 than price fluctuation, but it is simply hedging.
The definition of hedge is “Making an investment to reduce the risk of adverse price movements in an asset.” Nowhere in Alice’s claims is there any investment to reduce the risk of adverse price movements. Mr. Perry should be disbarred.
Another blatant lie by Mr. Perry
This claim has simply two steps. It’s very
18 simple. “First, debiting and crediting on a realtime
19 basis the relevant shadow records; and second, by
20 periodically affecting corresponding payment
The patents involved are USPNs 5970479, 6912510, 7149720, and 7725375. All of the claims require more than Mr. Perry’s lie. He also shows he does not understand the difference between the claims and the specification. He should be disbarred.
Justice Roberts is on the right track but proves he is incompetent to rule on patent cases.
CHIEF JUSTICE ROBERTS: Well, that’s a
25 little more complicated. He referred us to Joint , which is not a change in how
2 computers work. But it is constitutes the
3 instructions about how to use the computer and where it
4 needs to be affected. And just looking at it, it looks
5 pretty complicated. There are a lot of arrows and
6 they you know, different things that go
Mr. Perry in the quote below has attempted to redact the whole specification. Since Mr. Perry is not a patent attorney perhaps he doesn’t understand the claims have to be supported by the specification.
It’s 4 columns.
6 It’s less than five pages in the printed appendix that
7 actually pertains to this invention. And it contains no
8 disclosure whatever.
Mr. Perry attempts to define what would be patentable.
MR. PERRY: Your Honor, there are many
1 examples. One would be a technological solution to a
2 business problem.
Mr. Perry isn’t this what Alice’s invention is? Of course you are too ignorant to read the claims, so you wouldn’t know.
Justice Kennedy proves his ignorance of patents. All inventions can be described as a method or an apparatus.
JUSTICE KENNEDY: Well, I I in my
16 language, I’ve called that mechanical rather than
17 process. Can you give me an example of process?
This admission by CLS should win the argument for Alice in a rational world – but this is not a rational world.
MR. PERRY: At a point in time in the past,
12 I think both of those (word processor/spreadsheet) would have been technological
13 advances that were patentable.
14 JUSTICE SOTOMAYOR: How?
MR. PERRY: Today because they would have
16 provided a technological solution to a then unmet
Mr. Perry is putting words in other people’s mouth that are clearly not true and demonstrating his lack of understanding of physics and inventions. Every invention in the history of the world is a combination of known things/elements/steps because you can’t create something from nothing. This is because of conservation of matter and energy. In addition, section 112 requires that you explain your invention in language people understand, which means it has to describe the invention in terms of things that are known.
And here we know that these patents don’t
1 claim anything that was not conventional, well
2 understood, and routine. We went through that in great
3 detail, and Alice has never disputed a word of it.
10 possible to do the business methods of maintaining
11 accounts, adjusting accounts, and providing an
12 instruction without a computer or other hardware.”
It is possible to separate the seeds in cotton without a cotton gin, SO WHAT.
More stupidity from Mr. Perry.
We know from Benson, the Court’s seminal
20 computer implementation case, that if you can do it by
21 head and hand, then the computer doesn’t add anything
22 inventive within the meaning of the 101 exception. That
23 is the holding of Benson. And the Court reiterated that
24 in Mayo.
You can type by hand, you can do spreadsheets by hand. Mr. Perry has just contradicted himself, but appears to be too technically incompetent to understand this. Most likely so are most of the Justices.
Mr. Perry proves he does understand how claims of a patent work. This is the sort of thing a first year associate in patent law should know. Once again we have the incompetent leading the incompetent. Alice’s invention cannot be implemented without a computer because of the need nearly real time communications.
CHIEF JUSTICE ROBERTS: What if what if
9 you can do it without a computer, but it’s going to
10 take, you know, 20 people a hundred years? In other
11 words, theoretically, you can replicate what the
12 computer does
13 MR. PERRY: Two answers.
14 CHIEF JUSTICE ROBERTS: but it’s
15 impractical without looking to do it on the computer?
16 MR. PERRY: Mr. Chief Justice, first, these
17 claims literally read, as Alice reads them, on a single
18 transaction between two parties, so it’s not 20 people
19 for a hundred years. It’s one person sitting in a room,
20 so that’s not a problem.
21 Second, if what is being claimed is the
22 necessary speed or efficiency or data crunching
23 capabilities, if you will, of a computer, then it would
24 have to be claimed, and there’s nothing claimed here.
25 All that is claimed and my friend is going to stand
No Mr. Perry the claims would never say any such thing. But you are too incompetent to know that.
Mr. Perry proves he does not understand the purpose of 35 USC 112. He is not a patent attorney. Factually and Legally is not competent to be one.
MR. PERRY: If I can answer in two steps,
20 Justice Kagan. First in the negative: What the
21 applicant or patentee must do must not do is simply
22 describe the desired result. That would take us back to
23 State Street. That would simply say: I claim a magic
24 box that buys high and sells low or vice versa, I
25 suppose, I claim a magic box for investing. That’s what
these patents do.
Listening to Mr. Perry is like listening to a teenage bull session. Note that he makes a completely contradictory statement without even blushing.
MR. PERRY: No, Your Honor. I think the
20 actual description of the programming is a 112 problem.
21 I agree with that, A 112 issue. That is the realm of
22 the written description requirement. What is a 101
23 problem is it is on the applicant to do more than simply
24 describe the results, simply say: A magic box that does
25 intermediate settlement.
Justice Ginsburg clearly thinks she is a queen who can manipulate reality. She is clearly too incompetent to even understand the contradictions and absurdities of her (the courts) own writings on patents.
Justice Ginsburg, this Court’s precedents
3 are clear. They are unanimous. They just need to be
4 applied. To suggest that there is confusion that needs
5 to be addressed by retreating, beating a retreat from
6 recent unanimous decisions, would simply reward
7 intransigence, difficulty, refusal to adhere to what are
8 clear precedents
Mr Verrilli proves he does not have the slightest idea how a computer works. Any software is part of computing technology. Patents are not about improvements, they are about whether the invention is novel (non-obvious). Many designs around inventions are not improvements. Mr. Verrilli should be fired for this clear ignorance of the law, but as a political appointee competence is irrelevant.
GENERAL VERRILLI: Mr. Chief Justice, and
17 may it please the Court:
18 An abstract idea does not become
19 patenteligible merely by tacking on an instruction to
20 use a computer to carry it out. A computer makes a
21 difference under Section 101 when it imposes a
22 meaningful limit on the patent claim. That occurs when
23 the claim is directed at improvement in computing
24 technology or an innovation that uses computing
25 technology to improve other technological functions.
1 That’s the test that we believe is most faithful to this
2 Court’s precedents in Bilski and Mayo.
Mr. Verrilli is incompetent to read the claims of a patent, so he ignores them.
At least Justice Ginsburg is beginning to understand that ‘abstract idea’ has never been defined. Clearly Alice’s invention is a concrete invention, it solves a real problem using technology. Clearly, the Obama Administration is doing the bidding of Wall Street and trying to ensure that there are no patents having anything to do with finance. But neither the Obama Administration nor Wall Street can provide a rational explanation for this, so they resort to argument of “tradition.”
JUSTICE GINSBURG: I have a question about
3 how do you identify an abstract concept. The a
4 natural phenomenon, a mathematical formula, those are
5 easy to identify, but there has been some confusion on
6 what qualifies as an abstract concept.
7 GENERAL VERRILLI: We would define
8 abstract an abstract concept as a claim that is not
9 directed to a concrete innovation in technology,
10 science, or the industrial arts. So it’s the it’s
11 abstract in the sense that it is not a concrete
12 innovation in the traditional realm of patent law.
Justice Sotomayor proves that she cannot understand basic logic. If there are no business patents, then there are no patents. All patents are directed to a business, people are not getting patents so they can hang a plaque on their wall.
JUSTICE SOTOMAYOR: If we were to say that
19 there are no business patents
Patent law has now devolved to the state of politics. As this oral argument proves, there is no logic, the statute is ignored, the claims are not analyzed, the only real question is who has the most political pull. Patent law has become a cesspool in the same vein as anti-trust law, environmental law, and the Obama Administrations belief that they can change statutory law by Executive Orders.
Adam Carolla is being sued by Personal Audio LLC and has created a FundAnything (crowdfunding site) campaign to raise money for his legal defense. He is billing this dispute as a patent that will kill off podcasting. This is the sort hyperbole people who don’t want to pay inventors engage in. Note Mr. Carolla wants to be paid for his intellectual property. Since Mr. Carolla is making the standard arguments against inventors who attempt to enforce their property rights, I will examine some of the arguments below.
1. The inventor will not receive any of the profit from this lawsuit, only a shell company, whose only purpose is to sue people.
One of the inventors on the patent is a serial entrepreneur and is an owner of Personal Audio LLC who is suing Adam Carolla. James Logan founded MicroTouch Systems in the 80s and served on the on the Board of Directors of Andover.net, the company that acquired Slashdot back in 1999. He founded, Personal Audio, in 1996. The original company was Personal Audio Inc. and the patents are now owned by Personal Audio, LLC. Personal Audio invested $1.6 million developing this technology. As Mr. Logan points out, when inventors are paid for their inventions it reduces the risk of investing in new technologies. This increases the willingness of investors to put money into inventions, which results in more advances in technology. In addition, Mr. Logan explained that he and the company want to see podcasting thrive, because that will maximize their profit. Killing off podcasting is not the goal of or in the interest of Personal Audio. Mr. Carolla statements to the contrary are just nonsense.
Conclusion: Adam Carolla is spewing BS.
2. The inventor never made anything.
As the inventor, James Logan, points out Tesla never made anything either. Most of Edison’s inventions were sold to companies and he produced nothing, the same can be said of Bell and many of the great inventors of the US. Mr. Logan points out that many inventors have no interest in manufacturing, marketing, distribution etc. But today’s system forces inventors to work for a company. You would think someone in the media would have read Adam Smith and understand division of labor.
In the late 1800s it was quite common for people to specialize in inventing and over 85% of those inventors who obtained a patent eventually sold or licensed it to a manufacturer. Today the attack on inventors mean that even when inventors have a valid, issued patent that has been upheld in court (Personal Audio v. Apple), people like Mr. Carolla, argue they have the right to steal other people’s inventions.
Note that Mr. Carolla never makes anything. He sells his comedy, which is just a bunch of words, until a recording device and a transmission device turns that into a product. Perhaps actors and comedians should not be paid either.
Imagine if actors and authors could not sell their creations without first having a company turn them into a book, movie, or recording? That is exactly what Mr. Carolla is advocating.
Conclusion: Adam Carolla is spewing BS.
3. The invention was created by other people independently.
This is a common argument by people who don’t want to pay inventors. The patent in question was applied for in 1996 and the Patent Office divided the original patent application into three or more patents. The first patent issued in 2001, so the world has known about this technology for a long time. This makes the claim of independent invention absurd. But on top of that according to Mr. Logan these patents have been cited in over 1300 other patents. Clearly the world was aware of his technology. The idea of independent invention without knowledge of Personal Audio’s invention is absurd. The US had a system for disputes between nearly simultaneous inventions until the passage of the American Invents not Act in 2011 and this process was rarely invoked. The infrequency of this process was a major argument for changing our laws from a first to invent to a first to file. Independent invention is a diversionary argument, to distract from the fact that people like Carolla want to steal other people’s work.
Conclusion: Adam Carolla is spewing BS.
4. The patent is not valid and is overly broad.
This is a favorite of the leaches who do not want to pay inventors. This patent was applied for in 1996. No one had thought about podcasts at that time. Few were thinking about sending large files or streaming files. A high speed modem at the time was 64Kbaud and compression techniques were much more limited. This invention was ahead of its time so it is very unlikely that there is prior art to invalidate this patent. As a result of the invention being ahead of its time, it can validly ask for and receive fairly broad claims. However, the claims do not cover all podcasts, as the hyperbole of Mr. Carolla and other suggest, they are directed to playlists.
Personal Audio LLC sued Apple over these same patents and won. Apple already raised these issues in court and lost. It is complete nonsense to suggest that these patents are overly broad and should never have been issued, without providing specific evidence that was not raised by Apple. Clearly, Mr. Carolla has no respect for the law and more importantly no respect for inventors.
Conclusion: Adam Carolla is spewing BS.
5. The Patent was applied for on March 4, 2009 and granted on February 7, 2012
This comes from TechDirt which has no compunction about lying about patents. The patent was filed for in 1996. TechDirt then argues that the Patent Office is allowing patents too fast. Imagine if you built a house, bought a stock, or a car and it took three years to obtain title to it. You would think you were living in a third world country, which is exactly what is happening to inventors.
Mr. Carolla is a hypocrite who thinks artists should be paid for their work, but not INVENTORS. I bet if I start selling copies of Mr. Carolla’s performances he would sue me in a nanosecond. He would talk about how I was stealing his work, but inventors are supposed to work for nothing. Note all the above arguments apply to actors/comedians as well as inventors.
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