Patent Reforms Will Stem Abuses, Google, Microsoft Lawyers Say

The PAE business model does have “corresponding value in creating a liquid market for intellectual properties,” he said. “A lot of those PAEs are heavily staffed with really good engineers who can evaluate the true worth of these [patents] and actually create a market for them, which allows a lot of smaller innovators to take their patents and monetize them.” The problem with the PAE system is that because PAEs do not produce a product from the patents they own, they are not subject to a counterclaim, he said.

Matthew Bye, Google’s senior competition counsel, said he’s “less optimistic about how efficient PAEs are in monetizing for small inventors. The statistics around there … show the rates are very low. I guess I question the extent to which PAEs are really helping drive innovation."

It can be “difficult, if not impossible” to figure out whether a particular patent a PAE owns is valuable or if it’s valid when a PAE approaches a company, said James Tierney, the Department of Justice Antitrust Division chief-Networks and Technology Enforcement Section. “That’s another significant problem outside the structure of the entity itself that should be addressed."

Microsoft supports creating more transparency within the patent system, Sivinski said. If companies revealed their patent holdings, it would solve problems posed by PAEs’ patent assertion activities, he said. “What happens today is that when patents are hidden, I'll settle with this [patent portfolio] when they've got this one hidden over here, waiting in the wings,” Sivinski said. “PAEs do that, and if they had to disclose which they owned and where they got them from, that would be a real step toward solving these issue.”

Microsoft is also in favor of implementing a “loser pays” rule in patent litigation that would require a PAE to pay the legal fees of a company it sues when the PAE loses the case, Sivinski said. “That would be a real incentive to make a real assessment of the real value of their patents, make a realistic assessment of their chances in litigation and probably reduce a lot of the frivolous litigation that we're seeing in that area,” he said. The House Judiciary Committee is considering legislative remedies to patent litigation abuse, including the Saving High-Tech Innovators from Egregious Legal Disputes (SHIELD) Act, which would implement the “loser pays” rule.

The U.S. Patent and Trademark Office should also look at generally reforming its procedures for evaluating software patents, Sivinski said. “Let’s clarify and improve the terms under which these inventions are described,” he said. “The claims of a patent can be very broad and subject to interpretation, and that’s part of the problem as well.” Microsoft made similar suggestions in comments to the FTC and Justice (CED April 10 p13).

Google “wholeheartedly” agrees that “loser pays” reforms are needed to address patent abuse, Bye said. Google was among the companies to suggest the FTC use its authority under Section 6(b) of the FTC Act to do a study into “patent privateering” -- when operating companies contract with PAEs to assert patents -- and the effect it has on competition and innovation. “This is a relatively new type of arrangement, or at least one that’s being deployed more and more,” Bye said. “We think it’s an ideal area for the agencies to look into and use this 6(b) compulsory process to learn from the inside what’s going on and what’s motivating these transactions.”