Thursday, April 25, 2013

Barnes and Noble: The Patent System is Broken

by Dietrich Schmitz

Do I have to draw a picture for you?  

Apparently, a picture is indeed needed for the Federal Trade Commission (FTC) to better understand just how bad things have gotten with respect to Patent Trolling, aka Patent Assertion Entities (PAEs).

No, I'd say, we need to pour gasoline on the bonfire.  We have a painfully obvious bad situation which needs to be seen for what it is.  And, any means that will draw attention to it, including this story, is sorely needed to hopefully build judicial consensus for needed change in U.S. Patent Law and arguably in the Constitution which governs such activity.

So, what is happening now?  

Well, now that the Federal Trade Commission has stepped in under special 6b investigatory powers, they are being given assistance by a wealth of public commentors who have been invited to give their views on PAEs at their public website.

Thankfully, it would appear, the volume knob is getting turned all the way to full on with this hotly debated topic as the list of respondents has become quite lengthy.

Bring it.

Among those who have commented in the list is Barnes and Noble.  Now, to say they have had their run-ins with Trolling PAEs is an understatement and, like others, they have had to bear the expense of heavy litigation costs to fend off frivolous allegations of patent intellectual property infringement many times over.

Per usual and quite thankfully, we have the esteemed Pamela Jones at to guide us through the labyrinth of intricacies and torturous morass that has come to represent our current legal system and U.S. Patent Law and also an eroding Constitution which has taken some major hits over the past decade.

True to form, yesterday Pamela Jones posted yet another great story journaling the record of activity including a link to the comments filed by Barnes and Noble.  Pamela opines:

Its submission begins: "The patent system is broken," having "lost its true north", adding that the AIA did not fix the troll problem. And so it suggests five common-sense solutions to fix the problems. One suggestion is that trolls should not be allowed to file with the ITC at all, because that agency is about protecting trade, and trolls are not in business. And it points out that the Constitution requires a change. Yes. The Constitution:
The Patent and Copyright Clause grants Congress the power “[t]o...promote the Progress of Science and useful Arts,” not science fiction and litigious arts. (Article 1, Section 8, Clause 8 (emphasis added)). But the current system allows trolls to pursue fantastic allegations—claims that would be laughed out of the room in actual scientific or technical circles—in endless litigation that taxes and taxes true innovators while making no meaningful contribution to society.
If you enjoyed Barnes and Noble's revelations in court and to the ITC about what it called Microsoft's anticompetitive patent scheme against Android, you'll enjoy reading this new comment on trolls. They don't sugar coat. One of the claims it had to deal with was for using HTML. Wait. I'll let Barnes and Noble tell it:
Even the most plainly baseless lawsuits are expensive and can take years to defeat. In at least four cases, Barnes and Noble has faced litigation by patentees asserting the same theories on which they previously lost. In one case, for example, Barnes and Noble is alleged to infringe patents because uses the HTML language and returns search results other than exact matches. The patentee asserted these allegations against Barnes and Noble despite having tried and lost a case against other ecommerce retailers based on the same functional allegations levied against their websites....Barnes and Noble and other technology companies see countless lawsuits in which the asserted patents purport to cover products and technologies common to the entire industry. We face repeated allegations that anyone using Wi-Fi, anyone using 3G, anyone using MP3, anyone with an e-commerce website, anyone using Ethernet, and, recently, anyone using InfiniBand technology, to name a few, is infringing and must pay a hefty price to license purportedly essential patents. The allegations sweep far beyond specific innovations to which a patent might legitimately lay claim.
I guess I shouldn't be surprised that lawyers for a book company know how to write. Lawyers can be excellent lawyers without that skill, but when they've got that ability too, what a pleasure it is.

Also among the notable respondents on the FTC website one finds the Electronic Frontier Foundation tossing in their hat.  Their lead-in summary makes the issue quite clear:

Patent assertion entities (PAEs) are causing enormous harm to innovators and creators. Companies that actually create products, services, and jobs are under siege by PAEs who purchase vague and over broad patents to launch lawsuits, or, in some instances, merely threaten lawsuits. In recent years, PAE litigation has grown to the point where it now makes up the majority of patent cases. Moreover, PAEs are targeting smaller companies, such as startups, that lack the resources to defend against a patent suit and thus have no choice but to pay extortionate settlement demands. 

Turning up like 'A bad Penny'

And who shows up to add their 2 cents worth in the public comments, but none other than Microsoft who brought questionable (not a PAE) legal action (bullying) against Barnes and Noble concerning their use of Android.  The history of the case in Microsoft vs. Barnes and Noble includes an interesting story of how Microsoft carefully crafted an up-front Non Disclosure Agreement to conceal their real intentions in approaching and coercing a Licensing Fee from Barnes and Noble.

In a long story made short, Barnes and Noble effectively challenged Microsoft and took them to the mat ultimately bringing the purported ip-infringed Patent being used by MS into focus and review by the U.S. Patent Office, who invalidated the Patent as being applicable to Barnes and Noble.  When Microsoft saw that the court was going to move to have this patent invalidated, they quickly moved to settle out of court with Barnes and Noble to avoid having an oft-used Patent in other NDAs being taken away and thereby setting a legal precedent.  It's all in the court record, but, it is most interesting given the above that Microsoft's Legal opinion would include this tidbit in their filed FTC public comment of record:

For the reasons discussed above, we do not believe that antitrust policy is the most appropriate or effective tool for addressing most of the challenges posed by the emergence of and increased litigation activity by PAEs. As the antitrust agencies, economists, and the courts have concluded, mere ownership of a patent (or many patents) does not inevitably confer meaningful market power on the owner, making any presumption of power in a particular market based solely on IP holdings both factually and legally erroneous.

It's "Don't do as I do, do as I say" when it comes to doing business at One Microsoft Way.   Quite frankly, Barnes and Noble 'sold out' when they had a really good case against them for abuse of Patent Office and, I might add, extortionate behavior, which as far as I am aware falls into the Rico Act, and is part of Antitrust law.

Thank you very much Barnes and Noble for waffling.

-- Dietrich

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