U objects to patent reform

The University is one of many schools worried about a bill targeting “patent trolls.”
By
  • Mariana Pelaez
April 21, 2014

As Congress considers sweeping patent reform, research universities across the country are raising objections.

The push for reform comes in response to the increased activities of “patent trolls,” firms that amass patents to make money from intellectual property infringement lawsuits and licensing deals. Congress is aiming to level the playing field, promote transparency and take the teeth out of frivolous patent suits.

But some Senate proposals have been met with resistance from intellectual property lawyers, patent firms and research universities — including the University of Minnesota.

The University, like many of its peer schools, supports patent reform in general and deems patent trolling practices unethical. But it’s concerned that the proposed Senate bill might restrict universities from enforcing their intellectual property claims.

Patent reform advocates and researchers have said that this stance places research universities in the unfortunate bind of being on the same side of the debate as patent trolls — companies that some schools, including the University, have been tied to financially.

“They appear to be feeding the trolls,” said Robin Feldman, a University of California, Hastings law professor.

The main sticking point is fee-shifting, where a judge could make one side of a lawsuit — usually the loser — pay the attorneys’ fees for the other.

While this is meant to deter patent trolls from threatening or filing frivolous patent suits, universities are worried it could take the bite out of their own ability to enforce their intellectual property rights.

Fee-shifting “might introduce some uncertainties” over the costs of trying to defend intellectual property, said Eric Hockert, assistant business development specialist for the University’s Office of Technology Commercialization. He said the University is also concerned fee-shifting might deter people from investing in a startup unable to effectively enforce its patents.

The bipartisan bill was recently delayed, in part due to debates over these concerns. But the Senate Committee on the Judiciary is slated to pick it up again early next week.

The University has made its concerns known to Minnesota Sens. Al Franken and Amy Klobuchar, both of whom sit on the Judiciary Committee.

University ties to patent trolls

The University of Minnesota is one of several research schools that have been linked financially to the controversial firm Intellectual Ventures, which many have labeled as a patent troll.

In 2012, the Minnesota Daily reported that the University invested about $100,000 in Intellectual Ventures through the financial firm Charles River Ventures — a small sum compared to its other holdings.

The University of Minnesota Foundation, the school’s legally separate fundraising organization, also invested some of its roughly $1.3 billion endowment in Intellectual Ventures as part of its many portfolios.

Knowing who does business with patent trolls can be difficult due to a lack of transparency about their holdings. But in 2011, nine universities were named in court documents as investors in Intellectual Ventures, while 45 other schools worldwide were listed as having connections to the firm in a Stanford Technology Law Review paper.

The University of Minnesota doesn’t sell its intellectual property to patent trolls, but some schools do.

Feldman said there’s tremendous pressure on universities to bring in revenue, and mass aggregating patent firms are “tempting sources.”

Selling patents to trolls is “an awful route for universities to go down,” said Adi Kamdar of the Electronic Frontier Foundation. Given that universities only file a small fraction of patent lawsuits, Feldman said the proposed legislation in Congress shouldn’t affect them.

“If state and federally funded innovation is ending up as schemes that serve as a tax on innovation or schemes that harm consumers,” Feldman said, “that’s troubling.”

Tech transfer offices struggle

Kamdar said universities’ opposition to proposed patent reform is “a curious case” and a touchy issue for the academic community, especially as many tech transfer offices struggle to make ends meet.

The secondary patent market and the promise of lucrative returns are tempting, Feldman said. The University of Minnesota’s Office for Technology Commercialization, which handles the University’s patents and startups, has traditionally been quite successful, ranking among the top schools nationally. The OTC took in $39.4 million in gross revenues last year, and the number of new patent licenses has risen over the last five fiscal years, with 91 in 2013.

But nationally, schools are struggling. Of 155 universities surveyed by the Brookings Institution, 130 did not earn enough licensing income in 2012 to cover technology transfer office staff wages and the legal costs attached to patent filing.

“University technology transfer ought to have as its goal maximizing the social impact of technology, not merely maximizing the university’s licensing revenue,” said a 2008 paper by Mark A. Lemley of Stanford Law School.

But he wrote that universities are not necessarily patent trolls themselves: “Universities will sometimes be bad actors. So will non-manufacturing patent owners. So will manufacturing patent owners. Instead of singling out bad actors, we should focus on the bad acts and the laws that make them possible.”

Though some universities may find themselves on the same side of the patent reform fight as lawyers and trolls, their stated reasons for opposing proposed legislation differ.

“Nobody thinks this is how the patent system should work,” Kamdar said. “We have a system that promotes abuse.”

Promoting effective patent reform

Universities do want to see the patent system reformed yet have taken issue with certain specifics, lobbying heavily on Capitol Hill to strike controversial provisions like fee-shifting from the proposed bill.

A joint statement by several university coalitions pointed out similar concerns with the “overbroad scope” of the House’s version of the reform passed in December.

Hockert said there is agreement among universities that patent trolling practices need to be curbed, but there needs to be a balance between deterring abusive patent practices and allowing universities freedom to defend their intellectual property.

Experts and advocates say there are several elements to good patent reform, including patent quality and identifying patent trolls.

Kamdar said the market is being flooded with broad software patents that could apply to any idea or innovation and then be used as legal weapons by patent trolls to extort licensing fees from businesses.

“If you have a good patent, you have nothing to worry about with these reforms,” Kamdar said.

Identifying patent trolls has been another challenge, Kamdar said, as they are known to use shell corporations to hide the true sources of lawsuits.

Feldman said there is no “silver bullet” when it comes to patent reform, and it will take many initiatives to get the problem under control.

Action against patent troll activity is also being taken at the state level. Attorneys general from 42 states, including Minnesota’s Lori Swanson, signed a February letter advocating for patent reforms, and Minnesota went after a patent troll last year.

“Not many people like patent trolls,” Kamdar said.

What is a ‘patent troll’?

So-called “patent trolls” are companies that own patents on ideas they did not produce and do not turn into commercial products, which is why they’re also sometimes called “non-practicing entities.”

These companies often buy up as many patents as possible and attempt to force other companies or individuals to purchase patent licenses through them, usually under threat of lawsuit. Much of their money is made from licensing fees rather than commercialized innovation.

The choice between buying a $50,000 license or absorbing a multimillion-dollar lawsuit puts companies in a tough spot, said Adi Kamdar of the Electronic Frontier Foundation.

Patent troll lawsuits have tripled in the past few years, according to a 2013 White House report, rising from 29 percent of all infringement suits to 62 percent.

Also, very little of the money paid to mass patent aggregators returns to the original inventors, about 20 percent, said Robin Feldman, a University of California-Hastings law professor, something economists call the “leaky bucket.”

“These are not good numbers for innovation,” Feldman said.

The White House has taken a firm stance against patent trolling. President Barack Obama talked about the issue in a 2013 interview.

“[Patent trolls] don’t actually produce anything themselves,” he said. “They’re just trying to essentially leverage and hijack somebody else’s idea and see if they can extort some money out of them.”

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