Inequality in Efficient Infringement

Inequality Finds a Place in Intellectual Property (IP) where Efficient Infringement Runs Wild

Well established. Well understood. Great wealth creates great inequality. Wealth creates its own space, and maintains exclusivity by keeping others out.

Here, a different view is taken of the inequality condition.  It is a perspective based on corporate wealth – aka corporate greed – masquerading as producing shareowner value.  It is almost axiomatic that when a company scores a major – no, “outstanding” – market success it is compelled to keep the great successes going.  A few outstanding successes include:  Apple’s iPhone, Google’s search engine and ad, Microsoft’s Windows, Ford’s F150, IBM’s Watson, and Coke Cola Company’s Coke.  Companies with successes like these are faced with a profound dilemma: what is the follow-on major winner that produces profits and increased shareowner value?

CEOs of high tech companies, of consumer product companies, of logistics companies, of pharmaceutical companies, of medical device and drug companies have for the last several decades looked to their Intellectual Property assets as a source of answers to the follow-on question.  Research and Development (R&D) leading to new inventions and products is frequently the best source of value-added enhancement to an established offering, and consequently, to the opportunity to create a new market.  This is, however, the cost causing method as R&D is a heavy burden in most companies and while success can be magnificent, failure is also a possibility.

A patent system can be strong or it can be weak.  Unfortunately, the US has gone from strong to weak over the past fifteen years.  In a strong system, there is a “presumption of validity” wherein the patent holder’s rights are protected against infringement: infringers are punished and patents are not subject to constant attack in the courts or the Patent Office (USPTO).  In a strong system, investors are far more likely to invest in a product when it has patent protection.  Most new jobs are created by young companies and the majority need funding – especially if they are disruptive and fast-growing.

A strong patent system is what you should think of as the “play by the rules” method or process of gaining new corporate revenues and market success.  It is conducted on a level playing field.

In contrast, a weak system is basically the opposite.  The courts tend to rule against the patent holder, established competitors ignore the innovator’s patent and engage in what is termed “efficient infringement” utilizing long, drawn out court processes the innovator cannot afford.  Large and well-established high-tech companies have led the strong-to-weak downward slide by lobbying congress and funding campaigns which resulted in the American Invents Act (AIA) of 2011.  “Google spent $18M on lobbyists the year the AIA was passed…Google wanted a weak patent system because it already dominated the search and internet advertising in 2012…with a 67% market share.  Today, (2018), with a weaker patent system firmly in place and no fear of any innovating competition protected by patents, Google’s market share has increased to almost 80%.”  (Shore, M., 2018, Mar 21, How Google and Big Tech Killed the U.S. Patent System, IPwatchdog.com)

“Efficient infringement occurs when a company deliberately chooses to infringe a patent because it is cheaper to fight off a legal challenge from an inventor than it is to license the patent.  This practice is especially harmful to small inventors and innovators and it undermines our broader innovation economy.”  (Save the American Inventor, 2019, May 21, www.SaveTheInventor.com)

In selected circles, this is stated as “efficient infringement is a ‘fiduciary responsibility’ when the costs are less than those in R&D plus product development.”  Huh!  What? Really? Is this saying that Effective Infringement is legal?  It is Stealing!  It is the startup in a garage inventor versus a mega high-tech corporation with very deep pockets taking and using the invention.  The term “infringing” originally applied to a situation where a company accidentally or inadvertently used the same technology (techniques, methods, algorithm, signaling, coding) as the patent what the patent owner claimed (and may have been granted rights to in an issued patent).  In such cases, when the patent owner discovered the infringement, he went to court and got an injunction against the infringer – as cease and desist order.  In most instances, the outcome of follow-on negotiations was that the infringer paid some settlement for past infringement, took a license to the patent, and paid royalties for future sales (usually until the patent expired).

A strong patent system sounds rather quaint in view of today’s infringement-as-a-corporate-strategy where the infringer drags the patent owner through the courts for years until the inventor and his funding are exhausted.  Here is yet another example of wealth inequality where those with money disadvantage those without.  “Try to assert a patent covering the technology being copied and the Gang of Five will simply petition the Patent Trial and Appeal Board (PTAB) dragging the patent through inter partes and deveining it of any useful subject matter if the proceedings are instituted.”  (Brachmann, S., 2017, March 17, How tech’s ruling class stifles innovation with efficient infringement, IPWatchdog.com). Gang of Five refers to Google (Alphabet), Apple, Facebook, Microsoft and Amazon.

Meanwhile, back in Washington, DC, Senator Thom Tillis (R-NC), Chair of the Senate’s Subcommittee on IP, said the Committee would not be able to complete its work on legislation addressing patent eligibility.  “[A]bsent stakeholder consensus, I don’t see a path forward for producing a bill – much less steering it to passage – in this Congress.”  There is no mention of considering strengthening injunctions or treating efficient infringement as the crime it is.  (Borella, M., Feb. 4, 2020, The Zombie Apocalypse of Patent Eligibility Reform and a Possible Escape Route, www.patentdocs.org)

High tech gets to run free without restraint for at least another year.  Hey look, it’s a fiduciary responsibility.