In
Part 1 on February 13, “Inequality
finds a place in IP where Efficient Infringement Runs Wild,”
we emphasized the David vs Goliath nature of patent holding startups trying to
get justice against a mega-tech infringer.
Infringement is somehow legally transformed because it is efficient – an
odd attempt at rationalizing an illegal action. (Note the new location of our
IP Zine and all past blog posts are at www.IntellZine.com.)
Well, just as we acknowledge that, “hope springs
eternal,” as Apple’s appeal in an infringement case was rejected (Bloomberg/LA
Times, Feb 24, 2020). The US Supreme
Court refused to consider the tech giant’s attempt to avoid paying upwards of
$1B in patent damages to VirnetX Holding Company, a Nevada company with less
than $2M in annual revenue. VirnetX
somehow managed to tough it out for a decade trying to get Apple to pay
royalties on patents for secure communications technology.
Of
the long list of things to fix in IP law, efficient infringment is certainly
one of them. Somehow, infringement cases
must be settled far more rapidly than today’s decade long slogging through the
mud. The market disappears in ten years,
there is no longer revenue available to fight over.
From The LA Times, “The high court denied Apple’s
petition arguing that a $439-million judgement from the first of two cases
brought by VirnetX was ‘grossly excessive’ and should be thrown out… A second
case not currently before the high court, resulted in a $503-million verdict
over the same patents and newer Apple products.” (https://www.latimes.com/business/technology/story/2020-02-24/apple-rebuffed-supreme-court-billion-facetime-patent)
This ruling was nearly one month after a federal jury
in Los Angeles ruled that Apple and Broadcom must pay $1.1B in damages to
Caltech for infringing on WiFi patents. That’s
right, California Institute of Technology (http://www.caltech.edu/),
the university in Pasadena California! What’s a school gonna do with patent
technology anyway? Apple was ordered to pay $837M, Broadcom Inc $270.2M. “It’s the biggest jury verdict of any kind so
far in 2020 and the sixth largest patent verdict of all time, according to
Bloomberg data.” (https://www.latimes.com/business/story/2020-01-29/caltech-wins-a-1-1-billion-jury-verdict-against-apple-and-broadcom)
Apple’s strategy is based on maintaining the Company’s high profit margin which
demands fighting for years in various courts.
Does “efficient infringement” ring a bell here? (The $838M won by Caltech is about one day of
sales and 1.5% of the company’s $55.3B net profit in 2019.)
 |
| Apple and Broadcom lose Caltech infringement case |
But wait, there’s more. Apple’s appeal to the US
Supreme Court did not go well for Apple. On March 13, 2020, the US Supreme
Court rejected the opportunity to review the case (originating in Texas, of
course). The final settlement that Apple agreed to pay was $454M to VirnetX. Now down to about half a day of sales and
0.8% of the company’s net profit in 2019. Roughly $1 for each of the 400M
devices that VirnetX claims patent infringement. (See here
for one discussion of case-closed.)
So, Apple argues, essentially, “efficient infringement”,
which we will return to in a second. But VirnetX has been ungraciously referred
to as a Patent Troll, a Nevada corporation operating out of a Troll Hole in
Texas. Here’s an example of articles during the decade by Zack Epstein in the
NY Post: https://nypost.com/2018/04/11/apple-ordered-to-pay-half-a-billion-dollars-in-damages-to-patent-troll/
Patent
Trolls. The more derogatory term, but sometimes more
accurate, is patent troll; other
related terms are patent holding company
(PHC), patent assertion entity (PAE),
and non-practicing entity (NPE).
Wikipedia has a good, but not especially strong, page on Patent Trolls.
The advantage of going back to Wikipedia is that it is dynamic and usually is
updated perpetually by people. This Apple case is in the article, but not
updated for 2020. Anyone can update, so please consider going and improving the
article.
There is the dilemma to choose between the lesser of
two evils: the toll
of the patent troll or the stealth of efficient infringement. It
is hard to support VinnetX, and the tolls of patent trolls. Our values state that deliberate attempts to
extort money on less-than-honorable pretenses cannot be condoned. We have several
blogs posts about Patent Troll and their negative
impact on innovation and economic productivity.
On the other hand, efficient
infringement is the result of a deliberate – with malice of foresight –
corporate strategy. It is callous and
predatory. It is practiced by companies
that are unquestioned technical powers and have major share in their
markets. They have uncommon market power
and use it with against rivals. In
particular, these companies prey on start-up entrepreneurs if their new
technology is a threat or an opportunity.
Neither party is honorable in any way, but the greater
of the evils is efficient infringement.
It would be a more positive impact on innovation if efficient
infringement became too expensive by way of damages to risk continued
practices. The courts need to look just
at the question of infringement and the issue of market power to make this
call.
These efficient infringement courtroom dramas go on
and on, and on and on. A decade in this case.
Get the picture? As one of
several high-tech giants that are apparently doing the same, Apple doesn’t
anticipate any significant downside.
When served a rare injunction, it just moves up the justice stepladder
until, if necessary, it reaches the summit.
To be sure, The Supreme Court’s refusal to hear its appeal must have
come as a shock. But, will this change
behavior? Not likely.
Here is another way to cast a harsh spotlight on
efficient infringement. The House of
Representatives should hold hearings when these cases like these reach the
public eye. The CEO of the infringing
company must be subpoenaed to testify whether or not efficient infringement is an accepted corporate policy; does the
company’s board and CEO approve infringement and willingly will pay damages,
eventually. Today, a CEO can hide behind
legions of lawyers. Being forced to testify in person just might, might change
strategy. In addition, Congress should
make egregious efficient infringement a
felony, Grand Theft – Intellectual Property punishable by 5-7 years in prison
and forfeiture of revenues and fines for the key decision maker(s): Chair, CEO
and CFO. When enforced, efficient infringement will become a
relic of a lesser past.
Here is an afterthought. It is obvious that corporate
lobbying and campaign contributions have removed any possibility of
Congressional action to strongly deal with infringement today. As the economy reopens, many things will
change. It would very much benefit the
entrepreneur if the legal system enforced IP laws to protect the new technology
inventions we will need.
#Patents #EfficientInfringement #Infringement
#PatentTroll #Apple #PAE #NPE
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