Trolls At the Gate: Why Thorsten Heins Is Right to Complain About Patent Legislation

Thorsten Heins: “This past year our sector spent almost $30-billion in courtrooms – particularly U.S. courtrooms – defending cases against non-practising entities – or ‘patent trolls’ – who produce nothing.”At a time when you’d think BlackBerry would be in full grip-and-grin sales mode, Thorsten Heins took a moment during an address to the Empire Club of Canada to dump battery acid on a particularly troublesome nuisance.

“This past year our sector spent almost $30-billion in courtrooms – particularly U.S. courtrooms – defending cases against non-practising entities – or ‘patent trolls’ – who produce nothing,” he said.

BlacKberry’s own estimate of its intellectual property, revealed in an SEC filing in July, came in at $3.37-million.

Recently, a company called Personal Audio has popped its head above the troll parapet and demanded payment from… anyone who has ever podcasted. There’s only so much popcorn a person can pop before just getting angry. If the system works as it should, Personal Audio will be crushed like insects. And if it doesn’t?

Occasionally, the system does work, if in a roundabout way. Heins may want to buy Newegg’s chief legal officer, Lee Cheng, a drink for winning an appeal against a company called Soverain, who up until Newegg took its stand had fleeced several large companies (Amazon, Victoria’s Secret, and Avon among others) of several multi-millions of dollars. The process, from the moment the troll demanded payment to the verdict being delivered on appeal, took six years, during which time those other companies caved and paid the troll’s lawyers large settlements. The troll’s claim was that it could prove that it had invented the online “shopping cart” for buying things in a virtual store.

“We basically took a look at this situation and said, ‘This is bullshit,'” said Cheng in an interview with Ars Technica. “We saw that if we paid off this patent holder, we’d have to pay off every patent holder this same amount. This is the first case we took all the way to trial. And now, nobody has to pay Soverain jack squat for these patents.”

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With so much at stake, what are the costs of maintaining the current patent system? And what would be the cost of scrapping it entirely and starting over? Michele Boldrin and David K. Levine, both economics professors at Washington University in St. Louis, Missouri, have published a provocative article in the Journal of Economic Perspectives which states that “while weak patent systems may mildly increase innovation with limited side effects, strong patent systems retard innovation with many negative side effects.”

In stating their case, the researchers note that while “the initial eruption of innovators leading to the creation of a new industry…is seldom, if ever, born out of patent protection and is instead the fruit of a competitive environment…[i]t is only after the initial stage of rampant growth ends that mature industries turn toward the legal protection of patents.”

So it’s an “I’m all right, Jack,” kind of a system. Once an actor within an industry becomes sufficiently “mature”, its instinct is to construct a moat to protect its belongings. Fair enough, you think, they’ve worked hard to get what they have. Until you start insisting that your castle contains rounded corners on a phone, or the idea of drop-down menus or double tapping a screen.

In Europe, the proposed solution is “a better balance between the legitimate rights of both inventors and purchasers so that the successful results of inventions can be disseminated as widely as possible.” With so much of the rest of the world being a de facto patent-free zone, the battle would appear to be with a combination of vested interests from the pharma, tech and automotive industries, among others, as well as the army of patent trolls. The challenge remains to establish a legal difference between legitimate innovators and fronts who do nothing but sit on ideas, their lawyers kept on speed dial.

Arguing against half-measure solutions, Boldrin and Levine ask, “But why use band-aids to staunch a major wound?” A professional proofreader might advise them to use the word “bandages”, for fear of a phone call from the good people at BAND-AID® brand adhesives.

But we digress…

Aren’t half measures what we’re after in this case? Is absolute lack of regulation a serious solution to a problem that might be better remedied by the creation of smarter rules? This isn’t a law to end child labour we’re talking about. Ending patent trolling is not a health and safety issue. Except when it is. Boldrin and Levine note, “The downstream social cost of monopoly pricing is highest for life-saving drugs,” and then go on to deflate the notion that allowing generics alongside original products negates the incentive to develop the drug in the first place. They point out that Jean Lanjouw’s 1998 “study of India prior to the recent introduction of pharmaceutical patents there indicates that it takes closer to four years to bring a product to market after the original is introduced—in other words, the first-mover advantage in pharmaceuticals is larger than ordinarily imagined.”

Keeping in mind that the purpose of patents is to protect inventors, the challenge remains to prove that the solution to the problem is not abolition but the enforcement of rules that encourage innovation and prevent frivolous lawsuits.

Near the end of their report, admitting that the idea of abolishing patents has been described as “pie in the sky”, the researchers retort, “Economists fought for decades—ultimately with considerable success—to reduce restrictions on international trade.” So why not apply a similar resolve to a problem that almost everyone regards as an obstacle to innovation?

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