SUMMARY OF ARGUMENT
Defendants’ motion to dismiss rests in part on a common but crucial misunderstanding of patent law. Based on the various references in the complaint to their portfolios of “weak” patents, Defendants make the seemingly attractive. In the interest of disclosure, EFF is an intervenor in a separate appeal involving Apple and the Uniloc parties argument that they cannot violate the antitrust laws because weak patents, being weak, are incapable of giving rise to market power. See, e.g., Defs.’ Mot. Dismiss
15–16 (Doc. No. 111).
Yet it is the nature of patent law that weak patents are not only capable of conferring market power, but are particularly likely to do so. A “weak” patent, as that term is often used, is one that is drawn to encompass a wide range of products and services within its ambit of infringement—so wide a range as to render the patent likely invalid, or “weak” to challenges of invalidity. One
might draft a patent application so broadly as to try to capture technologies or inventions that go far beyond the actual inventive contribution meriting a patent, potentially in hopes of extracting licensing fees from a broader range of manufacturers, vendors, and users of technologies. By virtue of having exceptionally broad coverage, patents that are weak for overbreadth have repeatedly shown themselves to be powerful tools for manipulating markets, controlling competition, and extracting undue value from small businesses and consumers.
One might hope that overbroad weak patents would be eliminated through invalidity litigation or patent cancellation proceedings, but legal and economic incentive barriers mean that weak patents remain under-challenged. Weak patents are thus ideal vehicles for harming competition and consumers in ways well within the scope of the antitrust laws. While this brief does not take a position on the particular patents or parties at issue, this Court should be aware of and not acquiesce in the legal error in Defendants’ motion to dismiss.
Contrary to Defendants’ Assertions, Weak Patents Can Give Rise to Market Power
The motion to dismiss repeatedly argues that “‘weak’ patents—whether individually or combined into a portfolio of ‘weak’ patents—would possess no market power at all.” Id. at 15; accord id. at 16 & n.6 (concluding that it is “implausible” for Defendants “to use their purportedly ‘weak’ patents to control prices or exclude competition in the alleged market”); id. at 29 (treating
allegations of “weak” patents as “contradicted by Plaintiffs’ admission elsewhere that Defendants own ‘potentially valuable patents’”). Yet by the nature of current United States patent law, a “weak” patent is in fact quite likely to give rise to market power—and the opportunity to abuse that power.
I. A “Weak” Patent Is One Likely to Sweep Up Numerous Firms and Market Products Within Its Scope of Infringement
When it comes to patents, “weak” is not synonymous with “useless.” On the contrary, a weak patent can confer great power, with significant potential to affect competitors and markets because of the manner in which patents are drafted and obtained.
A patent is a government-conferred instrument giving the holder a right to demand licenses from and bring suit against others who practice or sell a particular invention. See 35 U.S.C. § 271. Over the last few decades, patents have been weaponized across many industries, including the information and communications technology sector. For example, it is estimated that there are between 250,000 and 314,000 patents covering smartphones, with dozens of high-stakes litigation actions over alleged infringements of those patents. See RPX Corp., Registration Statement (Form S-1), at 59 (Sept. 2, 2011), available online;3
Joel Reidenberg et al., Patents and Small Participants in the Smartphone Industry, 18 Stan. Tech. L. Rev. 375, 382 tbl.2 (2015).
A critical component of the right to stop others from using a patented invention, then, is how the “invention” is defined in the patent; that is, what products or services constitute infringement within the scope of a particular patent. See Markman v. Westview Instruments, Inc., 517 U.S. 370, 373–74 (1996). Defining the scope of the patented invention is doubly important because how the invention is defined determines whether the invention is eligible, new, and Locations of authorities available online are shown in the Table of Authorities. not obvious, the three conditions that an invention must meet to be patentable.
See 35 U.S.C. §§ 101–103.
Under 35 U.S.C. § 112(b), the scope of a patent is defined by its claims, which specify the metes and bounds of what constitutes infringement. In much the same way that liability for a crime (e.g., burglary) requires meeting all the elements that legally define the crime (e.g., breaking, entering, a house, at night, intent to commit a felony), infringement of a patent requires meeting all of the elements of a claim in the patent. See, e.g., Pennwalt Corp. v. Durand-Wayland, Inc., 833 F.2d 931, 949 (Fed. Cir. 1987) (quoting 4 Donald S. Chisum, Chisum on Patents § 18.03 (1986)).
Patent claims are written by inventors applying for patents, subject to approval by the U.S. Patent and Trademark Office. See Festo Corp. v. Shoketsu Kinzoku Kogyo Kabushiki Co., 535 U.S. 722, 740 (2002). This means that the patent applicant chooses the scope, drafting many detailed elements in the claims to obtain a narrow patent of limited scope, or writing few generalized elements to obtain a broad patent of expansive scope.
A broad patent is more valuable and desirable because “the broader the scope, the larger the number of competing products and processes that will infringe the patent.” Robert P. Merges & Richard R. Nelson, On the Complex Economics of Patent Scope, 90 Colum. L. Rev. 839, 839 (1990). But that breadth can come at a cost: If the patent scope is so broad that it encompasses inventions that were known or obvious before the patent was applied for, then the patent is invalid and thus ineffectual. See 35 U.S.C. § 102 (invention wholly known before filing date); § 103 (invention obvious before filing date). In an ideal world, the Patent Office would identify and reject applications for patents of erroneously broad scope before they issue as patents, but time pressures and limited access to technical information prevent the Patent Office from examining perfectly, meaning that
at least some proportion of issued patents are invalid. See Michael D. Frakes & Melissa F. Wasserman, Irrational Ignorance at the Patent Office, 72 Vand. L. Rev. 975, 982–87 (2019). Thus, “courts must be mindful of the fact that a patent, in the last analysis, simply represents a legal conclusion reached by the Patent Office.”
In re K-Dur Antitrust Litig., 686 F.3d 197, 215 (3d Cir. 2012) (quoting Lear, Inc. v. Adkins, 395 U.S. 653, 670 (1969)). Applicant choice of patent scope and errors in patent examination are what give rise to the “weak” patent: A patent with claims drawn at a high level of generality to cover a vast range of products and technologies, and that is likely to be invalid based on some prior technical knowledge predating the patent, making it “weak” to challenges to the patent’s validity. This definition of patent
weakness, as susceptibility to a validity challenge, is the one predominantly used by courts, legislators, executive officials, and commentators. See, e.g., Fed. Trade Comm’n v. Actavis, Inc., 570 U.S. 136, 158 (2013) (“detailed exploration of the validity of the patent” is one way of determining a “patent’s weakness”); Kerotest Mfg. Co. v. C-O-Two Fire Equip. Co., 342 U.S. 180, 184–85 (1952) (discussing incentives of “owners of weak patents to avoid real tests of their patents’ validity”); In re Cipro Cases, 348 P.3d 845, 156 (Cal. 2015) (distinguishing “strong, likely valid patents” from “weak patents”); Substantial New Question of Patentability in Reexamination Proceedings, H.R. Rep. No. 107-120, at 2 (2001) (describing a hypothetical “weak patent application” with “a ‘smoking gun’ bearing on its validity”); Stanley N. Barnes et al., Report of the Attorney General’s National Committee to Study the Antitrust Laws 223 (1955) (describing “‘weak’ patents” as a problem requiring “improved Patent Office issuance procedures”);
Joseph Farrell & Carl Shapiro, How Strong Are Weak Patents?, 98 Am. Econ. Rev. 1347, 1347 n.5 (2008); David Encaoua & Yassine Lefouili, Licensing “Weak” Patents, 57 J. Indus. Econ. 492, 493 (2009).
Plaintiffs recite a more expansive definition of “weak” patents in their complaint, encompassing patents that “are easily designed around” as well as those of “questionable validity.” Compl. ¶ 35 (Doc. No. 1). But it is clear that at least some, if not most, of the patents they are concerned with are weak in the sense of being broadly scoped and likely invalid. Plaintiffs describe the effect of Defendants’ patent aggregation as “eliminating substitutes” and removing “feasibility of redesigning products.” Id. ¶ 38. These consequences are natural characteristics of overbroad, likely invalid patents. The complaint further references multiple examples of invalidations of Defendants’ patents. See id. ¶¶ 88–94, 124 & 162. Thus, at least some portion of the Defendants’ patents
of concern to Plaintiffs are weak in the sense of being so broad as to be likely invalid.
With expansive, generalized claims written to cast a wider net of infringement, such patents enable their holders to bring more lawsuits; accuse more products and services; and potentially collect more in damages, royalties, and settlements. See Farrell & Shapiro, supra, at 1362. Though nominatively “weak,” these patents of broad scope are especially powerful.
II. Broad-Scoped Patents, Especially Those Characterized as Weak, Are Quite Likely to Confer Anticompetitive Market Power and Inflict Consumer Harm
The breadth and power of these so-called weak patents makes them likely candidates for market power, contrary to Defendants’ protestations. “[A] patent does not necessarily confer market power.” Ill. Tool Works Inc. v. Indep. Ink, Inc., 547 U.S. 28, 46 (2006). But the Supreme Court has recognized that a patent holder might still have market power in certain provable circumstances. See id. at 42–43. In determining whether a patent owner has monopoly power in the relevant market, then, courts frequently look to the breadth of the patent claims. See, e.g., Broadcom Corp. v. Qualcomm Inc., 501 F.3d 297, 315 (3d Cir. 2007) (comparing scope of patent with relevant market for standardized technology); New York ex rel. Schneiderman v. Actavis plc, 787 F.3d 638, 651–52 (2d Cir. 2015); Rambus Inc. v. FTC, 522 F.3d 456, 463 (D.C. Cir. 2008); see also U.S. Dep’t of Justice & Fed. Trade Comm’n, Antitrust Guidelines for the Licensing of Intellectual Property 4 (2017) (“The Agencies will not presume that a patent, copyright, or trade secret necessarily confers market power . . . . As in other antitrust contexts, however, an intellectual property owner could illegally acquire or maintain market power.
Furthermore, even if it lawfully acquired or maintained that power, the owner could still engage in anticompetitive conduct in connection with such property.”). Patents that are overbroad are particularly likely to give rise to market power. Indeed, the Supreme Court has recognized the relationship between patent weakness and anticompetitive conduct. In Actavis, the Court held that an unusual “reverse payment” settlement arrangement between a patent-holding pharmaceutical firm and a generic manufacturer may violate the Sherman Act as an improper “restraint of trade or commerce.” 570 U.S. at 141 (quoting 15
U.S.C. § 1). The Court agreed that the settlement would have been within the legitimate power of a “valid and infringed” patent, but “an invalidated patent carries with it no such right,” meaning that anticompetitiveness in a hypothetical reverse-payment case turns at least in part on the patent’s weakness to a validity challenge. Id. at 147; see also id. at 157–58 (discussing need for courts to assess “patent validity to answer the antitrust question”).4 In so holding, Actavis relied heavily on United States v. Singer Manufacturing Co., which found illegal collusion where two sewing machine firms agreed to settle a patent dispute over validity challenges, enabling the firms “to secure as broad coverage for the patent as possible, the more effectively to stifle competition.” United States v. Singer Mfg. Co., 374 U.S. 174, 190 (1963), cited in Actavis, 570 U.S. at 149. Both Singer and
Actavis thus drew connections between the likelihood that a patent would be invalidated and the likelihood of violation of the antitrust laws.
Beyond market power against technology firms, weak patents give rise to a variety of consumer harms. Being patents of exceptional breadth, weak patents tend to implicate ordinary, widely used consumer technologies, and are a favorite tool of patent assertion entities that blanket small businesses with demand letters alleging patent infringement. In one example, a firm claimed to possess a patent on a basic functionality of document scanners, which it used to send over 16,000 demand letters to small businesses. See In re MPHJ Tech. Invs., LLC, 159 F.T.C. 1004, 1006, 1010–11 (Mar. 13, 2015). In another, a company held a patent describing a method of transmitting documents by fax machine, but with claims so broadly drawn seemingly as to encompass email messaging, based on which the company filed over a hundred lawsuits. See Eon-Net LP v. Flagstar Bancorp,
653 F.3d 1314, 1320 (Fed. Cir. 2011). In both cases, the patents were ultimately deemed invalid, with the patent owner in the latter case being sanctioned for the frivolousness of its arguments. See MPHJ Tech. Invs., LLC v. Ricoh Americas Corp., 847 F.3d 1363, 1371 (Fed. Cir. 2017); Eon-Net, 653 F.3d at 1327 (patent owner “acted in bad faith by exploiting the high cost to defend complex litigation to extract a nuisance value settlement”). To be sure, these especially weak patents were ultimately rendered invalid, but only after a great deal of publicity, litigation costs, and harm to consumers and small businesses who became the targets of massive, harmful patent assertion campaigns.
These cases are not unique: One study found that 40% of small companies surveyed reported a “significant operational impact” resulting from this sort of patent demand. See Colleen Chien, Startups and Patent Trolls, 17 Stan. Tech. L. Rev. 461, 465 (2014). Weak patents have the propensity to do a great deal of damage to markets, competition, and consumers.
III. Economic Disincentives and Legal Impediments Diminish the Effectiveness of Invalidation Proceedings for Dealing with
The capacity of weak patents to create market power and threaten industries might be limited if those patents, where actually invalid, were duly adjudicated as such in due course of litigation. However, there are several legal and economic roadblocks to comprehensive adjudication of patent validity, meaning that weak patents are likely in many cases to remain in force as powerful tools of anticompetitive conduct.
First, patent law places a statutory thumb on the scale against invalidation even of weak patents. Under 35 U.S.C. § 282, “[e]ach claim of a patent . . . shall be presumed valid.” Courts have interpreted this provision to mean that patents must be proved invalid under a heightened standard of “clear and convincing evidence.”5 Microsoft Corp. v. i4i Ltd. P’ship, 564 U.S. 91, 95 (2011).
Intuitively, the presumption of validity (and other aspects of patent litigation that disfavor invalidation6) would likely prevent invalidation of truly invalid patents. This intuition can be proved through observation of an adverse selection or “lemons” phenomenon. Because § 282 applies with equal force to all patents, weak patents at risk of invalidation gain the most benefit from that provision in the same way that a used car dealer profits most by selling lemons to a buyer who evaluates all cars equally. See George A. Akerlof, The Market for “Lemons”: Quality Uncertainty and the Market Mechanism, 84 Q.J. Econ. 488, 489–90 (1970).
Thus, just as economists predict that the used car dealer will gravitate toward selling lemons rather than quality cars, see id. at 490, one might anticipate that patent asserters would gravitate toward weak patents in their lawsuits. In fact, the statistics bear out this prediction about weak patents. Although it is estimated that about 28% of patents are invalid as a general matter, patents that are litigated fully through trial are invalidated at least 43% of the time. Compare Shawn P. Miller, Where’s the Innovation: An Analysis of the Quantity and Qualities of Anticipated and Obvious Patents, 18 Va. J.L. & Tech. 1, 45 (2013),
with John R. Allison, Mark A. Lemley & David L. Schwartz, Understanding the Realities of Modern Patent Litigation, 92 Tex. L. Rev. 1769, 1801 (2014). This 54% higher invalidity rate in litigation, relative to baseline invalidity, suggests that weak patents are systematically preferred for assertion, so at least in the view of patent asserters, the presumption of validity does shield weak patents from proper adjudication and invalidation even where invalidation is merited.
Second, putting the legal barriers to invalidation aside, patent litigants face an economic disincentive to mounting comprehensive invalidation cases. Invalidation of a patent is a “public good,” insofar as when a patent is invalidated,
everyone enjoys the benefit of being able to use the formerly patented invention free of legal threat. See, e.g., Blonder-Tongue Labs., Inc. v. Univ. of Ill. Found., 402 U.S. 313, 338–40 (1971); Megan M. La Belle, Patent Law as Public Law, 20 Geo. Mason L. Rev. 41, 53–54 (2012). But the costs of that public good are borne by a private actor—often a company or firm that, by invalidating a patent, ends up helping its rivals and competitors who now can also use the invention without paying the costs of invalidity litigation. See, e.g., John R. Thomas, Collusion and Collective Action in the Patent System: A Proposal for Patent Bounties, 2001 U. Ill. L. Rev. 305, 333–34 (2001). Patent invalidation thus presents a free- rider problem: Litigants face diminished incentives to press the strongest patent invalidity arguments or to devote resources to building an invalidity case, in
the same way that a private party is unlikely to invest in upkeep of parkland if everyone is allowed to enjoy its benefits for free.
While patent litigants are not wholly discouraged from seeking patent invalidation—about half of fully-litigated patents are in fact invalidated, as noted above—the free-rider problem manifests itself in several observable ways. Patent litigants tend to use claim construction, the exercise of a court interpreting the language of patent claims in ways that render the patent marginally broader or narrower, to shift litigation issues toward noninfringement arguments about whether the supposedly infringing products actually meet the elements of the claims, sidestepping questions of invalidity. See Roger Allan Ford, Patent
Invalidity Versus Noninfringement, 99 Cornell L. Rev. 71, 94–98 (2013). Litigants also may settle cases on especially favorable terms on the eve of an invalidity decision, or even agree to vacatur of an invalidation decision. See id. at 113; Megan M. La Belle, Against Settlement of (Some) Patent Cases, 67 Vand. L. Rev. 375, 424–28 (2014). That leaves the patent owner free to assert that patent against others (including the litigants’ competitors), particularly in situations where the patent would otherwise have been invalid and rendered unassertable. In fact, the patent asserter may also immediately moot a patent case by tendering a royalty- free license. See Super Sack Mfg. Corp. v. Chase Packaging Corp., 57 F.3d 1054, 1059–60 (Fed. Cir. 1995). This practice of “super-sacking” patent cases lets the patent asserter unilaterally avoid an adverse validity determination. See Ford, supra, at 113 n.163.
Patent case litigants thus face a variety of disincentives for pursuing patent invalidation, including the presumption of validity and the free-rider problem. As a result, patent invalidation procedure is not sufficient to eliminate weak patents, leaving them in force as broad, powerful tools for controlling markets and competitors, perhaps in anticompetitive ways.
For the foregoing reasons, Defendants’ assertion that weak patents cannot confer market power is erroneous and should be disregarded.
Dated: March 20, 2020 /s/ Alexandra H. Moss
Alexandra H. Moss (CA Bar No. 302641)
ELECTRONIC FRONTIER FOUNDATION
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