1. WHAT IS A BAD PATENT? Patrick A Doody Presented at the Southern California Law Associations Intellectual Property Spring Seminar, June 8–10, 2007, Laguna Niguel, CA ©2007. Goodwin Procter LLP

2. Why Define a “Bad Patent?” Critics argue that the Patent System is Broken Too Easy to Obtain a Patent Too Hard to Invalidate a Patent Result – Too many “Bad Patents” that harm Innovation

3. Is the Patent System Broken? No – “The Patent System is Not Broken,” Intellectual Property & Technology Law Journal, Vol. 18, No. 12, pp 10-24 (Dec. 2006). Not Harming the Economy Not Harming Innovation Every economic indicator of innovation continues to rise US still the most innovative country by far – due to a functioning patent system Not Easier to Obtain a Patent

4. Patent System Not Harming Innovation Most governments measure innovation by examining: (1) the number of high-tech or “knowledge-based” jobs as a percentage of all jobs; (2) the number of patent applications filed or patents granted; (3) the amount of money industry invests in research and development (R&D), the amount of R&D expenditures compared to gross domestic product (GDP) or net income; and (4) the number of scientific and technical publications each year Every one of these indicators continues to rise.

5. Percentage of Tech Jobs Increases

6. Number of Patent Applications Filed 0 2,000 4,000 6,000 8,000 10,000 12,000 19701975198019851990199520002005 Year DIJA 0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 # of Patent Applications DOW# Patent applications Applications Filed and DJIA Closing per Year

7. Amount Invested in R&D

8. Science and Engineering Publications

9. Innovation is Not Being Harmed All indicators of innovation trend upwards Business Week article – 8 out of top 10 most innovative companies are in the US Managers asked about enemies of innovation – the patent system was not listed

10. So Why Define a “Bad Patent?” Congress and the Supreme Court appear to believe the critics The Patent Reform initiatives seem to focus on reducing the number of “bad patents.” How do we know whether a patent is or is not a “bad” patent? If we can’t define a “bad patent,” how can we solve the problems these patents allegedly cause?

11. Are Silly Patents Bad Patents? Many Critics focus on Silly Patents as Examples of Bad Patents Silly patents are those that many believe have little or no commercial viability Examples: Swinging on a swing; teddy bear with a watch; training a cat with a laser pointer

12. Silly Patents Have Existed For Years

13. Silly Patents Are Not Bad Patents Rarely asserted Only one asserted – Crustless peanut butter and jelly patent by Smuckers – Reexamined, court case stayed, and PTO Board recently rejected the claims No evidence there are more silly patents today than 100 years ago Present no threat to innovation – may even promote innovation

14. Are Invalid Patents Bad Patents? FTC report defines a poor quality patent as one that is likely invalid or contains claims that are overly broad Invalid or overly broad to whom? Validity is a matter of legal opinion Subject to variability in claim interpretation Subject to variability in interpreting scope and content of prior art

15. “Invalid” Patents are Not Bad Patents Federal Circuit struggles with claim interpretation CVI/Beta Ventures – 2 different panels interpreted same claim term differently Patents found invalid in court Not Bad Patents – Validity usually is a very close call

16. So What is the Problem? Bad patents not silly patents not invalid patents not capable of definition The Problem may not be with the Patent May be the patent owner May be overzealous enforcement

17. The Patent Owner The “T” word This term itself is not capable of definition Non-Practicing Entity RIM and eBay cases frequently cited by critics as evidence the patent system is broken Would critics have been as enraged if different patentees brought those suits (AT&T or Amazon)? No – So the problem clearly is not with the patent

18. Overzealous Enforcement Widespread enforcement of a patent, coupled with an offer to license at a nominal expense Justice Kennedy’s oft-cited concurrence in eBay: “[I]n cases now arising... the nature of the patent being enforced and the economic function of the patent holder present considerations quite unlike earlier cases. An industry has developed in which firms use patents not as a basis for producing and selling goods but, instead, primarily for obtaining licensing fees.”

19. Overzealous Enforcement Enforcement by non-practicing entity No ability to cross-license Only recourse is to pay license fee or risk being sued and then pay litigation costs This is the Real Problem Patent Reform – Coalition for Patent Fairness “The strategy is to go after the small guys first. They just ask a small enough sum that it doesn’t pay to fight. Not that it’s always nickel and dime. Some of our clients have paid six-figure settlements. But it still beats litigating.”

20. Overzealous Enforcement – The Real Problem Testimony before Congress Chuck Fish – VP and Chief patent counsel for Time Warner noted that the focus should not be on the underlying patents, but “rather we believe that a focus on behaviors and the consequences of those behaviors is essential.” NAS report – noted that the continuing high rates of innovation suggest that the patent system is working well, but urged reform because patents were being more actively acquired and vigorously enforced.

21. What to Do about Overzealous Enforcement? Solution should be judicial, not legislative or administrative Judicial Remedies Rule 11 Violations Eon-Net, L.P. v. Flagstar Bancorp – W.D. Wash – court found Rule 11 violations and sanctioned Eon-Net by awarding attorney’s fees. Eon-Net would file complaint and then send settlement letter (50-75K offer of settlement). They used the same Complaint and letter in about 32 suits, and the court found that the attorney did not conduct an adequate pre-suit investigation.

22. What to Do about Overzealous Enforcement? Other Judicial Remedies RICO claim – Google filed a suit against an individual in Illinois who claimed to have trademarked “Google.” The individual sent Google a letter threatening its total destruction and warned them that “beginning a legal proceeding on the issue would cost Google at least $150,000 and that [the individual] would drop the claim if paid at least $100,000. Blackmail Antitrust – Walker Process Motion to Dismiss Summary Judgment

23. Patent Reforms Will Not Solve the Problem with Bad Patents Recent Legislative Reform and PTO proposed rule changes affect all patent holders Do not address the real problem Will not solve the real problem Only serve to weaken patent rights – will harm innovation and the economy One possible exception – Post Grant Opposition

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