Patent Assignment: Trolling the Gap between Potential and Actual Usefulness

Ben Gornall, a patent and trademark consultant in Vancouver, commented on my post regarding Intellectual Ventures.

(link directly to Mr. Gornall’s comment)

His comments left me asking a number of questions about the merits of so-called patent trolls. There is no question that there is value to inventors in knowing that they can receive reward for their innovations without having to market them – that they can invent, patent, assign, and let the assignee (the patent troll) look for possibly infringing uses and try to recover what they paid for the assignment.

What continuing relationship do the inventors have with IV?  Do they receive a share of the proceeds from the suits and settlements?  If not, what did they receive when they sold the patents to IV?  In other words, what portion of the proceeds – one could consider that portion the wholesale cost of the patent – makes it to the inventors to encourage “the progress of useful arts and sciences?”

This leads to my second question:  How did IV gain standing to sue for infringement of these patents?  Did they buy assignments of them from the original developers?  How far removed are they from the developers/inventors whose standing to sue for infringement is still rooted in the pro-development purpose for the patent regime?

The lawsuits and threats of lawsuits do generate licensing, it seems, so there is the argument that the patented matters are being used.  That in itself suggests that it is not frivolous or merely litigious.  I continue to wonder though at what point does the IP-lawsuit-as-business-model tip the delicate balance that has on one side a statute=permitted monopoly that limits competition for the sake of development, and stifled competition without sufficient innovation to justify it.

Now the argument can be made that if the matters being sued over are not actually being used, then there’s no suit anyway as the infringement isn’t really there.  Thus if the suits and licence negotiations are successful, there is an implication that the patented matters are in continued (and infringing) use.

But the monopoly in patent is neither indefinite nor automatic.  It is subject both to objective limits (20 years, usually), and subjective criteria (usefulness, novelty (or “newness”), and non-obviousness).

Here we come to the difference between potential usefulness, which speculation underlies the granting of the patent, and actual usefulness, evidence of which underlies the infringement lawsuit.

Intellectual Ventures tries to negotiate licences in most cases.  This suggests something in between potential and actual usefulness:  they threaten a lawsuit based on evidence of infringement, and negotiate a licence based on speculation of future usefulness.  This seems, while a bit shrewd, a justifiable tactic.

What is actually going on there, though?  How many of the would-be defendants simply negotiate the licence – not a one-time settlement but an ongoing licence (perhaps under duress?) – to avoid the more costly lawsuit, even though they have no intention of using the patented matter any further?  This is not uncommon in any area of law, but it does beg a question of patent law:  if the patented matter is no longer useful enough to merit a licence but for the threat of infringement damages, which are in part punitive and not completely connected to the usefulness of the patented matter, then why is the patent still valid?

It seems then that a lot of money may be paid under the guise of future usefulness but in reality it is a form of hush money for an invention that has outlived its marketable usefulness.  Again, settling outside of court is common, and usually a good thing.

In this case, I wonder what would happen if patent learned a lesson from the trademark model, best summed up by Jon Festinger, Q.C., when he was my professor at UBC:  “Use it or lose it.”  If patent protection waned based on the continued usefulness (or lack thereof) of a patented matter, what would be the effects on litigation, competition, and most importantly, innovation?