By
Maurice N. Ross*
The U.S. has long been the world’s leader in protecting intellectual property rights, often criticizing China, Russia, India, and countries in Latin America for lack of respect for patents, copyrights, and other intellectual property rights. China, India, and to a lesser extent Russia have made significant progress towards acknowledging the importance of respecting intellectual property rights in international trade. Ironically, however, a war is being waged within the U.S. to weaken U.S. intellectual property right laws and make it more difficult to enforce U.S. patents, copyrights, and trademarks against counterfeiters and other infringers. The outcome of this war—being waged in both federal and state legislatures within the United States—could have a profound impact on international trade.
![]() |
By Michael Darcy Brown, Stock Photo 45685957 |
The U.S. has long been the world’s leader in protecting intellectual property rights, often criticizing China, Russia, India, and countries in Latin America for lack of respect for patents, copyrights, and other intellectual property rights. China, India, and to a lesser extent Russia have made significant progress towards acknowledging the importance of respecting intellectual property rights in international trade. Ironically, however, a war is being waged within the U.S. to weaken U.S. intellectual property right laws and make it more difficult to enforce U.S. patents, copyrights, and trademarks against counterfeiters and other infringers. The outcome of this war—being waged in both federal and state legislatures within the United States—could have a profound impact on international trade.
The
“founding fathers” of the United States believed that it was crucial for the
economic success of America’s fledgling democracy to provide economic
incentives for those who devote their energies to developing new technologies as
well as works of art, music, and literature. Thus, pursuant to Article I, Section 8 of
the U.S. Constitution, Congress was empowered: “To promote the Progress of Science and useful Arts, by
securing for limited Times to Authors and Inventors the exclusive Right to
their respective Writings and Discoveries.”
Officials in two states,
Vermont and Nebraska, have recently directly challenged the federal patent and
copyright systems by prohibiting standard enforcement tactics utilized by
attorneys for patent and copyright owners for decades.[1] Legislation is pending in Congress that would fundamentally
change patent laws to penalize patent owners who bring unsuccessful
infringement suits by making them responsible for their adversary’s attorneys’
fees, an outcome that under currently law is rare and limited to “exceptional
cases.” See 35 U.S.C. Section 285.
If this legislation passes, it would fundamentally reduce the economic value of
U.S. patents, copyrights, and trademarks, making it much more difficult to
enforce U.S. intellectual property rights against companies which import or
export counterfeit products.
The internet and related digital
technologies have dramatically reduced the costs of sharing new works of
science, literature, art, and music with others, since sharing can be accomplished
across oceans and continents with a mere click of a button. With this reduction
in the costs of distribution has arisen the belief among many that they should
no longer have to pay to use emerging technologies. Further, a distinction is
now made in U.S. culture between those companies who manufacture and distribute
tangible products and those who profit by developing and licensing their
technologies to others.
While few doubt
that companies which manufacture and distribute products should be permitted to
aggressively enforce their intellectual property rights against infringers,
there is a groundswell of opposition within the United States to the activities
of “non-practicing entities” (“NPE’s”) (i.e., individuals, companies, and
others who do not use their intellectual property to manufacture and produce
products) in licensing and enforcing their intellectual property rights against
infringers.
Pharmaceutical companies who enforce their patent rights against
foreign-based generic pharmaceutical companies are considered to be engaging in
acceptable activity, whereas NPE’s, individual inventors, universities, and
their attorneys who attempt to enforce their patent rights are characterized as
“trolls." Traditional book publishers, record companies or movie studios who
aggressively enforce their copyrights against their competitors are considered
to be engaging in acceptable activity, but individual copyright owners or
filmmakers who retain counsel to pursue small businesses and individuals who
illegally download and distribute their copyrighted materials are considered
copyright “trolls."
Indeed, there is an unprecedented
level of opposition to patent and copyright infringement enforcement techniques
that have been traditionally considered entirely acceptable within the United
States. Techniques long considered acceptable in the U.S. include: (a) cease
and desist letters from lawyers who take cases on a contingency fee basis (these
cases have been the bread and butter of intellectual property enforcement
efforts for decades); (b) copyright portfolio and patent portfolio
consolidation by companies for purposes of licensing and enforcement (indeed,
licensing and enforcement of copyrights is the main business of music
publishing companies); and (c) licensing and commercialization activities by
universities and other academic institutions, many of which have developed
in-house intellectual property licensing departments whose sole mission has
been developing streams of revenues from intellectual property rights arising
from the research and scholarly activities of faculty members.
Today, these
long accepted practices on behalf of NPE’s are under attack by those who are
quick to characterize them as “trolls” simply because they do not produce the
products or publish the works of authorship that are protected by the intellectual
property (IP) rights, but license those rights to others.
Especially contentious have been
efforts by NPE’s and their lawyers to enforce intellectual property rights
against individuals and small businesses. Some have asserted that standard
“cease and desist” and settlement demand letters are acts of extortion. The
basis for this argument is that litigation fees and expenses often exceed the
economic value of the patent and copyright infringement damages at issue—thus
they argue that it is extortionate to demand settlement of relatively minor
claims for damages based upon the threat that the defendant may be exposed to
litigation costs (and liability for prevailing party attorneys’ fees) far in
excess of the actual damages. It is certainly frightening when an individual or
small business gets a formal letter from reputable legal counsel threatening
copyright litigation in which statutory damages of up to $150,000 will be
sought for willful infringement of each “work” allegedly infringed, together
with the copyright owner’s attorneys’ fees (which far exceed statutory damages
if the case goes court).
But it seems to be unreasonable for anti-troll
advocates to assert that such cease and desist/demand letters constitute
extortion. Rather, in most cases, such cease and desist letters operate as a
low-cost alternative to prohibitively expensive litigation. By giving
infringers the opportunity to settle the matter prior to incurring litigation
costs, these letters often result in a fair and efficient resolution of the
disputes.
Some argue that the system as it
currently exists is unfair because innocent individuals and companies are
sometimes wrongly accused of infringement but are forced to settle rather than
incur the substantial legal costs associated with defending themselves. But
claims that innocent individuals and companies are wrongly accused of
infringement seem vastly exaggerated. Further, it is not in the interest of
plaintiff’s counsel in these cases to pursue innocent defendants—if a defendant
has evidence of innocence, in most situations, plaintiff’s counsel will gladly
choose to drop the case rather than engage in expensive litigation. Anti-troll
advocates fail to recognize that the trolls and their lawyers have no incentive
to spend thousands of dollars on losing cases.
Further, at the heart of the
anti-troll movement is deep skepticism about the fundamental philosophy
underlying the U.S. intellectual property law system: that it is necessary for
government to create and enforce intellectual property rights to provide
incentives for innovation. Many argue that patent, copyright, and trademark
systems are impediments to innovation, blocking the free sharing and exchange
of technological advancements and thereby hindering research and development
and international cooperation among nations.
Anti-troll advocates in the U.S.
are requesting dramatic legislative changes at the state and federal level,
which taken to their logical extremes would be to repeal most intellectual
property laws. The anti-troll advocates often find themselves aligned
intellectually with the approach to intellectual property rights of nations
such as China, India, and Russia that have long been accused by the U.S. of
having weak intellectual property law systems that improperly and unfairly
encourage production of counterfeit products or unlicensed generic
pharmaceuticals. Indeed, it is ironic that as China, Russia, and India begin to
develop legal frameworks which acknowledge the important role of intellectual
property rights in economic development, there is a strong movement within the United
States to undermine and devalue intellectual property rights.
Fortunately, however, there are
equally committed and well-funded voices within the United States who are
committed to strengthening intellectual property laws and their enforcement. The
pharmaceutical, entertainment, publishing, and media industries (among others)
consider themselves to be dependent upon strong intellectual property law
enforcement for profitability and, in some cases, survival. Thus, the
anti-troll movement faces powerful forces which would likely attempt to block
any effort to radically change U.S. intellectual property laws. Over the next
decade, the war on intellectual property within the United States is likely to
continue to meet strong resistance from those who believe that the U.S. founding
fathers had it right when they determined to empower Congress to enact a system
providing powerful economic incentives to those who do the hard work of
advancing the sciences and the useful arts.
*
Maurice N. Ross is an attorney for Barton LLP. If you would like to know more
about this posting please contact him
for additional information.
[1] Attorney Generals in Vermont and
Nebraska have recently demanded that law firms stop sending traditional “cease
and desist” letters targeting business that allegedly infringe patents, relying
on state consumer protection legislation that many believe is preempted by
Federal law at least as applied to “trolls.” See Stephen Jugle, “Patent
Troll Behavior Continues To Attract Attention”, Lexology (September 5,
2013). In May, 2013, Vermont enacted anti-troll legislation, (Act No.0044)
directed to “bad faith” efforts by patent owners and their lawyers to enforce
patents against Vermont companies and individuals.
The law creates a
multi-factor test for use by Vermont courts to determine when acts constitute “bad
faith assertions.” The law lists several non-exhaustive factors that courts may
consider as evidence of bad faith, including sending demand letters that lack
basic information about the infringement claim or that seek payment of
unreasonable royalty fees. Targets of bad faith assertions can bring actions
(in state or federal district court) to obtain compensatory damages and
exemplary damages, plus costs and fees. Vermont's Attorney General
simultaneously took aggressive actions under existing Vermont consumer
protection law against an alleged “troll” company that sent out demand letters
to thousands of small businesses in Vermont and around the country.
More
recently, the Attorney General of Nebraska issued a
cease and desist order against a prominent Nebraska law firm, Farney
Daniels PC, for representing “patent trolls” and bringing suits against
Nebraska-based defendants. A Federal District Court has recently enjoined the
Attorney General of Nebraska from enforcing this cease and desist order on the
ground that it constitutes an illegal prior restraint in violation of the First
Amendment and is preempted by Federal patent law. Activision
TV, Inc. v. Pinnacle Bancorp, Inc., No. 8:13CV215, slip op. (Sept. 30,
2013).
0 comments:
Post a Comment