Mon, Mar 21, 2005 page11

• US debates restriction of `patent trolls'

  EASY HIT OR LEGIT? Companies like Intel are at times targeted for patent infringement lawsuits, and the US Congress is now considering how to limit the practice

  • BLOOMBERG
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  Intel Corp's David Simon, chief patent counsel for the world's biggest computer chipmaker, recalls when he used to get only about five letters a year from people accusing Intel of patent infringement and demanding cash.

  That was back in 1997. Now the Santa Clara, California-based company gets that many letters in a week, Simon said in an interview.

  He even received one from the owner of a patent for a drill used to make a hacksaw blade.

  Some accusations are less frivolous and require hours of research by engineers and lawyers, he said.

  Intel is among the technology companies that sent representatives to Washington yesterday to debate whether Congress should make it harder for patent owners to assert their rights.

  The debate is driven partly by the proliferation of so-called "patent trolls," who file multiple claims seeking royalties from companies though they don't make products themselves.

  "They want to collect US$50,000 from 1,000 people and retire," said J. Jeffrey Hawley, assistant general counsel in charge of patent issues for Eastman Kodak Co, the world's biggest photography company.

  The conference titled "Patent Trolls and Patent Property Rights" was sponsored yesterday by the Intellectual Property Owners Association, a trade group of patent and copyright owners.

  The "patent trolls" term was coined by Peter Detkin, former associate general counsel of Intel, after the company was sued in 1999 for libel for using the phrase "patent extortionists" to describe two companies that had filed suit. The libel case was later dismissed.

  Detkin, now managing director of Intellectual Ventures, which helps patent owners seek royalties on their inventions, said he doesn't mean for the term "patent troll" to apply to all patent owners who demand royalties from others without making the product themselves.

  "Thomas Edison never made any products," Detkin said. "We have to be careful because a lot of the behavior we're talking of curbing would have curbed Thomas Edison."

  The light-bulb inventor had more than 1,000 patents and founded a company that later became General Electric Co, the world's second-biggest company by market value.

  Instead, "we're talking about assertions of highly questionable merit," Detkin said.

  "Basically, they're looking to game the system and looking for a quick hit," he added.

  The US Constitution gives Congress the power to ensure that inventors are rewarded for making their innovations known to the public.

  The number of patent suits filed in the US rose from 1,178 in 1991 to 2,483 filed in 2001, said Bruce Berman of Brody Berman Associates, which consults patent owners. Most are settled or thrown out, with the number of cases going to trial remaining steady at about 100 a year, he said.

  "All patent owners have a right to a return on their investment," Berman said. "Not all asserters are trolls and not all independent asserters are improper."

  The legal practice of using patents to generate revenue has grown in the past few years as more people recognize the value of patents.

  Companies have been set up to buy patents, copyrights and trademarks from failed dot-com companies and are trying to get a return on the investment.

  Companies like Hewlett-Packard Co, the second-biggest personal computer maker, have set up offices to enforce their patents.

  "Trolls may have an unfair advantage, but it is a legitimate business model," said Joe Beyers, vice president of intellectual property licensing for Hewlett-Packard.

  "You don't do this just to get money. You do this as part of an overall strategy."

  One person who had initial success in asserting patent rights was the late Jerome Lemelson. He claimed to have invented technology used in bar-code scanners, and he collected more than US$2 billion from companies that sell products in the US before his patents were invalidated in a case now on appeal.

  Cecilia Lofters, senior intellectual property counsel at General Electric, said that in some cases her company has received patent-infringement claims in form letters that list another company as the violator.

  "We'll write back and ask which product infringes and get back, `Oh, come on. You know what you're doing'," Lofters said.

  Among the proposals discussed at the conference were forcing the loser in a patent case to pay the winner's legal fees, as is done in Europe, and limiting the ability of a patent owner who doesn't make the patented product to shut down the business of the infringer.

  Instead, the infringer would be forced to pay royalties.

  The threat of a court-ordered shutdown prompts many companies to give in to demands they otherwise would oppose, said Intel's Simon.

  No bills have been introduced in Congress during this session, and the association hasn't taken a position on some of the proposals, partly because not every industry agrees what changes are needed, said Stephen Fox, deputy general counsel at Hewlett-Packard and a member of the intellectual-property group's board of directors.

  The group has said it wants Congress and President George W.

  Bush's administration to let the US Patent and Trademark Office keep all the fees it collects.

  The agency said Congress has taken more than US$700 million in patent fees since 1992 to spend it on other areas.
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