The Cuban Crisis

The good news is there are no missiles. The bad news is that this time, the entire United States is threatened, not physically, but economically.  “Cuban” in this instance denotes Mark Cuban, not the Caribbean island of Cuba.  Mr. Cuban has recently joined forces with the Electronic Frontier Foundation (EFF) to endow the “Mark Cuban Chair to eliminate stupid patents”. The endowment was reportedly funded by $500,000.

The endowed chair is to be filled by “an attorney tasked with hunting down and destroying crappy patents that have been recklessly granted by the US Patent and Trademark Office to unscrupulous "inventors" who claim to have invented things that were obvious and/or already extant…”

As a solution to this problem Mr. Cuban proposes to:

(1)   Completely eliminate software patents (or impose a five-year maximum  shelf life on them);

(2)   Completely eliminate design patents;

(3)   Require that all patents be used in a business within five years or revert to the public domain;

(4)  Allow anyone that can demonstrate they independently invented the patented invention to freely practice the invention; and

(5)  Invalidate all patents that are “independently invented” after their filing date according to (4).

With the US economy increasingly based upon high tech products that rely heavily on software, the impact of items (1) to (5) is potentially disastrous. Although Coca Cola is famous for not having patented their famous syrup recipe, that is an exception to the rule that patents foster innovation. Even companies like Ford Motors, that were traditionally opposed to patenting have acknowledged this. Today, Ford holds over ten thousand US patents including many design patents.

With regard to item 1: Many of the patents issued to Ford deal with computerized control of various operational parameters of an automobile. The claims often recite “computer readable instructions”.  Presumably, those instructions are “software” and should therefore be eliminated according to Mr. Cuban.

With regard to item 2: Implementation of this suggestion might have unanticipated results. For example if Apple had not been able to register the famous “rounded corner square” icon as a design patent, they might have registered it as a trademark. While design patents have a limited life, trademarks are renewable indefinitely so long as they are in use. A company like Apple is in a position to request “Famous Mark” status even in countries where they did not register their mark officially.

With regard to item 3: Patents reverting to the public domain is built into the system. It happens to all patents at twenty years though, not five. Since the USPTO collects maintenance fees at 3.5, 7.5, and 11.5 years after the date of grant, it is larger companies with larger budgets that are more likely to maintain their patents for the full term. These fees are currently 800, 1800 and 3700  dollars respectively and double that amount for a large entity. Since big companies have lots of money to spend on patenting as well as on commercial development, Item 3 seems designed to preclude small innovators from realizing a profit from the patent system.

In practice, most patents are available to the public in much less than five years, although not for free. The eighteen month publication of patent applications on-line makes it relatively easy for entrepreneurs to find innovators with interesting ideas and purchase or license rights in those innovations. There are undoubtedly many innovators out there that dream of receiving such an inquiry every night. It seems likely that the half a million dollars used to endow the “Chair to eliminate stupid patents” could have been used to acquire rights in several commercially promising innovations.

Indeed, this idea has become the basis for a new industrial sector in the US.  There are now companies called Non Practicing Entities (NPEs) which purchase or license patent portfolios with the express intent of identifying infringing activity and asserting their patent rights against the infringer. These NPEs recognize that patent rights are a valuable economic asset which, in large part, are owned by parties that lack the financial wherewithal to realize the value of their asset(s).

Not surprisingly, Mr. Cuban is especially incensed by NPEs which attempt to help cash poor patent owners enforce their rights against wealthier corporate concerns that are using the patented technology without payment.

In a recent interview Mr. Cuban is quoted as saying: “The concept that patents are being held by non operating companies in hopes that someone will invent something they can sue over is Anti American, a huge tax on the economy and stymies innovation when entrepreneurs truly come up with a business only to find that the way they included tying the shoelaces on their new shoe was patented.”

Let’s break that sentence into parts to understand it better:

“…patents are being held by non operating companies in hopes that someone will invent something they can sue over…” seems to be a contradiction in terms. If a patent application is filed then, as a matter of law, another cannot invent what is disclosed in that application.  In actual practice, NPEs are most anxious to acquire patents where they are reasonably certain that infringing activity is already occurring.

“Anti American” hardly seems correct. The US constitution (Article 1; Section 8) grants congress the power 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…”. This provides legal basis for both copyrights and patents.

“…a huge tax on the economy and stymies innovation …” is perhaps most interesting of all. The USPTO is unusual among government agencies in that its income exceeds its operating costs every year. If that is a tax, it is one that is voluntarily paid by those that use the services. As far as “stymies innovation” that is another non-sequitur. Mr. Cuban is referring to a case where Smith begins to practice a technology already described in a patent application by Jones. Jones is the innovator, not Smith.  Therefore Jones’ attempt to enforce patent rights against Smith cannot stymie the innovation which occurred previously.

In the interview  Mr. Cuban is also quoted as saying: “You should be given the right to your idea if you come up with it independently and any patents in place for that idea should be invalidated.” This is a truly interesting concept. It seems to suggest that since intellectual property is intangible, anyone that can figure it out should have free access to it. This concept will not stand up to scrutiny if we apply it in a related context: If Jones has an intangible asset in the form of a credit card number and Smith independently ascertains the number, should Smith be allowed to charge the the account at Jones expense? But perhaps I have read the statement too narrowly. What if we expand the idea to real property? If a wealthy man lives in an estate surrounded by a fence and a poor man independently gains access to the estate and remains undiscovered there for years, has the poor man established rights in the portion of land he occupies? Should the fence be taken down so others can occupy the land? What if it is a poor man living in the estate and a wealthy man that independently gains access, has the wealthy man established rights in the portion of land he occupies? Should the fence be taken down so others can occupy the land then?

While there are undoubtedly abuses of the patent system, it behooves us all to consider making minor changes specifically tailored to prevent those abuses before we contemplate implementing the potentially destructive changes advocated by Mr. Cuban. One minor change might be revising the rules for filing an infringement suit. There is not currently any requirement that the plaintiff provide a claim chart showing how the accused product corresponds to the claims. Requiring such a chart might eliminate a significant percentage of dubious lawsuits. Another minor change might be to standardize the time at which a Markman hearing to determine the scope of claim terms at issue is held in the various circuit courts. An early Markman hearing helps both sides decide when a settlement may be favorable to litigation. In some cases the Markman hearing in combination with a claim chart might provide reason to dismiss the suit.

As far as Mr. Cuban’s underlying complaint (in the interview)   that:  “I have had multiple small companies I am an investor in have to fight or pay trolls for patents that were patently ridiculous…” ,  perhaps due diligence is in order prior to making investment decisions.