When a patent troll’s business doesn’t go according to plan

Earlier this year, concern spread among users of open source software following claims by an IP licensing business (also known as a non-practising entity (NPE), or, to those on the receiving end of a claim, a patent troll) that use of popular open source components infringed the NPE’s patents.

Sound View Innovations, established in 2013, had acquired a number of the patents of AT&T Bell Labs and Lucent Technologies from Alcatel Lucent at the end of that year. Since then, Sound View has acquired over 1000 patents. It has become well-known as an NPE after commencing proceedings against online platforms including Facebook, Hulu, Twitter, media companies such as CBS and then broadening its claim base to retailers such as Walmart and airlines such as Delta in 2019.

Sound View’s claims involved open source components including:

  • jQuery, a JavaScript Library that handles HTML client side scripting across web browsers,
  • Apache HBase, a database management system real-time read/write access to data,
  • Apache Hadoop, which allows distributed processing of large data sets, and
  • Apache Storm, a distributed real-time computational system.
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Patent trolls may have suffered some setbacks, but they are still lurking.

These components, especially jQuery, are widely used in cloud stacks across a large number of online platforms, media companies and customer-facing organisations.

Sound View’s claims included that use of jQuery to create and process customisable data analysis and processing applications, and use of Apache Spark to perform real-time data stream processing, infringed patents in its portfolio.

The claims were alarming to both software providers and end users, as end users can be liable whether or not they developed the infringing material. Where software providers had accepted liability for open source usages by customers, they would be exposed to potential indemnity claims. Open source components are also often excluded from software providers’ warranties or indemnities, and in those cases the end users would have no recourse under their supplier contracts.

The industry view is that Sound View was targeting end users in the hope that they would pay licence fees rather than engage in the expensive process of defending the claims, which would require significant time in reviewing the technical issues. Both Twitter and LinkedIn settled claims early.

Some defendants, however, filed petitions for inter partes review to invalidate Sound View’s patents. Hulu, Disney, Time Warner and others successfully invalidated multiple claims. Unified Patents, an industry organisation targeting bad faith NPE conduct, also filed petitions for IPRs against several Sound View patents to protect the interests of its members.

Last month, the US Patent Trial and Appeal Board (PTAB) found against Sound View in relation to two further patent claims.

The patent in question involved a technique to enhance existing caches in a network, by employing helper machines to segment streaming media into smaller units according to placement and replacement policies.

This followed successes earlier in the year by Unified Patents, whose membership includes Cisco, Adobe, Red Hat and over 200 other tech companies.

The PTAB decision is a classic illustration of the time and expertise required to defend an NPE’s claim. The decision was based on the prior art, that is, the board found that similar material had been published before the patent was filed, so the patent was not inventive. Many of the Sound View decisions have involved complex evidence comparing the detail of the defendant’s use against the patent claim, or detailed research into the prior art, with arguments about the standard of evidence required to show prior publication.

As yet, there is no overall regulation preventing NPE behaviour, though some US states have regulated against bad faith patent claims. The US Supreme Court ruled in 2017 that legal action must be taken in the state where the defendant is located, rather than the most NPE-friendly forum. Industry bodies are continuing to lobby for greater regulation of bad faith claims. States such as California have called on the US Federal Government to minimise abusive patent litigation. Legislation to address the issue at the US Federal level has hit various hurdles, and there have also been challenges to the inter partes review process on constitutional grounds.

In Australia, patent trolls have not gained as large a foothold as they have in the US. Over the last few years, several reviews of the Australian patent system have focused on whether patents are being used to stifle innovation and creativity. Following those reviews, amending legislation to phase out the innovation patent system was introduced to the House of Representatives earlier this month.

A spokesperson for the Institute of Patent & Trade Mark Attorneys of Australia, however, recently described the justifications for removing innovation patents as “nonsense”.

 

 

 

Time to review your IP arrangements

In February this year, the Federal Parliament passed the Treasury Laws Amendment (2018 Measures No. 5) Bill 2018 (Act), repealing the intellectual property exemptions under section 51(3) of the Competition & Consumer Act 2010 (Cth) (CCA).

The repeal is set to come into effect on 13 September 2019.

What’s section 51(3)?

Section 51(3) covered contractual terms in licences and assignments of patents, designs, copyright and EL rights, and specified agreements in relation to trade marks.

Do your IP contracts need review?
Do your IP contracts need review?

The section provided a limited exemption for IP rightsholders, to allow them to make arrangements that would otherwise be prohibited under the CCA. So, for example, a generally anti-competitive term, or a cartel provision, which met the requirements of section 51(3), would be permitted.

The background of the section was the perceived conflict between the monopoly rights of IP rightsholders, and the competition provisions under the CCA, meaning that IP rights needed this exemption.

What’s the background to the changes?

Section 51(3) has had a life under the microscope, with consistent review and advocation for its repeal for quite some time. It was reviewed in the Hilmer Report, as well as in a number of subsequent competition reviews.

More recently, the Productivity Commission’s Inquiry into Intellectual Property Arrangements, released in late 2016, considered the balance between access to ideas and products, and the encouragement of innovation and investment.

The report recommended the repeal of section 51(3) on the basis that IP rights did not have significant competition implications, and issues only arose where there were few substitutes or where IP rights aggregation could create market power.

The Commission considered that there would be increasing benefits to repeal, especially in the pharmaceutical and communications markets, as the level of licensing and cross-licensing rises in the future.

 Where does this issue arise?

There have been very few cases where section 51(3) has been considered – in fact the ACCC stated in its 2016 submission to the Productivity Commission that it was not aware of any cases where section 51(3) had been used successfully as a defence.

That said, it’s anecdotally clear that IP rightsholders have relied on knowing that section 51(3) was there, in structuring agreements, and there are several situations where regulators and courts have considered a tension between IP rights and competition regulation. These include:

  • Exclusive dealing – such as where rightsholders impose restrictions on distributors about their permitted suppliers or customers. For example, in Transfield v Arlo [(1979) 144 CLR 83 at 108, the Court considered whether Transfield was obliged to sell exclusively promote and sell Arlo’s steel pole. Wilson J was of the view that if a contract clause requiring a licensee to use its ‘best endeavours’ to sell a patented product meant that the licensee could not sell competing products, it would have been protected by section 51(3).
  • Geo-blocking – where rightsholders impose geographical restrictions on the basis of consumer nationality or location. The EU recently regulated geo-blocking with Regulation 2018/302. The European Commission subsequently found that clothing company, Guess, violated the regulation by restricting authorised retailers from selling cross-border to consumers within the EU single Market, allowing them to maintain artificially high retail prices.
  • Assignments-back – In the US, Pilkington Glass was found to have built up a dominant position in the glass manufacturing market by requiring licensees to assign back improvements to Pilkington’s processes. Consequently, the court prohibited Pilkington from imposing territorial and use limitations on their US licensees, allowing them instead to manufacture and sublicence anywhere in the world, free of charge, using the technology in the licences.

What will happen when the repeal comes into effect?

When the repeal takes effect this September it will operate retrospectively, meaning that existing contract terms will not be grandfathered.

We can anticipate that with this change, the ACCC will have an increased focus on IP-heavy arrangements and compliance activities to ensure businesses understand their new obligations under the CCA.

The ACCC has stated that they are in the process of writing guidelines to assist businesses in complying with the repeal, but while we wait for these, we can expect that agreements including the following aspects will be of interest:

  • Exclusive arrangements, territory restrictions, geo-blocking and assignments-back, as mentioned above;
  • Licences that impose quantity restrictions on the licensees, split licensees’ rights by reference to customers, or involve bid-rigging;
  • Bundling and third-line forcing, where the licensee has to accept other products from the licensor or a third party;
  • Patent pooling arrangements – these are agreements where companies with related patents cross-license them to each other and agree on the terms of licence agreements to parties outside the pool; and
  • Clauses that provide for a first mover advantage or “pay for delay”, where one party pays the other to agree not to commercialise a product or move into a market.

Now is the time to review

With the commencement date fast approaching there is still a window of time to ensure that your existing IP arrangements will comply with the repeal.

If you have any concerns or questions about the potential impact of the repeal on your IP licensing, assignment or distribution arrangements, please contact us.

Author: Blake Motbey, Paralegal.

My business idea is being copied – what can I do?

You’ve put time and thought into a great idea, invested in R&D, brought your idea to market – and now you find a competitor marketing the same idea.  What can you do?

Influence Legal idea
How can you protect your idea?

The different aspects of intellectual property can help to an extent, but the issue of copying a concept can become complex.

Copyright protects the original material expression of an idea, rather than the idea itself. Unless your competitor copied your original artwork, wording or code, copyright won’t assist – for example, if you have had an idea for a scheduling program, and a competitor saw your idea and released a scheduling program which doesn’t use any of the original coding or graphical elements of your program, you won’t be able to make a copyright claim.

What about trade marks? Have you applied for trade mark protection of your product’s distinctive name? If the competitor used your name or a substantially similar name to promote similar products, you can make a claim based on your registered trade mark.

Patents protect inventions. They must be new to the market. If you think that your idea may be patentable, consult a patent attorney – but you must keep your idea confidential until the patent application is filed. If you have publicised it yourself, it may no longer be patentable. You can use confidentiality agreements where you need third parties to develop your invention. Also, take practical steps to protect confidentiality – limit distribution and keep information in secure files.

The law of passing off and consumer protection law can help where the competitor is making their offering look like it is, or is associated with, yours. For example, your competitor might be marketing compatible goods which have the look and feel of your brand, or suggesting that they are your authorised distributor or licensee.

If none of these will help in your specific situation, there are still practical steps you can take:

– make sure that you have all the relevant variations of your domain name so that there is no chance that an unscrupulous competitor can pick up similar names to direct traffic to their own website;

– make sure you have your domains set to auto-renew, or diarise renewal dates, so that you don’t accidentally drop your domain and have it picked up by your competitor;

– ensure that your website security is strong so that you reduce the risk of losing customers if your website is offline;

– make sure you are actively marketing on all relevant social media channels;

– if you are using a name or logo that is distinctive, apply for a trade mark, including in relevant overseas markets you plan to expand to;

– once you have your trade mark, ensure you diarise renewal dates;

– keep a record of your marketing activities, including promotions, press releases and media coverage, in case you need to demonstrate your reputation in the market in future years; and

– ensure that your concepts are kept confidential, including using effective confidentiality agreements, until they are ready for release.

If you have any questions about how to protect your ideas, contact us.

Productivity Commission releases draft IP report

The Productivity Commission released its draft report on Australia’s intellectual property system on 29 April 2016.

The Commission has been asked to consider whether current arrangements appropriately balance access to ideas and products, and encouragement of innovation, investment and creative works.

Key recommendations Continue reading Productivity Commission releases draft IP report