President Obama considers PAEs to be a drain on the economy, a view shared by many Silicon Valley companies. In a Feb. 14 speech he characterized them thus: "They're just trying to essentially leverage and hijack somebody else's idea and see if they can extort some money out of them ..."
The report, Patent Assertion and U.S. Innovation, published by the National Economic Council and the Council of Economic Advisers, takes the same position. It states that PAEs have "a negative impact on innovation and economic growth."
In support of that claim, the report cites a 2011 study that found PAEs gained $7.6 billion from 2000 through 2010 as a result of their activities, while defendant companies lost $87.6 billion in share value over the same period. "[T]he 90% of lost defendant share values that simply vanishes suggests considerable lost value to society from forgone technology transfer and commercialization of patented technology," the report says.
The present patent system also creates an incentive for companies to spend money on patents as a defense against litigation rather than on research and development. As the report notes, Google spent more on patent acquisition in 2012 than it did on research and development in 2011. And the same was true for Apple in 2011.
Google, accused by many litigants of patent infringement, has been among the most vocal champions of patent reform. In April, the company filed comments with the U.S. Patent and Trademark Office (PTO) about how the quality of software patents can be improved.
The 2011 Leahy-Smith America Invents Act, which took effect in March, attempts to address patent quality issues. This week's White House initiative goes further.
The five executive actions include a PTO rule change that will require patent applicants and owners to provide accurate identity information -- the use of shell companies can conceal the parties involved. A complementary legislative recommendation would allow the PTO and courts to impose fines for non-compliance.
Other executive orders include a requirement that the PTO provide better training and resources with regard to software patents, resources for end users of technology hit with patent claims, more research and study of patent abuse, and better patent ruling enforcement coordination between the U.S. International Trade Commission (ITC) and Customs and Border Protection (CBP).
Beyond the disclosure of interested parties, the legislative proposals call a variety of actions, including: more court discretion in awarding fees, making it easier to get patents reviewed, limiting the legal liability of end users of patented products when a product maker gets sued, making injunction requirements more consistent with established precedent, incentivizing the public filing of patent claim demands, and ensuring that the ITC can hire qualified administrative judges.
Missing is any recognition that industries move at different speeds and that granting patent protection for 20 years might not be as appropriate for software as it is for pharmaceuticals, for example.
In a post on the Patently-O blog, Dennis Crouch, associate professor at the University of Missouri School of Law, characterized the White House plan as a positive step. "Despite the unknowing hyperbole of the report, the suggested actions are, for the most, welcome and will benefit the patent system as a whole," he wrote. "In fact, this move to finally address the problem of predictability of patent scope and patent validity hits the sweet spot of where problems emerge in the system. Of course, the devil will be in the details of these approaches."
Eugene R. Quinn, Jr., a patent attorney with Zies, Widerman & Malek and founder of IP Watchdog, in an email dismissed the White House initiative as "much ado about nothing" and noted that the PTO began implementing a patent-owner identity requirement in November 2012.
Quinn also expressed concern about the requirement in pending legislation that would require losing parties to pay the victor's legal fees. "Silicon Valley wants the rule to benefit them without any detriment to them," he said. "They would prefer the rule only apply to non-practicing entities who bring patent litigation. If the rule applies across the board to address the abusive practices of the tech giants in Silicon Valley as well, that would be a positive development."
As for making the process of obtaining ITC injunctions conform with the criteria established in eBay Inc. v. MercExchange, Quinn warned that would be a huge mistake. "The Supreme Court's decision in eBay has lead to a significant erosion of patent rights. In fact, a victorious patentee who prevails in an infringement action may not get an injunction. The patent, however, is supposed to grant an exclusive right. Not being entitled to an injunction on a patent adjudicated valid where there is infringement is hardly in keeping with the exclusive nature of what a patent is supposed to be."
Indeed, the exclusive right that a patent grants might be less exclusive in the future. As Crouch noted about the liability protection being called for by the White House, "We are on our way here toward a fair use of patents."