Thursday, May 21, 2020

Efficient Infringement 2: Which is Bigger Toll? EI or Patent Troll?

In Part 1 on February 13, “Inequality finds a place in IP where Efficient Infringement Runs Wild,” we emphasized the David vs Goliath nature of patent holding startups trying to get justice against a mega-tech infringer.  Infringement is somehow legally transformed because it is efficient – an odd attempt at rationalizing an illegal action. (Note the new location of our IP Zine and all past blog posts are at 
Well, just as we acknowledge that, “hope springs eternal,” as Apple’s appeal in an infringement case was rejected (Bloomberg/LA Times, Feb 24, 2020).  The US Supreme Court refused to consider the tech giant’s attempt to avoid paying upwards of $1B in patent damages to VirnetX Holding Company, a Nevada company with less than $2M in annual revenue.  VirnetX somehow managed to tough it out for a decade trying to get Apple to pay royalties on patents for secure communications technology.
Of the long list of things to fix in IP law, efficient infringment is certainly one of them.  Somehow, infringement cases must be settled far more rapidly than today’s decade long slogging through the mud.  The market disappears in ten years, there is no longer revenue available to fight over.
From The LA Times, “The high court denied Apple’s petition arguing that a $439-million judgement from the first of two cases brought by VirnetX was ‘grossly excessive’ and should be thrown out… A second case not currently before the high court, resulted in a $503-million verdict over the same patents and newer Apple products.” (  
This ruling was nearly one month after a federal jury in Los Angeles ruled that Apple and Broadcom must pay $1.1B in damages to Caltech for infringing on WiFi patents.  That’s right, California Institute of Technology (, the university in Pasadena California! What’s a school gonna do with patent technology anyway? Apple was ordered to pay $837M, Broadcom Inc $270.2M.  “It’s the biggest jury verdict of any kind so far in 2020 and the sixth largest patent verdict of all time, according to Bloomberg data.” ( Apple’s strategy is based on maintaining the Company’s high profit margin which demands fighting for years in various courts.  Does “efficient infringement” ring a bell here?  (The $838M won by Caltech is about one day of sales and 1.5% of the company’s $55.3B net profit in 2019.)
Apple and Broadcom lose Caltech infringement case

But wait, there’s more. Apple’s appeal to the US Supreme Court did not go well for Apple. On March 13, 2020, the US Supreme Court rejected the opportunity to review the case (originating in Texas, of course). The final settlement that Apple agreed to pay was $454M to VirnetX.  Now down to about half a day of sales and 0.8% of the company’s net profit in 2019. Roughly $1 for each of the 400M devices that VirnetX claims patent infringement. (See here for one discussion of case-closed.)
So, Apple argues, essentially, “efficient infringement”, which we will return to in a second. But VirnetX has been ungraciously referred to as a Patent Troll, a Nevada corporation operating out of a Troll Hole in Texas. Here’s an example of articles during the decade by Zack Epstein in the NY Post:
Patent Trolls. The more derogatory term, but sometimes more accurate, is patent troll; other related terms are patent holding company (PHC), patent assertion entity (PAE), and non-practicing entity (NPE). Wikipedia has a good, but not especially strong, page on Patent Trolls. The advantage of going back to Wikipedia is that it is dynamic and usually is updated perpetually by people. This Apple case is in the article, but not updated for 2020. Anyone can update, so please consider going and improving the article.
There is the dilemma to choose between the lesser of two evils: the toll of the patent troll or the stealth of efficient infringement.  It is hard to support VinnetX, and the tolls of patent trolls.  Our values state that deliberate attempts to extort money on less-than-honorable pretenses cannot be condoned.  We have several blogs posts about Patent Troll and their negative impact on innovation and economic productivity.  On the other hand, efficient infringement is the result of a deliberate – with malice of foresight – corporate strategy.  It is callous and predatory.  It is practiced by companies that are unquestioned technical powers and have major share in their markets.  They have uncommon market power and use it with against rivals.  In particular, these companies prey on start-up entrepreneurs if their new technology is a threat or an opportunity.
Neither party is honorable in any way, but the greater of the evils is efficient infringement.  It would be a more positive impact on innovation if efficient infringement became too expensive by way of damages to risk continued practices.  The courts need to look just at the question of infringement and the issue of market power to make this call.
These efficient infringement courtroom dramas go on and on, and on and on. A decade in this case.  Get the picture?  As one of several high-tech giants that are apparently doing the same, Apple doesn’t anticipate any significant downside.  When served a rare injunction, it just moves up the justice stepladder until, if necessary, it reaches the summit.  To be sure, The Supreme Court’s refusal to hear its appeal must have come as a shock.  But, will this change behavior?  Not likely.
Here is another way to cast a harsh spotlight on efficient infringement.  The House of Representatives should hold hearings when these cases like these reach the public eye.  The CEO of the infringing company must be subpoenaed to testify whether or not efficient infringement is an accepted corporate policy; does the company’s board and CEO approve infringement and willingly will pay damages, eventually.  Today, a CEO can hide behind legions of lawyers. Being forced to testify in person just might, might change strategy.  In addition, Congress should make egregious efficient infringement a felony, Grand Theft – Intellectual Property punishable by 5-7 years in prison and forfeiture of revenues and fines for the key decision maker(s): Chair, CEO and CFO.  When enforced, efficient infringement will become a relic of a lesser past.
Here is an afterthought. It is obvious that corporate lobbying and campaign contributions have removed any possibility of Congressional action to strongly deal with infringement today.  As the economy reopens, many things will change.  It would very much benefit the entrepreneur if the legal system enforced IP laws to protect the new technology inventions we will need.
#Patents #EfficientInfringement #Infringement #PatentTroll #Apple #PAE #NPE

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