Canadian Law Professors Insist Banning The Sale Of Word Is Good For Society & Innovation

from the really,-now? dept

Rob Hyndman points us to two Canadian law professors, Michael Trebilcock and Edward Iacobucci, insisting that patents are "the mother of invention" in an article that mostly spends its time trying to defend the silly injunction (already put on hold) barring Microsoft from selling Word or Office, because it supposedly violates a patent, 5,787,449, on XML editing of a word processed document. There are all sorts of problems with the column, kicking off with Hyndman's question as to how law professors should be considered experts on innovation...

But, let's dig further into the details.

Patents are essential to the modern system of innovation. Once produced, information can be transmitted at zero cost. In the absence of patent protection, would-be inventors become vulnerable to competition that would drive the value of their discovery to zero, leaving them with no compensation for the costs of producing that information in the first place.

This is the usual story. And it sounds good. But there's no factual evidence to support it. That's because it ignores reality. Yes, information can be transmitted at zero cost, but that does not mean that implementation is assured, or that the market stands still. Besides, I'm curious as to the claim "vulnerable to competition," as if competition is a bad thing. Most people recognize that competition drives innovation -- and yet, these law professors are suggesting the exact opposite. That you need less competition to drive innovation.

Furthermore, they are wrong in claiming that in the absence of patent protection "the value of their discovery" is driven to "zero, leaving them with no compensation." They say this as if the compensation is for the idea, rather than the implementation. That is simply wrong. No one compensates you directly for an idea. If you have a good idea, you need to bring a product to market and sell it. If someone else copies that idea, you still have a large first mover advantage and you understand the market better. On top of that, you should be ahead of the curve in terms of improving on the concept for the next iteration. That's competition. It doesn't mean the value of the idea is zero or that there's no compensation. Claiming such makes no sense.

Again, beyond common sense, the historical evidence suggests that these law professors are simply wrong. Countries with no or weak patent protection have seen tremendous innovation over time. And it's because it's competition that's the mother of innovation, not a lack of competition. For well over two hundred years, economists have recognized that monopolies that remove competition are bad for innovation. These lawyers are insisting that the opposite is true, and present no proof.

Microsoft objects that the injunction ordered by the trial judge goes too far. (It has been put on hold until after the appeal, which is to begin Wednesday.) But injunctions are almost always ordered to prevent continuing infringement, and for good reason. To simply order money damages for future infringement would be to force i4i to license out its technology at a court-imposed price.

This is misleading. While it is true that in the past injunctions were the norm, since the US Supreme Court's MercExchange ruling more than three years ago, courts recognize that injunctions often do not make sense. The reason they don't make sense is because they require stopping the sale of an entire product (or lines of products) due to a single infringing feature. That makes no sense, and the courts have recognized this. I'm not sure why these law professors do not.

Just as there are good reasons not to compel citizens to sell or rent out their homes at prices set by judges, there are very good reasons in general to avoid compulsory licensing of intellectual property. Court determinations of the value of intellectual property are necessarily somewhat conjectural, yet damages awards require courts to act, in effect, as price regulators. By contrast, injunctions do not prevent a licensing deal from being done, but rather cede to the owner of the property the authority to set a price. Just as giving homeowners the right to decide whether to sell or rent out their houses does not destroy the housing market, in terrorem arguments about the death of Word under this injunction are without merit.

Again, this is quite misleading. It implies that an injunction leads to the natural market setting the price for licensing, but nothing could be further from the truth. If someone is pointing a gun at your head and negotiating over how much you have to pay to stay alive, that's not exactly a fair and open economic transaction that both parties enter into under their own free will. Claiming that this is somehow a more accurate market is pure folly.

Meanwhile, Microsoft has vociferously argued that despite the trial judge's careful vetting of the evidence, i4i did not establish at trial a firm basis for its damages claim for past infringement. This claim about the speculative nature of past damages sits uncomfortably with Microsoft's opposition to injunctions. Given the complexity of measuring supply and demand for a unique product, it must be true that there is some empirical uncertainty about the precise level of past damages. But if patents are to have value, this uncertainty is unavoidable: A damages award is the only available remedy for infringement that has already taken place.

Again, I have to admit confusion over these claims, which seem to have no basis in reality. It is not "the patent" that has value. It is the product. For sale in the market. And it's the consumer who values it. The fact is that many more people seemed to value a complete package of Microsoft Word. They were not buying it because of i4i's silly and questionable patent. They were buying it because Microsoft Word is a useful product. The difference in sales for Microsoft Word if it had not included XML editing would likely be negligible at best. There is no evidence of damages. If i4i and these lawyers are claiming that the "damages" are i4i's inability to sell its own product, again, that is difficult to square with reality. Competition happens all the time, and it's as good thing. i4i's inability to come up with a product or marketing plan that people wanted is its problem, not Microsoft's.

Also, the lawyers, in claiming that there was "careful vetting of the evidence," conveniently leave out that this was done in East Texas, which has a long history of vetting in favor of patent holders. Don't ask me, ask the bull that TiVo bought.

Protecting i4i's patent protects incentives to invent and the competitive process. In this case, the trial judge wisely offered such protection, while recognizing the court's own institutional limitations, by ordering damages for past infringement and injunctions going forward. While the decision was not a good one for Microsoft, it was clearly in the best interests of society.

Really? So, completely banning the sale of an entire office suite offering because one tiny, rarely used, feature might infringe on some random other company's products is "in the best interests of society"? That seems wholly without support. That would mean making every user of Microsoft's office suite suffer, for the benefit of a small 30 person company that developed a rather obvious concept. How is that possibly in the best interests of society?

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Record Labels Continue Their Attack On Spanish File Sharing Programmers

from the just-can't-stop dept

We've seen a series of efforts by the big four major record labels to shut down file search engines and software in Spain, despite the fact that such systems have been ruled legal in the country in the past. In one case, they were able to get one guy to cop a guilty plea and get jail time, because he couldn't afford to fight the charges. The latest such story is actually getting covered by the Associated Press, as the big four record labels are going after yet another programmer who created some file sharing apps, trying to charge him with "unfair competition" and demanding $17.5 million. Part of his defense is that Spain has a music levy on blank media, and thus it should be legal for anyone to download (other cases in Spain have ruled that personal downloading isn't a violation) -- and, thus, not a violation to create tools for such downloads. It'll come as not much of a surprise, that the record labels disagree. They'd prefer to get their piracy tax and shut down any attempts to share music at the same time.

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Recording Industry Tries To Shut Down Search Engine In Spain Without Allowing It To Defend Itself

from the fairness-not-needed dept

Last month, we wrote about how the recording industry was able to pressure the operator of a BitTorrent search engine into pleading guilty despite not actually having broken the law. The site in question didn't host any infringing files, but merely linked to a variety of files. Previous lawsuits had shown that, in Spain, merely linking is not infringement. But with the cost of a huge court case, the operator found it cheaper to just settle. Emboldened by this, it appears the industry is going after other sites as well, despite the earlier court rulings finding such sites legal. TorrentFreak notes that in one case, against the search engine Agujero.com, the local recording industry reps demanded an immediate injunction against the site, without even allowing the site's operators to give its side. Luckily, the judge did not fall for this, and after a hearing in which both sides presented their position, is allowing the site to continue operating while the trial continues, noting that shutting down the site: "might cause irreparable prejudice to the defendant." It's good to see another reasonable ruling, though troubling that the recording industry tried to push for an immediate injunction.

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Judge Temporarily Blocks Sale Of RealDVD

from the who-does-this-help? dept

In the lawsuit between the movie studios and RealNetworks over Real's DVD ripping software, RealDVD, it appears that a judge has issued a temporary injunction against Real, keeping the company from distributing the software until the judge has had a chance to read through the various documents. A more complete decision allowing or disallowing the sale prior to a trial should come on Tuesday. Of course, the movie studios will claim that Real should be barred from allowing the software to be sold because it will cause "irreparable harm." That, of course, is ridiculous. Real's software only lets you make limited backups, by putting its own DRM on the copies. If someone really wants to make backups, and Real's software isn't available thanks to an injunction, then they'll most likely get a copy of other DVD ripping software that doesn't even include the limitations that Real's does. In other words, in taking RealDVD off the market, as the studios would like, it actually would probably lead to more movies being copied without DRM than if RealDVD were on the market. On a separate note, it appears that Real's decision to rush to court and file for a declaratory judgment on this case was a wise move. The lawsuit has been moved from Southern California, where the studios filed suit later in the day, to Northern California, where Real filed suit in the morning.

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Cable Modem Patent Hoarder Accused Of Pretending To Enter The Market

from the sneaky,-sneaky,-sneaky dept

Rembrandt IP is a patent hoarding firm that we've written about a few times before. It buys up patents and then sues companies to get them to pay licensing fees. However, one thing that's been really interesting about Rembrandt is how it's been figuring out new and creative ways to skirt recent Supreme Court rulings that seek to lessen the impact of such non-practicing entities. Two years ago, in the landmark MercExchange case, the Supreme Court ruled that courts shouldn't automatically grant injunctions preventing the sale of products, even if they're found to have violated a patent.

This didn't get rid of injunctions entirely, but basically (reasonably) noted that the courts should take into account whether or not the product on the market was actually harming the market for the patent holder's products. Thus, if you were a non-practicing entity (patent hoarding firm), it didn't make sense to ban another company's products from being in the market -- it just made sense to fine them. After all, since the patent holder didn't have a product on the market, what harm was being done to the patent holding firm's market? Patent hoarding companies flipped out, because the threat of an injunction barring the sale of products was one of the biggest weapons they had (it's part of what made RIM pay $612 million to NTP, even though the USPTO had said that NTP's patents were invalid).

So, how is Rembrandt getting around this ruling that takes away the threat of injunction as a weapon? Well, earlier this year, we noted a sneaky trick where it sued two companies in a single market over the same patent, but gave each of them a choice: whoever settled first, would get to join the lawsuit against the other one. Then, since the side that joined was a practicing entity, it could push for an injunction against the other. Sneaky, right?

Well, now it gets better. Rembrandt also happens to hold some patents on cable modem technology. In this case, Rembrandt bought the patents from a former AT&T subsidiary that had an agreement with the cable companies to license the patents under reasonable terms. Rembrandt is now claiming that since it bought the patents, it no longer needs to abide by that earlier agreement (despite the fact that the FTC has already slammed other patent holders for claiming similar things). Rembrandt, however, is pushing ahead and has sued a ton of cable companies, broadcasters and cable modem makers over this patent -- but how can it get an injunction since it's not a practicing entity?

Well, how about pretending to be a practicing entity?

Broadband Reports points us to the news that Rembrandt has convinced a small Taiwanese cable modem manufacturer to make a batch of cable modems with Rembrandt's name on them, which have now been sold to a tiny ISP in Seattle Tacoma. So, now, Rembrandt can try to claim that it's really "in the market" (even though it has admitted publicly to being a non-practicing entity) and can push for an injunction against all the companies it's suing. Those companies are calling out this practice as a "sham," and it will be interesting to see how the court rules. If the court rules that this practice allows Rembrandt to ask for injunctions, we may start seeing other patent hoarding firms quickly finding "partners" who can white label a few products just for the sake of appearing to be a "practicing" entity rather than a non-practicing one.

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Patent Hoarder Pitting Competitors Against Each Other For Injunction Rights

from the now-look-what-you've-done dept

One of the more important Supreme Court decisions concerning patents was 2006's MercExchange ruling, where the Supreme Court announced that courts shouldn't automatically grant an injunction against a company if it was found to be violating patents. This made a lot of sense, as many patent hoarders who produced no actual goods, would use the threat of an injunction (which could completely kill a business) to force the company to settle. However, the court recognized that in some cases (certainly not all), an injunction would do much more harm than good, and wasn't called for. This was especially true in cases where the patent holder wasn't making any actual products, since an injunction wouldn't actually clear up any competitive wrong -- it would just deny the market the ability to get the product. Of course, it hasn't taken long for some patent hoarders to come up with a rather ingenious (if ridiculous) way around this. It's all pointed out in a post by the Patent Troll Tracker who details how a patent hoarding firm played two competitors off of each other to grant one the rights to get an injunction on the other.

Here's how the plan works. First, the patent hoarding firm, Rembrant, sues two competitors in the contact lens space: Bausch & Lomb and Ciba. Then, it works out a settlement deal with one of those two firms -- in this case, B&L. However, part of that settlement (beyond some sort of licensing agreement) is to hand over the patent's injunction rights to B&L, while keeping the actual patent and everything else associated with it in the hands of Rembrant. Then, what you have is a patent infringement lawsuit against Ciba, just like before. Except, since B&L is a practicing competitor rather than just a patent hoarder, the company can ask for an injunction. In effect, as Ciba notes in its own filing on the matter, Rembrant sued the two competitors and then offered one a big carrot not just to settle, but to flip sides in the court case itself in order to use the very patent it had been sued over against a competitor. You have to imagine that Thomas Jefferson didn't see this coming when he laid out the details of the original US patent system.

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As Expected, Judge Denies eBay Injunction In MercExchange Case

from the no-surprises-there dept

Last summer, the Supreme Court made an important ruling in the eBay-MercExchange patent lawsuit, saying that just because there's patent infringement it doesn't mean that a judge should automatically issue an injunction barring the sale of a product. That was an important decision because it brought back some balance to patent lawsuits, because without that ruling, a tiny component of a product could cause an entire product to be pulled from the market. However, the Supreme Court only said that an injunction might not make sense. It never actually ruled on whether it did in that particular case. Now, the lower court has indeed ruled that no injunction is deserved and eBay can continue to use its "Buy It Now" feature that MercExchange claims a patent on. On a second patent, the court ruled that it made sense to wait for the USPTO to rule on whether or not the patent was valid before making a decision. This is basically half-a-win for eBay, though not particularly surprising. It is still too bad that the concept of "Buy It Now" was considered worthy of patent protection in the first place, but that's an entirely different debate.

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