Patent Trolls, Silicon Valley & the Law

Posted by: Jensen Nevitt

SIGABA-patentPeople have long been intrigued by the legal profession as portrayed by the entertainment industry. Long before I ever set foot in law school, I was drawn to books by John Grisham. I was fascinated by movies ranging from serious dramas such as To Kill a Mockingbird and A Few Good Men, to more light-hearted films such as My Cousin Vinny. I loved watching the television show Suits. Few professions attract the attention of the public like the legal profession. I can think of only a few others, such as spies, doctors, to some extent politicians and journalists. After attending law school for a few semesters now, that affinity for law-based entertainment has only grown.

The difference is that now, my focus has changed. I used to watch the movies for the entertainment value. Now, I watch them with a critical eye. I watch them to for accuracy, always wondering if a lawyer or a judge would really do what the character did in a given situation. This recently occurred as I watched an episode of the HBO show Silicon Valley. In the episode, the characters confronted a patent troll. I reflected on the actions of the main character and his lawyer in the show, and asked myself if the result was realistic. I found out a little bit about software patents in Cyberspace Law class readings and decided to write this blog on the topic. I came to the conclusion that the attorney in the show did give solid advice to the main character and did so based on a conclusion that was probably also correct.

Silicon Valley is the hilarious TV show about several friends who launch a small tech startup in famous Silicon Valley, and details their struggles as a little fish in a big pond as they struggle to make their company, Pied Piper, succeed against the mega-company Hooli (the show’s equivalent of a tech giant like Google).

Episode seven of season four is “The Patent Troll.” In this episode, Pied Piper’s space-saving application has cracked the top 500 of the Hooli app store. Upon doing so, the company receives an email from a patent troll. The troll informs the company that he believes that the Pied Piper application infringes on a patent that he owns, and that he wishes to meet with Richard (the founder of Pied Piper and main character of the series) to discuss the problem.

Richard is confused, since he had already obtained a patent from the former head of Hooli, Gavin Belson, who obtained his patent early on in the company’s history. As such, Jared (Richard’s assistant) offers to send a strongly worded cease and desist letter to the troll. Richard, thinking that he is dealing with another coder who might be sympathetic to Pied Piper, declines and decides to meet the troll in person.

Richard goes to the address from the email, and discovers a residence owned by the troll. He finds out the troll has made a living suing people, moving from one industry to the next, starting in the medical field, then moving on to the automobile and music industries. We find out that the troll made most of his fortune in the music business. At a young age, the troll bought the copyright to a song for almost nothing, who then proceeded to make a lot of money suing other songwriters. These songwriters were forced to either pay him off or give him a portion of the proceeds of the song.

Richard finds out that the troll has moved on from the music/copyright game into the tech arena, buying a ton of intellectual property from failed startups at auction. The troll then uses that IP as leverage to sue and/or threaten litigation against accused infringers. The troll asks Richard for $20,000 to license the patent and to go away. The troll’s patent covers storage of media files on a network.

Richard, in a bit of a bind, seeks the advice of his attorney, Ron LaFlamme. Ron thinks that the patent is probably not enforceable, but tells Richard that it would take a drawn-out, expensive litigation to find out, which could end up costing Richard several hundred thousand dollars. For this reason, he advises Richard to just pay the troll to go away. He explains to Richard the concept of a patent troll, explaining that the troll works by starting at the bottom of the Hooli top 500, and then works upward, asking for more money as me moves up the list.

Richard, angered by the actions of the troll, decides instead to convince others similarly situated to not give in to the troll. He sets up a meeting with the app developers above him on the Hooli list. He explains the situation, and explains that if Pied Piper pays, then the troll will just continue up the list, pursuing similar suits against the other developers, asking for even more money. He proposes that they band together to stop the troll. Richard has Ron draft up a partnership agreement, under which all the developers contribute $20,000 to mount a challenge to dissolve the patent, thus stopping the patent troll and saving money.

Unbeknownst to Richard, the other developers reach out to the troll and offer to settle. As such, the troll decides to up his price with Richard to $300,000, since his case is now stronger with the other tech companies having licensed the patent.

The plot turns when Richard decides to use the troll’s old music copyright against him. The audience is reminded of the fact that Pied Piper started as a search engine for music copyrights. Richard presents the troll with an older, copyrighted song. It appears that the troll’s song actually infringes on the copyright of the older song. What the troll doesn’t know is that Richard is just making the older song up, and bluffing. Richard’s bluff works, and he obtains a perpetual, royalty-free license of the troll’s patent. Richard wins the battle, but comically loses the war when he receives a bill of $22,000 from his lawyer for drafting the partnership agreement for the coalition of app developers earlier in the episode.

The episode, though comical, made me think seriously about a real-life outcome. Would Richard have even won at trial, and was the attorney correct in advising Richard to just pay off the troll? Two Supreme Court decisions on software patents help us answer those questions.

The first is the Bilski v. Kappos case, handed down in 2010. We learn several key things from Bilski about patents in general. The case points us to 35 USC § 101, where we find out what makes something patent eligible. Section 101 states that a “new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor . . . .” The Court instructs us that these are expansive terms that should be construed liberally to encourage ingenuity, as outlined in Congress’s charge in the United States Constitution, Art. I, § 8, cl. 8 (the purpose of patent law). This liberal construction is however, limited by three exceptions: laws of nature, physical phenomena, and abstract ideas are not subject to patent protection. To qualify for patent protection, an item must go beyond these building blocks. In addition to being either a process, machine, manufacture, or composition of matter, it also must also be novel and nonobvious to be patent eligible. The definition of “process” is found in 35 USC § 100(b). It is a “process, art or method, and includes a new use of a known process, machine, manufacture, composition of matter, or material.” (emphasis added). The court also points out that a process does not have to be tied to a machine or transformation to be patentable.

Bilski gets us to Alice Corp. v. CLS Bank Int’l., the 2014 case that applied Bilski to the software/computer context. In examining the patent at issue in Alice Corp., the Court undertakes two steps. First, the Court “determine[s] whether the claims at issue are directed to a patent-ineligible concept.” This means that a court is determining whether the claims at issue fall under one of the three exceptions. Second, the court determines “whether the claim’s elements, considered both individually and ‘as an ordered combination,’ ‘transform the nature of the claim’ into a patent-eligible application.” (citation omitted).

In the case, the Court found that claim at issue (intermediated settlement), was not patentable because the Court ruled that it was an abstract idea. The second part of the Court’s analysis is the most relevant to our Silicon Valley analysis. In Alice Corp., the patent holder argued that by using a computer to implement the idea (a new method), the abstract idea was transformed into a patent-eligible concept. The Court disagreed. The “generic computer implementation” was not enough to “transform the nature of the claim”. The court reasoned that generic computer implementation was not enough to ensure that the claim was not more than an effort to “monopolize the abstract idea itself”. Implementing the abstract idea (intermediated settlement) using the method of a computer did not “improve the functioning of the computer itself or effect an improvement in any other technology or technical field.”

To answer my questions about Silicon Valley, I used the steps outlined in Alice Corp. and applied them to the facts of the episode. In “The Patent Troll”, the troll’s patent covered storage of media files on a network. The troll would likely argue that storage of media files is a process under section 101, and that implementing that process on a network is a new use of that method under section 100(b). I think that argument fails, and here’s why…

Similarly to intermediated settlement in Alice Corp., I think that storage of media files is an abstract idea. I do not think that storage of media files alone is a patentable idea. In Alice Corp., intermediated settlement was an abstract idea because it constituted “a fundamental economic practice long prevalent in our system of commerce . . .” Storing media files is not new or novel. Anyone can do it. For this simple reason, I think that it is an abstract idea.

The question then becomes: does storing those media files on a network somehow transform the nature of the claim into something new and useful? This is the second part of the analysis. Here, the method of storing media files (on a network) does not seem to be sufficient for that necessary transformation. In Alice Corp, generic computer implementation was not enough. Here, we have a something similar. Implementing a process on a network does not seem to be enough to improve the functioning of the computer or to improve technology in any way.

Overall, I think that the troll’s patent was just too broad. Ron LaFlamme was probably right; Richard probably would have won a trial. The question then becomes, did Ron give Richard good advice? I think he did. Ron told Richard that a litigation could cost him hundreds of thousands of dollars. That estimate might even be low (according to patent troll link above). If it really is going to cost that much, that option seems to be cost prohibitive. The only other option I see for Richard would be to “play ball” with the troll for a while. By that, I mean that Richard could call the troll’s bluff, and allow the suit to proceed. The troll might eventually back down, or a court might decide the issue on summary judgment. The problem with this option is that it carries risk, and is only viable until you hit $20,000 in legal fees. At that point, it would be better to have just paid him off. If I was in Ron’s shoes, I would have given Richard the same advice. Even though it stinks to have to pay someone like the troll, it just might be the cheapest option. In that way, Silicon Valley was accurate.

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