TIP Conference Day 2: Non-Practising Entities

- with Rachel Weiner

The second day of the TIP Conference focused on the controversial and sexy (for patent law) topic of non-practising entities. The public has a tendency to label non-practising entities as patent trolls, and with that label comes a whole consortium of negative connotations. What is a patent troll? The image that appears in most people’s minds is a person who acquires many, many patents and sits in wait, under the bridge, ready to unfairly pounce on anyone who attempts to cross.

The second day of the conference examined the “troll label” critically – to think carefully about people who are labelled as “patent trolls”, identify who receives that label, and examine the question of whether that label is justified. The speakers included Michel Vulpe, Founder and Chief Technology Officer of i4i, Richard Owens, who acted as counsel for i4i in its legal battle against Microsoft, and Bhupinder Randhawa, a patent lawyer from Bereskin & Parr. The panel was moderated by Dimock Stratton’s Bruce Stratton.

Mr Vulpe first described the litigation with Microsoft from the perspective of a software engineer running a small company. Mr Vulpe recounted how i4i was labelled as a patent troll, even though the court eventually found that it was, and still is, a practicing entity. However, he also noted that being a non-practicing entity may not be a bad thing – after all, many institutions, including the University of Toronto, collect patents but are non-practicing entities.

He then discussed how the judicial system itself is a huge barrier for small to medium companies to assert their patent rights. While the number is smaller in Canada, Mr Vulpe stated that for a company to initiate patent litigation, it will take at least $25 million. For many smaller companies, that’s a dead end right there. For those who can go forward, it’s an all or nothing gamble. For companies like Microsoft, it’s just part of doing business.

Bhupinder Randhawa and Richard Owens then raised a number of issues from the perspective of patent litigators.

Mr Owens argued that even if the small company managed to win the lawsuit, damages would more or less be what the original license fee would be had the patent infringer simply licensed it. Given the uncertainty of the final outcome of patent litigation, the mammoth amount of capital necessary to even initiate such litigation, and the fact that large companies can simply out-muscle the smaller company into bankruptcy, there is little reason why large companies would ever need to properly license patents of small companies. They can, and do, take with impunity because most of the time, there are no serious consequences.

Mr Randhawa pointed out that there are actually very few patent trolls, in the commonly understood negative sense, out there. Most small to medium companies, who assert their patent rights, do have an actual invention in their history. Problem is, they often lack the substantial resources necessary to begin commercializing. One way to start building a capital base is to collect licensing fees. Mr. Randhawa acknowledged that in some situations, especially relating to new, cutting edge technology, people who simply buy many patents may succeed in litigating them, this does not happen very often.

An interesting point that was made was that the Microsofts of the world themselves practice patent trolling behaviour. They sit on huge portfolios of patents, most of which they do not practice, and claim license fees and/or bring lawsuits against other companies for infringing their patent rights. So when small companies assert their patent rights, they are patent trolls, but when large companies do it, they aren’t?

On potential solution to the judicial obstacle of patent litigation that was suggested Mr Randhawa, was for there to be a patent court in Canada. Of course, every area of law feels like they need their own specialized court, but one unique obstacle about patent law is its heavy reliance on technical and scientific fields. Such fields require a great deal of background knowledge, something most judges today do not have.

In the end, patent trolls will continue to be a controversial topic. However, what we can conclude is, as Mr Volpe quoted Judge Michel: “It’s a label. It’s an excuse to not think carefully about the problem.”