Topic: Law and Civil Liberties

Patent Trolls Are a Symptom of Deeper Problems

The Center for American Progress’s Matt Yglesias emailed to tell me about the latest issue of Science Progress, CAP’s science journal, which includes an in-depth series of articles on patent reform. The article that particularly caught my eye was this piece on patent trolls. In it, Daniel P. McCurdy discusses the controversy over firms whose sole reason for existence is to acquire patents and then use the threat of litigation to extract licensing revenues. The classic patent troll has no products and no employees other than the lawyers required to negotiate licensing deals and file patent lawsuits.

Patent trolls are a real concern. Most famously, in 2006 Research in Motion was forced to pay $612.5 million to a patent-trolling firm called NTP. No one in the case claimed that RIM had directly infringed NTP’s patents. Rather, RIM had independently developed its technology and only found out years after the fact that it might be covered by NTP’s patents. Even more outrageous, the Patent Office had issued “non-final rejections” of the patents at issue in the case, but didn’t move quickly enough to spare RIM from forking over a 9-figure settlement to NTP.

With that said, it’s important to keep in mind that patent trolls are a symptom of deeper problems with the patent system, not the cause of the patent system’s problems. If we had a well-designed patent system in which only high-quality patents were issued, it would be much harder for patent trolls to engage in the kinds of abusive behaviors McCurdy laments. The reason patent trolling is so profitable is that over the last quarter century the courts have expanded patenting into new areas like software and business methods, and dramatically lowered the bar for receiving a patent. As a result, patents that would have been rejected 30 years ago (like this ridiculous patent on removing white space from database entries, which IBM received earlier this month) are now routinely approved by the Patent Office. As a result, patent trolls are able to buy up low-quality patents by the truckload. Even though the vast majority of the patents won’t survive legal challenges, defendants can’t take the chance that one of them might survive and force the firm into a 8- or 9-figure settlement.

Patent trolls make good poster children for the patent system’s dysfunctions, but focusing too much on them ignores the fact that abusing the patent system is a game played by large companies as well. For example, Verizon managed to extort tens of millions of dollars from Vonage to settle a lawsuit over an absurdly broad Internet telephony patent. Verizon, of course, isn’t a “patent troll,” but a competitor interested in hobbling an up-and-coming competitor. Any patent reform needs to address the Verizons of the world too, not just the NTPs.

The problems with the patent system have primarily been caused by the United States Court of Appeals for the Federal Circuit, which has jurisdiction over patent appeals and has aggressively expanded patenting over the quarter-century since its creation by Congress in the early 1980s. In the long run, the only solution to what ails the patent system is to undo the mistakes the Federal Circuit made. The Supreme Court has begun to make progress in that direction with recent decisions such as eBay (which weakened patent trolls by making injunctions harder to get) and KSR (which raised the bar on obviousness). The Federal Circuit’s Bilski decision, which placed new restrictions on “abstract” patents, is another step in the right direction. But there’s much more to be done. Most importantly, the courts need to overturn the Federal Circuit’s decisions from the 1990s that ruled (ignoring contrary Supreme Court precedent) that software was eligible for patent protection. It’s not a coincidence that the most prominent examples of abusive patent lawsuits are almost all in the IT sector.

There are also steps Congress could take, but the changes most frequently discussed—switching to a “first to file” system, for example—aren’t likely to have much of an impact on the problems of low-quality patents. A better option would be to follow Jim Bessen and Michael Meurer’s advice and dramatically increase fees for obtaining and renewing patents, which would give patent holders incentives not to waste everyone’s time with low-quality patents.

Finally, given that the Federal Circuit has been responsible for many of the problems with the patent system, Congress should strongly consider phasing out the Federal Circuit and returning jurisdiction over patent issues to the 11 geographically-based circuit courts. As I argued in an issue of TechKnowledge last year, competition among circuit courts is an important part of our decentralized common-law system of justice, and it has served us well in virtually every other area of the law. The experiment with a unified patent appeals court has not gone well, and Congress should consider reversing its mistake.

What the FISA Court of Review Said and Didn’t Say

After a quick read of the FISA Court of Review’s latest opinion on NSA wiretaps (In Re: Directives) …

Essentially, the Court affirmed that the Protect America Act was constitutional as applied to a particular telecom company.  More specifically, the Court held:  (1) A warrant might impose unreasonable delay.  There’s a “special needs” exception to the warrant requirement for foreign intelligence targeted at a person reasonably believed to be outside the US.  (2) The “reasonableness” requirement of the 4th Amendment was not violated. National security trumps the privacy right of targets even without a court-reviewed determination of the purpose, target, and particularity of the search. Executive branch review of those items, along with minimization procedures, provided sufficient safeguards.

Notably, the Court did not address the original NSA warrantless surveillance program, which covered communications between US persons in the US and persons outside the US, regardless of the target’s location.  Moreover, the Court’s holding was constitutional, not statutory.  No one challenged whether the NSA was complying with the terms of the Protect America Act.  The issue was whether that Act was itself constitutional, as applied.  Recall that my principal concern regarding the original NSA program was whether the executive branch had unilaterally adopted procedures that Congress had either not approved or expressly rejected. It was the Youngstown paradigm that the executive branch had offended, even if the original NSA program might have passed constitutional muster had it been enacted by Congress.  Nothing in the Court’s latest opinion is contrary to that assessment of the original program.

It’s also worth noting that the Protect America Act was replaced by the FISA Amendments of 2008, which requires, among other things, an individualized probable cause determination by the FISA court to surveil US persons outside the US.  In other words, the Court’s latest opinion addresses an act that, first, has been superseded and, second, was deemed by Congress to be unwise as a policy matter even if it survived constitutional scrutiny.

Questions for Mr. Holder

Today, the Senate Judiciary Committee is holding a confirmation hearing for Eric Holder, Obama’s nominee for Attorney General.  Here are some questions for Mr. Holder:

1.  You admit you made mistakes with respect to how you handled the pardon for Mark Rich.  Why do you think he was pardoned?  You are a former prosecutor and investigator–do you believe there was a corrupt bargain of some kind?

2.  You and Attorney General Janet Reno approved the violent raid by federal agents to take custody of Elian Gonzales.    Did you know in advance that agents waited until the judge familiar with the case left the courthouse for the day and then applied for a warrant from the evening magistrate, who was not as familiar with the circumstances of the case?  Did you know that federal agents used tear gas against peaceful protestors outside the home of Elian’s relatives?

3.  You have testified in favor of federal hate crimes legislation.  Where in the Constitution do you find authority for Congress to enact such legislation?  What is your view of the Tenth Amendment?  What federal criminal laws (enacted or proposed) fall outside of the purview of the limited and enumerated powers of Congress?

4.  In 2000, the Department of Justice maintained that the Second Amendment to the Constitution does not really guarantee the right of citizens to keep and bear arms.  The government can, in its discretion, take guns away from the citizenry.  Is that your view?  You did sign on to an amicus brief in the Heller case that defended the draconian gun control regulations of Washington, D.C.

5.   If a federal law enforcement agent for the FBI or DEA is involved in a questionable shooting and local prosecutors come to the conclusion that the law was broken and bring murder or manslaughter charges, will your department argue for blanket immunity from prosecution?  During the Clinton years, the Justice Department argued that federal agents “are privileged to do what would otherwise be unlawful if done by a private citizen.”  Do you think federal agents are immune from murder statutes?

6.  In Mahoney v. Babbitt, 105 F.3d 1452 (1997), you signed a brief that took a bizzare view of free speech rights.  You argued that people who support Bill Clinton could bring signs along the inaugural parade route, but that people who disliked Bill Clinton could be denied permits to bring signs to express their point of view.  Where did you get that from?  You say that as attorney general you would follow not only the letter but the spirit of the law, but your record does not support that.

Our Latest Salvo in the Battle Over Campaign Finance ‘Reform’

Today we filed an amicus brief in Citizens United v. Federal Election Commission, an election regulation/campaign finance case that will be argued before the Supreme Court in March or April.  Testing the bounds of the Court’s landmark decision in Wisconsin Right to Life II (WRTL II), the Federal Election Commission recently sought to apply certain prohibitions and disclosure requirements of the Bipartisan Campaign Reform Act of 2002 to advocacy group Citizens United’s political documentary, Hillary: The Movie, and to the group’s broadcast advertisements for the film.  Though the FEC conceded that the ads, at least, are not the functional equivalent of express campaign advocacy, as defined in WRTL II, it nevertheless determined that Citizens United must disclose the identities of its contributors. 

Cato’s brief argues that BCRA violates the First Amendment freedom of association belonging to those contributors, which freedom includes the right to associate anonymously and to control the group’s character and message free from government intervention.  For groups engaging in political speech, compelled disclosure of contributors’ identities infringes their freedom of private expressive association, a burden often no less severe than direct restraint of the group’s speech.  This type of government action must be subject to strict constitutional scrutiny—a level of scrutiny that in practice is almost always fatal.  The district court failed to afford sufficient value to associational rights and so failed to scrutinize appropriately BCRA’s unjustified infringement on those rights.

Carping about TARP

In its story yesterday about Obama pushing for release of the second half of the TARP boodle, the New York Times reported that

Lawmakers are angry about many aspects of the  bailout, which they intended for the government purchase of troubled assets, particularly mortgage-backed securities, but instead has been used  to recapitalize banks and even prop up failing Detroit automakers.

Initially, I had a lot of sympathy for this critique.  I had a little burst of outrage myself right before Christmas when I read the following quote from White House spokesman Tony Fratto, explaining why the White House was going to use the TARP authority to bail out GM and Chrysler–despite Congress’s having just voted down the auto bailout:

“Congress lost its opportunity to be a partner because they couldn’t get their job done,” Fratto said. “This is not the way we wanted to deal with this issue. We wanted to deal with it in partnership. What Congress said is … ‘We can’t get it done, so it’s up to the White House to get it done.’ “

So by not giving the president the power to bail out the automakers, Congress has “lost its opportunity to be a partner,” and the president’s going to do it anyway?  By what authority?  The TARP statute gives the Secretary of the Treasury the power to buy “troubled assets” from “financial institutions.”  Yet in the past three months TARP’s morphed from a plan to buy toxic mortgage-backed securities, to one that involves buying shares in banks (like Wells Fargo ) that aren’t themselves troubled, to a program giving loans to car companies, which surely can’t qualify as “financial institutions.”

More Bush administration lawlessness, I thought.  We already knew they didn’t care about the Constitution.  Now they’re showing they can’t be restrained by plain statutory language. 

And then I looked at the statute.  And it turns out the definitions of “troubled asset” and “financial institution” are so gobsmackingly, irresponsibly broad, that the administration has at least a colorable argument that it can legally reshape the bailout in the ways it has. ”Troubled assets” include:

any… financial instrument that the Secretary, after consultation with the Chairman of the Board of Governors of the Federal Reserve System, determines the purchase of which is necessary to promote financial market stability 

And “financial institution”:

means any institution, including, but not limited to, any bank, savings association, credit union, security broker or dealer, or insurance company, established and regulated under the laws of the United States or any State, territory, or possession of the United States [emphasis added]

That’s why, as the University of Chicago’s Randy Picker argues, you can probably “fit cars under the TARP.” (For a contrary argument, see here ).

Given how far the administration has pushed loose legislative language in the past, can Congress credibly claim to be surprised here?  Lawmakers may, as the Times reports, be “angry” about the scope of the bailout, but when they write language that broad, their outrage is more than a day late and $700 billion short.

Questions for Mrs. Clinton

Hillary Clinton is expected to have a smooth confirmation hearing today. Bizarre. If we had more citizen-legislators instead of professional politicians, some of the following questions would be asked at today’s hearing:

Did you request, or see, any of the hundreds of FBI files that were improperly acquired by the Clinton White House? Who hired Craig Livingstone anyway?

Why did you fire Billy Dale?

What is your view of the war power? Can (Should) the President attack another country without a declaration of war from the Congress?

What is your view of the Tenth Amendment? Is there any subject beyond the purview of a federal law or spending program?

Exactly what did you and your Husband take from the White House when you left?

Did you or your husband make any arrangements to get money to Susan McDougal since Bill left the White House? Do you know why she was pardoned?

Do you plan to hire Sandy Berger?

To revisit Clintonian policies and practices, go here and here.

Obama Meets Calderón

When president-elect Barack Obama meets Mexico’s Felipe Calderón today, he will be presented with a problem that went largely ignored during the last campaign season: the dramatic increase in drug violence in México. Last year, more than 6,000 people were murdered as a result of clashes between drug-trafficking gangs and the Mexican police and army. The violence is starting to spill across the border into the United States.

Instead of insisting on the prohibitionist strategy that Washington has pursued for decades in the region, President Obama should discuss with Calderón and other Latin American leaders alternatives that aim to reduce the pervasiveness of drug-related violence and corruption in drug production and drug transit countries. Only drug legalization will ultimately end the destabilizing effects of prohibition in this important U.S. neighbor.