Huawei case in the USA has brought a new term for a lot of companies, patent troll, which gives us a new perspective on the usage of patent. In order to help clients get to know what it means and how to avoid it, we invited Samuel Luo, an engineer from Ronda, to analyze the case in which Huawei demanded more than $1 billion in patent licensing fees from Verizon, hoping it would be helpful for Chinese companies.
On June 12, the news was reported by various major media that Huawei asked Verizon to pay more than $1 billion in term of licensing fees for its patents. Here comes the whole story:
According to foreign media reports, on June 12, Huawei asked Verizon, the largest US carrier, to pay more than $1 billion in royalties for using over 230 of its patents concerning network equipment. These patents were used by Verizon itself and more than 20 vendors.
Verizon had built partnership with Huawei to sell Huawei mobile phones in as early as 2018. However, this enterprise and another US carrier AT&T were forced to end it due to pressure from the US government.
Earlier before this, Huawei got an order worth several billion dollars of network equipment from Verizon, which was also canceled for the same reason.
Verizon Wireless used to be the second largest telecom carrier in the United States. But after acquiring Alltel from Atlantis Holdings LLC, it outran AT&T Wireless and became the new mobile hegemon of the country with 83.7 million mobile subscribers.
After becoming the new telecom overlord in the US, Verizon chose to stand on the opposite side of Huawei but kept using Huawei technology. What's more interesting is that except from using them without paying, the US company even played the national card and reported it directly to the government. Verizon spokesman, Rich Young, said, "We will not comment on the matter, which could end up being a legal issue. These issues are larger than just Verizon. Given the broader geopolitical context, any issue involving Huawei has implications for our entire industry and also raise national and international concerns.”
In April this year, Verzion CEO Vestberg said, "We don't have Chinese vendors, our logistics channels and production lines are not in China, so it looks like we are not affected by Huawei ban.”What a word.
On June 13, anti-China Senator Marco Rubio tweeted that Huawei has become a patent troll when forwarding the report about Huawei requesting the US carrier to pay patent fees. He said, "This is an attempt by them to retaliate against the US by setting the stage for baseless, but costly, patent claims."
What is patent troll? Its definition from Wikipedia's is:
Patent troll or patent hoard is a term applied to a person or company that actively launches patent infringement lawsuits to obtain compensation but have never manufactured their products based on the patents.
In other words, patent troll refers specifically to companies that have little or no real business but survive by actively initiating patent infringement lawsuits. All of Huawei's patents are generated from its own business, and its R&D expenses even exceed that of technology giants like Apple and Intel. If companies like Huawei are called patent trolls after they invest so much in developing their own patents, we hope that more "patent trolls" of such will emerge in China.
Donald Trump once said: "There are often malicious thefts of our great intellectual achievements, such as patent use without permission and paying. This is shameless and we must protect our intellectual property. "
For this statement, Huawei can only respond like: Yes, you are right, that is what the US did, Trump.
Huawei's Patent Applications in US Published Year by Year
We will give a few more typical cases of patent troll to help you better understand it.
When Xiaomi tapped into the US market with enthusiasm, it was, to its surprise, hit with a head-on blow.
On November 19, 2015, a company called Blue Spike sued Xiaomi for infringement of its patent US8930719 on products including Mi 4, Mi 4c, Mi 4i, Redmi 1s, Redmi 2 and even Mi 5 and Mi 5 Plus which have not yet been released.
Who is this "BlueSpike”? Also a cellphone seller?
On its website, Blue Spike claims to be an innovative company of content management and applied security with more than 98 patents ranging from signal abstracting, data security, software watermarks, and product license keys to ASLR. The inciting incident that launched the company was the theft and reclamation of its founder Scott Moskowitz’s personal property which made him realize “people can lie, cheat and steal." He filed for the first patent on digital watermarking in 1995 and founded Blue Spike later.
It seems that this company does not sell mobile phones. Among the 98 patents mentioned earlier, only ASLR is linked with mobile phones, namely Address Space Layout Randomization.
Xiaomi unfortunately fell on this, and the alleged infringement patent US8930719 is related to ASLR.
This patent is not simple. After an search, we found it has 117 members in patent family. It takes painstaking work to figure out its priorities and divisions, let alone to understand its technical solution and deal with the lawsuit.
What is it doing with such an impressive patent but without any decent products? Holding on to one's post but doing nothing, what a hooligan.
Yes, it is definitely a "patent troll".
Any entity that generates no production while in possession of patents is a patent troll.
Blue Spike is a well-known example of it. Previously, Apple, Google, Huawei and others were also sued by the company. According to data, it filed more than 70 patent infringement lawsuits from 2012 to 2013 in the federal district court of Texas for its 4 patents related to signal abstracting. And prior to the suit against Xiaomi, it also did that to Huawei on the same patent in the exact court on November 18.
Patent trolls mainly have the following features:
1、Purchase patents from bankrupt companies at low prices
2、Do not manufacture products
3、Purchase important patents to sue large companies
4、Attack others in secret
Patent trolls usually don't have so many technologies on their own, and they make money from high compensation, mainly by purchasing patents and then filing infringement lawsuits directly against giant companies or by selling them to another shell company, inciting them to start patent lawsuits. Their business model is generally like this.
The UnitedPatents report shows that there were a total of 3,050 patent lawsuits in the US for the first half of 2015, of which 68% (2075) were filed by patent trolls, and they played a major role in technology lawsuits.
Let us take a look at how they play their tricks.
Intellectual Ventures (IV) can be said to rank number one patent troll. It was founded by Nathan Myhrvold, formerly Chief Technology Officer at Microsoft in 2000 with investment from Google, Microsoft, and Apple etc..
Its founder Nathan Myhrvold, known as the "kind elderly politician in technology industry", graduated from Princeton University with a master's degree in mathematical economics and a PhD in theoretical physics. He used to be a postdoctoral fellow working with Stephen Hawking. Yes, that Hawking we are talking about.
According to US media reports, IV has 30,000 patents, of which about 1,000 were developed by themselves, and the others were obtained through purchase.
It filed patent lawsuits through a variety of ways, including licensing patents to shell companies and inciting them to start patent lawsuits, direct lawsuits or threatening. The most classic case is Oasis Research against ADRIVE.
IV bought 6 inventions from the inventor Crawford, and sold them to Oasis Research, which had just been established for more over days. Then Oasis Research initiated patent lawsuits against 18 cloud computing service providers, including AT&T and ADRIVE. This is how IV operates. Instead of participating in the lawsuit directly, it plays behind more than 1,100 shadow companies to attack others.
NTP and RIM
In 2000, NTP, a California patent company, wrote to BlackBerry manufacturer in France Research In Motion (RIM), saying that RIM had infringed on eight of its patents related to mail system and had to pay to keep using them.
At that time, NTP had no employees and those patents were not invented by it directly. Five of them related to email system were transferred to it. This is also another typical case of patent troll, making us wonder whether it is also a shadow company for IV.
RIM did not bother to make any response. Then it was taken to the court by NTP in 2001. There were many twists and turns along the way, like invalidation of patents. After six years of litigation, RIM ultimately ended in failure and lost $612 million, including infringement damages cost and license fees for permanent use.
Smartflash and Apple
US patent company Smartflash points out that Apple has violated three of its patents regarding "data storage and access management through payment system", asking for $852 million in damages and demanding revenue (proportionate) from products sold by iTunes.
In addition to Apple, Smartflash has also filed suits against Samsung, Google, Amazon and others. Many of them have reached out-of-court settlements with it.
Smartflash, founded by inventor Patrick Racz in the early 20th century, makes no products. It aims to make profits through marketing and commercializing its seven patents. Quite typical practice of patent trolls.
With Apple's defense, Smartflash only got $533 million for compensation.
Since patent trolls cause so much damages and turmoil, why don't we get up and take them down? What makes them get their ways?
Gangdom exits for a reason. For patent trolls, the reason is money.
In the United States, patent litigation is basically conducted in Eastern District Court of Texas, especially the Marshall Court for several main reasons. First of all, the patent lawsuit here has a higher winning rate and higher compensation. Statistics show that the plaintiff's winning rate here reaches at 55%, ranking number one, and the average compensation amount makes up to $8.949 million. In 2009, the Court gave a $1.67 billion verdict for Abbott's patent infringement of Johnson & Johnson, the highest compensation in this regard in US history. Secondly, the Court's rules of litigation are in favor of patent trolls. For example, in terms of evidence, the defendant needs to find a lot of it while plaintiff does not need to provide it if it doesn't practice the patent. In addition, judges and juries tend to take the side of patent owners as they believe in government and will make no doubt about certificates issued by the US Patent and Trademark Office.
There is a famous saying, in Marshall City, the justice system is not the protector but the driver of economic development.
For instance, Samsung volunteered to become the main sponsor of various local festivals in order to facilitate winning in future lawsuits, and it built the only skating rink in the entire East District of Texas across the Marshall Branch.
With government propping them up and their contribution to local GDP growth, patent trolls could not be more welcomed here.
Of course, not all NPEs (Non-Practicing Entities) are bad. They can generally be divided into three types: research, profit and alliance ones. The first type of NPEs are mainly research institutes who apply for many patents but usually do not implement them on their own. The second type are patent trolls like Blue Spike and NTP. A typical representative of alliance NPEs is RPX company which is established especially to deal with patent trolls. They purchase patents before patent trolls purchase them and allow NPEs to use them through a membership system instead of filing lawsuits. RPX is therefore called "protected umbrella of patents" and "patent safe net".
On RPX homepage, it says: "Patent litigation used to be a form of legal redress. Today it is a business model.”
Back to Huawei case. In fact, its patents were originally developed to help it explore the US market. Given that there is no access to the market, it will have no worries and can battle against American companies audaciously, which may only be the first step for its counterattack.
It is very clever to use patent to fight back. As these patents are legally authorized, it makes sense to ask for licensing fees. Huawei also sends a signal for its counterattack by getting to the carrier directly instead of its vendors who had been cut off supply. On one hand, it makes the American carrier feel the pain of not being able to buy Huawei products, on the other hand, it reminds its vendors who have been cut off supply that Huawei's not a wuss in protecting its patents.
In fact, large companies in the US are often tormented by "patent trolls" who hold only a few dozen patents. It often ends up with them paying billions of dollars. They are afraid of "patent trolls" because the latter can sue them while the other way round does not work. Now that Huawei cannot sell products in the US market, it does not worry about being counterclaimed. Its more than 10,000 patents can be the gunpowder for the US communications industry, and even a small part of them can be intimidating for US companies.
Through explanation and analysis in this article, we hope that more Chinese companies located in China gain a better understanding of overseas patent trolls and their types so as to avoid being blackmailed and to properly protect their own enterprises by making use of patent trolls.