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Today is the release date of the new Star Wars sequel, and it’s also the due date for some amicus briefs in two big Supreme Court patent cases. And though the famed space opera has not much to do with patent law, the story of these two cases still shares a piece of the drama, the David versus Goliath battles, and the competing stories of power and force.
The cases, Halo Electronics v. Pulse Electronics and Stryker Corp. v. Zimmer, Inc., deal with a provision of U.S. patent law called “enhanced damages.” The law itself says that when someone infringes a patent, courts are allowed to increase the money awarded by up to three times. Although the text of the law does not say when the award is supposed to increase, courts have said for over a century that it should only increase when the patent infringer acted “willfully.” The idea is that someone who infringes a patent in evil or malicious ways deserves to pay more, while someone who accidentally or unintentionally infringes a patent should only owe the actual damages they caused.
But because the text of the law itself doesn’t say anything about willfulness, the patent owners in this case are hoping to get the Supreme Court to drop this willfulness check, so that enhanced damages could be awarded in any case where the judge sees fit. This would make the world much easier for patent owners, and a lot more risky for companies on the other end of patent infringement suits.
To make their case for why they need easier access to bigger money awards, the patent owners tell stories about small inventors who have their inventions ripped off by big companies who use all sorts of tricks to avoid paying the inventors on their patents. Enhanced damages, in their view, are needed to dissuade those companies from this sort of bad behavior.
That does seem like a pretty dark story of patent law. The problem is, it almost never happens. One study found that actual ripping-off of inventors happened in barely 1% of patent lawsuits. Most of the time, patent infringement cases involve “independent inventors,” those who come up with the ideas in the patents completely on their own and then are blindsided with a lawsuit.
Instead, the real dark side of patents is almost the reverse of this ripped-off inventor story. It is the story of the experienced patent owner seeking out companies to threaten with patent demands. Small companies are a favorite target, because they don’t have the teams of lawyers and big budgets to fight back.
And the demands made against these small companies, powerful they are. Most commonly, the patent owner owns the patents purely for purposes of getting money out of them rather than making actual products (a “non-practicing entity”); often the patent owner engages in abusive or threatening tactics, dangling small companies over the Sarlacc pit of unending litigation to extract settlements out of even the most questionable patents.
But operating companies use the force of strong patent demands against competitors too. In our brief (which contains yet more Star Wars references), we discuss the story of Kate Doerksen, founder of Ditto.com. She launched a new virtual-reality glasses service only to be sued by the largest private healthcare company in America. That company wanted Ditto.com shut down, and they bought up a patent a month after the website launched to do so.
In either case, the reason that the threats work is that they are backed by fear of patent lawsuits. Those lawsuits are incredibly expensive, and losing one could mean paying out millions in damages. That’s already a frightening prospect for small companies. If those millions in damages could now suddenly be tripled at will, the fright factor would increase proportionately.
The resulting risk is that innovators might not even get into the market and build new things because of this fear. If you might be on the hook for three times what you put into a company, why would you invest your time and money in it in the first place? And if innovators pull out, that would be a real loss to everyone. As Yoda might say, enhanced damages lead to fear; fear leads to less innovation; less innovation leads to suffering for the public.
If we are to ensure that technologies and technologists don’t end up frozen in carbonite, we need patent laws that free them from these excessive patent assertion threats that induce such fear. There are many ways to do this, but ensuring that triple money awards aren’t wrongly used against small innovators is an important one.