Google’s asserted reason for the attempt at acquisition–best defenses against patent litigation based on “low quality” patent is to have a formidable patent portfolio–is likely a true motive. The threat of counter-suit by a defendant can be deterrent to a competitor bringing the suit in the first place. However, threat of counter-suit is less–if at all–a factor when the plaintiff is a non-practicing entity. Also, although not asserted as a reason by Goggle, the Nortel portfolio may present opportunities for Google to license some of those patent to others to create a revenue stream.

More Coverage:

• Goggle’s Blog
• Financial Times
• CNet

Centrillion Data Systems LLC v. Quest Communications International,

This case addresses the issue of whether infringement may be found for a “use”–under 35 U.S.C. 271(a)– of a system claim, which includes elements in the possession of more than one actor, e.g., the service provider possesses some elements and the end user possesses other elements.

At issue in the case is Quest’s customer billing information systems. Centrilion asserts that Quest’s billing systems infringe U.S. Patent No. 5,287,270. Claim 1 of the ’270 patent, at a high level, requires–as summarized by the court–a system for presenting information . . . to a user . . . comprising:  (1)  storage means for storing transaction records, (2) data processing means for generating summary reports as specified by a user from the transaction records, (3) transferring means for transferring the transaction records and summary reports to a user, and (4) personal computer data processing means adapted to perform additional processing on the transaction records. Centrillon acknowledged that the claim includes a a back-end system maintained by the service provider and a front end system maintained by an end user.

Quest’s billing system software has a back office system and a front-end client application that a user may install on a personal computer.  When the user sign’s up for the billing software, the software made available to the users electronic billing information on a monthly basis.

Control means ability to put system into service. The court held that to “use” of a system for purposes of infringement “a party must put the invention into service, i.e., control the system as a whole and obtain benefit from it.” However “control” is not to be interpreted too narrowly. Control includes, as in the case of NTP, Inc. v. Research in Motion, Ltd., 418 F.3d 1282 (Fed. Cir. 2005), the ability to put the system as a whole into service. Therefore, a customer in NTP remotely “controlled” by simply transmitting a message (email)  and it did not matter that the use did not have physical control over the relays of the system.

Customer’s Use. In Quest’s case, the court rejected Quest’s argument that its customers did not use the system because they did not control the back-end processing. Quest’s system has two operations, an on-demand operation and a normal operation. Under the on-demand operation, the user’s request directly generated a query returning data to the user. Under the  normal, operation the system generated reports on a monthly basis that the user could retrieve. The court found that both the on-demand and standard operation of the billing information system was a “use” as a matter of law.  The on-demand operation was a use because the customer controlled the system on a one request to one response basis.  Under the normal operation, the court found that the user controlled the system by signing up initially with the service, which triggered the monthly reports to run. In both modes of operation, but for the customer’s actions, the entire system would never have been put into service.

Quest’s Use. The court determined as a matter of law that Quest did not “use” the patented invention. To “use” an invention, a party must “put the claimed invention into service, i.e., control the system and obtain benefit from it.” The court found that Quest never uses the entire claimed system because it never puts into service the :personal computer data processing means.” In other words, it does not use a front end system required by the claims. Further, “supplying software for the customer to use is not the same as using the system.”

Vicarious liability requires control or direction of actions of another. The court noted the only way to show that Quest used the patented system was if Quest is vicariously liable for the action of its customers so that the use by the cutmers may be attributed to Quest. The court stated that vicarious liability attaches when there is an agency relationship where one party controls or directs the action of another to perform one or more steps of a method claim. The court found Quest was not vicariously liable because Quest’s customer’s are not its agents and Quest did not direct its customers to perform.

“Making” requires combining all the elements of the claim. The court found that Quest did not “make” the invention–under section 271–because Quest manufactures only part of the claimed system and does not make the “personal computer data processing means.”

Inc. lists the criteria used to determine whether a company qualified for consideration in the list. The list ranks companies based on revenue growth from 2006 through 2009. To qualify, the companies had to be generating revenue by June 30, 2008, they had to be U.S.-based, privately held, and for profit. The companies could not be subsidiaries or divisions of other companies.

A number of reasons may explain why more of the companies do not hold patents. First, business operating in some sectors find more value in patents and therefore seek patent protection more than business in other other sectors. Advertising and marketing companies had more companies represented in the list than any other type of business. It is likely business in advertising and marketing, generally, seek patent protection less than say telecommunication companies. According to the graph on page 111 about 24 of the INC 500 companies were in the telecommunications sector, whereas about 60 companies were in advertising and marketing.

Next, patents are expensive to obtain. To qualify for the list, a company must be independent and not a subsidiary or division of another company. It is likely reasonable to guess that independent startup companies, at young as 3 years old, are likely to have less funds available for patent protection. See my post: Pay for a Software Patent Application or a Software Engineer?

INC. does not report the percentage of companies on the list that have a patent application pending at the U.S Patent and Trademark Office (USPTO). According to the USPTO, the average pendency of a patent application is 34.6 months based on FY 2009 statistics. That means from the date a patent application is filed it take, on average, about 3 years for the government to issue a patent on that application. Therefore it is possible that some subset of the companies on the INC 500 list might have patent applications presently pending.

Last the survey related to the INC report does not assess other types of Intellectual Property such as trademark registrations.

I am not sure that we can draw any conclusions from the 19% reported in INC. Many factors influence a companies decision to seek patent protection. Further the long patent application pendency period leaves the possibility companies that do not presently have a patent could have a patent application currently pending.

• Microsoft Puts C#, CLI Under No-Lawsuit Umbrella [TechNewsWorld] –
  "Microsoft stated Tuesday that it will not pursue legal action against open source software developers using C# and CLI programming languages. This will likely make some developers much more confident in using the technologies. However, the promise does not include the non-ECMA parts of Mono . . ."