As a refresher, the explicit deal regarding a patent is that the inventor(s) agree to publicly disclose the details of their invention in exchange for a period of time where the idea belongs to them alone. Others can only use the invention with the inventor’s permission during that finite period of exclusive protection. This means a license can be granted to a third-party so that they create something using the protected intellectual property. All fair and good if you ask me.
Where it starts to go wrong is with what has been happening over the past 40 years or so. Large companies pay bounties (bonuses) for inventors to file a disclosure which gets reviewed internally and sometimes turns into a patent filing, which in turn, sometimes turns into a patent. These patents may or may not have anything to do with the company’s core business. The reason companies do this is to build up a big, broad patent portfolio which can be used for offensive or defensive purposes. The defensive use is to fend off other companies who claim infringement upon their IP – often resulting in cross licensing of the patent portfolios.
The offensive use is to seek other companies out who may be infringing on the IP and either extract a license fee from them or put them out of business. This is how the big guys fight the little guys, because no small company can hope to compete with the room full of $500/hour IP lawyers with shiny shoes. It also creates a lucrative revenue stream for the patent holders; companies like IBM harvest billions of dollars annually from the license fees to their patent portfolio.
Today, Honeywell filed a lawsuit against Nest Labs and Best Buy (more on them in a minute) claiming that Nest infringed on 7 of their patents. The Best Buy bit of this shows you the money angle because BBUY sells the Nest thermostat in their retail stores. They are a great target because they are big and presumably are a big part of Nest’s distribution of their smart thermostat.
Where this story goes wrong for me is that Honeywell evaluated smart thermostat technology and determined that there was no market for it and opted to not pursue it as a product. This is where the story should have ended. They may have patents, but they are not using them actively in their business. Now we’re seeing the legal action because Nest demonstrated that there is a market meaning Honeywell screwed up their own market research. In other words, these patents are only useful because Nest proved there IS a market for smart thermostats.
Technically, Honeywell is acting within the law to enforce and monetize their intellectual property, if it is found that Nest did infringe upon 1 or more of the 7 patents in question. Morally, Honeywell is acting the corporate douchebag by using patents it decided were meaningless in its own business to hold up an innovator (and distributor) for cash. It’s disingenuous for me to say Honeywell is the only company that practices this policy – they are not. They are simply the most recent and public example.
As many have written, the patent system is screwed up in this country and this is yet another example of how. There should be at least some requirement of use or intended use for patent protection to be valid.
This story may well turn out for the best in that Nest will get extra press and more people will try their groundbreaking technology resulting in energy savings and a more pleasant home. Let’s hope Honeywell simply stops the strong arm tactics and shows some innovation of their own. It’s one thing to file for a patent, it’s quite another to execute the ideas with the amount of grace and style that Nest has. Who would ever think a thermometer would be described like that?
So, Honeywell, stop sucking. Stop being a corporate douchebag. If you want a piece of this market, build something with your patented ideas. Until then, you’re just acting a big bully. Honeywell may find that this action puts them on the wrong side of the broader technical community unintentionally and as a result, they may start paying a price that was not anticipated. Choose wisely.
Disclosure: I have no financial interest in Honeywell, Nest, or Best Buy nor do I intend to have any such interest in these companies in the near future.
Maybe Honeywell sucks (I don’t know), but there are a few points worth noting. First, since Honeywell isn’t a competitor, it probably won’t get an injunction to stop Nest, which greatly reduces Honeywell’s leverage. Second, the Federal Circuit has been working to reduce damages lately, so Honeywell may not win as much in court as it would have in the past (I realize the lawyers with shiny shoes are expensive even if Honeywell wins nothing in court). Finally, if Nest had been there before Honeywell, they’d have to pay nothing. Perhaps Honeywell is entitled to something, and the only question is how much.
A stronger argument against Honeywell is that it’s asking for too much (we don’t know that, as far as I know, but let’s assume it for this argument). I’m not sure that’s largely the fault of the patent system though, as opposed to the general American litigation system in which attorney fees are very rarely awarded and discovery is expensive and asymmetric. If you want to go after the patent-specific part of the problem, it may be better to speed up reexaminations so that invalid patents are taken out before the parallel litigation gets costly, rather than require use of the invention. The Federal Circuit has already taken out an old damages calculation shortcut (the 25% rule) which had led to some excessive damage awards in the past.
If the problem is not with the patent system itself, but with our litigation system, then the solution should be there as well. Most of the rest of the world has loser-pays and no discovery. There’s a lot less litigation as a result, and it’s a lot cheaper when it happens. One price of that approach though is that it’s harder to get redress for valid claims.
Requiring use of the invention has been debated, but isn’t really workable. What do you do with university technology? Is there really no value in a technical disclosure that’s separate from commercialization? More importantly in a practical sense, how much use would be enough?
I’m a patent attorney with no involvement in the Honeywell/Nest dispute.
HI Andrei,
Nice to hear from an expert on the topic. BTW, are you a shiny shoes IP guy? 😉 The nuance you add in your comment is very valuable and provides a degree of insight into this situation I certainly didn’t have. Thanks for dropping by and sharing it. Happy to have your comments any time!
Thanks,
mh
one the things that’s becoming more critical in patent prosecution is demonstrating actual damages, or losses from the infringement. so even if honeywell holds the patents, if they actively decided not to enter the market, then it’s harder for them to claim damages.
That makes a bunch of sense Hal. Thanks for dropping by and commenting.