Patent Feud

One of the things that has struck me, looking at a wide variety of legal systems past and present, is the important role of feud as a form of law enforcement. The logic of feud law is simple: If you wrong me I threaten to hurt you unless you compensate me for the wrong. In order for it to work, it requires some mechanism that makes my threat of hurting you more believable when you actually have wronged me than when you have not, in order to prevent the enforcement mechanism from being used for extortion. To put it differently, you need some mechanism such that right makes might.

For a simple example, consider the feud system of the Rominchal gypsies, the largest gypsy population in England.¹ If you wrong me, I threaten to beat you up. Both of us know that if you have wronged me, as judged by the norms of our community, my friends will back me and your friends won’t back you, making it in your interest to either compensate me or leave town.

Feud systems (not the same thing as feudal systems—the words are unconnected in both meaning and origin) have existed in a variety of human societies. In addition to the Rominchal, well recorded examples include saga period Iceland and the traditional legal system of northern Somalia.

In the Icelandic case, the mechanism for converting right into might was an explicit law code and a court system. You sued the person who wronged you. If you won, the verdict was a damage payment he owed you. If he failed to pay, he had two weeks to leave Iceland, after which he was an outlaw, meaning that it was legal for you to kill him and tortious for anyone to defend him. The system functioned for about a third of a millenium—for details see the relevant chapter in my Legal Systems Very Different From Ours. The Somali version was somewhere between the Icelandic and the Rominchal, with customary law and customary mechanisms for setting up courts to arbitrate disputes along with a system of prefabricated coalitions to deal with both paying damages and enforcing their members’ claims.

There is evidence that many, perhaps most, legal systems were built on top of preexisting feud systems. That includes Jewish law and Muslim law, both of which contain what I would described as fossilized evidence of a feud system, along with Anglo-American common law and Roman law.

Feud systems are not only a matter of historical interest; they still exist, de facto if not de jure. One current example is patent litigation among modern companies such as Apple and Samsung, two of the largest producers of cell phones.

To see the logic of the situation, imagine that Apple is considering suing Samsung for a patent violation of which Samsung is not actually guilty, the equivalent, in the modern context, of a Rominchal Gypsy or medieval Icelander wronging someone by attacking him for no good reason. There are at least two reasons why Apple might sue even if it did not believe in its own case. One is the chance that the court will mistakenly decide in Apple’s favor. The other is that, even if Apple loses the case, the litigation imposes significant costs on a rival. Not only will Samsung, like Apple, have to spend money on lawyers, the public perception that Samsung might end up having to withdraw products from the market or modify them will cost Samsung sales, some of which will go to Apple.

If courts were perfectly able to judge cases and measure costs, there would be no mistaken decisions and the court could award Samsung, if it prevailed, damages against Apple for Samsung’s lost sales. In practice, however, courts sometimes reach mistaken verdicts and are unlikely, perhaps unable, to calculate such indirect effects and award damages on the basis of them. Hence, in the real world, Apple might find it profitable to sue even if it knows it has a weak case.

In the real world, however, there is a reason for Apple not to sue that does not depend on the court always getting the result right, the risk that Samsung will retaliate by suing Apple. If we assume that neither company has actually violated the patents of the other, the countersuit may still be profitable for the same reason the initial suit was. And even if the countersuit is not profitable as a gamble on court error or a way of reducing Apple’s sales in favor of Samsung’s, being committed to such a countersuit is one way of deterring the initial suit, just as being committed to vengeance against anyone who kills your kin is one way of keeping your kin from getting killed. The implicit feud system in modern patent litigation provides a mechanism for deterring meritless suits that might otherwise be profitable just as traditional feud systems deter other forms of otherwise profitable wrongs, such as robbery.

What about suits that are not meritless, what if Samsung actually has infringed Apple’s patents? The threat of countersuit is still a cost to Apple of suing. If courts reached their verdicts at random, the situation would be the same as in the meritless case and the feud system would equally deter suits in both cases.

But courts do not reach their decisions at random. If Samsung is guilty, that raises, one hopes substantially, the chance that Apple will win. That increases the benefit to Apple of suing. If it increases it by enough to outweigh the cost of Samsung’s (hypothetically meritless) countersuit, Apple sues.

To put it differently, the mechanism through which right makes might in the modern feud context is, as in Iceland a thousand years ago, the court system. As long as the plaintiff is more likely to prevail when he is in the right than when he is in the wrong, suing someone for infringing your patents produces a larger benefit to the plaintiff and a larger cost to the defendant when the defendant actually has infringed the plaintiff’s patents than when he has not. Provided that the cost imposed by the threat of countersuit is greater than the benefit of a meritless suit but less than the benefit of a legitimate suit, the result is to deter the former but not the latter. That depends on courts working to some degree but does not require them to work as well as they would have to work in order to themselves deter plaintiffs from filing meritless suits. The high tech feud system working through the court system is a better mechanism for law enforcement than the court system alone in at least one important respect: It requires less ability on the part of the courts in order to work.

One piece of evidence that what I have described is how the system actually works is the practice of high-tech companies accumulating large inventories of patents, many of which they are unlikely to use. That is the modern equivalent of the medieval Icelander accumulating weapons and allies in case he ever needs them to prosecute his side of a feud. As in that case and the higher stakes version played by nations under the name of Mutual Assured Destruction, if the strategy works the weapons need never be used.

There remains, however, one hole in the system.

The Invulnerable Plaintiff: Non-Practicing Entities and the Patent Troll Problem

Samsung and Apple produce cell phones, can be plausibly accused of violating relevant patents, are vulnerable to threats of retaliation. A firm that produces nothing is not. A non-practicing-entity, referred to by critics as a patent troll, owns a collection of patents, sues practicing entities for infringement, but faces no risk of an infringement countersuit. It is invulnerable.

I described two reasons why Apple might sue Samsung even if the suit was meritless. Only one applies directly to the case of the non-practicing entity. It is not producing phones so gets no direct benefit from persuading people not to buy phones from Samsung. Like Apple, however, it has the possibility of profiting by court error, of winning a case it should have lost and collecting damages. And, although imposing costs on Samsung provides no direct benefit to the non-practicing-entity, it does give Samsung an additional incentive to settle instead of letting the case go to trial.

In the case of Samsung, there is an obvious incentive not to settle — paying off one plaintiff with a weak case will encourage others.² That incentive is weaker in the case of a much smaller firm, unlikely to be the target of multiple extortion attempts and at risk of being destroyed by a single law suit. Hence we get what critics of non-practicing-entities allege to be their usual tactic: suing small firms in order to be paid off to drop the suit. It follows that even if the feud system is adequate as a way of controlling patent suits among producing companies, it is impotent to control patent suits by non-practicing entities.

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1. Described in Chapter 3 of Weyrauch, Walter O., ed., Gypsy Law: Romani Legal Traditions and Culture, University of California Press, 2001.

2. A point made in verse by Rudyard Kipling in an earlier context.