Bad actors no more define all NPEs than they do all high-tech companies, even though many use inventions without paying.
A nasty dispute involving an angry online entrepreneur shows to what lengths some people are willing to go to fan the flames of anti-patent fire.
FindTheBest CEO Kevin O’Connor, co-founder of web ad firm DoubleClick, decided several weeks ago he would go public with his attack by what he terms patent “trolls” and worse.
Ars Technica reports that “O’Connor wrote to tech sites like PandoDaily telling them of his determination to ‘slaughter’ the troll, the ‘scum of the earth.’ And in August, he pledged $1 million of his own money to fight the troll that went after his company.” PandoDaily, which bills itself as “the site of record for Silicon Valley,” is published by the Application Developers Alliance, and features a section called “Patent Troll Smackdown.” Pando investors include: Marc Andreessen, Peter Thiel and who’s who of Silicon Valley investors.
The founder of FindTheBest, put that money to use by making a claim that the NPE that came after it is so reckless, it has engaged in outright extortion, violating federal racketeering or RICO laws.
A veteran IP executive told IP CloseUp that O’Connor’s allegations focus on a few exceptions, not the general rule. “We need to accept that there are bad actors in the patent space, but they are lot fewer than some would like to believe. We need to agree that demand letters from people like those described in the article about FindTheBest represent a fringe element in the patent world that drags everyone down.
“At least one historical ‘black hat’ patent monetizer I have worked with,” continued the exec, “has actually become more of a ‘grey’ hat, and now includes a number of Fortune 500 companies as clients. The firm sends out a lot of demand letters, but these usually are notifications of believed infringement of a particular patent without a settlement number associated with them. There is always 100% willingness to litigate any letter. The average settlement size today for this patent licensing business is around $1 million, more than 90% come after significant time in litigation. Rarely does it send a letter to company that has less than $100MM in revenue.
“What is described in the [Ars Technica] article is far beyond anything even the most aggressive NPE would do. With use of a RICO action, the sort of ‘shakedown’ behavior suggested by O’Connor as standard operating practice of companies like Acacia, WiLan, IPNav, Mosaid, etc, is simply untrue. I know first hand that they are far more sophisticated in their business practices than O’Connor would lead us to believe.
“It concerns me,” said my source, “that if we don’t identify and isolate the problem, every patent holder wishing to enforce, including operating companies, will be painted with the same brush.”
The Economics of Patent Litigation
The quality of patents held by NPEs that settle disputes quickly are often considered suspect, even by some other NPEs. Many believe that if they had the goods, they would fight to the death.
Truth be told the evolving economics of patent litigation has made it more impractical than ever to engage in protracted disputes, no matter how strong the patents may be or obvious the infringement. If the holder gets a favorable Markman ruling, defining the scope of the case, it still has several expensive and time-consuming hurdles to surmount before winning damages or attaining a settlement. Defendants today are in a better position than ever to effect early settlements.
In recent years, many damages awards have been reduced, retried or simply thrown out by the court or on appeal. While a patent infringement may be worth $10 million or even $100 million, it does not mean that the plaintiff will be able to collect that amount. It is a matter of the cost of capital and risk of time and money. For most, IP licensing is a business, not a religious war.
A $1m license or settlement is worth $10m or even $100m only if the stars and planets align. Given the cost of capital, time and the statistical risk of patent litigation (a large percentage of big awards are never paid), it makes business sense for many patent holders whose rights are infringed to take a reasonable settlement and move on.
50 Shades of Black
Similar in noise-level to Lewis Cheng, Chief Legal Officer of Newegg, another angry online business executive fearful of e-commerce or other patents undermining his (likely unprotected and under-licensed) business, the rhetoric is born more of defensive IP strategy than higher legal authority.
Concludes O’Connor: “There’s a lot of outrageous stories, but everyone’s so damn afraid of coming forward—It’s like going against the Mafia,” he said. But the idea that trolls may retaliate against those who speak out against them is at best far-fetched. . “If they want to try to teach me a lesson, go for it. This will be my retirement. I’ll fight them.”
“Retaliation?” No one I know, or have heard of, has ever suggested it. O’Connor’s spewing this nonsense does more to show the weakness of his IP hand than his courage as an entrepreneur.
Less Than Meets the Eye
According to Forbes, Kevin O’Connor’s DoubleClick survived after the bubble popped despite losing 75% of his customers. The company sold to private equity firm Hellman & Friedman in 2005, which then resold it to Google in 2007 for $3.1 billion. FindTheBest, an online comparison engine he runs, is backed by Silicon Valley venture capital firm Kleiner Perkins Caufield & Byers. O’Connor is co-author of The Map of Innovation, Creating Something Out of Nothing. [I would elaborate, but it seems unnecessary.]
Image source: blackhatworld.com; amazon.com