Tag Archives: litigation
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Attorney-investor is willing to share patent filing costs & risks with clients

Many law firms still seek to participate in the outcome of clients’ patent litigation, but few are willing to share the cost of obtaining and maintaining invention rights, which frequently turn out to be worthless. 

A new book by an innovative Colorado attorney and inventor suggests that patent lawyers need to have more skin in the prosecution game, and that filing patents just to have them is a waste of their client’s time and money.

Russ Krajec, author of Investing in Patents: Everything Startup Investors Need to Know About Patents, says that the high cost of obtaining, maintaining and defending patents is prohibitive for most young companies. But without patents they can undermine their future, the value of their enterprise, and the fate of their investors.

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Recent studies indicate that 30 percent of U.S. “unicorns” (start-ups with greater than $1B in valuation) have no patents and 62 percent have fewer than 10 patents.
(David Kappos, et al. the New York Law Journal)

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In the January issue of IAM magazine, available this week, you will find my Intangible Investor review of Krajec’s deft book and industry-challenging strategy, “A strong case for a new approach to patent investing,” accessible to IAM subscribers, here.

Investing in Patents, deceptively spare at just 139-pages, is relevant to all patent filers, lawyers and investors, in addition to young companies, many of which are choosing to forgo patent protection. (See excerpt from The New York Law Journal article above.)

Patents are more expensive than ever, just over $56,000 for the average one over the course of its life. Defending them has reached new highs of cost and risk. A case through IPR(s) to trial can cost several million dollars and require more than five years, with a reduced likelihood of success.

Average Cost of a Patent Over its Life

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Engineer, Inventor, Financier

Investing in Patents is available at Krajec.com or on Amazon.com, here. In addition to being a patent attorney who has worked for H-P and other companies as a practicing engineer, Krajec has more than 40 patents to his name and, earlier in his career, was a USPTO patent examiner. He also runs BlueIron, LLC, an IP finance and management company.

While the sugg51l5ndgkvlestion of joint or fractional patent ownership is compelling, it is not entirely new or simple. As in most agreements, the devil is in the details.

It is unclear how Krajec believes ownership of a patent should be divided and who has the right to license, enforce, sell or otherwise leverage it – and when. Perhaps, most importantly, who gets to define success?

Given the current high-risk/low return scenario for obtaining and licensing patents most high-tech patents, this lawyer’s ownership alternative may be just what is needed to realign interests and enhance performance.

 

 

Image source: aipla.org; krajec.com

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Record 20.4% move in 3Q for Public IP company stock index (PIPX)

Public IP licensing companies (PIPCOs) are very much alive and some company shares are doing surprisingly well, despite increased obstacles to patent licensing.  

PIPX reported a 20.4% gain for the 3Q vs. just 3.3% for the S&P 500.

It was the PIPX’s best performance since the index began tracking IP licensing companies in 2011. The PIPX is a capitalization-weighted, price-return measure of the change in value of this segment of publicly traded companies.

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“InterDigital and Tessera, comparative giants in market value, were responsible for 20% of the index move,” said Dr. Kevin Klein, Vice President and GM of Products and Licensing at VORAGO Technologies, who compiles the data. “Acacia was the biggest individual gainer, up 48.2%; WiLAN was the biggest loser, down 39.4%. ”

High Volatility

It is difficult to attribute any one specific factor to the record quarter. However, PIPX has been volatile, and somewhat counter-cyclical since its inception. The index could be seen as a hedge against S&P 500 performance. Additionally, patent licensing and sales have started to come back, and patent damages awards are being paid, although at reduced amounts.

The Patent Trial and Appeal Board has been instituting fewer Inter Partes Reviews (down to about one-third of petitions filed), but is still seen by many as a somewhat arbitrary impediment to patent licensing and enforcement.

The value of $1 invested in the S&P 500 in Q3 2011 would now be worth $1.62 while the value of the same $1 invested in the PIPX would be $0.68.

PIPX Performance by Quarter 

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Added to the index is FORM Holdings (NASADQ: FH), a diversified holding company that specializes in identifying, investing in and developing companies with superior growth potential. Removed were Vringo, which was absorbed by FORM Holdings, and Unwired Planet, which was delisted on June 18.

For the full 3Q report, go here.

Image source: PIPX Public IP Index

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The impact of higher patent licensing hurdles may not be fully understood

Most patent holders would agree that licensing patents for revenue has gone from bad to awful — from difficult less than a decade ago, to virtually impossible today.* 

Determining if the courts and lawmakers have facilitated improvements or simply over-corrected for weaknesses in the patent system largely depends on whom you ask, and when.

While obvious to some, the fairness of the U.S. patent system is no longer apparent to all.

In 1996, the days of the first tech bubble, there was some uncertainty regarding patent validity. Patent licensing was not easy back then, but it was viable and still could be conducted on a business basis. Out-licenses could be negotiated without first filing suit, and significant damages awards were occasionally paid, although not as frequently has some would have us believe. The threat of an injunction that would freeze product sales was still a very potent weapon for those considering enforcement.

Things became very difficult in 2006 (high uncertainty), when injunctions became virtually impossible to obtain and NPEs, the businesses that tended to enforce the best patents most frequently, were characterized as a virulent strain of a disease that needed to be eradicated. Lost in defendants’ anger is that those who enforce valid patents may actually facilitate innovation and competition, and play a positive role in job creation.

Weighing In

Weighing in on whether the over-corrected patent pendulum has finally started to swing back towards the middle are Brian Hinman, Chief IP Executive at Philips, and Ashley Keller, Managing Director at Gerchen Keller Capital. In Balancing Act, in the May Intangible Investor simple-pendulum-suspensionin IAM, they speculate on what it will take to move the patent pendulum more toward the middle where it belongs.

In 2016, with the emergence of an extreme degree of uncertainty, patent licensing became virtually impossible. (Degree of uncertainty licensing can be compared to degree of difficulty” in a gymnastics competition, although their are no bonus points for successfully enforcing an infringed patent.) Of no help was the rise of preemptive, defensive litigation (declaratory judgments), forcing many patent holders to sue first and (maybe) talk later.

Factors responsible for patents’ loss of reliability include the American Invents Act (AIA) which permitted Inter Partes Reviews (IPRs), litigation-like, post-issuance examinations of patents that invalidated many invention rights filed under previous guidelines and slow enforcement. A number of  district court, Court of Appeals for the Federal Circuit (CAFC) and United States Supreme Court cases have gone against patent holders wishing to license for revenue, including the Alice decision, which rendered many software patents and business methods invalid.

Another major set-back is Non-Practicing Entities or NPEs, also known as patent “trolls” or owners who do not commercialize or sell products but hope to generate ROI through royalty payments. All NPEs have been lumped together and have been universally demonized as “black hats” who are the primary source of all that ails the U.S. patent system and that wish to enforce questionable rights and shake down otherwise innocent companies wishing to avoid costly disputes.

However, many of the largest corporations engage similar practices themselves (aka privateers), while decrying other NPE’s.  As a result of the actions of anti-patent proponents — many large patent holders themselves — patents have become even more uncertain, and litigation longer and more costly. NPEs continue to be held responsible for the need for more anti-patent legislation, and have become a sort of obsession for some businesses and lawmakers wishing to re-frame the discussion and absolve many tech companies of serial theft.

According to Patent Progress, “a project of the Computer & Communications Industry Association (CCIA)” that endeavors to limit patents reach, there are six bills currently before Congress that still endeavor to reel-in or otherwise weaken patents and deter enforcement.

Only one piece of patent legislation, the STRONG Act, which is before the Senate, attempts to roll back some of so-called improvements introduced over the past several years, much of which in retrospect looks like an overreaction to a much smaller problem.

Fourteen bills were introduced in the 113th Congress (2013–14) alone to deal with one or more aspects of the patent troll issue. For a list of these and other bills, go here. Computer and Communications Industry Association members include Amazon, Facebook, Google, Microsoft, Red Hat and Samsung.

More and Higher Hurdles

The diagram below, “Patent Licensing: Higher Hurdles for Protecting New Ideas,” is a graphic reminder of the progressive number and nature of impediments added since 1996 that discourage the licensing of U.S. patents. It was prepared by Brody Berman Associates for a client who has given permission for it to be shared. Key court decisions diminishing patent value and creating more uncertainty can be seen in a second slide below.

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“Risk-Adjusted Theft”

For technology companies the era of the licensing discussion is all but over. Uncertainty has never been greater, nor has hostility to owners offering an invention for license, no matter how good the patents or fair the terms. This leaves no alternative but to litigate.

“Efficient” infringement, a term we are hearing more of lately, is really a kind of risk-adjusted theft. Simply put, the deck is all but stacked against patent licensors (who are now forced to sue) because it is more economically viable today for most businesses to steal what they use than pay for it.

The courts, lawmakers and media will need to start soon if the damage that has been done to patent licensing is to be reversed. The Supreme Court decisions below speak volumes for the imbalance and how far patents have to go to bet back to the middle. It is not so much that Alice made software unpatentable as it rendered most existing business methods and many software patents invalid under the narrower guidelines that the Court established.

If proponents of fewer and lower hurdles feel the system has over-corrected and is doing damage, they had better turn up the volume. The courts, legislators and even most patent holders do not appear to be listening.

casesPatent TimeLine

 

*My gratitude to Irv Rappaport who assisted in writing this article. Irv has served as the head of IP departments at Apple, National Semiconductor and Medtronic, and was a consultant to Intel responsible for suggesting the Intel Inside® campaign. He has served as an expert witness more than 70 cases and is named more than 20 U.S. patents. He also served as a USPTO patent examiner and a U.S. Army officer.

Image source: Brody Berman Associates; tutorvista.com

Jury awards Merck $200M in patent damages, 10% of what it had sought

A California jury has awarded pharmaceutical drug company Merck $200 million, a fraction of what it had sought, for infringement of two of its patents by Gilead Sciences, which based in the San Francisco area.

The jury based the $200 million award on a royalty rate of 4 percent on $5 billion in sales, compared with the 10 percent royalty on Gilead’s past sales of more than $20 billion sought by Merck. This is as reported in Law 360.

In calculating damages, jurors said they sought a middle ground. “We worked to get to something we could all agree so we weren’t hurting one side or the other,” juror Cody Shump, a 20-year-old San Jose resident, told Reuters.

The judge has yet to rule on future royalties.

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Responsible Patent Licensing is focus of Wall Street event

Not all patent licensing businesses are alike.

“NPE 2016: The Business of Responsible Licensing,” scheduled for March 22 at the Convene conference in New York, will differentiate patent monetization companies by examining their business models, strategies and the managers who run them.

The conference will focus on the non-practicing entity (NPE) industry, including both public and private companies. In 2015, the NPE 2016 brought together leaders from the licensing company sector and the wider corporate IP and investment communities to discuss the challenges and opportunities of running a patent licensing business, especially in today’s challenging climate.

NPE 2016 is the only gathering that examines how NPEs operate and contribute to the innovation and the economy.

3J6A3349Moderator-led panel discussions with audience Q&A at the end of each will be featured. Sessions are designed to focus on the specifics of building and running successful NPE, as well as on the opportunities available to investors.

Beyond Monetization

This year’s sessions will consider licensing best practices, building and managing a patent portfolio, licensing dos and don’ts, litigating in Europe once the Unified Patent Court has been launched, licensing opportunities in new sectors and moving IP commercialization beyond monetization.

Last year’s attendees included:

• NPE executives
• In-house counsel and legal directors
• Private practice lawyers
• Licensing executives
• Patent brokers
• IP policy professionals
• Investment professionals

IP CloseUp readers who use the promo code IPCLOSEUP before February 19 are eligible for a $150 discount off of the full $895 registration.

For more information about NPE 2016 or to register, go here.

For he full program, go here.

 

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Image source: convene.com; iam.com

 

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Harvard study: financial patents lag in quality, especially NPEs’

A recently published Harvard Business School working paper found that financial services patents lack quality because they lag their peers in academic citations.

“Financial Patent Quality: Finance Patents After State Street”  findings indicate that financial services patents are questionable with regard to their references to academic prior art. The study’s findings also show that patents awarded to individuals and associated with non-practicing entities (NPEs) cite less academic prior art, and that financial services patents with fewer of these citations are more likely to be asserted in litigation.

The research also shows that financial services patents cite less non-patent pristacked_1200px_130327or art, and especially less academic prior art.

Patents assigned to individuals and NPEs were particularly problematic with respect to academic citations.
Having fewer academic prior art citations, the HBS study indicates, directly correlates to the likelihood of a financial services patent being the subject of litigation.

Not all patent professionals agree that the number or type of citations play a significant role in determining patent quality or the likelihood that a patent will be enforced.

The study team was led by Josh Lerner, a professor at Harvard Business School and co-author of Innovation and Its Discontents: How Our Broken Patent System is Endangering Innovation and Progress, and What to do About It.

“Financial Patent Quality” concludes that:

  • Financial services patents cite fewer non-patent prior art publications than the comparison groups. This is especially the case with respect to academic prior art publications.
  • Patents awarded to corporations generally cite more prior art, particularly academic research than do those awarded to individuals or associated with NPEs.
  • Citations of academic prior art are strongly related to whether a finance patent is litigated. In particular, financial services patents with more academic citations, one indicator of higher quality, were subject to less litigation.

The HBS working paper was sponsored by Askeladden L.L.C.  as part of its Patent Quality Initiative, an 294628LOGOeducation, information and advocacy effort with the goal of improving the understanding, use and reliability of patents in financial services and elsewhere. Askeladden is a subsidiary or The Clearing House, the oldest banking association in the United States.

According to Bloomberg BNA the study selected finance patents from specific subclasses of the PTO’s classification code 705, titled, “Data Processing: Financial, Business Practice, Management, or Cost/Price Determination.” Most of the claims of the finance patents involve data processing on generic computing equipment and are, thus, likely to be claimed as software algorithms.

To see the HBS working paper, “Financial Patent Quality,” go here.

Image source: hbs.edu 

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Video Interview: “Investor Pressure Helped to Secure Rockstar Deals”

Opportunities still exist to monetize patents for those willing to do their homework and adjust expectations, veteran patent licensing executive Bob Bramson, a WiLAN director, told IP CloseUp in an exclusive interview.

There is a common theme running through Rockstar’s recent $188M settlement with Cisco, its litigation against Asian handset makers, including Samsung, and sale of 4,000 patents to a group led by RPX for $900M: Patent holders with solid patents and realistic expectations can still find success.

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Despite impediments like IPRs, software-adverse decisions like CLS Bank v. Alice, and aggressive anti-NPE lobbying, significant patent agreements are stilling being transacted. The key to their success, says Bramson, who is responsible for more than 1,000 patent licenses and sales over a 40 year career, is quality and need.

“Licensing is about money,” says the patent attorney and strategist who was recorded in our offices in late December. “Surely, the sugar-plum visions of a few years ago need to be rethought, but that does not mean there aren’t good opportunities out there for those willing to conduct the necessary due diligence. Patent monetization is about risk and reward, and if after careful analysis the potential damages are still there, then you at least have the basis of discussion. The last thing a patent monetizer wants to do is win the battle but lose the war.

“Rumor has it that the Rockstar deal got done because of pressures exerted by some of their investors, notably Apple and Microsoft. There is a complex network of relationships and needs that fuel agreements between big parties, and direct revenue is frequently only a part of it.”

Patent Value in Perspective

While it’s difficult to calculate the precise current value of Rockstar (the company) based on its December 23rd patent sale to RPX, it is safe to say that it is a quarter to a half of the $4.5B that it’s investors, Apple, Microsoft, Sony, Ericsson, EMC and

Screen Shot 2014-12-29 at 10.41.00 AMBlackberry, paid in 2011. That said, $1B to $2B value on a single patent portfolio in the current anti-enforcement environment is nothing to sneeze at.

These investors also had complex needs and unique resources, the most important of which appeared to be keeping the patents out of Google’s hands. In Apple and Microsoft’s case, they also had huge amounts of cash on their balance sheet to deploy.

“I expect that there will be a clearing out of patent monetization businesses in the next couple of years,” continues Bramson, who founded and served as CEO of InterDigital Technology Corp. “But that’s not to say there aren’t still opportunities out there. Smartphones are one of many industries that rely on patents to compete. Sectors like medical technology and smart cars are heating up, and 3-D printing is likely to be huge.”

Watch the interview with Bob Bramson by clicking here.

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Image source: IP CloseUp 

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ParkerVision v. Qualcomm: A Field Day for the Shorts?

ParkerVision v. Qualcomm is a unique patent dispute…

pitting two public IP licensing companies (PIPCOs) with decidedly different business models against each other. The case underscores an a weakness in the public IP licensing model. It can be addressed by providing better information about how the patent system works and managing shareholder expectations.

Qualcomm (QCOM), a certified tech giant that licenses chips used in practically every smart phone sold, and derives billions in profit from patent licensing. ParkerVision (PRKR) is a relative David vs.  giants,  with excellent rights but  more than $20 million in annual losses. It hast has never turned a profit.

Nose Dive

ParkerVision shares were down as much as 60% yesterday on almost 30 times its average daily volume because a Florida Central District Court in Orlando ruled that Qualcomm did not infringe willfully and that the damages award was “only” $173 million, about half of what was expected.

PRKR was up 75% on October 17, trading as high at $7.38 when the validity of its patents were upheld by the court last week.  PRKR had sought damages of $432 million and a wilfulness verdict, which  would have possibly tripled the award.

The market speculation regarding the damages that  PRKR could have won led to extreme volatility. Trading in PRKR shares was halted Wednesday afternoon pending the outcome of the court’s damages ruling. Ironically, a few other public licensing companies halted trading, too, in anticipation of the decision.

Costly Confusion

The audience that benefits most from confusion are the short sellers, who sometimes bid stocks up then bet they will dive, without concern for the RenderImagefundamentals, or, for that matter, the facts.  As long as the shorts are a step ahead of other investors’ timing they usually wind up winning.  Investment bankers also may benefit from higher market capitalization because it increases the prospect of underwriting secondary or debt offerings.

One significant patent holder told me that a  JP Morgan had pegged the potential damages award with a willfulness finding as high as $2 billion. Flame fanning of this nature merely preys on those already confused about patents and the patent system, and is a blow to PIPCO credibility and long-term acceptance and reliability.

While the damages award is the largest patent jury verdict so far in 2013, and ninth-largest of all U.S. jury awards according to data compiled by Bloomberg, it’s less than half the $432 million ParkerVision was seeking.

That the market saw this otherwise resounding and well-deserved win in court as a something  less than a significant success suggests a failure many to manage expectations.  It can only serve to undermine confidence in IP-centric stocks.

ParkerVision, founded in 1989 designs, develops, and markets proprietary radio frequency (RF) technologies and products for use in semiconductor circuits for wireless communication products in the United States.

The court ruled that Qualcomm infringed on four patents of ParkerVision’s related to radio-frequency receivers and the conversion of electromagnetic signals in wireless devices and improperly used them in Qualcomm’s semiconductor chips.

Back in February, after a positive Markman ruling against Qualcomm, ParkerVision’s stock price rose 73%, from $2.43 to $4.21. PRKR’s market cap was around $300 million for most of 2013 and was recently as high as about $700 million. IP investors will recall a spike in InterDigital’s (IDCC) shares after Google bought Motorola for $12.5 billion, temporarily increasing its value by over $1 billion.

Both PRKR and QCOM (and IDCC) are in the IP CloseUp® 30.

Illustration source: parkervision.com

Patent Litigation Trends

NPE Impact is Focus of PwC Study

A very useful study was recently released from PwC.  “A Closer Look –Patent litigation trends and the increasing impact of nonpracticing entities” is an in-depth look at patent litigation in the U.S. The research was completed in August but distributed last week.

PwC includes a wealth of litigation trends and statistics, as well as data on which courts are more favorable to plaintiffs and defendants. Aron Levko led the PwC team that conducted “A Closer Look.”

Among the key findings:

• Damages awards for NPEs have averaged more than double those for practicing entities since 1995.

• NPEs have been successful 29 percent of the time overall versus 41 percent for practicing entities, due to the relative lack of success for NPEs at summary judgment; however, both have roughly a 2/3 win rate at trial.

• The disparity between jury and bench awards has widened and is likely the contributing factor in the significant increase in use of juries since 1995.

• While the median time-to-trial has remained fairly constant since 1995, significant variations exist between jurisdictions.

I wonder why PwC waited so long to release the study broadly?


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