Tag Archives: NPEs

Philanthropist & patent licensing pioneer, Eugene Lang, dead at 98

One of America’s most successful and charitable patent licensing strategists passed away last week. 

Eugene M. Lang, describe as “an American folk hero” for his generous philanthropy, grew up on Manhattan’s East 83rd Street in a $12 per month railroad flat.

He went on to donate more than $150 million to charities and institutions during his lifetime for educational causes, including the I Have a Dream Foundation, which he established in 1981; the Eugene Lang College, part of the New School in Manhattan; the Eugene M. Lang Center for Entrepreneurship at Columbia University School of Business; and Swarthmore College, which he entered at 15 on a scholarship.

Much of Lang’s fortune was derived from the Refac Technology Development Corporation, it was reported in his obituary, a public company he founded in 1952 that specialized in the licensing of patents and financing high-tech ventures.

Thousands of Suits

“REFAC held patents relating to LCDs, ATMs, credit card verification systems, bar code scanners, VCRs, cassette players, camcorders, electronic keyboards, and spreadsheets,” reports Wikipedia, “and filed thousands of lawsuits against other corporations to secure licensing fees or out-of-court settlements, a business practice of some very large corporations such as Microsoft and Google as well as large startups such as Intellectual Ventures, and sometimes criticized as patent trolling.

Some considered Refac International Ltd., known for suing thousands of big and small companies to protect its patents, the model on which other non-practicing entities (NPEs) were based. In 1990, the company was chastised by a federal appeals court in Washington after losing a major lawsuit it filed against 118 Southern California companies selling products with liquid crystal displays.

The New York Times reported that Refac — the name stands for resources and facilities — had made much of its money “by aggressively filing patent infringement suits against companies like IBM and Eastman Kodak and retailers like R.H. Macy and Radio Shack on behalf of inventors of a wide range of products: liquid crystal displays, automated teller machines, bar-code warning systems and spreadsheet software.”

In a letter to The Times [valuable for its historical and factual content], Mr. Lang called the article “grossly distorted” and pointed out that most of the clients represented in lawsuits had sought out Refac after offering licenses to the corporations for their inventions and being turned down.

He illustrated his argument by citing the inventor of the laser who had tried to get industry to recognize his role and succeeded only after Refac won validation of his patents in the courts.

“For Refac, the drama of litigation began in 1975 when Gordon Gould, after battling industry opposition since 1959, asked us to represent his claims as inventor of the laser,” wrote Lang.

“Concluding that Mr. Gould’s claims had genuine merit, Refac, against all odds, accepted the challenge. It took until 1987 and some $4 million, but the courts finally validated every patent of Mr. Gould’s. Despite vituperative reactions from the laser industry – analogous to quotations cited in your article – claims that in 1975 might have been labeled ”all but worthless” now generate annual royalties in excess of $12 million.

Impulsive Gesture

A self-made businessman who flew coach class and traveled on subways and buses, Lang is best remembered for his impulsive gesture in June 1981, when he was invited to deliver the commencement address to 61 sixth graders at Public School 121 on East 103rd Street in Spanish Harlem. He had attended P.S. 121 as a boy 50 years earlier.

He made himself personally available to the students, counseling them when they faced obstacles such as teen pregnancy, addiction, and delinquency. He cheered them at their graduations and helped arrange for jobs. When a student was incarcerated at Sing Sing, he helped him pursue college course work from prison.

In addition to his daughter, Jane Lang, a Washington lawyer and community activist, Lang is survived by two sons, David and the film and stage actor Stephen Lang (Avatar, Conan the Barbarian, Gettysburg); a sister, Barbara Lang; eight grandchildren; and eight great-grandchildren.

In 1996, President Bill Clinton awarded Mr. Lang the Presidential Medal of Freedom.

For more information about the Eugene M. Lang Foundation, go here.

Image source: thenewschoolhistory.org; newsworks.org

PTAB fairness data is misleading, say more patent holders

Not all patent owners agree the Patent Trial and Appeal Board (PTAB) is a fairer forum for vetting patent quality today.

While some believe that the United States Patent and Trademark Office (USPTO) board is no longer the “death squad” that it was described as by the former Chief Judge of the Court of Appeals, most patents subject to multiple inter partes reviews are, with an uncanny frequency, either invalidated or severely weakened. Few, emerge as clear winners.

The USPTO established the PTAB, an administrative law body, as part of the America Invents Act in 2012 to eliminate issued patents that should not have been granted because prior art way overlooked. IPRs are said to be a patent office “second look,” but while patent office re-examinations (an earlier review process superseded by IPRs) eliminated many patents that should not have seen the light of day, they also strengthened some, making them easier to license. To date, IPRs effectively have been a one-way street, eliminating many patents that should not have been issued but ineffective at identifying good ones.

An article that appeared last week, “How IPR Gang Tackling Distorts PTAB Statistics,” takes the recently reported data to task for misleading about the ultimate effect of multiple IPR filings on a single patent.

“If you use the PTAB published statistics, they’ll tell you that the institution rate was 50% – because only 1 of 2 petitions was granted. That’s true, as far as it goes. But from the patent owner’s perspective, they used to have 10 claims, and now they have 0.  That’s a 100% kill rate!”

“Assume 10 petitions and one institution,” wrote Peter Harter in IP Watchdog. “A 10% institution rate seems terribly biased towards [in favor of] the patent owner. But if all 10 claims get killed, that’s still a 100% kill rate – pretty good for challengers. When both sides think the deck is egregiously stacked against them, it’s easy to see why there’s no middle ground for compromise and improvement. And the way the PTAB is reporting statistics is to blame.”

An article that appeared recently in Law 360, “Inter Partes Reviews Becoming Friendlier to Patent Owners,” argues that holders whose patents are subjected to IPRs today have a better chance of survival than in the past.

“The PTAB also now institutes inter partes reviews less frequently,” writes Law 360. “Looking at all institution decisions made by the PTAB, the board decided to institute trials more than 85 percent of the time in the first year after inter partes reviews became available (2013) according to data from the U.S. Patent and Trademark Office, but only 68 percent of the time in its 2016 fiscal year.”

Statistically Valid

The decline in the institution rate may be statistically valid, but some patent holders argue that it does not tell the whole story. The statistics do not explain that some of the worst, most easily invalidated patents came before the PTAB in the first year of its existence, so the institution rate was destined to go down as it became clearer the weakest patents had been terminated.

Results from a November-December 2016 Bloomberg Law and AIPLA research study asserts that “progress has been made in patent owner attitudes towards IPRs.” However, it really depends on which patent owners you ask: those that have large portfolios that they rarely enforce or those with a small number of quality patents that they wish to license.

Brad D. Pendersen, former chair of AIPLA’s IPR Committee and co-author Bloomberg Law-AIPLA’s Patents After the AIA: Evolving Law and Practice (2016) believes that there is an opportunity for patent holders subject to IPRs to strengthen their patents, despite evidence to the contrary.

“Given the potential gold-plated downstream advantages (in litigation and/or settlement) of surviving an IPR (either at the Decision or Institute stage, at the Final Written Decision stage), and given that one-third of patents survive at the Decision to Institute Stage, it is surprising – but not completely unexpected – that some portion of patent owners are starting to look more favorably on the IPR process.”

It is not clear that most patent owners who license would agree with the “gold-plated” reasoning. If it were true, there would be even fewer patent suits and more owners seeking IPRs of good patents. In fact, it is a bit of a mystery what happens to patents that pass PTAB muster. A significant number appears to move on to district court litigation, and there is little data analyzing if they have greater value or fare any better licensing than patents that are less successful running the IPR gauntlet.

Leading IPR Target

Finjan is an example of an IP holder that engages in licensing whose patents are frequently subject to IPRs. The company has fared surprising well in defending itself at the PTAB, but that success does not seem to have translated into significant shareholder success for the cybersecurity company which also frequently out-licenses its patents.

On March 15, 16 and 17, as reported in The Patent Investor, Finjan won three more IPR rulings, involving Palo Alto Networks. Shares of Finjan (FNJN) currently sell at just $1.54. The company has a micro market capitalization of $35M, $18M on 2016 revenues. Its shares are up significantly over 12 months vs. for the S&P 500 Index, but the company, which lost $12.6M in 2015, showed its first profit in 2016, $350K or .02 per share. Finjan has executed a difficult IP strategy. If successful IPRs have gold-plated its patents, the value has yet to shine through.

Finjan was the fourth most IPR’d patent holder in 2016 and the third most in 2015. It is the most successful company in successfully defending against IPR petitions. Of 47 total IPRs against Finjan patents to date, 32 have been denied institution.

With that track record at the PTAB, one would think Finjan would have a field day licensing its patents, but the IPRs continue to come, and it still must win hard-fought victories in district court litigation. In September, a California jury found that cybersecurity firm Sophos infringed all eight patents asserted in a lawsuit brought by Finjan over software that identifies new computer viruses, awarding the company $15 million in damages.

“We have a portfolio of patents that has been proven durable in light of the increasing number of administrative pathways to challenge validity largely due to two factors,” says Finjan CEO, Phil Hartstein.  “First, our patents were developed jointly and alongside product development of technology that was disruptive to a market.  Second, we do not deviate from the intrinsic record of the assets themselves and vigorously defend our patent rights on the merits.”

Coordinated Challenges

Editor and patent attorney Gene Quinn of IP Watchdog believes that Finjan and other businesses that attempt to out-license their patents are frequently subject to repeated, coordinated attacks.

“At least several patent owners, including Finjan, are routinely subject to serial, harassing IPR challenges,” writes Quinn. “The Patent Office doing something about harassing IPR challenges is long overdue. If the Director is not going to exercise the discretion vested in that Office by the America Invents Act (AIA) hopefully more panels of the Board will take it upon themselves to do just that.

“Patent owner harassment needs to stop. Patent owners shouldn’t have to be subjected to many dozens of IPR challenges before someone recognizes there is coordinated harassment – perhaps even collusion – against certain patent owners who have the audacity to want to be paid for blatant, ongoing, willful infringement.”

23 IPRs Filed on a Single Patent

Zond makes plasma generators, the kind used in manufacturing semiconductors. Pulsed DC plasma generators for magnetron discharge were first introduced in the late 1990s to reduce arcing during for the purpose of improving the quality of thin-film materials. A big breakthrough came in September 2002, when Zond applied for what it describes as a “revolutionary” pulsed technology approach.

Zond is a Massachusetts-based company that wholly owns Zpulser LLC, which commercializes its patent technology by making and selling high-power plasma generators. The patent at issue relates to methods for generating magnetically enhanced plasma.

Over the last three years, Zond’s patents have challenged an average of 12.5 times in IPRs and as many as 23 times.  The patent research firm, Patexia, writes that it is difficult for holders of good patents to survive multiple IPR challenges. In the case of Zond, it has made licensing pretty much impossible.

A study last year, reported in Law 360, showed that Zond’s patents have been challenged in AIA reviews more than those of any other patent owner, including largest patent licensing company, Intellectual Ventures, which owns more than 70,000 patents and took second place on the list.

Zond’s large number of infringement suits, reports Law 360, spurred many companies to band together to challenge the patents in AIA reviews. In addition to Fujitsu and Gillette, petitioners have included Toshiba Corp., Advanced Micro Devices Inc. and Taiwan Semiconductor Manufacturing Co. Ltd.

Were potential licensees and defendants in patent suits lining up against Zond’s patents because they were bad and its case without merit, or did they want to destroy some potentially good patents that would have cost them to license?

For IPRs the devil certainly is in the details, as Patexia’s Pedram Sameni points out in a case study, “Can Patents Survive Multiple IPR Challenges?”

“Some have been suggesting that solely relying on the denial rates reported by the patent office is not enough to conclude that patents are surviving the IPR challenge,” writes Sameni. “Many have called PTAB, the patent death squad. Our study shows that in some cases, patents are challenged many times.

“The reality is that it only takes one successful IPR to completely kill all the claims of one patent. Therefore, the case-level status is not the best indication of PTAB performance and patent survival rate. While as IPR’s Final Written Decision usually means that some of the claims were invalidated, it does not necessarily mean that all claims were canceled.”

Not the Full Story

If claims still exist, they could be threats. And potential licensees/defendants will go to lengths to “kill” a patent to avoid paying a license or being dragged into court, including teaming on multiple petitions. Repeat IPRs are an efficient way to make a potential infringement suit or royalty payment disappear for multiple parties.

“The statistics that show that the PTAB is becoming fairer for patent holders do not tell the full story,” a prominent NPE told IP CloseUp. “IPRs are frequently unfair fights between several, well-funded petitioners and a single patent owner who has to run the gauntlet, repeatedly.  Surviving an IPR doesn’t mean anything if subsequent challenges can be filed at any time, especially in coordinated fashion.”

Once a patent is challenged multiple times with different prior arts, it is highly unlikely that any of its claims will survive – no matter how good it is.

“The PTAB may not be a death squad, but challenged patents are put in a kind of headlock that can render them useless. Where are the patents that emerge from IPRs generally intact or whose petitions against them for review are not instituted? They should be eminently licensable, but they are nowhere to be found. The ‘normalization’ statistics that are being cited to show that the PTAB is becoming a fairer forum for patent holders are highly misleading.”

Lack of Uniformity

Another patent licensing business, one whose petitioned patents have survived multiple IPRs, still believes that the lack of uniformity among the many PTAB panels and administrative law judges is a major factor in the continued unfairness that has effectively destroyed patent licensing for many companies and independent inventors.

“It’s difficult to predict how the PTAB will rule,” says the executive, a lawyer. “The first year or two that patents were subjected to IPRs there was a lot of low-hanging – really, rotting –  fruit. Those petitions were almost universally instituted, and many bad patents were appropriately eliminated.”

“But anyone can file and IPR and they can keep filing them. Reliable patents don’t seem to emerge from the process, only ‘bad’ ones, which are eventually neutralized. Few patent holders have the time or money to repeatedly defend themselves in IPRs. This has made otherwise licensable patents pretty much worthless and daily infringement, at least to some, an acceptable way of doing business.”

Image source: patentlyO.com; patentacademyonline.com; 

China is poised to overtake the U.S. as the leading patent system

A few years ago a company whose patents were violated in China had little or no chance of defending its rights. 

Determined to move beyond its role as a low-cost provider of look-alike consumer products, and establish itself as an innovation leader, China has learned from the successes – and mistakes – of other intellectual property systems, especially the U.S. The nation of 1.4 billion inhabitants has rapidly emerged as what is currently among the fairest and most patent holder-friendly systems in the world.

Chinese patent courts second only, perhaps, to Germany in quickly and fairly adjudicating disputes.

A fascinating article in the current IAM magazine, “Defending a patent case in the brave new world of Chinese patent litigation,” details China’s rapid rise from low-cost copier to a patent power, and a nation that has caught the attention of major global technology powers who are often defendants.

Damages awards are relatively small in China, with median awards currently around 35,000 Renminbi or about $5,000, but injunctions, the power to stop a likely infringing product from being sold, are now issued over 99% of the time to winning parties. NPEs, what some U.S. companies refer to as patent “trolls,” are treated fairly as long as they their patents are of sufficient quality and are the companies are generally supportive of Chinese welfare.

__________

Patent litigation win rates, according to the article, average around 80%. Startlingly, foreign plaintiffs fare better statistically than Chinese. 

__________

The U.S. effectively ended the granting of patent injunctions in 2006 with EBay v. MercExchange. Now, only operating companies can obtain them in rare circumstances. This removes most of the leverage afforded patent holders. Granted, injunction abuses are a fact of life, and dubious patents have at times been used to enjoin products, costing companies time and money. But without the power to stop a product from being sold, patents have little meaning.

Race to the Bottom

“Largely as a result of the United States’ race to the bottom in terms of patent enforcement, Germany has emerged as a go-to patent jurisdiction, with virtually guaranteed injunctions, quick time to trial and no discovery resulting in a highly efficient system,” writes Beijing-based Erick Robinson, chief patent counsel, Asia-Pacific for Rouse, a global IP strategy firm.

Patent-holder Win-Rates and Median Damages Awards 

screen-shot-2016-12-26-at-11-31-36-am

“Enter China. For years the laughing-stock of all things IP related, the Middle Kingdom was ridiculed for the easy availability of counterfeit handbags, software and DVDs. However, over the last 15 years, and especially in the last two to three, China has put together an extremely effective patent enforcement system. Based largely on the German system and all of its advantages, but with selected portions from US law, China has now become a top forum for patent litigation.”

Unlike most countries which enjoin making, using and selling allegedly infringed products in-country, as well as imports, Chinese law also bans infringing exports from leaving the country. So, for example, if the accused device is Apple’s iPhone, not only can sales of iPhones in China be enjoined, but also exports of the devices from China. This would enable a patent owner to achieve an effective worldwide ban, since iPhones are manufactured in China.

Slippery Slope

With U.S. patent protection significantly diminished over the past decade, and China’s on the rise, the U.S. is on a slippery slope when it comes to stimulating R&D, innovation and investment. It is well on its way to becoming a second-rate patent system, and a slip in disruptive innovation, necessary for the creation of new industries, difficult to measure in real-time, has probably started. Certainly, companies and their stakeholders are thinking twice before pursuing or relying upon USPTO-issued patent protection.

It remains to be seen if China, a continuing source of counterfeit goods that are shipped worldwide, is committed to providing its businesses, as well as those outside of the country, with a legal system that can meet the needs of all business holders, and permit fair and timely resolution of legitimate disputes.

High Win-Rates; Low Damages Awards

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China is now the second largest filer in the U.S. and, while its companies have rarely resorted to filing suits in the U.S. against U.S. companies, there is little doubt that it will do so in the future. Technology giants include Alibaba, Xiaomi, Huawei and Lenovo.

China is likely to be more aggressive enforcing its patents than U.S. frequent-filer Japan, which has been reluctant to engage in domestic or foreign patent disputes. (There are some signs that is changing.) Samsung, by far the largest holder of U.S. patents in the world, has shown a greater willingness use its patents for licensing and leverage.

China may or may not be deliberately attempting to embarrass U.S. and eventually surpass its moribund IP system, but the impact is the same. Continued lack of awareness of what IP rights achieve and for whom, and lobbying, has significantly compromised the once-exemplary U.S. patent system. The Chinese are not too new to capitalism not to see this as an opportunity to compete. For the U.S.’ sake, let’s hope it’s not too late to make invention rights a priority again.

Subscribers can access The brave new world of Chinese patent litigation here.

FUTURE POST: What patent experts believe China’s patent-friendly system means for the U.S. – Experts: Void from U.S. patent “train wreck” is being filled by China’s patent system

Image source: IAM magazine

Symantec acquires Blue Coat, a leading IPR filer with a $289M loss

Cybersecurity firm Blue Coat Systems has decided to opt-out of an initial public offering and sell itself to software security leader Symantec for $4.65 billion. 

What has not been widely reported in the press is that Blue Coat, a relatively small cybersecurity company with a loss of $289 million in 2015, is a leading filer of United States Patent and Trademark Office Inter Partes Reviews (IPRs) that are designed to invalidate patents that are being asserted by Non-Practicing Entities (NPEs) and others.

According to patent research firm Patexia, Blue Coat is a top-ten IPR filer for 2016, along with Apple, Samsung, Microsoft and GE. The firm filed ten IPRs, a higher numbers than H-P for the period.

*****

“Blue Coat has been at war with Finjan,” Gaston Kroub of Markman Advisors, LLC told IP CloseUp.  “Like Blue Coat, Symantec has been fighting with Finjan too, so these IPR’s may be of value to Symantec as well.”

Top 10 IPR Petitioners_2

Finjan (FNJN) is among the leading targets for IPRs. It could be that Symantec finds Blue Coat attractive not only for its cybersecurity products, but also for its adversarial position with regard to Finjan and others which could assert their patents against it or Blue Coat.

In a 2015 verdict in Finjan Inc. v Blue Coat Systems, a jury awarded Finjan more than $39.5 million in damages, reports IP Watchdog. The lawsuit alleged that claims from a series of Finjan patents were infringed by several Blue Coat products, including Malware Analysis Appliance (MAA), Content Analysis System (CAS), and WebPulse.

*****

To help finance the transaction, Blue Coat’s existing majority investor, Bain Capital, will invest an additional $750 million in the deal. The private equity firm Silver Lake, which invested $500 million in Symantec in February, will invest an additional $500 million.

Bain had acquired the company for $2.4B in 2015.

According to The New York Times, “The deal will create a big provider of security products, both the traditional antivirus kind that has long been Symantec’s focus and the newer online protection services in which Blue Coat has specialized. Executives see little overlap between the two businesses.”

“With this transaction, we will have the scale, portfolio and resources necessary to usher in a new era of innovation designed to help protect large customers and individual consumers against insider threats and sophisticated cybercriminals,” Dan Schulman, Symantec’s chairman stated.

In its I.P.O. prospectus, Blue Coat said that it lost $289 million on top of the $598 million in sales for the 12-month-period that ended on April 30. That compares to a $271 million loss on top of nearly $569 million in sales for the same period a year before.

Image source: twitter.com/symantec; patexia.com

Financial patent summit to focus on IP and cybersecurity, July 20-21

Fintech, or financial technology, is a rapidly growing industry with more than $15 billion of venture capital invested to date and even more on the part of financial institutions.

An array of banks, e-commerce businesses, product developers, and software companies are vying for a leadership role in financial transactions and cybersecurity.

Those interested in IP rights in the context of authentication and transactions should consider attending the 13th annual Patents for Financial Services Summit in New York at the Sheraton Times Square, July 20-21. Many of financial services’ leading patent holders and advisers will be present.

Major Players Attending

IP executives and counsel from top banks and services providers are participating this year, including those at Visa, Time Warner, Royal Bank of Canada, Barclays, TD Bank, Morgan Stanley, JP Morgan Chase, Google, Microsoft, AST, LoT and Red Hat.

Top patenting organizations: exchanges and stocks

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Patent and IP counsel from the financial services industry and patent attorneys from leading law firms will participate in this year’s Summit, says conference producer World Congress, “to discuss recent rulings and strategies to protect patents against NPEs, successfully file patent applications post-Alice, and foster innovation.’

IP CloseUp readers who use the conference code IPCNYC can save $100 off of registration.

New for 2016:

  • Updates on the Alice decision and understand its impact on patent applications
  • Discussion about prosecuting business method patents
  • Analyze recent patent cases including, Halo Electronics, Inc. v. Pulse Electronics; Stryker Corporation v. Karl Stroz Endoscopy-America, Inc.; Media Rights Technologies, Inc. v. Capitol One Financial Corporation, et al., and more
  • Hear in-house counsel views discuss pending legislation, including The Innovation Act, The Patent Act, and The Strong Patents Act
  • Evaluate their impact on PTAB and post-grant proceedings
  • Protect patents from NPEs and understand approaches to successfully defend against trolls
  • Improve patent quality and drive innovation within your organization
  • Explore the interplay between patents and cybersecurity

extThe Summit was approved in 2015 by the New York State Continuing Legal Education Board for 12.5 CLE credit hours in the areas of Professional Practice. In 2016, World Congress are programming for and anticipate approval for 13 CLE credit hours.

The full conference agenda can be found here.

For a list of speakers, go here. This year’s location is the Sheraton Times Square on Seventh Avenue.

To register, click here.

Image source: worldcongress.com; thomsonreuters.com

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.

case2Patent TimeLine

“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

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 

Acacia shares off 20% on poorer than expected 3Q results

Acacia Research Corp. (NASDAQ: ACTG) was slammed in after-hours trading yesterday and is off 20% by noon today. The S&P 500 Index gained .66%.

The company reported that revenues were $12,994,000, as compared to $37,192,000 in the similar prior-year quarter. Its non-GAAP net loss was $11,458,000, or -$0.23 per diluted share, as compared to non-GAAP net income of $5,050,000, or $0.10 per diluted share.

The public IP licensing company, or PIPCO, reported revenue of $13 million in the period, which did not meet Street forecasts. Three analysts surveyed by Zacks expected $32.8 million.

Acacia Research shares have fallen 48 percent since the beginning of the year. In the final minutes of trading on Thursday, shares hit $8.79, aacacia_logo_lg fall of 42 percent in the last 12 months.

“Consistent with Acacia’s strategic shift towards a smaller number of higher valued marquee portfolios, our portfolio intake pipeline remains filled with deep and promising patents in the technology, automotive and energy verticals as inventors and companies seek out the best partner to navigate the increasingly complex patent licensing environment,” said Matthew Vella, Acacia Research Corporation CEO and President on today’s earnings call.

A transcript of today’s call can be found here.

Acacia’s third-quarter earnings release can be found here.

Image source: acaciaresearch.com

Google’s patent giveaway is not really about saving startups from predators

The Patent Starter Program announced last week by Google may be less about how the company can help protect young companies from patent “trolls” than re-thinking how patents are most effectively used.

 A provocative article running on the Fortune blog by Jeff John Roberts, Google’s new patent plan: how it will and won’t help startups,” suggests that Google is packaging incentives to discourage companies from enforcing patents or selling them to businesses that do.

Roberts believes that the Patent Starter Program could create big long-term ripples in how the tech industry views and deploys patents, and leverages brand recognition. It is an indication of Google’s growing sophistication in the IP space, and shows its willingness to participate in patent transactions (buy and release, similar to Allied Security Trust) if they can help to achieve the tech leader’s business goals.

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“The real significance of the Google Patent Starter Program,” writes Roberts,”is instead more subtle, and should be seen against the backdrop of other moves wpid-google-inc-offers-to-sell-patents-to-startups-as-company-fights-patent-trolGoogle is undertaking to change the economic incentives that have made patents such a problem for the tech sector in the first place.”

“Perhaps the search giant is actually tempted to follow the example of older companies like Microsoft and Qualcomm which, as their capacity for product innovation fades, have turned to their patent portfolios as a new revenue stream.”

Google lawyer Kurt Brasch said that was not the case and that the goal of the purchase program was in part to create more realistic expectations about the actual value of patents in the secondary market.

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The new starter program obliges the startups who receive Google patents to sign up for the LOT network, “a condition that’s easy to accept,” says Fortune, “since Google will pick up the first two years of the membership tab.”

Image source: techno-stream.net

NPEs are winning 4.5x more in damages than opcos, new PwC patent litigation study shows

With patent litigation down 13% over 2013, and median damages awards just $2.9 million, the lowest in at least 20 years, NPEs are still besting operating companies in damages at trial by more than four fold.

PwC’s 2015 annual patent litigation study, subtitled “A change in patentee fortunes,” is a useful overview of trends in the IP space. The annual study is long on the big picture and short of reasons for changes. There is some attempt this year at a summary page and suggested implications (“Leading Observations”), which runs before the Table of Contents.

Median damages awards for NPEs over the period from 2010-2014 were $8.9M, compared to just $2.0M (page four of the 2015 study) for operating companies (opcos). Reasons for this may include: SMEs that tend to enforceScreen Shot 2015-05-22 at 10.41.50 AM their patents against competitors, not the deepest pockets, have more modest goals; and simply that NPEs are better at enforcing patents, with more experience targeting big companies than opcos, and are able to identify better quality patents to enforce.

The drop in litigation over 2013, already much discussed, can be attributed to may things, the PTAB and IPRs, Alice, less favorable large damages awards, longer time to trial, etc. Possibly overlooked is that after AIA was instituted in 2012 there was a rush to file suits, possibly to avoid IPR scrutiny.

The 2015 PwC Patent Litigation Study can be found here.

Image source: PwC

Does Google’s patent buying experiment put it in competition w/ Intellectual Ventures and RPX?

On Friday May 8 Google will launch a two week experiment in acquiring patents from mainly small businesses and inventors.

Directly, or indirectly, the Patent Purchase Promotion (PPP) will be competing with NPEs and other operating companies for patent ownership.

The announcement raises questions: Is Google taking a page the play book written by IV and RPX (NASAQ: RPXC)? Is it aggregating patents for its own defensive use, the good of all operating businesses, or for potential investors/partners?

Has the company conceded that because it could not beat the patent-buying trolls it needs to kind of “join them,” or at least, compete with them?

It’s difficult to say what Google (NASDAQ: GOOG) is trying to accomplish. By its own admission, there is a lot of fine print in its agreement. The company’s LoT (License on Transfer) agreement, originally launched about 18 months ago, has generated mixed results, and PPP may be merely another arrow in Google’s IP quiver.

The company may be relying on inexperienced sellers to mis-price their assets, as did IV early in its buying cycle. No doubt some will ask for far too much. But, as IV learned ten years ago, there is no shortage of desperate sellers who will accept little or nothing in a down market for patents that could be quite valuable. With the market depressed and IV not buying the way it used to, the timing could be good for PPP to step 303170893_idu9a-m-300x199in. If Google can secured patents at a good price before NPEs do, it can improve its and other businesses’ defense against patent assertion.

Ars Technica wrote:

“As a way to combat the pernicious effects of patent trolls, Google announced Monday that it would be buying up patents from any inventor or entrepreneur who wants to sell.”

Google’s Patent Purchase Promotion is a radical change for a company that traditionally has been suspicious of patent buyers and sellers. For FAQs go here. The purchase program ends May 22. Decisions will be made no later than July 22.

Beginning on May 8 a copy of the actual PPP agreement can be found here.

Maturing IP Strategy

Google appears to be growing as an IP holder and user, and it is not surprising that it would want to take advantage of its formidable brand and cash position to strategically acquire patents that may be harmful to it and others at below market prices.

Whether or not Google will use acquired patents for defensive purposes only is unclear. (The company reserves the right to use the patents it acquires however it sees fit.)

Richard Lloyd wrote in a thoughtful piece about Google’s possible motivation in the IAM blog last week:

“The more you think about it,” he said, “the more it raises questions around why a patent owner with a high-quality asset who understands the IP market would consider this option, even under current tough conditions.

“Instead, the likelihood is that if Google does come across something interesting it will be offered by a party that may not fully appreciate what it owns and needs some money quickly; and that probably means a smaller, cash-strapped business with little access to specialist IP knowledge.”

A page torn from IV’s playbook?

This sounds very much like IV’s M.O. back eight or ten years ago: Gobble up decent (if not good) patents for others to pay access to or for the company to enforce, if necessary. It will certainly expand Google’s rapidly growing patent portfolio and provide access to IP rights out of its core search technology.

PPP may be nothing more than getting a leg up on the competition, whether they be opcos or NPEs. We will have to wait and see.

Image source: allthingsd.com; apexbeats.com

Patent quality — Is a “shared responsibility”, says IBM; it does not represent invention quality or IP value

There is a great deal of agreement that patent quality is lacking, but surprisingly little about how to define and achieve it.

Patent quality is typically associated with validity. Good patents are valid upon scrutiny, bad ones invalid. However, the term also refers to the relative importance of an invention and the value of the “negative” right – the right to exclude others from practicing it.

I attended the recent Patent Quality Summit hosted by the USPTO in Alexandria, VA on March 25-26.  Among the challenging remarks were those of Manny Schecter, Chief Patent Counsel at IBM, and the Summit’s first speaker.

He reminded the audience of more than 200 that patent value is a “shared responsibility” between the applicant and the examiner.

Schecter also said that “patent quality is not invention quality of patent value.” Wise words from head of IP of the 20-year leader in obtaining U.S. patents.

Hon. Paul Michel, former Chief Judge of the Court of Appeals for the Federal Circuit (CAFC), was candid about how he believes patent quality can be improved. He wants greater onus placed on the examination and examiner. He says that the application process is the first line of offense for eliminating bad patents and facilitating more reliable ones. Better-educated and more empowered examiners who understand likely legal arguments should issued patents be disputed will help. Patents should not be issued in a vacuum.

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Search time and examiner resources are often cited as the key obstacles to issuing good patents. Those USPTO realities are unlikely to change much. What could change are the introduction of stricter parameters for patents to issue, and not wait for the courts or the PTAB to weigh in on issues like validity and enablement (Rule 112), when they could have been addressed much earlier in the application process. This would save multiple parties time and money. Currently, patents are almost always insufficiently reliable both to those who practice inventions and those who may wish enforce them. This may not be inevitable.

Issued patents need to move closer to a slam dunk than a moving target. Examinations and examiners will play a key role in that difficult process. If I hear what Judge Michel is saying, let’s give them a chance.

Information about the Summit, including it’s three pillars and six quality proposals can be found here. Public comments are requested by the USPTO until May 6. 

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An article by Christi Guerrini, an IP Fellow, IIT Chicago-Kent College of Law in the Fordham Law Review, “Defining Patent Quality,” is a nobel attempt to begin to deconstruct the meaning of superior patents, and to go beyond a simple black/white definition defined by the legal parameters of validity.

From the author’s abstract:

“Depending on whom you ask, the state of U.S. patent quality is either dismal or decent, in decline or on fordhamlrev_headerthe upswing, in need of intervention or best left alone. Absent from the ongoing debate about the quality of U.S. patents, however, is much thoughtful discussion about what constitutes a patent’s “quality” in the first place. What features of a patent make it “good” in quality, what features make it “bad” in quality, and whose opinion matters?

“Surprisingly, scholars and policymakers have shown little interest in these questions. Yet their answers are critical to the direction of the patent agenda because they dictate how to measure patent quality and, consequently, how to evaluate the extent of the so-called patent quality ‘crisis’ as well as the effectiveness of quality reforms.

“The broad aim of this Article is to draw attention to the definition of patent quality as an important subject of scholarly inquiry. Its more specific aim is to call for a return to first principles and begin the process of operationalizing the meaning of patent quality. It does so by analyzing the concept using a methodology applied in the business literature of quality management.”

Defining Patent Quality” can be found here.

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In “Toward a working definition of patent quality,” which appears in the May IAM, out next week, I consider the challenges to better reliability.

“Patent quality is important because, among other things, a lack of it can impede businesses and require some to engage in unnecessary licensing or lawsuits.

“Bad patents are unreliable and undermine the integrity of the patent system, including the institutions Quality WEB HeaderNEWand professionals that sustain it. However, given the multitude of ways that standards are applied in specific cases, coming up with a universal definition of ‘patent quality’ is no easy feat. The best patents are often in the eye of the beholder.”

For the column I asked four people — an economist and valuation expert, a patent attorney, a former chief patent counsel and a successful NPE — to provide me with a two-sentence definition of “patent quality.” Their responses – thoughtful and startlingly precise – are a good indication that more work still needs to be done on this deceptively important area.

IAM subscribers can find my Intangible Investor column here.

Image source: ipfrontline.com; uspto.gov; fordham.edu

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