Tag Archives: Wall Street and patents

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.



Image source: convene.com; iam.com


“Patent Investor” tracks licensing company shares & developments

A new weekly is the first to feature in-depth coverage of public intellectual property monetization companies (PIPCOs). 

I’ve been following The Patent Investor for a few weeks, wondering what news it could provide beyond what I already know and hear about the PIPCO space.

What I discovered is that TPI regularly contains news of developments and trends useful to those interested in or affected by patent licensing businesses – especially the publicly held kind. Editor/reporter Dan Lonkevich goes beyond news releases and news about PIPCOs reported in the business press, to provide the relevant facts that investors need to make informed decisions, and those on that defendants in NPE disputes may wish to be aware of.

He is also not afraid to report bad news or delve into SEC filings, nor is he reluctant to portray a company in a less than favorable light – essential for a credible investor newsletter.

Lonkevich previously worked as the senior editor for The DealFlow Report, a unit of The Street Inc. Prior to that he was a reporter for Bloomberg News in New York. While at Bloomberg, he covered the insurance TPI_Mastheadbusiness, mergers and acquisitions and oil and gas companies. Prior to that, he worked as an associate editor for The National Underwriter and was a reporter for Bestweek, a newsletter  covering the insurance business published by insurance rating company A.M. Best Co.

The Patent Investor, which began publication last year, looks at the publicly listed businesses involved that license and sell patents, and the performance of their shares. TPI differs from Intangible Investor, a column that I write for IAM magazine, which considers PIPCOs, as well as a broad range of indirect investors or IP stakeholders, including operating businesses.

The website describes the newsletter as “uniquely and solely devoted to covering the patent monetization business, unlike more mainstream business and legal publications. It is intended to be of interest to investors, inventors, entrepreneurs, attorneys and investment bankers who work with the growing number of patent monetization companies.”

At $899 for an annual group subscription ($299 for individual subscriptions) TPI, while good value, is not for everyone. However, the cover of each issue, with the first paragraph of key stories, is available for free. Those interested in a sample issue or subscription can receive one.

To see the cover of the latest issue or for a sample, go here.

TPI’s article archive can be found here.

Image source: thepatentinvestor.com

Post-Grant Reviews are Shaping NPE Patent Quality & Portfolio Size

More and better patents have greater meaning for licensors now that a petitioner can seek an internal review (IPR) canceling a patent because of a single claim. Expect those with capital and experience to prevail.

IPNav announced in May that the firm’s President, Deirdre Leane, is set to succeed CEO Erich Spangenberg by the end of the year.

Leane spoke with IPBC Global’s Richard Lloyd recently in Amsterdam about the future of patent licensing and the impact that Inter Partes Reviews (IPRs) are having on patent licensing. Leane also chatted about the a more expanded role for women in IP and her increased responsibilities at IPNav.



She says the IPR pendulum has already starting to swing back in favor of patent holders. Patent Trial and Appeal Board (PTAB) decisions have gone from “a 90% plus kill rate to 82%,” Leane notes.

Leane believes that trend is likely to continue to move towards 70%, as patent holders select better patents to assert.

For those of you who wish to go directly to Leane’s remarks about IPRs, they start a bit after 2:00 in the 13 minute interview. The entire interview can be found here.

Image source: ipbcglobal.com

Five New Stocks added to IP Close Up 30 Patent Licensing Index

Finjan, Inventergy, Network-1, Straight Talk and Universal Display have been added to the IP licensing company (PIPCO) stock index, IP Close Up 30.

To remain relevant a stock index must change. Companies added to the IP CloseUp® 30, a conveniently configured, real-time listing of company stock performance, financials and news include those that can be described as operating companies.

These companies are otherwise known as PIPCOs, a term coined by this writer in September 2013.

Companies removed include ARM and Qualcomm, because of their much larger relative size, as well as Murgatroyd and RWS, which are more of an IP services play and less an IP licensing one. AxoGen, a medical technologies company that focuses on nerve repair, was removed because of a lack of IP information.

Inventergy (INVT), which began trading on June 9, says that it will have a market cap of about $150M once its merger with eOn Communications Corporation is completed. According to analysts close to IP Close Up who have examined the public filings this would establish the value of the company’s patent portfolio at approximately $130M.

Network-1 (NTIP) won a rare Patent Trials and Appeals Board (PTAB) ruling on May 23 affirming all claims in its Remote Power Plant patent, and defeating an Inter Partes Review (IPR) challenge (U.S Patent No. 6,218,930). ipcu30-blurb2-21

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As stated previously, the IP CloseUp® 30 is a stock index in progress. It is informally represents small, micro and nano-cap companies engaged in significant patent licensing whose market value hovers in the range of under $1 billion, $50 million to $350 million, and under $50 million.

The goal of the index is to make it easier to follow and understand companies who license their IP actively relative to each other by providing real-time trading data, news and charts. IPCU 30 hopes to include all companies whose stock price and shareholder value are significantly affected by IP performance. This could include direct income generation, such as in out-licensing, as well as strategic or defensive use of patents to secure and maintain market share and profit margins, and to manage risk.

In the future we plan to include more IP Close Up 30 group data, including how the group’s performance compares with other indices, like the S&P 500. Image source: IP CloseUp® 30

PIPCO Monitoring Made Easier:

The IPCU 30 can be conveniently followed on your PC or Mac. Click here, highlight the URL, and drag it to your desktop. Scroll down the page for recent company news.

To access the IPCU 30 on your smart phone: click here, tap the arrow at the bottom (iPhone), and select “Add to Home Screen.” You’re good to go.

Be sure check-in with IP Close Up (the blog) periodically to see if the list has been updated.

New Patent Sector Index: PIPCOs Trail the S&P 500 over 3-Yr Period

Despite their increased size and capital most small public companies that rely significantly on patent licensing have yet to prove they can compete with other equity investments.

A recent report by, “PIPX Intellectual Property Sector Index,” from Dr. Kevin Klein of Freescale Semiconductors, a provider of embedded procession solutions, shows that the stock of most PIPCOs have under-performed the benchmark S&P 50 equity index over the past 11 quarters.

(For a more in-depth analysis see “Let the Shake-Out Begin” in the July IAM magazine, out this month. My piece can be found under The Intangible Investor (for subscribers), here. For a comparative listing of public IP companies, including news and performance data, visit the IP CloseUp 30, here.)

The PIPX IP Sector Index is designed to provide a measure of the general health of the PIPCO sector by comparing the relative value of key companies over time.  

PIPX IP Sector Companies   Market Cap
Acacia Research (ACTG) 775M
InterDigital (IDCC) 1.40B
Neonode (NEON) 203M
Parkervision (PRKR) 439M
Pendrell (PCO) 429M
Rambus (RMBS) 1.37B
Tessera (TSRA) 1.16B
Unwired Planet (UPIP) 250M
Vringo (VRNG) 351M
VirnetX (VHC) 807M
Wi‐LAN (WILN) 371M

Bigger Question 

The bigger question is how many IP monetization models do we need, and which ones are best adapted for long-term success?

As much as half of the 30 or so public IP licensing companies are likely to merge, be taken private or otherwise disappear over the next few years. That’s bad news for some investors, good for others.

Says Dr. Klein: “The lower returns and higher volatility of the PIPX as compared to the broad market imply that there are challenges facing investment in intellectual property licensing as the business evolves and matures.

“This of course could be due to short-term factors over the 33 months the PIPX Index is tracked, such as a deflating patent bubble. However, it may also be a sign that there are some underlying characteristics of this business that may need to be addressed or better understood to help make intellectual property licensing a more comfortable investment for the broader market.”

The value of companies in the IP space like Tessera and Rambus increased, while Acacia and RPX declined (see below).

The entire PIPX IP Sector Index can be viewed here.

pic3   pic2   pic1 (1)



Illustration sources: The PIPX IP Sector Index; Seeking Alpha.

IP CloseUp 2013 – It was a Very Good Year

IP CloseUp’s most active day increased more than ten-fold.

IP CloseUp was viewed about 16,000 times last year. If it were a concert at Carnegie Hall, it would take about six sold-out performances for that many people to see it.

Click here to see the complete report.

Readers were from 116 countries, with the U.S., UK and Canada leading the way. The most active day was “Rockstar’s Deal with Spherix Could be a Game-Changer” on November 1, with 1,659 views. The post was originally published in July.

IP CloseUp content has appeared on IP Frontline.com, IP Strategy.com, and ipeg.com, among other media. Posts also are available through Twitter and LinkedIn. Bruce Berman’s column, The Intangible Investor, which has appeared in every issue of IAM magazine since 2003, will be published as a book in 2014.

To our growing readership, thank you for following us. We will do our best to keep you enlightened and entertained in 2014. Happy New Year!

The WordPress.com stats helper monkeys prepared the 2013 annual report for IP CloseUp.

Most ‘Trolls’ are More ‘Grey Hat’ than Black, Says Veteraran IP Exec

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.

Fringe Elements

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 418MAQ1DTVL._SY344_PJlook-inside-v2,TopRight,1,0_SH20_BO1,204,203,200_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 

When NPR Attacks Patents: Stories are Long on Drama, Short on Truth

“When Patents Attack… Part II!” revisits old ground about bad IP actors by relying on half-truths and high drama.

“This American Life,” an entertaining weekly NPR news feature, cannot resist using ill-defined “trolls” as a basis to attack the patent system. A more accurate title might be “This American Knife: When Public Radio Attacks Patents!”

Back in July of 2011 “This American Life” (TAL) spent an hour vilifying patent holders who do not practice their inventions, and attempting to convince listeners that they had uncovered a third-party IP monetization scheme that is destroying innovation. The story was largely focused on Intellectual Ventures, the largest patent buyer. “When Patents Attack!” relies on half-truths, questionable sources and a lot theatrics, which makes for good radio, but shoddy journalism.

On May 31 TAL broadcasted When Patents Attack…, Part Two! This time around, the host, Ira Glass, said, TAL’s reporters were urged on by the logo-v5challenge to complete the difficult investigation they had begun two years earlier. Sadly, this piece is should be required listening, like the previous one, especially for those who want to better understand how patent misinformation gets spread around.

The dramatic conclusion to Laura and Alex’s search for information about Intellectual Ventures, and the inventor they claimed they were helping, Chris Crawford. The story turns out to be different from the one Intellectual Ventures originally told.

Separating the Real Story from the Drama

I would rather not go toe-to-toe refuting each claim in the story. However, I will say that presenting facts and partial-facts with insufficient context is extremely damaging to establishing the truth about the real story: patent theft in the U.S.

If you cannot listen to the entire broadcast, please at least catch to the last five minutes. At approximately 50:30 (you can use the play bar to go right there) there is a statement delivered at the Electronic Frontier Foundation meeting in San Francisco by a young medical device inventor who is moved to tears, literally, because he believes that the big bad trolls are inevitably going to destroy his hard work establishing a potentially life-saving invention.

The young inventor explains how he looked up some patents in the heart device area he was working in, saw how many inventions there are and how broadly they are defined and precisely their claims are worded, and determined that he was doomed from the start. Since he believed that he had no chance he refused to develop his brilliant idea and allowed his hard work to be taken away [presumably by trolls, as opposed to medical device manufacturers].

“When Patent Attack…, Part Two!” may be more scurrilous and insulting than Part One. The U.S. Patent and Trademark Office, while far from perfect, has done a generally good job of identifying and codifying inventions. Due to the USPTO’s lack of resources, in relatively rare instances given the millions of issued patents, it is sometimes necessary for the courts to decide what is novel and unobvious, who is an infringer, and how much must be paid in damages. This system may be inefficient, and benefit some businesses more than others, but it is generally fair, even if the enforcer is not practicing an invention or selling products.

Occasionally, it is necessary for the courts to determine what is valid or infringed, but typically it is left to posterity to determine what is “truly” innovative. This TAL story implies that innovation can be readily identified and classified, belittling those inventions that do not fit its definition.

“Too Many” Patents

The patent attorney introduced in Part Two who claims that there are “too many patents” confuses the issue. (Are there too many parcels or real estate? Perhaps he means that they are too easily granted?) Who is in the position to judge that the owner of an invention that meets the appropriate tests of patentability should not receive one because it lacks sufficient meaning? “When Patents Attack, Parts I and II” plays directly into the hands of businesses that would benefit from a weaker patent system with fewer patents that can potentially be used to undermine their leadership. The exclusivity afforded to patents can provide inventors, SMEs, and in some cases investors, the leverage to challenge traditions and provide the kind of positive destruction that stimulates competition and creates jobs. Heck, Apple, Microsoft, Disney, Google, H-P, Xerox and Amazon all were founded in garages or dorm rooms. America needs to encourage other companies to follow in their footsteps.

* * *

“When Patents Attack, Parts I and II” does little to enlighten listeners about how the patent system really works. It does, however, make it easier for companies to justify practicing others’ inventions, while laughing all the way to the bank. God bless (this) American life.

Image source: thisamericanlife.org

Going Ape for Apps: Samsung is Gaga for U.S. Patents

No company has more Active U.S. patents than Samsung or files more applications.

In fact, outside of IBM, Samsung leads all filers in U.S. patent applications by better than two to one.

According to “The US Patent 100” published by Patent Vest and MDB Capital in IAM, Samsung is the biggest current U.S. patent holder with 45,012 issued and more than 25,457 applications on file. Highly active patentees like Canon, Panasonic, Sony, Toshiba and Microsoft are not even close, with around 10,000-11,000 applications each.

What does Samsung know that others don’t? It’s hard to say. Perhaps they hope that at least some of their patents will read on their competitors’ products and will discourage them from filing infringement suits. This will do little to slow down NPEs, unless, of course, the NPE is a proxy for an operating company. Like Apple and Microsoft before them, outspending the competition on filing and/or litigation defense is a viable strategy for some players.

Might Samsung also believe, similar to the Japanese in the 1980s and 1990s, that it will be difficult to get a fair shake in U.S. courts (see Apple v. Samsung)? Relying on large numbers of patents, quality aside, to increase their likelihood of having some of them read on a potential adversary might discourage a law suit, or may provide bargaining leverage. It has worked for IBM.

Size vs. Quality

Patent portfolio size was of questionable help in Samsung’s much reported dispute with Apple, where it had been directed to pay Apple $1 billion in damages until the award was reduced two weeks ago by Judge Koh to $450 million. But no check has been written yet, and without an 3725709injunction, Apple’s victory is little more than a series of admittedly valuable headlines for it and a write-off for Samsung. Despite Apple’s tough talk, Samsung may find a silver lining by including some of its many patents in a licensing package that Apple would find acceptable. (Some companies see patent litigation as a very expensive form or licensing. It works better for some than others.)

The US Patent 100, similar to data provided in the past by CHI Research, now 1790 Analytics, monitoring patent filing and citation trends, suggests that analysis of the largest, fastest growing and most recognized (cited) portfolios can predict prowess. Certainly, size counts when it comes to patents (both in terms of portfolio breadth and claims), but it counts more to some than others.

IBM, now number two in U.S. patent grants (38,394) and applications (19,138), still has more grants over the past twenty years. Patent Vest suggests that divestitures to Google and Facebook, totally over 3,000, have brought down the number of IBM’s patents in-force. They do not mention IBM’s lapse rate, which I understand is among the highest. (Lapse can mean prudent management or it can mean that IBM didn’t care much about securing the patents in the first place, or does not think they will be very useful to anyone. It also may mean that once their goal of not allowing anyone to own a particular patent is achieved, there is little value in maintaining it.)

So, who has the better patent portfolio? I’m not sure that size, maintenance or citation frequency is very  indicative of quality or success. Those with the biggest portfolios often don’t have the best or most valuable patents. But size does count in court where discovery is costly, and time is money. Whose to say which patents at a given time have value to a particular business.

Who’s Gaming Whom?

It’s ironic that owning ten’s of thousands of questionable patents, those primarily intended to protect market share and slow competitors, is typically more meaningful to a businesses than a handful of well-crafted, timely rights that actually read on successful products.

Deployment of increasingly larger portfolios, like Samsung’s, makes it unclear as to who is really gaming the patent system, and who has the most useful inventions and best quality patents.

China, BTW, is now ahead of the Japan and second only to America in U.S. patent applications. Permitting innovation to become little more than a numbers game is likely to affect its future and the economy’s health.

Mark Cuban ought to think about that. His gutless tirade against “stupid” patents was documented in TechCrunch and dissected in IP Watchdog, and followed by a long stream of angry comments. When it comes to innovation rights, Mark is in no position to determine what is stupid.

Image source: locatetv.com

Kodak Bankruptcy Funding is Contingent on Patent Sale

Report says that funding will hinge on a $500 million deal.

A story from Reuters that appears today in The NY Times online and was originally reported by the Wall Street Journal states that Kodak (EKDKQ: OTC) will receive up to $793 million in loans from bondholders to emerge from bankruptcy if it can sell its much-discussed patents for at least $500 million.

Kodak has been trying to sell its patent portfolio for over a year and held an auction in September that generated tepid response.

WSJ reported that Kodak “remains in talks for a patent sale with potential buyers including Apple Inc and Google Inc.”

After an estimated initial range of $2.4 billion to $2.6 billion dollars, and weak patent auction bidding reported at about $150 million to $250 million, it would be hard to believe that Kodak and its advisers did not already have a buyer or buyers in place for the 1,100 patent portfolio, which over the years generated much revenue but is said to be severely encumbered.

A sale at $500 million would suggest the patents on average are worth $550,000 each.

Illustration sources: printerinkcartridgesblog.com; thedroidguy.com

U.S. Cong. Research Service Wants Some Patent Holders to “PAE”

Flawed IP Report Attempts to Legitimize Assertion Label

If the Congressional Research Service’s distorted findings on the impact of patent holders are not bad enough, it is promoting a new, nastier and arguably less accurate term for NPEs, “patent assertion entity.”

A recent report, “An Overview of the ‘Patent Trolls’ Debate,” relies on biased, flawed studies to tell Congress that trolls are even more destructive than they sound. (A summary of the report’s weaknesses can be found in “Report for US Lawmakers Gets it Horribly Wrong on NPEs.”)

A Google search on the term “patent assertion entity” does not reveal much. Wikia, the self-described “IT law wiki,” said that “A patent assertion entity is a firm whose business model primarily focuses on purchasing and asserting patents.” The earliest mention of the term that we could find was in a June 11, 2011 allusion to a paper by Colleen Chien, “From Arms Race to Marketplace: The New Complex Patent Ecosystem and Its Implications for the Patent System” Ms. Chien is with the Santa Clara University School of Law.

Her latest paper, “Startups and Patent Trolls,” released on September 13, argues that PAEs are more harmful to small businesses, not large operating companies. “A number of unique characteristics,” Ms. Chien writes, “make some startups and small companies, even though they lack deep pockets, attractive targets to PAEs.”

The Congressional Research Service suggests in its August 20th report that a new, harsher and less accurate term for NPE is a standard, when it is, in fact, not even close to being one. The first line of its report begins:

“Congress has recently demonstrated significant ongoing interest in litigation by ‘patent assertion entities’ (PAEs), which are colloquially known as ‘patent trolls’ and sometimes referred to as ‘non-practicing entities’ (NPEs).”

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Term or Label?

I don’t know anyone who routinely uses the term “patent assertion entity,” and I have been working in patents for 25 years. NPE is a confusing enough description that describes little, but patent assertion entity (PAE or “pay”) paints an even less accurate picture. It speaks to an inherent combativeness and ignores the need to uphold rights or stop invention theft. It suggests that “buying and asserting” is the DNA of non-practicing holders, even when some NPE holders self-generate patents and the preference of most NPEs is to license them. (Isn’t “entity” the term they use for alien life-forms in horror movies?)

Bad data unfortunately tends to get perpetuated by those who either don’t know any better or who want to believe it is accurate. Techdirt, a popular tech blog ran a sympathetic story about the Congressional Research Service report in its “good research” department. Sunnyvale-based Techdirt claims 800,000 RSS subscribers.

There are many types of patent owners. Many because of their size and lack of capital and experience, don’t produce products. I wrote in IP CloseUp in August 2011 in “Innovative IP Models Generate Cash, Provide Alternatives” that there are at least seven different type of business models for those who wish to monetize invention rights but do not commercialize or sell products.The group includes universities and research institutions, inventors and publicly held R&D business.

Some operating companies are starting to out-source their patents to so-called  “privateers,” third-parties who can enforce their patents without directly involving them, especially if they wind up suing their customers or vendors. Patent enforcement is a business tool which some are more effective deploying than others. It is not a dirty word.

Not all holders are in the position to commercialize their invention rights but are still entitled to a return on them..Many believe that keeping infringers honest is good for innovation and healthy for commerce. Valid patents are infringed on a regular basis because the owners can not afford to enforce them. Some businesses like Acacia Research typically do not even own patents, but enforce them on behalf of others, often inventors and increasingly operating companies, for a share of the return.

Today, it is almost impossible to license a patent without first suing for infringement. The potential is too high for declaratory judgment, a preemptive move that provides a defendant with venue it may not ordinarily be entitled to. Enforcing rights is something that NPEs are forced to do to realize a return.

Many NPEs given the option would rather talk than litigate.

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Intellectual property rights would benefit from a less hostile term for NPE, and PAE is not it. A term more in keeping with what patent holders outside of traditional operating companies actually do would be a good start. Something as simple as Independent Patent Holder, Patent Holding Vehicle or Invention Rights Business might do.

Whatever the acceptable term, let’s leave the alien life forms in outer space where they belong.  

Image source: ahirer.blogspot.com

Apple v. Samsung Shows Brand Matters to Patent Holders, Juries

There is a Tendency to View Patent Prowess as a Function of Reputation and Perceived Innovation

Much of billion dollar verdict in Apple v. Samsung turned on brand reputation and perception of what it does that is truly innovative.

“What Apple v. Samsung Says About US Jury Trials” in Managing Intellectual Property quotes Ronald Beaton of Trial Graphix as saying “Juries in Silicon Valley are particularly IP-Savvy. The longer you live there the more it gets into your head.”

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Apple’s brand reputation is tops, but what about its less than stellar IP performance? You can hardly argue with Apple’s virtually world leading market value (PetroChina is number one) and unrelenting growth. It’s patent strategy, while less cohesive, did not stop it from winning a billion dollar victory over a generally stronger patent (but not brand) rival. If nothing else, Apple is the consummate technology packager, and it takes every opportunity to let audiences know it. Its reputation as a design leader was at stake, as was its perception as an innovator. Samsung’s infringement of that asset, it could be said, is what the local jury rewarded.

Brand and IP reputation are intrinsically bound. Apple’s patent history is not the most auspicious. Many say it has the wrong or too few patents (probably less than 3,000 worldwide, excluding those it paid $2.6 billion for in the Rockstar Consortium). The company is believed to be vulnerable in many areas that it sells products. (See smart phone suit chart below.) Samsung has some 30,000 patents.

Faith in Proprietary Design

Putting so many eggs in its design patent basket was a bold move for Apple that paid off for now. The right combination of foreign infringer, venue (Silicon Valley) and jury pool,  clearly paid off. So did the company’s perceived value as a technology innovator.

One wonders if the chips would have fallen the same way if it were Google or Facebook defending itself in San Jose on a patent infringement charge asserted by a Silicon Valley neighbor. Apple to SV is what the General Motors was to Detroit. I’m not certain the others can claim the same loyalty.

At the end of the day Samsung is not likely to have to cut a check for $1 billion anytime soon, if ever. The effect on an injunction on its devices, should it be granted, will be negligible according to Sanford C. Bernstein analyst Mark Newman. The devices in question are older ones and will account for less than 1.4% of the Korean company’s worldwide profits. And bet you didn’t know this: Apple is still Samsung’s biggest customer for mobile device components.

In the end, Apple v. Samsung is really about a kind of court-ordered mandatory license that sets a high bar for any potential competitors. Samsung can certainly afford the “damages,” and what’s wrong with their having to live with an oligopoly if the high cost of entry narrows the competitive field? For smartphone outsiders the answer is simple: they will have to innovate better to succeed.

The uncharacteristic respect that the court and jury showed for design patents may have more to do with the fact they are Apple’s than any legal precedent or direction from the bench.  Brand can be powerful tool for enhancing patents and positioning a business as inherently innovative. It is something that Marshall Phelps realized at IBM in the late 1980s, as did Bill Gates at Microsoft starting in the late 1990s.

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A Culture of Success

Patent portfolio holders would be wise to be more transparent about their IP activities, and, where appropriate, attempt to establish a culture of IP success and ROI. A company’s reputation for innovation and managing its IP rights proficiently, today, can be a valuable asset.  Often, it can hinge on its perceived ability to innovate.

Michael Hages, an IP attorney writes in Core 77, a design magazine, that “The traditionally meager status of design patents is the reason why many designers are likely surprised by the prominence of design patents in Apple v. Samsung.”

“The real potential for impact, however lies in the mere fact that the design and business worlds are paying close attention to the design patent side of this case in the first place. Design patents have been around for over 150 years and in that time have only seen limited usage. Sure, many people or corporations have sued in the past to enforce their design rights with some success, but both the number of design patent lawsuits and the number of design patents granted pale in comparison to those of utility patents.

” …In all reality, practically everyone who has an opinion holds design patents in the lowest esteem of all the different forms of IP protection.”

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So, how did Apple pull off the design patent victory of a lifetime? What does it mean for other industries and products where design rights are crucial but not typically enforced?

That will depend on who else is willing to step up and defend their design patents as vigorously as Apple. It also will depend on who the parties are. The auto industry is one area where gentlemanly cross-licenses have trumped aggressive enforcement. Design patents can be useful, even if it is just to slow competitors down. But they have to be enforced, a nasty, expensive and somewhat speculative process that does not always result in direct financial return.  For Big Three U.S. automakers design enforcement has not been a cultural imperative. It will be interesting to see if Apple v. Samsung will have a lasting impact consumer electronics and other industries.

Illustration sources: hypebot.com; wsj.com; ritholz.com 

Disclosure: I have no position in the shares of or current business relationships with any companies mentioned in this article.

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Apple v. Samsung jury foreman, Velvin R. Hogan, is a 67-year old retired engineer who holds a patent and has had a 35 year career in hard-drive technology with Memorex, Storage Technology and Digital Equipment, companies that are either out of business or have seen better days. Fortune’s summary of interviews with Hogan about the case and what led the jury to its decision makes for fascinating reading.

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