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What Patent Trolls Can Teach TTOs about Extracting Value From IP

What Patent Trolls Can Teach TTOs about Extracting Value From IP. Mary Anthony Merchant, Ph.D. Lawrence K. Nodine April 30, 2009. WHY ASK THE QUESTION?. What have trolls taught us about IP Should Universities use trolls or their methods to exploit their IP?. WHY ASK THE QUESTION?.

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What Patent Trolls Can Teach TTOs about Extracting Value From IP

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  1. What Patent Trolls Can Teach TTOs about Extracting Value From IP Mary Anthony Merchant, Ph.D. Lawrence K. Nodine April 30, 2009

  2. WHY ASK THE QUESTION? • What have trolls taught us about IP • Should Universities use trolls or their methods to exploit their IP?

  3. WHY ASK THE QUESTION? • Universities have vast IP resources • University IP’s value not fully extracted • Litigation is costly and controversial • Aggressive enforcement “feels” contrary to University mission

  4. Set the stage Where are we now? • Increased Patenting Activity by Universities and others • Increased value in IP • Certain types of patents are more vulnerable to trolls • Scope of improvements may be incremental

  5. RISE IN UNIVERSITY PATENTING • Universities obtained 16X as many patents in 2004 as in 1980 • 250 in 1980 • 3933 in 2003 • Tech transfer offices 100X • Bayh-Dole • $1 Billion/yr • 12% nanotech patents go to universities • 18% of biotech patents to U.S.

  6. VALUE OF IP In 2006, 75% of the value of publicly traded companies was linked to intangible assets Up from 40% in 1980

  7. UNIVERSITY LICENSING REVENUE • In 2000, Universities collected $1.1BB in license royalties from 13000 patents • Reinvested in education • University IP not fully exploited • Less than 1% of licenses generated more than $1MM.

  8. COMPARE TO OTHERS • When compared to others, • It seems like trolls are doing better

  9. Examples- Blackberry v RIM • Threat of injunction significant • Plaintiff “NTP” (troll) demanded 6% of sales through 2012-- $1BB • Settled for $600MM

  10. MORE EXAMPLES ACACIA • Traded on NASDAQ • In 2006 revenue over $50MM LEMELSON • Lemelson Medical, Education & Research Foundation earned estimated $1.2BB in licensing revenue since 1988

  11. SHOULD UNIVERSITIES EXTRACT FULL VALUE OF THEIR IP? • Are troll methods compatible with University culture? • Should Universities use trolls or troll methods to extract value? • If the answer is mixed, • What’s good? • What’s bad?

  12. UNIVERSITY CULTURE • Is there a contradiction? • TTOs often isolated • Larger University community—the “Academy”– not sure it wants to play hardball • TTOs increasingly viewed as revenue centers

  13. PROBLEMS w/ LITIGATION FOR UNIVERSITIES • Discomfort with aggressive enforcement • Discomfort with litigation • Resources for litigation • Concern about the mission

  14. Are Universities comfortable with litigation? Evolving……. Litigation Cost Patent litigation has median cost of $2MM for suits with 1-$25MM at stake

  15. EVOLVING…. University patent Infringement Lawsuits Since 2000 • 139 lawsuits with licensees • 51 by Universities alone

  16. UNIVERSITIES, LIKE ALL LITIGANTS, HAVE WON AND LOST U. CALIFORNIA AND EOLAS: • $521M verdict for U. California and EOLAS in 2003 • Settled in 2007 after appeal remanded for new trial ARIAD (HARVARD AND MIT) V. LILLY • $65M verdict in 2008 • Reversed April 2009; patent invalidated for lack of written description

  17. LITIGATION’S INDIRECT COSTS/ISSUES • Patent litigation takes time and attention of licensing managers from marketing, search and negotiation activities • Litigation at the expense of licensing may reduce the amount of technology licensing that would have occurred • At larger or more experienced TLOs, the risk perception of litigation is reduced • More royalty income makes a TLO able to fund litigation and to convince Administration that litigation is worthwhile DMEAST #10226950

  18. LITIGATION’S INDIRECT COSTS/ISSUES • When levels of industrial funding are low, universities have less to lose with damaged industry relationships- leading to more litigation • When universities rely more on exclusive licenses, which makes it easier for their licensees to bear the cost and risk of patent litigation, universities engage in lower levels of litigation DMEAST #10226950

  19. THE QUESTIONS • Can trolls help? • Should troll methods be adopted by Universities? Should Universities act like trolls? • Should Universities let trolls do their dirty work?

  20. What is a troll? Are Universities trolls? ORIGIN OF THE TERM • Intel’s Asst GC in 2001 • Referred to Plaintiff in action against Intel as “Patent Troll” ALTERNATIVE TERMS • Non-producing patent owner • Non-Producing Entity (“NPE”) sounds nicer • That extracts licensing fees • Or, worse, dares to litigate

  21. TROLL CHARACTERISTICS-BAD ACTORS • Patents are bought by an opportunist at a low price • Enforced after public treats innovation as if its in the public domain • Delay issuance • Delay enforcement • Enforced regardless of true value • Wielding injunctive threat

  22. TROLL CHARACTERISTICS-Litigation style • Trolls cynically exploit high cost of litigation • Trolls exploit uncertainty of litigation • Routinely settle at less than cost of litigation As do all plaintiffs

  23. HISTORY • Old issue • Thomas Edison obtained and sold hundreds of patents • And tried to control the marketplace

  24. AGRARIAN DESIGN PATENT TROLLS • 1870s Patent Office allowed patents for design improvements to standard tools, like shovels • The was a gold rush for these patents • “Patent sharks” extricated license fees from farmers • Congress got mad, but • Other inventors (Thomas Edison) objected to reform (innocent purchaser exemptions) • No reform passed

  25. HISTORY REPEATS ITSELF- 2X THEN NOW Scapegoat-US Patent Office Change in law changed landscape Substitution Effect-hard to remove patented item Marginal Improvement in Technology Low cost patents • Scapegoat-US Patent Office • Change in law changed landscape • Substitution Effect-hard to remove patented item • Marginal Improvement in Technology • Low cost patents DMEAST #10226950

  26. HISTORY • What stopped the last Patent Shark/Troll plague? The change in the design patent law (not Congressional action) Now- the courts, and maybe Congressional action DMEAST #10226950

  27. REMEMBER One man’s troll…..

  28. Is another man’s…

  29. Trolls have their defenders • Provide capital to extract rent from squatters • Fund enforcement that undercapitalized IP owners can’s afford

  30. The problem is changing

  31. Troll power decreasing • eBay Eliminated absolute entitlement to permanent injunction • Reduced leverage of all plaintiffs, including trolls • Viewed by many as an anti-troll opinion • Bilski and LabCorp signalweakening of business methods patents

  32. Trolls evolving Troll Armies Emerging

  33. IV as new troll “Peter Detkin coined the term patent troll while fighting patent assertions against Intel, for whom Peter was a self-righteous wage slave at the time. But now, being the managing director of a patent troll, Intellectual Ventures, which "invests in pure invention", Peter's pointing the finger elsewhere, to smellier trolls. “Detkin trilled that patent trolls are different from patent licensing companies, such as his now-beloved Intellectual Ventures, because patent trolls buy patents to: 1) game the system, 2) are quick to litigate, and 3) assert patents of highly questionable merit.” Patent Prospector 2005 http://images.google.com/imgres?imgurl=http://www.patenthawk.com/blog_images/troll.jpg&imgrefurl=http://www.patenthawk.com/blog/2005/03/dc_patent_troll_hoedown.html&usg=__IFuMW-ok47NfllZK1so-pQEscsY=&h=527&w=451&sz=67&hl=en&start=15&tbnid=FjShXB7ZcQTZtM:&tbnh=132&tbnw=113&prev=/images%3Fq%3Dtroll%26gbv%3D2%26hl%3Den%26sa%3DG

  34. Intellectual Ventures • Has amassed 20,000 patents • Says litigation not objective, but not ruled out • University participation uncertain

  35. Intellectual Ventures (“IV”) • Investors get rights to portfolio • Investors get license to the portfolio • Irony: Peter Detkin, who coined the term “patent troll,” worked for IV

  36. Aggregators as anti-trolls Troll “blocking” strategies

  37. Blocking concept Good guys buys the distressed assets before the bad guys

  38. Aggregators • Good guys pool patents so that members get defensive licenses • Opposite of trolls • Examples • Linux Open Invention Network • AST • RPX

  39. Aggregators:A force for Good?

  40. Or Evil?

  41. Choices? • Should Universities act like trolls • Should Universities cooperate with holding companies like IV or aggregators like RPX?

  42. What works for trolls? Are there any lessons

  43. What is good troll patent? • Patent rights in area where there is commercial competition • Broad rights • Vague rights • Cheap to acquire; bankruptcy auctions

  44. Factors affecting troll patent value • Target can’t change (because invention is incorporated into complex device) • E.g. integrated chip component • Incremental innovation area, which makes it hard to show non-infringement • Old isn’t much different from new

  45. Factors affecting troll patent value • Strict Liability • Patents easy to overlook; enforcement (or absence of it) signals existence of rights • No enforcement=no problem

  46. Troll targets • Companies that cannot afford stigma or cost of litigation • High revenue products where downside risk unacceptable • Companies that cannot take injunction risk • Multiple component products especially vulnerable

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