Posts Tagged 'NPE Litigation'

Patent Problems Might be Obvious; Solutions Less So

May 10, 2012

Patents aren’t just for inventors and IP counsel, anymore.  Patents are hot.  Thanks to billion dollar deals like the Nortel auction, Google/Motorola Mobility and Microsoft/AOL/Facebook, as well as a flurry of high-profile infringement fights between big names in high tech, patents have been in the news a lot lately.  After decades of obscurity, patents have captured the attention and imagination of the general public, and it’s rare to scan an Op/Ed page or visit the blogosphere without seeing a new point of view.

Holly Finn, for instance, who writes the general-interest Marvels column for the Wall Street Journal, weighed in on patents recently (A Patently Obvious Problem), and while we think she has definitely identified many of the fundamental problems in the current patent system, we can’t agree with most of her prescribed solutions.

Finn writes, “The problem is that the system allows too many inessential patents, which leads to even more inessential litigation.”  No argument.  There are too many patents issued, too vaguely worded and with too much overlap with prior art.  Finn (echoing many other observers) is right that the USPTO needs to look at overhauling its processes.

But even if the system for approving patents were to become more rigorous overnight, we still need to deal with the millions of patents that are already in circulation.  Here we think Finn’s suggestions are wide of the mark.

She believes, for instance, that the law should “insist that filers of patents be provably active and productive in an industry.”  This would contravene the underlying logic of our patent system: that inventors should be able to invent for invention’s sake.  Some of our greatest innovators – including commercially active entrepreneurs like Thomas Edison – licensed their patents.  Should the system prevent someone from selling and profiting from their intellectual property alone?  Of course not.

Finn makes no secret of her disdain for NPEs, who she feels are exploiting inventors (“Actual inventors in Silicon Valley are incensed, their faith in fair play as bruised as their bottom lines”).  We can’t completely share her opinion because we feel the system is as much to blame as the participants.  After all, patents do have value, and inventors/owners of patents deserve to receive that value.  NPEs are undeniably spurring that transfer of value.

That said, using litigation to do so is wasteful, and using legal means to establish valuation creates deep distortions in price.  In fact, many operating companies settle with NPEs simply to avoid legal costs with no regard to the underlying value of the patent.  These kinds of “nuisance suits” can be eliminated as more and more companies adopt market-based mechanisms like the defensive acquisition service RPX provides for its large network of member companies.

Finn does correctly point out that the average infringement case now takes 18 months to conclude and costs more than $1 million.  What she doesn’t say is that 98% of cases settle.  We believe it is simply more logical to make that settlement – transfer to the owner of the patent the appropriate value for the asset – at the outset rather than after wasting many months and many hundreds of thousands of dollars on legal proceedings.  This, of course, is the central logic of pursuing a defensive acquisition strategy.  At RPX, we pay fair value to the owner of a patent through a transparent, multi-party, open-market process.  By removing the need to determine value through litigation, we eliminate uncertainty for the seller and dramatically reduce cost and risk for any potential targets of litigation.

Finn also makes an important point that settlements are confidential, so companies have no information to make decisions about whether and how much to pay.  In Finn’s mind this is strictly the fault of NPEs, but we aren’t so sure.  Defense counsel have their own reasons for not wanting settlement data to be public.  The resulting lack of transparency has been a huge obstacle to rational decision-making for any company in an NPE suit.  We do agree with Finn that participants should seek to “… rid settlements of nondisclosure agreements – or at least encourage the sued not to sign them.”

The final sentence of Finn’s column is a call to action, exhorting a visionary high-tech CEO to champion the cause of fixing the patent market’s systemic problems.  Of course, RPX is already doing this.  We have brought more participants into the market and helped spur far greater price transparency.  And through ongoing defensive patent acquisition on behalf of our 116 clients, we are helping operating companies avoid or limit NPE litigation, while dramatically reducing their overall patent legal costs.  If tech CEOs decide to take Finn’s advice, they will find there is a ready-made way to champion the cause of a more rational patent market: join RPX.

Tags: Defensive Patent Acquisition, Market-based Solution, NPE Litigation, USPTO

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Mavs Owner Should Focus on (Patent) Defense

April 30, 2012

Mark Cuban knows business and basketball (his defending NBA champion Dallas Mavericks earned a playoff spot despite a season marred by injuries and Lamar Odom).  It turns out he also knows patents – though not as much as maybe he should.  

In a recent blog post The Greatest Business Risk You Don’t Know About – Your Business Will Be Sued Over Patents, Cuban sounds the alarm over NPE patent litigation and says the threat is widespread: “No matter what business you are in, you are susceptible to a patent infringement lawsuit….EVERY company in America is at risk of having 2, 3, 5, 100 patent lawsuits coming your way.”

Cuban faults the USPTO for issuing too many vague and unnecessary patents.  He also says the gravest danger from NPEs is faced by small- and medium-size companies that are only now starting to be sued in greater numbers and with increasing frequency.

While maybe slightly alarmist, Cuban has clearly grasped the enormity and wastefulness of NPE litigation.  He knows the trend for operating companies is very troubling.  He is apparently unaware, however, that a rational business-based solution exists – RPX’s defensive acquisition model.

Cuban’s prescription for affected companies is legislative: “contact your local Senator”.  But we suspect he knows that this is really no solution at all.  Legislative – and for that matter judicial -- solutions can only go so far, especially in such a well-established market.  Regulation would most likely just distort an already irrational ecosystem even further.  Given his free-market track record, Cuban would probably rather see the threat of NPE litigation eliminated through the widespread adoption of a transparent market that can price, transact, and insure against risk without the high transaction costs of litigation.

This certainly seems to be his mindset.  In an earlier blog post titled My Suggestion on Patent Law, Cuban makes a compelling case that the persistent uncertainty caused by the fear of patent litigation makes it difficult for managers to plan for and invest in the future of their companies.  This, he believes, has been holding back job creation because “It’s impossible to quantify just how much and how often you will be sued and what the costs associated with those lawsuit(s) will be.”  Uncertainty about litigation, in other words, is almost as harmful as the litigation itself.

We agree, and in the past we have often cited Warren Buffet’s quip that “risk comes from not knowing what you are doing.”  In a rational market, unencumbered by unnecessary legal threats and costs, participants know what they are doing.  That is why RPX has spent the last four years bringing transparency to the patent market so that our 110+ clients can quantify and predict the frequency and cost of patent risk.  And as more and more of these companies have engaged directly in the process of making this market rational, we have been able to build a broad enough and deep enough database of market information to begin insuring against those risks, too.

Protecting against patent risk is never going to be free, but if the thousands of companies that face it participated in a scalable solution to mitigate the risk by buying patents (many of which are – as Cuban points out – frivolous) the cost of insurance over time will be quite manageable.  And unlike the legislative solution he advocates, such risk-mitigation costs would be entirely predictable and within their control.

Given his obvious understanding of the systemic dangers of NPE litigation, it is perplexing – and a bit dismaying – when Cuban ends his most recent patent post by disclosing his personal response to the NPE problem is … invest in an NPE.  “What can you do as a small business person to protect yourself ?  Honestly, nothing beyond complaining to your Congressperson.  The only option I have found is to buy into companies that aggressively sue over IP.  It is a hedge against patent law.  Put another way, if you can’t beat ‘em, join ‘em.  Sucks, but there aren’t any other options that I can see.” 

Clearly, Cuban just needs to look a little harder.  RPX has proven that a broad enough coalition of companies can effectively reduce the threat of NPE litigation and we are regularly buying and clearing dangerous patents before they become high-cost/high-risk problems for the more than 110 companies in our network.  The RPX model is based on a strong, persistent, shared defense.  A proven entrepreneur – and NBA insider – like Mark Cuban has to appreciate the logic and power of that approach.  We’d be happy to explain it to him.  Maybe after the playoffs.

Tags: NPE Inefficiency, NPE Litigation, USPTO, Warren Buffett

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Patent Reform and the Law of Unintended Consequences

November 11, 2011

Recent commentary trumpeting the benefits of the America Invents Act look to be premature.  The overall trend is clear: no matter how you look at it, the NPE problem is getting worse.  2011 is already the biggest year ever for growth of NPE suits.

  • Total NPE suits year-to-date are up 71% and the number of unique defendants is up 26% from the same period last year.
  • There have already been 963 NPE cases filed as of October 31, 2011, impacting just over 2800 unique defendants versus 730 NPE cases filed in all of 2010 impacting just over 2900 unique defendants.
  • On average, each unique defendant this year is facing 10% more NPE cases than last year.
  • 186 NPE suits were filed in the immediate wake of patent reform, from September 16 – October 31, 2011, more than double from the same period last year (89 suits).

A good example of how the tea leaves are being misconstrued is the recent Dow Jones Newswire article “Patent Reform Seen Reducing Multi-Defendant Suits”.  While well written and carefully researched, the article cites recent statistics (some compiled with the assistance of RPX) to suggest that fewer companies are being sued because of the joinder provision of AIA, which limits when different defendants can be joined in the same suit.  While this has been true for the few weeks following passage of AIA, this is not indicative of a trend.

The joinder provision certainly will limit the number of defendants per suit.  That’s the law now, and we’re seeing its impact reflected in recent case filings (in the three months before AIA there was an average of five defendants per NPE suit; since patent reform that has dropped to two defendants per case).  But will the new provision necessarily translate into fewer defendants overall?  Very unlikely.  The NPE business model is built on asserting patents as broadly as possible.  If patent reform dictates fewer defendants per case, then we will probably just see more cases filed in general. Or plaintiffs will bring their claims to the International Trade Commission, where there is no limitation on defendants per case.  One thing history has taught is that NPEs will adapt.  The larger lesson we may all learn from patent reform is to beware the law of unintended consequences.

It appears, then, that the more things change in the patent litigation ecosystem, the more they stay the same.  AIA is clearly a well-intentioned effort to make needed change to that ecosystem, but it is still an open question whether those changes – or any legislated patent reform – can generate the kind of fundamental reduction of patent cost and risk that can be produced by market-driven efforts.

Tags: America Invents Act, Market-based Solution, NPE, NPE Litigation, NPE Patent Litigation, Patent Market, Patent Reform

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