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?

Universities have vast IP resourcesUniversity IP’s value not fully

extractedLitigation is costly and controversialAggressive enforcement “feels”

contrary to University mission

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

•

•

SET THE STAGE

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.

VALUE OF IP

In 2006, 75% of the value of publicly traded companies was linked to intangible assets

Up from 40% in 1980

UNIVERSITY LICENSING REVENUE

oIn 2000, Universities collected $1.1BB in license royalties from 13000 patents

oReinvested in education

oUniversity IP not fully exploited

oLess than 1% of licenses generated more than $1MM.

COMPARE TO OTHERS

• When compared to others,

• It seems like trolls are doing better

Examples- Blackberry v RIM

Threat of injunction significant

Plaintiff “NTP” (troll) demanded 6% of sales through 2012-- $1BB

Settled for $600MM

MORE EXAMPLES

ACACIATraded on NASDAQIn 2006 revenue over $50MM

LEMELSONLemelson Medical, Education &

Research Foundation earned estimated $1.2BB in licensing revenue since 1988

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?

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

PROBLEMS w/ LITIGATION FOR UNIVERSITIES

Discomfort with aggressive enforcement

Discomfort with litigationResources for litigationConcern about the mission

Are Universities comfortable

with litigation?

Evolving…….

Litigation Cost

Patent litigation has median cost of $2MM for suits with 1-$25MM at stake

EVOLVING….

University patent Infringement Lawsuits Since 2000

• 139 lawsuits with licensees

• 51 by Universities alone

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

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 17

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 18

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?

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

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

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

HISTORY

• Old issue

• Thomas Edison obtained and sold hundreds of patents

• And tried to control the marketplace

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

HISTORY REPEATS ITSELF- 2X

THEN• Scapegoat-US Patent

Office

• Change in law changed landscape

• Substitution Effect-hard to remove patented item

• Marginal Improvement in Technology

• Low cost patents

NOW• 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 25

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 26

REMEMBER

One man’s troll…..

Is another man’s…

Trolls have their defenders

• Provide capital to extract rent from squatters

• Fund enforcement that undercapitalized IP owners can’s afford

The problem is changing

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 signal weakening of business methods patents

Trolls evolving

Troll Armies Emerging

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

Intellectual Ventures

• Has amassed 20,000 patents

• Says litigation not objective, but not ruled out

• University participation uncertain

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

Aggregators as anti-trolls

Troll “blocking” strategies

Blocking concept

Good guys buys the distressed assets before the bad guys

Aggregators

• Good guys pool patents so that members get defensive licenses

• Opposite of trolls

• Examples

– Linux Open Invention Network

– AST

– RPX

Aggregators:A force for Good?

Or Evil?

Choices?

• Should Universities act like trolls

• Should Universities cooperate with holding companies like IV or aggregators like RPX?

What works for trolls?

Are there any lessons

What is good troll patent?

• Patent rights in area where there is commercial competition

• Broad rights

• Vague rights

• Cheap to acquire; bankruptcy auctions

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

Factors affecting troll patent value

• Strict Liability

• Patents easy to overlook; enforcement (or absence of it) signals existence of rights

• No enforcement=no problem

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

Target areas

• Technology

• Software

• Pharma

• Biotech

High tech patents are broad

• Why?

• Areas of rapid innovation?

• Overworked examiners: average time spent on patent application?

– 25 hours

• High approval rate: 66-90%

• Quality concerns greatest in business method and genomics

Patents inexpensive

• Trolls often buy patents at bankruptcy auctions

Asymmetry

Trolls not vulnerable to counterclaims for infringement of defendant’s patents

Are Universities patent trolls?

Which troll techniques useful

• Universities do not buy patents; they are not “holding companies”

– However, universities could license companies that have acquired complementary patents

– Universities might buy related patents

– Third party ownership of related technology could block exploitation of University’s patents

• Asymmetry

– Universities have little counterclaim risk

– However, relationships suffer

• Universities have IP in troll markets

– Pharma, Bio and IT

Which troll tactics won’t work for Universities

• Cynical enforcement of bad patents

• Nuisance value lawsuits

– Exploiting the cost of litigation to extract settlement for bad patents

Do’s and Don’ts

• Do

• License broadly

• Litigate if necessary

• Delegate enforcement to good faith actors

• Don’t:

• Abdicate

• Sue for bad patents

• Exploit judicial process defects

• Block use

• Demand excessive compensation

Is there a better way?

Goal: Maximize Social Impact of Technology

Alternatives

How could Universities co-opt trolls to do good?

Exclusive v. Non-exclusive

• AUTM report: 60% U. licenses are exclusive

• Appropriate in Pharma

• Not appropriate in IT

• For “enabling technologies” non-exclusive better

– Opens up many areas to improvements

Instead of outright transfer to trolls

• Field specific exclusivity

• Exclusive for limited term

• Exempt research

• Dissemination goals as condition of exclusivity

• Override rights

TTO Cultural Changes

• End TTO isolation

• Treat TTO as part of larger U. mission; not just revenue

• Retain march in rights

• Require compulsory license to publicly funded research

What Patent Trolls Can Teach TTOs about Extracting Value From IP

Mary Anthony Merchant, Ph.D.

Lawrence K. Nodine

April 30, 2009

BIBLIOGRAPHY

The Effects of Patent Litigation on University Licensing EffortsScott Shane, Case Western Reserve U. Deepak Somaya, U. Maryland

Technology Licensing and Patent Trolls12 B.U. J. Sci. & Tech. L. 388 (Summer 2006)

Blackberries and Barnyards82 Notre Dame L. Rev. 1809 (June 2007)

Santa Clara Law School2009 PowerPointhttp://www.chtlj.org/sites/default

Stop Looking Under the Bridge ….17 Fed. Cir. B.J. 165 (2007/2008)

Are Universities Patent Trolls?18 Fordham Intell. Prop. Media & Ent. L.J. 611, Mark A. Lemley

DMEAST #10226950 68

What the Company Can Do

Keep good records/files• For Patents/applications Trademark app/registrations

– Title/ MARK

– Filing date

– Claimed subject matter

– Issue date

– Assignment confirmation/PTO record

– Type of application

– Product relationship to claimed subject matter

DMEAST #10226950 69

How to Make $$ from IP

• Patents – Trademarks – Trade SecretsSell it (yourself)Sell it (assign)License it

Monitor royalty streamMonitor complianceMonitor competition

Joint VentureStrategic AllianceStart a spin out to exploit

DMEAST #10226950 70

Managing Your IP Portfolio

• Set up regular review of IP estate – cost reductions– Eliminate unnecessary IP

• Patents and applications • Trademarks and applications

– Is application likely to issue as worthwhile patent? – Are patents/trademarks still valuable in current

business models– Improve criteria used to decide if you will file

application– Review and update standard country filing list

Litigation Considerations

Keep the portfolio in good shape

Delaying costs by choosing forum• Rocket docket- more costs earlier in process

• Regular courts- slower, more time for negotiations

File but wait to serve- preserves forum, allows for negotiation without litigation costs

Re-examination of patent if possibleCancellation of trademarks

DMEAST #10226950 71