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
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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
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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
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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
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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
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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
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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
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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
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