IP Market Update

Bitcoins, “Bit-Cars,” and Bittersweet News

A few momentous events took place this past week that have important IP related ramifications; i) Crypto currency (aka Bitcoins), after surging spectacularly for months – from $1,000 to $19,000 – continued their apparently limitless climb after it became possible to trade them on the open market; ii) we are seeing a collision course between car manufacturers and technology companies that could lead to the next patent war… or not; iii) the GOP passed a first in a generation massive tax cut which President Trump is expected to sign before year end and that should cut most people’s tax bill (at least in the short term)…except for patent owners.

Bitcoins

Bitcoins are seen by many as the currency of the future; decentralized and decoupled from any country and its politics, this is the perfect standard for the digital age and the way it is created (“mined”), exchanged and protected relies on sophisticated technologies and underlying IP that belong, not to government, but to corporations. Accordingly, we are witnessing a race between the main stakeholders, mostly banks and large technology companies, jockeying for a dominant position to own large swaths of blockchain-type patents. Bitcoins cut the middleman and are not subject to the usual restrictions that many countries impose to the free circulation of money. For a great primer on how this works, see here.

To fully understand how recent and fast this phenomenon is happening, one simply has to look at related patent filings. See chart below (remember that we can only see filings up to 18 months ago as subsequent ones haven’t been published yet. Thus, one should not infer that the trend of the past years has slowed down in 2016 and 2017).

So, who filed all these patents? Well, not too surprisingly it is those who have the most to lose (the banks) and the most to win (technology platform companies). The chart below shows the main assignees so far and all companies listed below are well known to the public.

Fast forward 10 or 20 years from now when bitcoin has become the new dollar (the way the dollar eventually replaced the gold standard) and I ask you: how will you feel knowing that the money you use for everything, from buying milk to selling a house, belongs to private parties who can control new entrants through their intellectual property? And what happens when the money disappears suddenly, as a result of hacking? I believe we are witnessing the very beginning of an experiment that few governments are ready for and it will take a while for the regulatory framework to catch up with the market. Keep a few dollars in a safe in the meantime, just in case…

Bit-cars

“Bit-cars” or connected vehicles lead the current fast and furious race to create smarter, and eventually fully autonomous, vehicles. That race pits traditional car manufacturers against new entrants like Tesla and Uber, and large consumer technology companies like Apple and Google (via Waymo). Fueling this trend is a sudden adoption of connectivity-related technologies (telecoms, sensors, IoT, AI, etc.) that have not traditionally been the core business of carmakers, and this has left many of them vulnerable as they have historically focused mostly on the driving part of the problem. It is clear here again that those controlling the underlying IP will be able to either dictate some of the rules, or at least improve the odds of remaining relevant. One preemptive move in that direction came this week from newly formed patent NPE Avanci, which just released its licensing program whereby it will require car owners to pay between $3 and $15 per “connected” vehicle and announced by the same token that German car giant BMW was its first licensee. Avanci has pooled patents from Qualcomm, Ericsson, ZTE and a few others and claims to now cover almost 50% of the standard essential patents (SEPs) relating to 2G, 3G and 4G technology. It will be quite interesting to see if others follow suit after BMW (which lends credibility to the NPE licensing model in the automotive space) or if the auto industry takes a page from Tech Cos and fights tooth and nail against any efforts by patent owners to monetize their assets in that space while the legal environment still favors the infringers. Either way and even in the current buyers’ market, this has caused many connected car patents to currently command a premium.

Bittersweet News

Bittersweet news is what patent owners heard this week as the GOP announced the House and Senate had reached a broad consensus on a massive tax cut bill that President Trump will be eager to sign before he retreats to Mar-a-Largo for Christmas to focus on his golf swing. The good news first: most corporations will see their corporate tax rate sink from 35% to 21%. This is massive, although truth be told, many of the large US companies who know how to use every loophole in the law never came close to paying that rate in the first place. There is a similar- albeit indirect- cut for what we call “pass-through” companies such as limited liability companies (LLC) and “S-Corps”. The Bill is 560 pages long and I don’t expect anyone to read it, including the ones who voted for it. But thanks to the document search capability, it takes seconds only to find the following ominous text on page 259 of the reconciliation section, which should send anyone who own patents to call their congressman or senator this week and read them the riot act:

In short, under the proposed bill, the sale of patents, even after holding those assets for years, will no longer be considered (and taxed as) capital gain, meaning they will have the same tax treatment as licensing royalties which are taxed as regular income. Thus, if you are a corporation and your marginal tax rate just went down 21% (capital gain is generally taxed between 15% and 20%), this is not such a big deal. But if you are an individual owner and your marginal rate will still be above 35% under the new bill, this has a significant negative impact. It therefore becomes readily apparent that the way patents are held will require additional thinking so that they end up being owned by an entity that can better benefit from the new tax provisions, assuming those become law.
Enough with the bad news. On a lighter note, because it is the Christmas season after all, here is an interesting article reminding us that even the most unusual items of daily life, such as those fuzzy earmuffs, were first and foremost great innovations, rooted on a solid patent foundation. I wonder if the concept of applying fur to one’s ears to keep them warm would be considered a mere abstract idea nowadays under the Alice doctrine. After all, aren’t most animals born with those? 😊

For other great Christmas themed patents, ranging, from tinsel guns to a Santa Detector Kit, not to forget Christmas tree shaped pasta, you should read this.

Buyers & Sellers

Not many patent transactions were reported in the past two weeks, but we are awaiting the report from AST regarding the second IP3 purchase program that concluded a few weeks ago. We will let you know as soon as these numbers are released. Talking of AST, it recently acquired a set of 33 US assets from music streaming business Napster, formerly known as Rhapsody International.

Google, on the other hand, has started for the first time to divest some patent assets in its portfolio that it had inherited from other companies through some previous transactions. We are pleased to share in this regard that our firm been retained exclusively for the upcoming sale of three of these portfolios, which we will bring to market in early 2018. Stay tuned.

Winners & Losers

While most pundits by now predict that the US Supreme Court will not abolish the PTAB (SCOTUS’ decision can come any time before June 2018), there was, nevertheless, some (rare) good news for patentees recently in that the invalidation rate of IPRs seems to be inching closer to 50%, after stubbornly hovering around 75% for years. This data is mostly from 2016, but our understanding is that this trend has continued in 2017.

However, the success achieved by many large corporations who can now file IPRs directly -as a way to make a litigation risk go away- has put enormous pressure onto defensive aggregator, RPX, whose model has traditionally been to syndicate the buying of patents in lieu of fighting them in court. This has in turn impacted its stock and attracted an unsolicited offer by a private group to buy the publicly traded company for about $800 million, which would be slightly above its current valuation of $668 million. RPX management has not yet reacted to the offer, but announced a few days ago a major reorg that saw a few of its top executives leave the company, seemingly to improve its balance sheet. It will be interesting to see if this is followed by additional layoffs.

On other fronts, Ericsson emerged victorious and $75 million richer after a protracted patent battle against Chinese owned TCL, while ROVI prevailed against Comcast in another patent dispute. Finally, a US jury awarded wireless speaker company Sonos a rather symbolic $2 million in its litigation against competitor Denon, while wearable manufacturer Fitbit resolved its pending litigation against former nemesis and now bankrupt Jawbone.

Lawsuits (Who is being naughty?)

Apple filed an IPR challenge against patents currently owned by the three Affiliated Tribes of the Fort Berthold Reservation, North Dakota, in a move that will force the PTAB to take sides on the controversial issue of sovereign immunity of certain patent owners like universities and native tribes. Many on the infringement side see this as a serious loophole that needs to be plugged quickly and the stakes are pretty high on both sides, as is reflected by the numerous amicus curiae briefs recently filed by both sides on this topic in a related case.

NPE Document Security Systems (DSS) filed its third enforcement action against Japan’s Nichia Corp. and Nichia America in U.S. District Court regarding the alleged infringement of LED patents DSS acquired from Intellectual Discovery Co. Ltd. of South Korea for a reported $9 million.

Recent law suits in China alleging rampant theft of trade secrets by Asian companies in the memory sector, including one filed by the US-based Micron Technology against Taiwan’s United Microelectronics (UMC) and its affiliated China memory maker Fujian Jinhua Integrated Circuit (JHICC), are raising concerns that some old habits die hard even though China is officially on record for being on the side of innovators these days. It will be interesting to see if this is symptomatic of an effective PR machine hiding a sad reality of organized IP theft, or whether this case is an outlier in this new era.

Canada-based Bombardier, who seems to never learn from past cases, found itself of a receiving end of yet another patent infringement decision, this time against snowmobile competitor Artic Cat who was awarded $50 million by a jury. When it snows…

Finally, if you can’t kiss and make up, you might as well sue one another over your patents it seems. This is what US carrier Sprint decided to do after its merger talks with cable giant Charter came to a halt. What a way to kill the Christmas spirit.

On the Move

Quarterhill, the parent company of large NPE WiLAN, recently named Doug Parker as its new CEO, while it still searches for a CEO for WiLAN itself that will allow Jim Skippen to re-retire. Hang in there Jim!

As a result of the seminal Alice decision in mid-2014 and its progeny, patent attorneys have tried to shield their clients by drafting longer and narrower claims in order to avoid falling into the “abstract idea” trap. It used to be that the shorter the first claim of a patent, the better it was. This is certainly no longer accurate in view of the recent case law and the profession has had to adapt. Seeing this visually is quite interesting as per the chart below. So, you now need on average 80 more words to say the same thing.