“Remarkably, in what I believe amounts to Orwellian ‘doublespeak,’ those who’ve been advancing the patent troll narrative argue that they do so because they are actually pro-innovation. That by their highlighting, relentlessly, the dangers in the patent system, they actually encourage innovation. Right! […] Similarly, in our zeal to eliminate “trolls” and “the bad patents” they allegedly use to terrorize society, we have over-corrected and risk throwing out the baby with the bathwater. This must now end, and we must restore balance to our system.”
You’d think this quote came straight from one of the many disgruntled inventors that’s witnessed his or her invention blatantly copied with no resources to fight infringers, or from the exec of an NPE who just saw yet another of their patents invalidated by the PTAB, like so many others.
Not quite so! These were the very words from USPTO Director Andrei Iancu, given in a speech a few weeks ago that still resonates, during which he proceeded to squarely dismantle the “patent troll” myth and instead chose to eulogize inventors and innovators alike as the true engine of the nation’s progress. I strongly encourage you to read the full transcript. (Serendipitously, a revised report from the Hoover Institution Working Group on Intellectual Property, Innovation, and Prosperity at Stanford University came out 10 days later showing that Patent Assertion Entities (the ones many people call “trolls”) invest twice as much in R&D than 153 firms identified in PricewaterhouseCoopers’ 2017 Global Innovation 1000 study during the period between 2011 and 2016. 17 of the 26 identified PAEs spent either the same share or more of their revenues on R&D as major tech firms Apple or Hewlett-Packard.)
As I read his speech, especially on the eve of these very consequential US mid-term elections, I am reminded of a great movie “Mr. Smith goes to Washington” from 1939 where James Stewart plays a wide eyed young congressman parachuted by the powers that be to fill a sudden vacant spot, with the assumption that he will simply shut up and vote as he is told. Those who watched the movie (and if you haven’t, please do) know it ends quite differently, with Mr. Smith standing up for days behind his pulpit, exposing the entrenched interests and shenanigans of the old guard who have controlled the system for too many years. When Director Iancu was named at the helm of the USPTO less than a year ago, no one really knew what to expect, as he had lived in both camps of the patent ecosystem and had no real public policy experience that one could scrutinize in order to predict his future inclinations. This is certainly no longer the case and this is a strong reminder that any individual with a bully pulpit can really change the established narrative. In a very short time, this is the tour de force that Director Iancu has accomplished singlehandedly, going against the grain of very powerful and well-funded forces (who are none too happy apparently). He should be commended for putting the inventor back in the center of the patent system, and the patent system in the center of the American economic success where it belongs. If you are an inventor or a patent owner, please add Director Iancu to your Christmas card list this year…
This is not all talk though. One thing that has plagued inventors these past years (and led to the demise of a vast majority of issued patents) is the different standard of proof used by the PTAB. Whereas US courts have been using the Philips standard to approach claim validity, the PTAB has been using the “Broadest interpretation Rule” or ‘BRI. This double standard has led to the same patents being declared valid by the Federal Court and invalid by the PTAB, an objective nonsense. Starting in mid-November, this double standard will no longer apply and the PTAB rules will direct its judges to adopt the same standard as the courts. As Director Iancu stated: “For the sake of predictability and reliability, the boundaries of a patent should not depend on which forum happens to analyze it. People who want to invest in a patented technology, or who want to invent or design around one, should be able to determine, within reason, what that patent means. Objectively speaking, that meaning cannot, and should not, depend on the happenstance on which forum might review the patent, years after issuance.”
And it goes even further; new rules are being introduced to curb other abuses from the PTAB, such as panel stacking, the PTAB chief judge (who has been closely associated with the PTAB’s checkered past) has recently left his position, and new guidelines have been disseminated to examiners regarding subject matter eligibility. These new guidelines provide additional clarity and a more pro-inventor approach to issuing patents. This is clearly the other area that continues to plague inventors since the SCOTUS Alice case 5 years ago. The Alice decision creates a cloud of uncertainty over the validity of patents which, in turn, impacts their transactability and valuation. In other words, Mr. Iancu is already well into reforming the PTAB, cleaning up the USPTO’s act and has taken direct action where the US Supreme Court clearly failed to do so when it had the chance (e.g. Cuozzo, Oil States, etc.) One can only hope that the direction of the USPTO under this new leadership of will convince the courts (or maybe Congress?) to finally come up with a test that is fair to inventors and does not require a PhD in semantics to understand.
Maybe this movie has a happy ending too…
A Tale of Two Cities
As the patent narrative continuously evolves, the main actors also invent new and interesting tactics. On the pro inventor side, the “Save the Inventor” organization has produced a hundred or so short videos illustrating the problems faced by inventors when confronted with “efficient infringers”. On the other hand, Cisco and a few large tech companies have teamed up with MIT to build and make public an archive of prior art that anyone can contribute to. While this is laudable as a cheap way to conduct better patentability searches and can also serve as a great conduit to make “defensive publications” (to prevent others from patenting the same concept), the intent behind this effort is not too subtle as the “About” text starts as follows: “Low quality patents waste money. US companies spend millions of dollars year after year in litigation expenses defending against patents that shouldn’t have been issued…” Despite this obvious bias, I am squarely of the camp of those who believe there is no place for patents that read on prior art and I see this new portal an overall positive development, as many inventors are falsely lulled into thinking their patents are strong just because the examiner did not find any relevant prior art. If only they knew better…
Supply & Demand
We discussed in our last two columns how IP Market Valuations are impacted by a series of seemingly unrelated factors. You can go back and read here and here. One of these factors, present in every market, is supply and demand. I explained why I thought the sudden availability of some large portfolios (like Intellectual Ventures) on the secondary market would keep the supply in excess of the demand until the market has absorbed those. Data from ROL Analytics (see graph below) that will be published shortly appears to support my conclusions; while the patent market continues to grow in terms of available portfolios for sale, those that actually sell represent just a fraction of the overall supply. The graph also shows is that roughly one fourth of the patents in circulation are transacted. While the asking price of those in total is about $16B, it does not mean however that the sales account of $4B as most patents sell for less than their asking price.
I will have more data to share in our next column and some of it will be revealed of the first time during the panel I’ll be moderating this Tuesday at the sold out 5th Annual IP Dealmakers Forum taking place in NYC this week. You can follow more timely updates via Linkedin or Twitter.
Microsoft goes Open Source
In other big news, two back to back moves from Microsoft are going to have a potentially huge market impact. First, Microsoft announced that was joining the LOT Network (which is essentially a patent “poisoned pill” for NPEs). Then, a few days later, it joined the Open Innovation Network (OIN), essentially licensing its 60,000 patents for free to the open source community. Many commentators have speculated as to the true reason behind this momentous decision; has Microsoft simply already extracted most of the value of its portfolio, generating billions via its Android patent licensing campaign? Can their Azure cloud solution only grow if it does not represent a threat to open source developers? Did their acquisition of open source development platform Github leave them no choice? Probably all of the above are true in my view, as we are eons away from the “Linux is cancer” Steve Ballmer pronouncements and, lately, the company has come back to its original roots; the developer community. Either way, this means the Microsoft patent portfolio, if it were on the books, would take a significant write off today since it is now more heavily encumbered than ever. On the other hand, it also means that Linux or Android based players no longer need to preemptively acquire patents that may read on Microsoft, as the threat is gone. So, these announcements would appear to decrease both supply and demand at the same time, which is rather unusual.
Buyers & Sellers:
In a move that has to be related to its ongoing litigation with Blackberry, Facebook is reported to have acquired about 100 patents from Provenance, the “rent a patent” outfit started by CEO (more of him below) Dan McCurdy a year ago. In Asia, Japanese powerhouse Fujifilm sold over 900 patents to Chinese-based O-Film for $28M. As large as this transaction might be, it was dwarfed by yet another large purchase by NPE Dominion Harbor, which acquired roughly 3500 patents from Panasonic. This deal shows once again that the privateering model is still alive and well. Still in Asia, we saw an acquisition by Chinese telecom carrier Oppos who loaded up on standard essential patents (SEP) patents from Scandinavian Telia. There was also a rumor that Intellectual Ventures had sold its Fund #4, which was later denied. Stay tuned on this one.
Winners & Losers:
The biggest winners in the past weeks were undeniably PIPCO Unwired Planet and all other SEP owners who scored a big victory in the UK courts, when the appeals court upheld the lower court’s decision. This decision will breathe new life into the monetization of SEP portfolios and should also position the UK as the next battleground for such battles (instead of Germany), at least when it comes to Europe.
Qualcomm is still struggling to collect licensing revenues from Apple that it thought were agreed upon, now that Apple is challenging its payment obligations after its antitrust complaint against the former. Apple is now telling its channel to withhold such payments, which now amount to over $3 billion dollars. Qualcomm also received disappointing results at the ITC, after it had actually won its case; however the court refused to issue an exclusion order (roughly similar to an injunction), which is really the only thing of value one can extract from an ITC case as there are no damages available.
It was also a tough month for Allergan, which for all intents and purposes will not be able to bypass the PTAB as it intended when it sold its patents to the St-Regis native tribe.
On the winners side, Comcast dodged a bullet when it succeeded at the PTAB in invalidating some Rovi patents that were asserted against it.
Finally, all of us will be losing the excellent reporting of Dan Lonkevich who had been the hand behind the weekly The Patent Investor. Dan announced recently that it would discontinue the publication.
I’ll See you in Court:
Some noteworthy new cases recently: a sign that patent litigation is no longer the apanage of the US courts, Broadcom filed a $1 billion lawsuit against Volkswagen in Germany surrounding some automotive patents. Finjan, who has had quite a successful track record this past year filed another suit, this time against Fortinet in California. In a separate law suit, Fiat Chrysler and Ford Motors were also sued by a US based-NPE over cruise control related patents. Meanwhile, HTC was taken to court over VR related technology by Texas-based Motiva Patents.
On the Move:
We learned that Nokia’s head of patents Ilkka Rahnasto would be soon departing to a new role, while 2 board directors at Interdigital resigned from their position in order to take on an executive role with the company. But the biggest move was that of CEO and Founder of Provenance Dan McCurdy who left after only a year on the job to become the new CEO of RPX.