As this newsletter hits your inbox, I will be in Paris finishing a presentation to our good friends at LESI (Licensing Executive Society International). The topic is the current state of the IP market. However, all this assumes I manage to dodge the endless strikes and demonstrations, navigate the towering piles of uncollected garbage without running out of fuel (oil refineries are on strike too), and finally make it all the way there without looking like a lost tourist who accidentally wandered into a fancy conference. But hey, at least the croissants will be worth it!
In our last column a few weeks ago, we covered several mistakes made by inventors and their legal counsel when drafting or prosecuting patents, which explains – only in part though – why so many issued patents later get invalidated (3 out of 4 on average in the US) or are simply unenforceable, and therefore of dubious value. In this column, we discuss some of the tools in a defendant’s arsenal when challenging patents in court, which also explains why it is so darn difficult to assert a patent all the way to the very end and emerge unscathed. But before we do this, I want to provide an important update on the Blackberry patent portfolio sale, which is great for the market and probably not so great for the seller here, as well as report a couple of important developments in Europe regarding how SEP patents will be valued, and why this is likely bad news for large SEP patent owners.
As usual, as I focus on the macro picture in this newsletter, I want to remind everyone that we track everything that is going on in this world and for those who need their regular dose of news, once again you can follow me on either LinkedIn or Twitter where I post almost daily about some of the most newsworthy events.
Tangible IP News
On the deal front, we just closed two major patent sales. The first one pertains to a portfolio covering a well-liked camera feature used in most phones and tablets. You can see the formal announcement here.
The second portfolio sale covers 10 of 17 patents on offer in the digital content storage, distribution & protection technology area and we will make an official announcement shortly. There are still 7 high quality assets available for sale or licensing.
For more details, please email us at email@example.com. Similarly, if you’d like to be added to our distribution list in the future so that you are the first to receive new opportunities, please email us at firstname.lastname@example.org.
Featured Portfolio For Sale
Given our audience, we felt it prudent to start sharing a few particularly interesting portfolios available for sale. This issue, we will focus on the AST IP3 2021 LOTS which remain available for sale for a short while longer.
Once a year, Allied Security Trust (AST) invites patent owners to submit their portfolios to the Industry Patent Purchase Program (IP3). This program provides patent owners access to dozens of leading technology companies with a short window for review and potential acquisitions of select patent portfolios. In 2021, over 1000 portfolios were submitted. Only 34 of those were acquired by AST. AST spent close to $4 million dollars on these acquisitions which are now available for sale once again at a great discount to potential buyers. A variety of technologies are available including: datacom, media, networks (storage and management), semiconductor, web and mobile services, wireless and imaging.
Each portfolio is subject to a unique set of encumbrances and further details can be shared under NDA.
For more information, please reach out directly to us at email@example.com.
Call for high quality portfolios!
We are always open to reviewing high quality portfolios. Some of the areas of most interest to our buying network right now include:
- Medical device technology – wearables and IOT health monitoring also of interest
- Patents applicable to RFID tags, RFID Antennas, RFID readers and Near Field Communication (NFC) devices.
- Semiconductors – manufacturing, processing, packaging
- We also have a buyer with interest in acquiring battery-related assets – specifically rechargeable assets applicable to either (or both) consumer devices and electric vehicles.
You can review our criteria here but if you own a patent portfolio with at least two issued US patents and have knowledge of others using your technology (infringement), we are happy to review for potential brokerage. We will also look at larger portfolios where evidence of use is uncertain.
Please reach out to firstname.lastname@example.org with any assets that may match these requests.
On several occasions, I’ve commented about Canadian flagship Blackberry’s mistake in its initial attempt to sell its 32,000 patent portfolio last year. As a refresher, it had initially announced a $600 million deal before it was properly sealed, only to see the transaction disintegrate a few months later. IAM asked me to write an article about it, which provides great background to fully understand what follows (no subscription required).
Fast forward to a few of weeks ago, Blackberry (“BB”) again publicly announced that it had sold the portfolio for “up to $900 million” this time, which is the number it wanted the market to focus on. The buyer is Malikie Innovation Ltd, affiliated with Key Patent Innovations Limited (“KPI”), a well-known NPE. To preempt similar legitimacy questions, the BB press release mentions that the deal is fully funded by a leading US-based investment firm with over $30 billion in assets under management, rumored to be P.E. investor Centerbridge. However, the transaction still needs approval from both Canadian and American antitrust authorities. Incidentally, there is no mention of having a Canadian investor as a prerequisite to the deal being approved, as was the case initially.
So, did BB negotiate a much better deal than the first one, worth the wait for its shareholders? Not so sure. Under this agreement, BB will only receive $170 million in cash at closing, with another $30 million to be paid in 3 years. What happens after that is far from guaranteed, much like an NFL player contract where most of the money earmarked after the first year is potentially aspirational.
There is a revenue sharing plan in place, but a dive into BB’s SEC transaction filing reveals how hard it will be to get additional dollars from the buyer, especially after recent decisions impacting valuation of SEP patents (see below). According to the filing, the Company will also be entitled to receive annual cash royalties from the profits generated from the patents subject to the sale, on the following basis: 8% of the first $500 million of profits; 15% of the next $250 million of profits; 30% of the next $250 million of profits; and 50% of all subsequent profits.
Let’s consider a scenario where Malikie generates as much as $1 billion in licensing revenues over time. If the expenses are capped at 50% between the funder and the law firm retainer, Malikie will return a profit of $500 million, of which only 8%, or $40 million, will return to BB. The split for additional revenues gradually gets better for BB and for a good reason: it is a lot less likely to happen. To reach the cap of $890 million, Malikie will need to derive a total profit of $2.076 billion, or generate over $4 billion in total revenue, which is unprecedented in today’s market. While I wish the buyer the best, I am rather doubtful that they will get even close to that amount. You also have to factor in the fact that with litigation, the time to money is generally 5-7 years, and funders attach a premium to time.
To put things in perspective, when Blackberry announced that it was going to put its patent portfolio up for sale in 2021, it derived close to $300 million in revenues (mostly profits) from its licensing activities in that year only. Therefore, Blackberry essentially sold its crown jewels for less than a year’s worth of gross revenues, with only modest potential for a significant upside. Selling the deal to the public as a $900 million transaction seems to be another exercise in intellectual gymnastics from its management, something we have become accustomed to. However, there is hope; apparently, Blackberry kept a hundred families of patents to itself. Let’s just hope these were the really good ones.
Europe’s Fall Out With SEP
For years, Europe, and particularly the UK, has been the preferred destination for Standard Essential Patent (SEP) owners to assert their portfolios. The reasoning is courts in Europe offer more respect to SEP patents and provide better royalty rates. They are also inclined to make decisions that hold worldwide. Consequently, when InterDigital needed to sue implementers on its rich SEP patent portfolio, it did so in the UK, including a lawsuit against Lenovo filed in 2019. Recently, a London court ordered Lenovo to pay $140 million to InterDigital for infringing upon several of its 3G, 4G, and 5G patents. While this may have initially looked like a victory for InterDigital, it turned out to be a disastrous decision, as the damages awarded were very much in line with Lenovo’s own calculations and significantly lower than InterDigital’s offer of $337 million. While this decision reinforces the legitimacy for SEP patent owners entering into FRAND licensing discussions, it places a much lower value on SEP patents than their owners had hoped, leading InterDigital to publicly state that it would appeal the decision.
However, the really surprising news came last week when the European Commission’s plans to propose a radical new SEP/FRAND regime with significant negative consequences for patent owners were revealed. A leaked document, intended to be published in a month, indicated that the European Commission is expected to call for the adoption of a new, highly-interventionist regulatory framework for SEP licensing on World IP Day, April 26. The proposals of the EU’s agency could have significantly adverse repercussions for SEP owners if implemented. According to the draft, the Commission will seek to establish a new EUIPO-based competence center, where rights holders will be required to register patents they consider standard essential, and will undertake mandatory essentiality checks, as well as administering a new process for reaching FRAND rate determinations.
These proposals echo the sentiments of implementers who have lobbied politicians – in Europe this time – with intensity in their efforts to carve out a beneficial path that does not require the intervention of the courts. The last glimmer of hope so to speak was the SEP landscape which now appears to be crumbling before our very eyes. The leaked proposal has been criticized by the IP community as an extremely egregious example of government overreach from an agency whose main expertise lies in… trademarks. It also comes at a time when the Unitary Patent Court (UPC) is about to begin its activities, and this proposal would essentially deprive the brand new patent Court of adjudicating on these matters going forward. This appears to be the European sequel to what implementors were able to do with the PTAB in the US.
In conclusion, if the European courts were already tough on SEP patent owners, then this new proposal by the European Commission will only exacerbate the problem. These patent owners should brace themselves for a challenging future.
Death By A Thousand Cuts (and How to Avoid It)
As we focused last time on the many mistakes that can later impact enforceability and validity, the following is mostly a list of the many ways alleged infringers can strategically kill or maim a patent when defending a patent assertion case.
First, despite the apparent presumption that patents are not only valid but also critical for society, as they allow for innovations to be known to all and eventually fall in the public domain, there are public policy considerations that actually limit patent rights. The US Supreme Court has emphasized the importance of maintaining a balance between promoting innovation and allowing imitation and refinement of inventions. Patents are now qualified “public franchises” that take rights from the public, however statutory requirements prevent the issuance of patents whose effects remove existing knowledge from the public domain. Under that doctrine, both the Patent and Trademark Office’s initial review and the Board’s inter partes review protect the public’s paramount interest in seeing that patent monopolies are kept within their legitimate scope.
The Court has also emphasized the public’s right to use unpatentable and formerly patented inventions, carefully guarding the patent-expiration cut-off date, just as it has the patent laws’ subject-matter limits. A patentee should not be allowed to exact royalties for the use of an idea that is beyond the scope of the patent monopoly granted. The patent system is a double-edged sword, providing monetary incentives that lead to creation, invention, and discovery, but also the exclusivity of patent protection impedes the flow of information and raises the price of using patented ideas once created.
The Court has also held that patents on obvious combinations harm the public, as they withdraw what is already known into the field of their monopoly and diminish the resources available to skillful men and women. Granting patent protection to advances that would occur in the ordinary course without real innovation retards progress and may deprive prior inventions of their value or utility. Clear claiming is essential for promoting progress, and the boundaries of patent rights should be clear, as this enables efficient investment in innovation. The patent laws require inventors to describe their work in full, clear, concise, and exact terms, as part of the delicate balance the law attempts to maintain between inventors and the public.
Defendants have a variety of arguments they can use to argue against a patent infringement case, such as arguments regarding claim construction, expiration, or abandonment of a patent. They may also argue there was no past damage due to a lack of marking on products or other notice of infringement, or there was no direct infringement at all. Defendants may also challenge the patent’s validity by arguing the wrong inventors were named, or by using the doctrine of equivalences, reissue, reexamination, or post-grant reviews. They can also argue inequitable conduct during prosecution, improper adjustment of patent term, lack of ownership or standing, laches, estoppel, waiver, prior public disclosure, commercial use, sovereign immunity, patent exhaustion, lack of personal jurisdiction, or improper venue.
To mitigate these risks, inventors must properly draft, claim, and prosecute patent applications. However, inventors should closely follow the process and ask tough questions along the way. After all, inventors won’t know how good their patent is until they really need it, and by then, it may be too late. There is an excellent resource available that discusses these and other arguments at length, and patent owners should take the time to read through it thoroughly, preferably with a stiff drink!