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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?.

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What patent trolls can teach ttos about extracting value from ip

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

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 question1

WHY ASK THE QUESTION?

  • Universities have vast IP resources

  • University IP’s value not fully extracted

  • Litigation is costly and controversial

  • Aggressive enforcement “feels” contrary to University mission


What patent trolls can teach ttos about extracting value from ip

Set the stage

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


Rise in university patenting

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

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

UNIVERSITY LICENSING REVENUE

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

  • Reinvested in education

  • University IP not fully exploited

  • Less than 1% of licenses generated more than $1MM.


Compare to others

COMPARE TO OTHERS

  • When compared to others,

  • It seems like trolls are doing better


Examples blackberry v rim

Examples- Blackberry v RIM

  • Threat of injunction significant

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

  • Settled for $600MM


More examples

MORE EXAMPLES

ACACIA

  • Traded on NASDAQ

  • In 2006 revenue over $50MM

    LEMELSON

  • Lemelson Medical, Education & Research Foundation earned estimated $1.2BB in licensing revenue since 1988


Should universities extract full value of their ip

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

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

PROBLEMS w/ LITIGATION FOR UNIVERSITIES

  • Discomfort with aggressive enforcement

  • Discomfort with litigation

  • Resources for litigation

  • Concern about the mission


What patent trolls can teach ttos about extracting value from ip

Are Universities comfortable

with litigation?

Evolving…….

Litigation Cost

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


Evolving

EVOLVING….

University patent Infringement Lawsuits Since 2000

  • 139 lawsuits with licensees

  • 51 by Universities alone


Universities like all litigants have won and lost

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

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


Litigation s indirect costs issues1

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


The questions

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

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

    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

    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

    HISTORY

    • Old issue

    • Thomas Edison obtained and sold hundreds of patents

    • And tried to control the marketplace


    Agrarian design patent trolls

    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

    HISTORY REPEATS ITSELF- 2X

    THEN

    NOW

    Scapegoat-US Patent Office

    Change in law changed landscape

    Substitution Effect-hard to remove patented item

    Marginal Improvement in Technology

    Low cost patents

    • 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


    History1

    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


    Remember

    REMEMBER

    One man’s troll…..


    What patent trolls can teach ttos about extracting value from ip

    Is another man’s…


    Trolls have their defenders

    Trolls have their defenders

    • Provide capital to extract rent from squatters

    • Fund enforcement that undercapitalized IP owners can’s afford


    The problem is changing

    The problem is changing


    Troll power decreasing

    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 signalweakening of business methods patents


    Trolls evolving

    Trolls evolving

    Troll Armies Emerging


    Iv as new troll

    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

    Intellectual Ventures

    • Has amassed 20,000 patents

    • Says litigation not objective, but not ruled out

    • University participation uncertain


    Intellectual ventures iv

    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

    Aggregators as anti-trolls

    Troll “blocking” strategies


    Blocking concept

    Blocking concept

    Good guys buys the distressed assets before the bad guys


    Aggregators

    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

    Aggregators:A force for Good?


    Or evil

    Or Evil?


    Choices

    Choices?

    • Should Universities act like trolls

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


    What works for trolls

    What works for trolls?

    Are there any lessons


    What is good troll patent

    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

    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 value1

    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

    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

    Target areas

    • Technology

    • Software

    • Pharma

    • Biotech


    High tech patents are broad

    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

    Patents inexpensive

    • Trolls often buy patents at bankruptcy auctions


    Asymmetry

    Asymmetry

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


    Are universities patent trolls

    Are Universities patent trolls?


    Which troll techniques useful

    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

    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

    Do’s and Don’ts


    Is there a better way

    Is there a better way?

    Goal: Maximize Social Impact of Technology


    Alternatives

    Alternatives

    How could Universities co-opt trolls to do good?


    Exclusive v non exclusive

    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

    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

    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 ip1

    What Patent Trolls Can Teach TTOs about Extracting Value From IP

    Mary Anthony Merchant, Ph.D.

    Lawrence K. Nodine

    April 30, 2009


    Bibliography

    BIBLIOGRAPHY

    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

    The Effects of Patent Litigation on University Licensing Efforts

    Scott Shane, Case Western Reserve U.

    Deepak Somaya, U. Maryland

    Technology Licensing and Patent Trolls

    12 B.U. J. Sci. & Tech. L. 388 (Summer 2006)

    Blackberries and Barnyards

    82 Notre Dame L. Rev. 1809 (June 2007)

    Santa Clara Law School

    2009 PowerPoint

    http://www.chtlj.org/sites/default


    What the company can do

    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


    How to make from ip

    How to Make $$ from IP

    • Patents – Trademarks – Trade Secrets

      • Sell it (yourself)

      • Sell it (assign)

      • License it

        • Monitor royalty stream

        • Monitor compliance

        • Monitor competition

      • Joint Venture

      • Strategic Alliance

      • Start a spin out to exploit

    DMEAST #10226950


    Managing your ip portfolio

    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

    DMEAST #10226950


    Litigation considerations

    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 possible

  • Cancellation of trademarks

  • DMEAST #10226950


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