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Intellectual Property as a Corporate Asset


Written by Gene Quinn
President & Founder of IPWatchdog, Inc.
Patent Attorney, Reg. No. 44,294
Zies, Widerman & Malek
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Posted: October 1, 2012 @ 4:48 pm
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I am in Washington, DC, today at the annual meeting of the Association of Intellectual Property Firms (AIPF).  I am speaking today about the business of blogging for lawyers.  My articles on the topic can be found at the business of blogging.

The theme of the AIPF annual meeting this year is “intellectual property as a corporate asset.”  There are indeed presentations sprinkled across the two days of this meeting that relate specifically to this topic.  Another recurring and equally treated topic is the use of the Internet in practice in a variety of contexts — attracting clients, networking generally and use of the Internet for investigations.

I’m not going to rehash my entire day at the AIPF meeting, but there were several presentations that I found particularly interesting.

The Invisible Hand: Models for Monetizing Patents in the 21st Century

The first speaker of the day is  Richard M. Ludwin, Associate General Counsel for IBM Intellectual Property Law.  He is speaking about patent monetization.  One of the first points he made was that intellectual property lawyers are different than many other lawyers because our work-product directly relates to the product that hits the market.  That is, indeed, one of the things that makes patent practice exciting. From my perspective it is quite exhilarating to work with a client to figure out what pieces and parts of the grandiose innovation are likely to be protectable.  Find that core and you can build in a direction that is unique, and which can be yours.

Ludwin spoke fast, but clear.  He didn’t have a lot of time, as is typically the case in these situations.  He is immersing us in a high level patent monetization and licensing strategy seminar.  So much high quality information.  Here are some of the things he said that particularly caught my attention.

  • “You cannot afford to just be an intellectual property lawyer any more.  You really have to be a commercial attorney.”
  • With respect to platforms, you cannot innovate fast enough, so you have to look at what other people have and what those are suing you have and start buying.
  • You want to create ubiquity — “the state or capacity of being everywhere, especially at the same time; omnipresence.”  A fax machine is nice, but not if it doesn’t have other fax machines it can communicate with.  Technology becomes most useful, and desirable, when there is widespread adoption.  IP strategy drives innovation ubiquity and the speed of the innovation cycle.
  • Speed of adoption becomes relevant for several reasons.  You want to make sure your licensing strategy enables widespread, common adoption before your patents expire.
  • A patent without a story is a gumball; it is a commodity.
  • Innovators win in an open market.

These presentations are always great.  Obviously intended for an audience steeped in intellectual property, it pulls a lot of things together in a short period of time, which reinforces what we see in practice but don’t always have time to stop and think about in any kind of deliberative manner.

Lies, Damn Lies, and Lawyers

In the 11:00 am hour is Guy Blynn who is speaking on the topic titled “Lies, Damn Lies, and Lawyers.”  He started his presentation by reading a passage from a Brad Thor novel, which ended: “I wouldn’t like to you.  As a lawyer I am legally prohibited from lying.”  Oh this is going to be a good presentation!

The connection with the topic of IP?  IP Attorneys often consider using undercover or pretext investigations to gather information about the activities of potential defendants.  The presentation, Blynn explained, will explore the question of whether a lawyer “can you directly engage in an operation which uses deception, dishonesty, misrepresentation and/or false statements of fact or can you supervise other lawyers, paraprofessionals or investigators in doing so?”

So what is the answer?  Lawyers universally speaking as one rise to say — it depends!  It depends on the facts and on the rules of ethics that apply, which depends upon the jurisdiction you are in and/or the tribunals (or agencies) you practice before.  “There can be problems in pretextual investigations and you have to evaluate for yourself,” says Blynn.  While there is no bright line rule, the cases discussed seem to fall into one category, let’s call it the “what were you thinking” category.

More problematic, however, is the possibility that the acquisition of product that may be infringing could violate the ethical rules.  I understand the issue of lying, but posing as a real paying customer and paying real money to acquire a product that may be infringing doesn’t strike me as unethical at all.  Yes, attorneys are not supposed to engage in dishonest activity, but if posing (without lying) as an interested consumer is unethical then the entirety of the patent litigation bar is half-way (or more) to being disbarred.  Why?  Because if it is unethical for an attorney to do it then it would be unethical for someone under the control and supervision of the attorney to engage in the activity.  Then there are the concerns surrounding adequate supervision of non-attorney employees.  Yikes!

Still, different jurisdictions have diametrically opposed rules.  In both Philadelphia and San Diego friending someone pretextually to obtain information about them that can be used in litigation violates the ethical rules.  In New York City, however, the same type of conduct is considered fine and not a violation of the ethical rules as long as the individual requesting to become a friend is using their real name.  So the question of whether you can get inside a social network of an individual by posing as a friend is open ended and attorneys should investigate the rules and decisions of the jurisdictions where they practice.

While I disagree with some of the conclusions drawn, Blynn’s presentation was very good.  Staying out of trouble is a fine line indeed, and talking about things with attorneys of a like mind who are engaging in the same practice area is invaluable.  It is always good ethical advice to stay as far from the line as possible because no good can ever come from crossing the line.  So it is still helpful to get a restrictive view of the ethical playing field, particularly if it causes you to at least think about what you are doing, or authorizing.  Considering the issues before hand, talking them out internally and getting external guidance can be what saves you at the end of the day if and when you do stumble and stagger on the ethics line.

Contingent Fee Arrangements in Enforcing IP Rights

Chandran B. Iyer, of Sughrue Mion, PLLC, gave a presentation presenting the conundrum that is built into the patent system.  We tell our clients that they should protect their innovations, but then when someone is infringing it can be prohibitively expensive to enforce the rights they obtained.  Indeed, according to the 2011 AIPLA economic survey, the average attorney cost associated with litigating a patent matter can be staggering.  Even for cases where $1 million or less is at stake the average cost through discovery is $350,000, and $650,000 throughout the entirety of the litigation.  Where $1 million to $25 million is at stake those figures go up to $1.5 million and $2.5 million respectively.  For cases where more than $25 million is at stake the average is $3 million in attorneys fees through discovery and $5 million in attorneys fees through the conclusion of the litigation.

Increasingly today contingency fee arrangements are being used by both plaintiffs and defendants, with such companies as GE and Cisco using such arrangements in some circumstances.  Contingency fee arrangements in defense cases?  Iyer explained that “contingency fee representation” is not always what it has been in the past, but rather the term encompasses any number of non-traditional fee arrangements.  In a defense scenario there can be a reduced hourly fee and then some kind of bonus depending upon a specific event, such as claims being held invalid or damages below a certain figure.

One of the most interesting parts of Iyers presentation was when he went through a list of things a firm needs to consider before deciding a particular case is one that warrants a hybrid or contingency fee arrangement.  These factors include:

  • More mature and experienced NPEs have developed thorough investigations over time.  Newer NPEs are less willing to invest in a thorough pre-filing investigation.  That means the attorneys need to do more pre-filing due diligence in order to make sure there is not a Rule 11 issue.
  • There is a decrease in the amount of initial settlement demands made by most NPEs.  Increasingly NPEs hold onto the very end to maximize their recovery.  This obviously influences the time that needs to be invested, thereby affect the decision to offer a hybrid or contingency arrangement.
  • How much discovery is anticipated and are there likely spoliation issues?
  • Will there be an ITC proceeding, which presents an expedited, condensed trial over 12-14 months.  An ITC component adds significant expense and the only way to short-circuit the ITC is by settlement.

Economic Effect of Non Practicing Entities

Professor Michael J. Meurer, Boston University School of Law, took on the issue of the rise of NPE litigation. His teaser was this: In the past, “non-practicing entities” (NPEs), popularly known as “patent trolls,” have helped small inventors profit from their inventions.But is that true today or do NPEs reduce innovation incentives?

Professor Meurer’s conclusion was that despite the rhetoric that patent trolls benefit small companies at the expense of large corporations, much of this burden falls on small and medium size companies. He says that small and medium size companies account for 90% of the defendant companies, 59% of the lawsuit defenses and 37% of the accrued direct costs.  Moreover, compared to revenues, the direct costs of NPE patent assertions are relatively larger for small companies.

I would agree that there are bad acting NPEs that do no due diligence and literally shakedown small defendants.  This is a huge problem.  But Meurer’s ultimate conclusion about NPEs generally is much more difficult to swallow.  He says that he finds “little evidence that NPEs promote invention overall.  Publicly-traded NPEs cost small and medium-sized firms more money than these NPEs could possibly transfer to small inventors.  This reduces the net amount that both small and large firms have available to invest in innovation.”

The major problem I have with Meurer’s position is how he defines “innovation.”  Simply stated, my position is that those who are infringers are not innovators — they are copycats.  The mere fact that one is engaged in delivering a high-tech product or service does NOT mean they are an innovator.  Thus, patents do not stop innovators.  Patents stop those who cannot innovate from copying and misappropriating the time, money and investment spent to research and develop.  By definition infringers are NOT innovators.

It is beyond me why anyone would celebrate those who copy.  Infringers are tortfeasors. They are wrongdoers.  Why should they be able to free-ride on the true innovative act and simply copy and sell for profit — a higher profit than the original innovator because the original innovator had to spend time and money to develop.  Sure, NPEs don’t make a product, but NPEs are the true innovators in our society.  Universities and R&D companies are those who invent the most valuable products and services.

Notwithstanding my substantial and substantive disagreement with Professor Meurer on this issue, his presentation was interesting and provoked a very interesting, and intense, discussion.  That makes for a lively, entertaining and informative presentation that livens up the day at any conference.

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Posted in: Gene Quinn, IP News, IPWatchdog.com Articles, Patent Business & Deals, Patents

About the Author

is a Patent Attorney and the founder of the popular blog IPWatchdog.com, which has for three of the last four years (i.e., 2010, 2012 and 2103) been recognized as the top intellectual property blog by the American Bar Association. He is also a principal lecturer in the PLI Patent Bar Review Course. As an electrical engineer with a computer engineering focus his specialty is electronic and computer devices, Internet applications, software and business methods.

 

2 comments
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  1. Gene,

    No surprise that Professor Meurer is anti-NPE. Professor James Bessen is also at Boston University and is notoriously anti-patent. In fact, they co-wrote the following article: The Direct Costs from NPE Disputes.

  2. EG-

    That article provided much of the backdrop of his presentation.

    How and why they don’t understand what it means to “innovate” is beyond me. Copycats are just that. Innovators are original. That seems so self-evident that it is mind boggling to me that it even has to be said.

    -Gene