Fortune Magazine’s Unusual Position on Non-Practicing Entities

By Bob Zeidman
April 10, 2014

The March 17, 2014 issue of Fortune magazine contained an unusual article, RPX: Taking on the Trolls. This biased PR piece with few actual facts was written by Mr. Roger Parloff, Senior Editor  for Legal Affairs who fell hook, line, and sinker for the spin that RPX is putting out, aided by large corporations and those in academia who wish to weaken if not eliminate the U.S. patent system. He is not to be completely blamed for being duped by the same stories that large corporations have been promoting to politicians, reporters, and the public about the terrible “patent trolls” as these corporations attempt to dominate markets, put individual inventors and small companies out of business, and sue each other into oblivion while crying into their bank accounts.

First, what is a “patent troll”? No one really knows, and the anti-patent people do not want it defined too precisely because if it were defined, it would include not only the companies that send demand letters for $1,000 to mom-and-pop coffee shops and hardware stores for using “patented” fax machines and copiers, but it would also include all major U.S. universities (that manufacture no products), most individual inventors (who have not yet gotten their inventions funded), most startup companies (that have not yet gone to market), and most bankrupt companies (that are trying to find value for their shareholders). In fact, it also includes companies that create a great invention but have trouble competing for shelf space at Walmart or Target against larger, infringing competitors. These companies do produce products, but when they sue their huge competitors, the press is encouraged to call them trolls.

Let me at least set straight some of the more glaring factual errors in the article. First, non-practicing entities (“NPEs,” the nonjudgmental term for “patent trolls”) are not new but have been around virtually as long as the patent system. Thomas Edison, for example, licensed most of his inventions to others rather than commercialize all of his inventions, and the early American Bell Telephone Company licensed many of its invention from non-practicing individual inventors[i].

The article references government studies about “the growing NPE phenomenon,” implying that they agree with the article’s assessment but fails to mention that these studies have not reached any conclusions yet. The recent report by the Government Accountability Office actually states that the so-called “patent troll litigation explosion” is unsupported by the facts[ii].

Now let us look at RPX that the article presented with wings and a halo—the company created to save us all from the trolls. RPX owns patents. Just like an NPE. RPX does not produce products. Just like an NPE. It licenses its patents to companies that do produce products. Just like an NPE. It settles litigations about its patents. Just like an NPE. And if it gets into a situation that cannot be resolved by negotiations, it will undoubtedly avail itself of the legal process as is its right. Just like an NPE. In fact, RPX is an NPE whose business model appears a little different from other NPEs, but still represents a healthy secondary market for intellectual property.

One of the founding principles of this nation was the ability for the common person to obtain a patent, set forth in Article One, Section 8, Clause 8 of the U.S. Constitution.  In England, inventors had to manufacture their inventions before getting a patent, allowing only the wealthy to obtain them. In America, prior to independence from England, the King of England officially owned all the intellectual property created by the colonists[iii]. If America was to be the land of opportunity, then any person must be able to individually obtain, license, and sell a patent regardless of their wealth or stature. The Founding Fathers knew that such egalitarian opportunities would create a system of innovation beyond anything the world had seen. And they have been right for over 200 years[iv].

But such inventors can only fully realize a profit from their creations if there is strong legal backing and a secondary market like that offered by Intellectual Ventures as well as RPX. In a magazine with the name Fortune—devoted to capitalism and free markets—it is surprising to see an article that would promote closed markets and limited ownership of property within its pages. I doubt Fortune would support laws restricting real estate ownership to those who build on the land and live on it. I doubt Fortune would consider supermarkets to be “grocery trolls” because they sell goods from others that the stores never actually produce. It is time to reconsider these foolish restrictions on intellectual property ownership and return to treating intellectual property as we do all other property. The traditional combination of free markets and strong property laws has made the U.S. the most innovative and productive country in all of human history.

 


[i] Henry R. Nothhaft, David Kline, Was Thomas Edison a Patent Troll?, IPWatchdog, http://www.ipwatchdog.com/2010/06/01/was-thomas-edison-a-patent-troll/id=10829, retrieved 3/24/2014

[ii] Adam Mossoff, GAO Report on Patent Litigation Confirms No “Patent Troll” Litigation Problem, Truth on the Market, Dec 13, 2013, http://truthonthemarket.com/2013/12/17/gao-report-on-patent-litigation-confirms-no-patent-troll-litigation-problem, retrieved 3/24/2014

[iii] Bob Zeidman, The Software IP Detective’s Handbook, Prentice-Hall, Upper Saddle River, NJ, 2011, 450pp

[iv] Jon Dudas, David Kline, Thank The Founding Fathers For The Open Market In Patents, Forbes magazine, Sep 17, 2013, http://www.forbes.com/sites/forbesleadershipforum/2013/09/17/thank-the-founding-fathers-for-the-open-market-in-patents, retrieved 3/24/2014

The Author

Bob Zeidman

Bob Zeidman is one of the leading experts on intellectual property, particularly as it relates to software. He is the president and founder of Zeidman Consulting, a premier contract research and development firm in Silicon Valley that focuses on engineering consulting to law firms about intellectual property disputes. Clients have included Apple Computer, Cisco Systems, Facebook, Intel, Symantec, Texas Instruments, and Zynga. Bob is also the president and founder of Software Analysis and Forensic Engineering Corporation, the leading provider of software intellectual property analysis tools for use in forensic examinations. Bob is considered a pioneer in the fields of analyzing and synthesizing software source code. He has worked on and testified in over 150 cases involving billions of dollars in disputed IP.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

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