Walker has had a incredibly successful career, and with well over 700 issued and pending U.S. and international patents he is the world’s 11th most patented living inventor. TIME magazine has twice named Walker as one of the “50 most influential business leaders in the digital age,” and he was selected by Businessweek as one of its 25 Internet pioneers “most responsible for changing the competitive landscape of almost every industry in the world.” Newsweek has cited Walker as one of three executives at the forefront of the Internet commerce revolution. He is an icon within the patent world and one of the visionary leaders of the Internet business revolution.
Walker currently serves as executive chairman and lead inventor of Patent Properties, a successor in interest to Walker Digital, which has developed a new no-fault patent licensing system.
Recently I had the opportunity to interview Walker, along with the CEO of Patent Properties Jon Ellenthal. While nothing was ruled out of bounds for the interview we spent much of our time discussing his attempt to create a no-fault patent licensing system that will help innovators monetize patents through a uniform licensing regime that offers a variety of peripheral benefits to those who take licenses. In a broad sense there have been some who have tried to commoditize the monetization of patent licensing in the past, but as yet have largely been unsuccessfully. Initially I was skeptical, but listened. Over the Winter and Spring as I learned more about Walker’s plan I became intrigued because this effort and have come to believe that his plan has a real chance of succeeding. Of course, if anyone is going to be able to figure out the myriad issues involved Walker can.
Without further ado, here is part 1 of my 3 part interview with Jay Walker and Jon Ellenthal, discussing the effort to monetize patents, patent trolls, patent reform and the importance of patents in general.
QUINN: Thanks for taking the time to chat with me today. I know this is an exciting time for you. I see you’re in the press a lot so I thought it would be a good opportunity for us to talk about what is Patent Properties, why you got involved in it, where you see yourselves going from here. Et cetera, et cetera. I know that’s really a broad open-ended question to begin with, but I like to start that way so you can go where you want and we’ll just follow from there.
WALKER: That reminds me of the Marx Brothers movie, you know, where they ask the great aviators how they came to America? Harpo tells the story how they took a steamship. First they flew and they ran out of gas and had to go back. Then they flew again and when they got about half way across the Atlantic they ran out of gas, they had to go back. And then finally you know, we took a steamship and that’s how we came to America. [Laughter]
QUINN: That’s funny. But you know I will say these open ended questions do lead to really great conversations and actually one that comes to mind is an interview I did with Judge Rader, when I interviewed him I laid this open ended question about education in general and how we can inspire the youths of today to invent. And that led to this great conversation about a formative moment that happened to him when he was in elementary school. So I like to start big, but you can take it anywhere you want. If you want to focus on the micro we could do that. If you want to focus on the big picture and then go back to the micro we can certainly do that as well.
WALKER: I think we’re very happy to start with the big picture because at the end of the day this really is a big, a kind of a moonshot approach to repairing a very big problem.
In the simplest sense the U.S. Patent Utility is the new innovation division of Patent Properties, the other being our intellectual property and patents. But the U.S. Patent Utility is really all about a big solution to a big problem. And really nobody, Gene, is talking about the problem and therefore really nobody of course is talking about a solution to it. There is a great deal of focus of course on improving and reforming depending on the word you want to use the patent system. And that typically is a fancy code word for either improving examination, improving issued claims that come out of the office, improving prior art processes, or improving the litigation environment for which there are a handful of abusers who have managed to distort a national discussion under a bunch of phrases.
Those all may be things that need to be done. We’re not arguing that the patent system doesn’t need to be improved. There isn’t a system that doesn’t need to be improved. We’re not arguing that there isn’t abuse. There’s no system that serves our nation that isn’t abused by some party or another. But at the end of the day there is a much bigger problem going on and that is the literally frozen licensing system in the United States. If you are an inventor and you’ve done your work and you’ve invented a solution to a problem and that solution has been embodied in a U.S. patent you have a near zero chance of licensing it unless you have the kind of war chest and resources that would allow you to either go to court or threaten to go to court in a credible way.
Therefore, the vast majority of the solutions for which trillions of dollars of R&D has been spent in the last 20 years are sitting on the sidelines not getting into the game. They’re frozen out of the licensing system and without those solutions coming into the world you’re never going to improve products and services anywhere near the level you could. You’re not going to create profits and therefore jobs for companies that could apply those solutions. And you’re certainly not going to have a competitive economy in a global marketplace for which the differentiation more often than not is the intellectual property and the application of intellectual property solutions to the larger economy.
So what’s needed here is a big solution can we create in an efficient way to administer a huge volume of low price patent licenses where everyone is better off. And by huge volume of lot price patent licenses I mean eventually hundreds of thousands and then millions of patent licenses to bring millions of inventions into the economy. Nobody is talking about that, nobody is working on that. There is just nobody thinking about the unserved marketplace of the vast majority of small and medium sized U.S. companies which don’t license anything but would be better off if they did. And nobody is thinking either about the vast majority of inventors who don’t license anything and certainly as a result get no revenues from their patented inventions. The problem is so real for many inventors that they abandon far too many patents early or mid-term because there’s just no hope of licensing revenues.
So there is the big problem and there is our big idea for a big solution without getting into the nitty-gritty which I’m happy to do as is Jon [Ellenthal]. But before we get into the how unless people understand that a huge volume of low price patent licenses serves the nation, serves users of patented technology, and serves inventors then we’re never even having the right discussion.
QUINN: I think that’s right. To pick up on one of the things that you mentioned, I think it would be utterly shocking to almost everyone that is not intimately involved in the industry including members of Congress to know how many patents go abandoned for failure to pay the first or second maintenance fee?
WALKER: Yeah. I spent all this money on R&D, right? So let’s just make up a number. I spent $250,000 in R&D and that’s modest. Then I spent another $15 to $20,000 minimum in legal fees to get title to the property. And for want of a couple of hundred dollars a year at some point I say you know what, I’m not spending a couple hundred dollars more to keep this alive. It’s not worth it. And I’m not gonna get any money. What did I do this for? Maybe I did it so that I could claim I got a patent or get various ego benefits or sales and marketing promotional benefits. But when it comes time to get it into the economy nobody wants to read patents because they’re afraid of being held for treble damages if they read them and somebody else persuades the judge that that was an infringing activity. This reality, I think it’s shocking to inventors. I think it’s shocking to business people. I think it’s shocking to everybody except the people who actually are inside this circle of hell, where they are getting either no revenues that they should be getting or no usage of solutions that, you know, somebody else somewhere has invented but you’re afraid to go looking for and actually meeting the purpose of your business .
QUINN: Well, that always irritates me to no end. When I hear people say, “Oh, our attorneys,” or “my friend down the street told me I shouldn’t even look because then I may be guilty of patent infringement.” Well, you’re guilty of patent infringement anyway.
QUINN: Somebody’s got the right and they have the wherewithal to come after you. I mean if you’re not even looking how could you build on the shoulders of the people who come before you? That’s what innovation really, truly is in my opinion.
WALKER: It is. It’s an incremental process. Most people think of innovation as a breakthrough moment; from Newtonian physics to relatively, to take just one example. That’s not the vast majority of inventions, as Isaac Newton said, you know, “If I seem a little bit further than others it’s because I’ve stood on the shoulders of giants,” right? That would be Isaac Newton saying it. So if Isaac Newton is standing on the shoulders of giants and we spend $ 1 trillion a year in various forms of intellectual property development or trade secret development, this is nuts that we are not taking our best stuff and putting it into our economy. Instead we’re putting inventions into folders and drawers and we’re hiding them out. Either under trade secrets or literally not filing it at all.
ELLENTHAL: Yes. And, Gene, to your point about willfulness I think there’s two flavors of it. There are absolutely companies out there that have institutionalized ignorance as a corporate strategy because they see it as good business to protect themselves from willfulness. But that may be at the very high end of the market. But if you’re a small company there’s no simple and affordable way for you to figure out which needles in the patent haystack are actually relevant to what you’re doing. And with five or six thousand new patents published every week how would a small company with limited resources stay on top of what actually matters most to their business?
QUINN: Right. That’s very difficult to do for large companies let alone small companies who really do want to stay away and not infringe. I think most people don’t want to infringe.
ELLENTHAL: No, most people are good actors. I mean I gotta tell you, our entire economy is done on a basis of trust. Very few times business people find themselves in court in their entire careers. You shake hands and generally in America that’s gonna be good enough. You know, you order something, you pay for it. It’s just how it works. And certainly among big companies. You know, the bigger you are—you know, that doesn’t mean they can’t behave badly but at the end of the day given a chance they’re gonna do the right thing. They’re big companies.
QUINN: I think that’s right. I know probably more about your system than most because I’ve looked at it, I’ve talked to you both previously, I’ve written about it already a little bit. Maybe now would be a good time to take a step back and talk about how you are going to deliver on the big idea, the big goal, which is low cost licensing so that anybody can get access. To accomplish this you will need to attract the inventors and innovators who have patents so that they will feed the inventory, so to speak?
WALKER: Let’s talk about the easy side first, all right? And then we’ll go to the theory. If you look at ASCAP what was the bargain? With ASCAP the bargain was if you’re a musician you’re not going to go to every radio station in America and extract royalties for your music. It’s just not gonna happen. So you listed your music in the ASCAP or the BMI or the SESAC Catalog. And you basically said, look, why don’t you guys go out and secure revenue for me on a nonexclusive basis and give me the vast majority of what you collect. And that model worked a hundred years ago for a lot of small musicians who wanted better than nothing revenues.
So when you go to the modern world a hundred years later and you talk to a million patent owners who are getting nothing today and you say, look, instead of getting a lot of money from a few people which you’re never going to get, how about I get a little bit of money from a lot of people, give you 85% of what I collect, never take ownership of your property, never prevent you from selling it or licensing it or withdrawing from the system on a going forward basis, you’ve got all the rights you want, I’m not taking over. I’m never going to sue anybody because I’m not even the owner of your patent. That’s not what I do, right? So literally if you have patents, and I own hundreds of patents so I know what the answer to this question is, and I’ve had the resources to bring litigation when it’s appropriate. I know better than nothing is going to be a very attractive proposition to a lot of patent holders. And I’m not just talking about solo inventors here, I’m talking about small companies with ten or 15 patents and I’m talking about universities with hundreds of them.
QUINN: Well, that’s interesting. From the beginning as I was learning about your processes the first thing I thought was that the universities should be all over this.
WALKER: All over.
QUINN: Because they have all these patents and most universities really struggle to do technology transfer correctly. And it’s not because they don’t have good people, they have really good, highly dedicated people. In many cases they just don’t have enough resources given the portfolio that they’re trying to monetize. Another difficulty for universities is that they engage in such cutting edge research, which often means a long horizon to market.
WALKER: And they won’t sue. So the university has no club. It only has an olive branch. It goes out and says, “Hi, you should license.” And people say, well, you know, if I don’t license what are you gonna do?
ELLENTHAL: And that’s also true of the typical patent owner who lacks the resources, sophistication, line of sight, expertise to even identify potential licensees. And they certainly lack the resources and appetite to legally enforce their patents against potential infringers. So it’s a pretty difficult job to find potential licensees.
WALKER: Yes. So one side of the story I think is a slam dunk, though. Universities are going to be cautious and they’re big entities with long legacies. So though we agree with you we believe universities, and have talked to quite a few, are going to find this attractive, I don’t want to overset expectations here. Universities are very big organizations, very cautious and conservative with their good name. They’re run by often custodians of great institutions. So I expect the universities are going to like this and over time participate, but initially they’re going to come and they’re going to try it for a while and they’re going to expand you know, like universities or big companies will. I don’t expect people to come running up to us and say, okay, here’s my whole portfolio on a listing basis, go to it. That’s just not how universities work.
ELLENTHAL: Before we switch to the other side, I just want to add one thing to what you said because it’s important. The goal of this system is not to maximize revenue per license. The goal of the system is to maximize licenses per patent.