Conversation with Jay Walker and Jon Ellenthal, Part 3
|Written by Gene Quinn
President & Founder of IPWatchdog, Inc.
Patent Attorney, Reg. No. 44,294
Zies, Widerman & Malek
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Posted: July 17, 2014 @ 8:00 am
The Ramifications of a Political Patent System
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WALKER: Let me give you an example, Gene, that would be simple. I would like to be the nonexclusive agent for your blog in South America. All right? I think I can get people in South America to pay to read your blog. Because how it works in South America they pay to read blogs. I don’t know how much I’m gonna generate for you, Gene, but you can revoke it at any time. I won’t license to any of the major television networks, publishers, et cetera, I’ll only license to small people. And 85% of any money I collect in South America for the blog licenses that I generate for you I’m going to give you. Would you be willing to list your blog with me to try to generate revenue for you in South America?
QUINN: Yeah, I mean that’s a no brainer.
WALKER: There you go. It’s no different. Exactly the same. It’s a no brainer. Listing with us is a no brainer. The only reason you wouldn’t list with us if you didn’t want to have a nonexclusive agent. If you only wanted to license on an exclusive basis.
ELLENTHAL: Or if you felt that you could make more money for your patent by doing something else with it in this case.
ELLENTHAL: Go do that, too, and let us pick up additional licensing revenues from companies you never plan to reach.
WALKER: Or you might decide to sell it off, unfortunately, to somebody else because you’ve said I’ve had it with this. I’m going to sell it to some actor who’s going to give me a lump sum and I won’t list it with Jon and Jay’s wonderful machine.
ELLENTHAL: Yes. Bear in mind since the abandonment rate is thought to be about 50% before the expiration day there is a lot of exasperation out there by patent owners who have clearly given up any belief that they can bring in any money to the point they’re not even prepared to pay another couple thousand bucks to keep their patent alive.
WALKER: Yes. So, Gene, I’m the South American agent for you. I’m now your best friend. The minute I wrote you a check, Gene, what’s gonna happen? You’re gonna say, oh, my god, I got money.
QUINN: In most cases that’ll be the first money that they’ve seen.
WALKER: Literally. And I haven’t charged you anything for it. It’s not like I said, you know, Gene, you’re gonna have to pay $1500 because I’m going to be opening an office in Bogotá and that costs real money to have an office Bogotá and I need some advertising money from you, too, ‘cause I’ll be advertising in Bogotá and other Columbian newspapers. I’m not telling you any of that.
ELLENTHAL: And you can benefit from our national sales and marketing effort to create licenses without putting up any money, without giving up any control, without giving up ownership and at all times you can do whatever you want with your patent including pulling it out of the system.
WALKER: So on that side of the ledger I just sort of go, oh, man, they’ve given me permission to give them money. And in America I think I can get permission from people to give them money.
ELLENTHAL: It’ll take time to build the patent listing side of the business but it’ll get bigger and bigger as time goes by.
QUINN: Well, the other interesting thing, as I understand about your model, is that the people who are taking licenses also get a certain kind of insurance if they were to get sued—and maybe not insurance but assurance that if they were to get sued on a patent that wasn’t in the portfolio that they licensed. So that in and of itself makes it much more attractive. I mean I for the life of me don’t understand why more businesses don’t have at least some kind of patent insurance.
WALKER: Let me make sure you understand exactly what we have because there’s a word you said there that may not reflect exactly what we do.
WALKER: We come to you with a first tier of a hundred statistically relevant patents. We say here’s the hundred most relevant patents chosen by smart software. Within those hundred, they’re all the most statistically relevant, we might say look we can give you license for 46 of them and a warranty for 54 of them. The warranty makes us your 50% co-pay if you get into a legal dispute involving any of those 54 patents. We don’t give you a warranty for any patent that might sue you, only for within the hundred for those we can give you a license. So if some wacko from left field who isn’t in that hundred brings a demand letter to you I haven’t insured you against that.
ELLENTHAL: The software will identify the one hundred patents that have the most in common with your product line. That doesn’t mean that all of your company’s risks and opportunities are reflected in those 100 patents, but they’re a smart, first step for companies without a patent plan to understand the environment and take steps to strengthen their position.
WALKER: There are two kinds of ways you find yourself in court. One is a genuine disagreement. You know, you’re practicing something and it really, it’s really related. We can have a Markman argument, but it’s related.
WALKER: And number two is if you get snared by a bad actor. By somebody’s who’s an abuser. In number one we are more likely than not to have those patents, the ones that relate in at least the top several hundred, if not the top one hundred. And we will make it a very affordable, especially after the first one hundred, it’s $1,000, let’s say using hypothetical numbers. If it’s about $1,000 a month for the first hundred the second hundred’s gonna be much less, right? And the third hundred will be even less than that. Because you know, there’s a curve on pricing and value the further out one goes.
ELLENTHAL: They’re less statistically relevant.
WALKER: They’re less relevant ands they’re less expensive. It is as simple as that.
WALKER: So if you’re worrying about somebody who’s a direct competitor they’re more likely to have a patent in your core one hundred. However, if you’re looking at a bad actor who basically bought a patent that has a year and a half to go with claims that are way to broad, overbroad, and he knows it, and their whole plan is to just litter the landscape with lawsuits hoping that they collect money from people to go away then odds that a bad actor is in our top five hundred I think is pretty low.
ELLENTHAL: Well, it’s unpredictable.
WALKER: It’s unpredictable. So I don’t want to promise people that they’re not going catch that scourge. I am a positive force to limit it because in many cases the person who sold that patent to that abuser had nothing else they could ever do with it. Abusers have the advantage. They can overpay for any one badly issued patent and then decide what to do with it.
ELLENTHAL: Yes. Our promise to the small or medium size operating company is we will give them a simple and affordable way to understand the patent environment they’re doing business in, to find the hundred patents that are most statistically relevant to their product line. And provide them with either a license or a warranty that allows them to reduce the risk they’re facing on those one hundred patents. And if you’re a small or medium size operating company who is coming to understand that every business needs an IP strategy these days as IP becomes a more important part of markets and the economy then this is a very affordable and simple entry level strategy for understanding and dealing with patent risk. And that puts you in a much better position arguably than the position that you’re in right now which is you know very little about the risk you’re facing and you can do nothing about it.
QUINN: Right. Right. That makes a lot of sense and I get that. It also strikes me that this removes the real worry that some court somewhere is going to say, oh, well, you were not acting in a business responsible way and you’re going to get hit with treble damages. I know its very uncommon, but people do worry about treble damages. If you said, look we went through this process and we licensed the top one hundred or two hundred patents that were statistically relevant, how can we have been acting irresponsibly?
WALKER: Right. It’s a phenomenal good faith demonstration that anybody of reasonable objectiveness is going to look at and say, these guys are not bad actors. They have done what reasonable people would do. They’ve gone around, they’ve put fire extinguishers around the place, they put smoke alarms around the place, they’ve run some fire drills, you know, could a fire break out in this place? Sure.
ELLENTHAL: They’ve been responsible.
WALKER: They’re been responsible, right? They’ve done everything you should do to be responsible. Does that mean that somebody can’t claim that they’re nefarious infringers of devious means? You can claim anything you want.
QUINN: Right, right.
ELLENTHAL: And this goes back to the fact that the current environment operates inefficiently. All deals are done on the basis of a legal standard of infringement. While a legal standard for deal making and patent licensing has proven to not be scalable, the insight around doing patent licensing deals on a standard of statistical probability makes patent licensing affordable to everybody. Certainty is expensive and inaccessible to most. Probability is affordable to everybody and commercially scalable.
QUINN: Right, right. Now, and I know we’ve been going for a while, but there’s at least one more thing I really want to get to because I just noticed it the other day and I’d like to get your take on it because when I heard it I kinda chuckled and said, oh, my God, here’s just some more really, really bad information. You’ve probably seen it or heard that there are some folks on the Internet who are saying that Jay Walker and his Patent Properties are just a patent troll and they’re going to be this mega patent troll. You know, an end of the world type rant. So I’d like to get your take on that. I mean my take on it is is that anybody who seriously looks at what you’re doing simply cannot come to the conclusion that this is anything like a patent troll model.
WALKER: Here’s why it can’t be right. A patent troll, whatever that means, sues people. We don’t own any of these patents. We’re the nonexclusive agent. We can’t sue. We have no standing to sue anyone. Therefore, whatever you want to call a troll, which is the world’s most ill-defined term, we can’t possibly be a troll in the patent utility because the utility doesn’t own any patents.
QUINN: Right. And it’s really just that simple. Even if you tried to sue you would get bounced on a motion to dismiss in a millisecond.
WALKER: It’s that simple. We don’t own any patents. We have no standing. Now, we are the owner of my portfolio in another part of the public company, my inventions have been assigned to this same public company.
QUINN: But that’s no different then you having the right to those patents for many years previously. The existence of Patent Properties and the patent utility doesn’t change the fact that you have had rights associated with those patents all along.
WALKER: Right. It changes nothing. I’m an inventor who has spent tens of millions of dollars inventing. I have assigned my inventions to the same company that is the utility. So I think it’s important to say, hey, we’re not against suing. When it’s appropriate you should bring a suit when it’s your best choice.
So anybody who would say the patent utility is a super troll just simply doesn’t know what they’re talking about. Or they have a political agenda.
ELLENTHAL: Yes, I read that, Gene, and my reaction was simply I only wish the author had the same respect for editorial quality as he seems to have for patent quality.
QUINN: Right. [Laughter]
WALKER: If it suits someone else’s politics to call us a name, they’re going to call us a name. And it’s about them not about us.
QUINN: And that’s true. I mean that’s a sad reality.
ELLENTHAL: We don’t worry about it.
WALKER: I do want to point out one more thing, though, that I think is germane to the structure of the business. We put this business into a public company for a set of specific reasons. One of those reasons is we wanted to build a patent utility in a public environment so there was full transparency and all of our deal making and dealings could withstand public scrutiny. So we will publish everything we’re doing to the SEC every quarter and people will see exactly what we’re doing. And we think that transparency will lend itself to more trust in the system earlier on than if we were in a private environment.
QUINN: Yes, I agree. I think the time is going to tell as it tells of all things and people are going to see that this is very different than other things that have been tried. The trolling aspect is just completely false. There’s no truth to that because you could never have standing. And I think you’ve got a real good chance to success at this. So now maybe this leads us to a good wrap-up question. And I guess, Jay, this is primarily for you. Why are you doing this? You’ve been one of the most successful American inventors of all time. You’ve changed the way that people buy hotel rooms and travel online. You have earned your day in the sun, a nice retirement. Why are you coming to this enormous undertaking at this time?
WALKER: I think it’s pretty straightforward. All people who have benefited from the things that I’ve done before have a responsibility to leave the system better than they found it. So there is no question I am the beneficiary of 220 years of intellectual property development in the United States. I’ve used the patent system to good effect. I have played by the rules and I have done things that ultimately have created thousands of jobs, you know, hundreds of millions and then billions of dollars of market value, et cetera. But like everybody else you’ve got to take your expertise and give it back. Now, you know, why does a teacher teach? Why does somebody serve in the armed forces? Why does somebody serve in the government? Because service is part of the U.S. national character. And ultimately I have the capacity to serve here because I was the direct beneficiary of a system that people before me fought over, made better and argued about in all kinds of ways. So it’s my turn.
It’s not only my turn because it’s the right thing to do, but I’ve actually experienced the failure of the current system, the gridlock of the current system. And in every age there are unique challenges for that age. And in our age right now the challenge is not ironically to reform the patent system, it’s been reformed pretty nicely with the AIA in a bunch of ways. The challenge is to reform the licensing system which I have the most experience in in having sat at most every seat at the table except maybe for the university seat. So if not me who? If not now when? So I’ve got that—I’ve got a combination of both self-interest and responsibility both working for me. And I gotta tell you, I don’t view it as a fight at all. I just view it as a great opportunity to leave a legacy of people saying, you know, that U.S. patent utility has probably been around for 50 years, somebody’s gonna say and my hope is they’re gonna say that in about three of four years and we’re gonna say, no, it’s about three or four years old. It’s a bit like the internet, it’s been around forever, right? No, not exactly.
QUINN: Although at times it sure seems that way.
WALKER: It does. So I think, you know, I’m 58 years old. At a certain point in your life your priorities start to shift and I have a daughter who teaches inner city Washington special ed kids and I’ve got a son who’s working with me on getting young women and minorities into medical research by the millions. So when you have growing children you sort of step up and say my turn.
QUINN: And that’s well said. And that’s probably a good place to end the conversation. I really appreciate you guys taking the time to talk to me.
WALKER: Well, for myself, Jon and our team at Patent Properties, you’re very welcome, Gene.
- - - - - - - - - - This is the final segment of my interview with Jay Walker and Jon Ellenthal. To start reading from the beginning please see
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About the Author
Gene Quinn 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.