Creating start-up success in an anti-patent climate

Michael Gulliford (pictured left) is an accomplished attorney. After nearly a decade in the industry he became a patent litigation partner with Kirkland and Ellis, representing companies in high stakes patent litigation. But Gulliford is also a contrarian. In 2013, at a time when the patent market was collapsing, he left his partner’s salary behind and formed Soryn IP Group, which he describes succinctly as a new breed of patent management company. Soryn is primarily engaged in four distinct business models: portfolio creation, patent brokerage, litigation finance and patent consulting.

But why would anyone seek to get into this line of work, leaving a lucrative law practice behind? Gulliford saw the writing on the wall with respect to patent reform from the very beginning. As reform efforts stepped up and then the final stages of the America Invents Act became implemented he saw that many technology companies and innovators were going to be at a strong disadvantage with respect to patents, and ultimately with respect to innovation. Seeing an opportunity, he set up Soryn to address the new marketplace, which favors quality over quantity, and which also favors building a strong patent portfolio from he ground up much earlier than most start-up companies typically would. You could say that Soryn was founded as a direct response to the anti-patent climate. Surprising to some perhaps, Soryn is not only succeeding in working with start-up innovators, but several Fortune 50 companies have adopted the Soryn model as well, become clients of the firm.

There is no doubt that Gulliford is extremely optimistic,  you would have to be to embark upon the path he has taken. Given that he is making money in a market that most are running from I asked him to join me in a free webinar conversation on whether the patent market will rebound in 2015, which will be on Wednesday, January 28, 2015, at 12pm Eastern. What follows is my interview with him, which took place on Thursday, January 15, 2015, and previews some of the conversation we will have during the webinar next week.

Without further ado, here is part 1 of my interview with Michael Gulliford.

[Patent-Business]

QUINN: Thanks Michael, for taking the time to chat with me today. I know you’ve seen it from many different angles, so I thought maybe the place to start would be to ask you to tell us a little bit about how you got into the industry and why was it that you left being a partner at one of the best known patent law firms in the country?

GULLIFORD: Well, Gene, first of all thanks so much for the opportunity to talk today. I do appreciate it. I think it’s going to be fun and I’m looking forward to it.

I’m the founder and managing principal of Soryn IP Group, which is a new breed of patent management company. Prior to that, in my former life, I was a partner at Kirkland and Ellis, mostly doing patent litigation — high stakes patent litigation — but also counseling smaller companies, particularly startups in the Silicon Valley area, on IP issues relevant in their practice, As a lot of partners at big law firms will tell you, towards the later part of my career, a lot of the work that I was doing was in representing some of the bigger clients of our firm against NPE suits. And obviously in the last few years those lawsuits have slowed down – I think there was about a 40% drop in litigation year to date – but around that time about two years ago, NPE suits were still very prevalent. So I was immersed in the thick of things and seeing the hurt that an NPE can do to a company — and for sure that is definitely an issue that needed to be addressed — but at the same time while I was representing these companies I had a chance to really take a look at what was happening.

Around that time there was a huge uproar over “patent trolls” and the harm they were causing society, and the industry. So Congress was getting involved, the AIA was taking shape and courts were starting to get involved as well. And it really seemed to me that if you were going to look three, four, five years down the road, a lot of reform was going to be put in place. The environment was going to change in such a way that to try to cure this “patent troll problem”, things were going to be put in place that were going to cause a world of hurt for true innovators that weren’t meant to be the subject of the reforms, but which were going to be hurt anyway, particularly the middle market on down, from your midcap technology companies to small cap to innovative startups all the way down to your individual inventors. So the idea I had at that time was to quit, to resign from the practice of law, and to start a company whose sole focus was to bring some much needed help and expertise to the entities that I thought were going to be severely impacted by the recent legislations and reforms. So that’s what we’ve done at Soryn and I’m happy to say that things are growing well and taking off nicely.

[Varsity-3]

QUINN: Well, that was the next thing I was going ask you. Because I was going to just be a little cheeky and ask “well how is that working out for you?” [Laughter] Because you know, most people think that right now the patent market is just in the toilet.   Now, there is some merit to that thought process. I know my own view of it is a little contrary and I think you have a contrarian view as well. And I’d like to hear your view because the market right now is very depressed, but I do think that there are opportunities and some reasons to be optimistic.

GULLIFORD: Yeah I would agree with you, Gene, I would agree with you. I put basically everything I have into this venture and took the risk to start it. So obviously I didn’t think that all things were as bleak as the rest of the world does. I will agree that the days of easy money are over. There were obviously days, not even too long ago, where if you had any sort of infringement of a patent and you got a law firm to file a complaint, the leverage you had and the cost of defense would often necessitate a defendant writing out a check, and lot of people made a lot of money doing that. I think those easy days are over, and I would point specifically to the AIA and IPRs and what they’ve done to things. And so what’s happened now is the easy money isn’t there.

A lot of people have gotten out of the space and run from the space. It has become harder to sell patents for all the same sorts of reasons, but I think it has opened up a window, an opportunity for people that have been in the trenches and really understand the ongoings of the market and patent law, to come up with innovative ways to create, and introduce innovative mechanisms in today’s patent market. Not necessarily litigation driven type management companies, which is what you used to traditionally see in the past. But entities that are approaching the patent market in new ways. And I think the new kinds of models we’re seeing are not so litigation focused. So we’re pretty excited for sure. Our business is picking up nicely. And it’s been interesting to see that while our initial focus was on the kinds of companies that I was talking about — the middle market on down — we’ve also started working with some of the most prestigious technology companies in the world that also see the value in what we’re providing. So the end result is that we now have some pretty unique insights into how various parts of the market are approaching things and thinking about things.

QUINN: So I think we both probably agree that gone at least for now are the days that you go out and hire the biggest baddest patent litigator that you can find and then a pot of money is just going to wind up appearing at your doorstep.

GULLIFORD: Absolutely. Absolutely.

QUINN: So what is the play today? I mean I know you’ve started something you call liquid patent and if I understand it correctly you guys are working with real early stage companies to build a company and to build a patent portfolio from the ground up. And that is where a lot of the positive action really is, right?

GULLIFORD: Yeah, yes. So there’s definitely a couple parts to that question. I agree the days of just filing, getting a big bad law firm to bring suit and getting a lot of cash, those are gone particularly because of IPRs. The kill rate is so high and it is really a fraction of the cost of litigating. If it costs a company $300,000 to kill your patents in an IPR obviously there’s a lot less incentive to write a check to settle a case for anything more than that.

One of the things that we had in our favor was that we got into this business at a time when the world was “ending.” We were not a company that suddenly had our model get disrupted by all the reform. Rather, we had the benefit of structuring things while the reform was taking place. And so we had the benefit asking ourselves what is the most interesting way, moving forward, to approach the IP world. And one of the big light bulb moments for us was the realization that it is not just about suing people, but instead about creating value. I think this ties into all the momentum around startups and innovation that’s been taking off all over the country.

So we’ve joined forces with the investment bankers at an entity called Liquid Venture Partners and we’ve started a sister company called Liquid Patent Consulting, which we like to refer to as Liquid Patents. And the model there is one that’s gained a lot of attention. We’ve got the investors and their model is to find early stage interesting companies, typically not in the software realm for reasons that we can get into, but more hard technology type of companies now. They use early IPOs as an alternative to traditional venture funding. But one of the things that the investors place a huge importance on is a very sophisticated, robust patent operation. So whereas it used to be you’d have a new company and it could take years even to get some sort of sophistication, we’re now doing it on day one. And the results have been great to see. Over the last few months we have filed close to a hundred patent applications for these entities. We’re able to do that because we have been able to negotiate favorable deals with the law firms we use and we can pass that on to the clients. So our goal is to really be creating companies and crafting their portfolios from day one. Essentially, my partner and I work to insource a very sophisticated patent operation for a company that ordinarily wouldn’t have had that capability.

QUINN: Yes. Now you mentioned your partner. And I know who he is. And can you just maybe tell us who he is very briefly? Because I think his resume is quite impressive.

GULLIFORD: Yes, absolutely. So my partner is a gentleman by the name of Fatih Ozluturk. Fatih has a long history in the IP world as well. He spent many many years at Inter Digital and for a long time was their most prolific inventor. He has almost 200 issued patents mostly in the wireless space, including many of the essential patents in the wireless space. Now I’ve been in this business a while myself, but Fatih is really the only inventor I’ve ever met who can honestly say that his IP alone has generated well over a billion dollars in licensing revenue. When he works with start-up inventors, he comes at things from the technological perspective and he has a knack for seeing where the elegant solutions are for new problems and how to design IP and patent portfolios around those solutions.

QUINN: All of this is very interesting. For a long time I have wondered why the industry wasn’t moving in this direction. It seems clear to me that there has been a real need for people like you and Fatih who can work with entrepreneurs and then collectively build something. For so long it almost seems that what we have has is a situation where the industry has been afraid to engage in good business practices. And just hearing you, listening to you talk about that made me think of a connection that I hadn’t really thought about before. In the independent inventor community so many people come up with an idea and then they just want a check to arrive at their doorstep. “Hey, I have that idea.” And you see some of the commercials on the television that help perpetuate the mythology that if you have that idea you could be rich, but clearly there is a lot more that goes into it than just an idea. Any successful independent inventor knows that. But it almost seems that that mentality – the mentality of the independent inventor who doesn’t want to work but wants a check to arrive – has seeped into more proper business over the past five or ten years. So many in our industry were interested in buying a patent and then hiring an attorney and sitting back and watching checks roll in.

GULLIFORD: I couldn’t agree more. What’s so interesting to us is to turn the idea into something —into a business and into a valuable intellectual property portfolio. Let’s use an example. Obviously, there were many who dreamed about the general concept of humans taking flight before the Wright Brothers, but it was the Wright Brothers that figured out how to actually make it work. We want to get in the weeds and past the idea and figure out things you wouldn’t have even thought about until you got in there to solve the problem. That’s where we see a lot of the value coming into these portfolios. It’s the things that you learn from actually doing it…from trying to build a product and build a company. I don’t necessarily agree with the part of the industry that thinks innovators shouldn’t be entitled to some sort of compensation for the good ideas they’ve had. But at the same time we’re also keen on taking it beyond the good idea and to build something, that is where the value really is.

QUINN: Yes! Exactly. You know, one thing I think a lot of people lose sight of is that pretty much every large company was started at one point as a small operation. Many of the most iconic companies were created as small start-ups by individual inventors. Whether it’s Colt firearms or Ford or Google. I really wonder how many people who are critical of the patent system remember that Google started with two guys and an algorithm that they patented. In fact, they filed two patent applications before they even acquired the domain name Google.com. But they aren’t the only dreamers. Walt Disney was an individual that built this great empire, and there are so many more. So when we talk about inventors and moving forward to create companies it is laughable to have a discussion about whether patents are inhibiting progress. Those who hold that myopic viewpoint really need to stop and remember that every company was small before it was big, it just the natural course. So without question the right thing to do is to build, properly protect, pay your dues by working hard and follow good business advice. If you do those things then you have a far better chance of succeeding.

GULLIFORD: Yes. I like to point to Shark Tank because all the inventors and entrepreneurs watch Shark Tank, so it offers a common experience. And anyone that has a new product and wants an investment comes into the tank and the first question they always get – Is it patented? Because the “Sharks” are not going to consider investing in the new product unless it’s patented. Obviously, the corollary is that the patent rights themselves are only as strong as their ability to be exercised. I mean if you’re able to secure a patent and yet not able to assert it, you’re at such a disadvantage that the right is almost illusory. But going forward and starting from the beginning I mean what’s—if you’ve got a product and I think the social media tech space of Silicon Valley is a little different, right? Where I think the models are different. It’s about putting out a new app and seeing if you can get a ton of users to use it in a certain period of time and then maybe pivoting or shutting down if it doesn’t. It’s a different kind of model. But if you’re talking about more quote/unquote harder technology, so to speak, and you don’t have a robust patent protection, you’re not going to — there’s really frankly no chance of growing the company. You’re not going to bring in investment. You’re not going to—the valuations are going to go down. I mean we see it, we see companies that are sold with patent portfolios versus with not. Valuations are typically lower. To say patents are stifling innovation is, it’s just unfortunate to hear that in every sense of the word.

QUINN: Yeah. It’s just bizarre. And going back to the whole thing with Shark Tank and that investors want patents, there is this belief out there that gets repeated over and over and over again with no citation whatsoever about investors not liking patents. And in fact, there is this mythology on the Internet that says that if you have a patent it will be more difficult to find an investor, which is just idiotic. Everybody in the industry knows that just isn’t true. Everyone in the industry knows that patents are important to getting investment, in moving forward, in valuing the company because if at the end of the day you can’t prevent somebody else from coming into your market then why are you going to invest a huge amount of money that it will take to build the company and move forward? It’s just that simple.

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