Now a Big Company Wants You to Take a Patent License…

 

This is going to be a different ride

Most high technology companies have a good grasp of the challenges and solutions for dealing with patent trolls. However, successful high technology startups face a threat beyond patent trolls: large corporate patent asserters looking to license their patents. Companies like Microsoft, Qualcomm, and IBM regularly assert their patents for strategic benefit and profit. These companies are not patent trolls by any typical definition, and companies should adapt their approach to handling patent assertions from these kinds of companies. We explore how we worked with a successful startup client to handle such an assertion.

Large corporate patent asserters are not like NPEs

Our client was faced with a multi-million dollar patent assertion from a corporate patent asserter claiming infringement of several patents. We helped the client adopt a successful strategy that differed markedly from the processes they had in place for handling all of their previous patent assertions from NPEs.

Fundamental to devising a corporate asserter defense strategy is understanding the differences between the corporate asserter and the NPE. As illustrated in Table 1, there are differences in terms of objective, vulnerability, and interaction pattern.

The corporate asserter had a history of litigation and licensing, a portfolio of potentially relevant patents, and a complicated business history with our client. Potential outcomes for our client ranged from not getting the patent license or arranging for a cross-license to paying for the license or going to full litigation. At the outset, we helped our client make it clear that, if the asserter hoped to receive a license fee and a cross-license, the asserter needed to show substantial value in their patent portfolio. From our client’s perspective, there were a number of decision gates that needed to be passed to validate any value proposition and possibly make a deal with the asserter (see Table 2).

There is a path to a patent license, but…

First, we helped the client articulate a clear and consistent policy for dealing with corporate assertions (see Figure 1). By setting a policy and communicating it to the asserter, we were able to show that the client was taking the assertion seriously, which is very important to avoid a knee-jerk patent suit from the asserter. We also showed the asserter that a counter-assertion might occur. Most importantly, communicating the policy showed that no patent license was possible without completing the process. An approach like this is difficult to argue with because a corporate asserter understands that the client’s executive team will expect the legal team to be able to articulate the potential value of any possible patent deal.

Step 1. Understanding the claimed infringement position

The corporate asserter initiated the assertion by sending a letter to our client stating that there was an infringement concern. Here the asserter provided claim charts mapping out how our client’s products infringed on their patents. Our job in the first step of the process was to clarify the asserter’s claims and analysis, what sources of information they used, and what legal, market, and technical assumptions they made.

Making sure to fully understand the infringement position is vital, as miscommunications and misunderstandings result in mistrust between the two parties, thus increasing the risk of litigation.

Step 2. Product analysis

In the second step, we analyzed how the products and features mapped by the claim charts actually worked. Here, interviewing in-house engineers was helpful. Through this step, we assessed the claim chart’s credibility and discovered insights that presented strong arguments for non-infringement.

As is often the case, the claim charts had gaps. The charts combined multiple, distinct elements and included inaccurate assumptions about how the products worked. These assumptions were not marked or referenced by the asserter. Identifying and understanding mistakes like these helped to deflate the asserter’s arguments about the value of their patent portfolio and took specific patents out of the negotiations.

Transparent exchange of information is important, and we shared technical details, such as flowcharts, system architecture diagrams, etc. The idea that you would share elements of how some of how your products work with the patent asserter may sound dangerous, and it can be. However, by this point in the process, we had legal agreements in place, and we had established a level of trust with the other party.

Step 3. Prosecution and prior art analysis

If the first two steps are about understanding the asserter’s value proposition and how it relates to our products, the third step is about  “due diligence.”

We used a long list of diligence items, looking for holes in asserted patents.  As the asserted patents were US patents, we reviewed the prosecution history to find relevant statements regarding the scope of the claims. We also reviewed international prosecution for any arguments we could repurpose for the US patents. Additionally, we conducted prior art reviews using both simple tools, such as Google Patents, and professional search vendors.

Patent licensing is a 12+ month process

In practice, this process is iterative. In this case, the asserter removed some patents from the negotiation and added others. Additionally, some mappings (infringement theories) were changed or removed, while others were maintained throughout the process. In total, the first three steps took over eighteen months. While the asserter might have preferred that the negotiations move more quickly, that was not possible, given the need for detailed information exchanges, followed by technical follow-ups and legal analysis of the positions.

The best defense is a good offense

After the initial interactions, we looked at whether any of the client’s patents were relevant to the asserter’s business. The client had an active internal patent development and buying program. We were able to find patents from both places to use in the negotiations.

We performed market analysis of the patent asserter, understanding where they made the majority of their money. We used a variety of sources, and we ultimately identified products and services that generated hundreds of millions of dollars for the asserter and also likely infringed the client’s patents.

Unlike NPEs, the corporate asserter often responds to a counter-assertion by going away or offering a lower price or different deal. Without a counter-assertion to present, it would have been harder to affect the asserter’s negotiating position. By counter-asserting, we showed the asserter that they derived value from our client’s patent portfolio. Counter-asserting shifts the dynamics of the negotiation and gives the smaller company more options in the negotiation. You can read more about counter-assertion strategy here.

Conclusions

In the end, the corporate asserter never returned to the negotiations. The combination of communicating the problems with the asserter’s patents and counter-asserting created a different risk-reward dynamic for the asserter. Importantly, this process was much less expensive than patent litigation.

The process of countering a corporate assertion is different from an NPE assertion and should be treated differently. Adopting a clear process aimed at evaluating the value proposition for any prospective patent license enables better communication both internally and with the asserter. The process also helps you communicate with your own internal team as to where you are in the engagement with the corporate asserter.

The Author

Kent Richardson

Kent Richardson counsels clients on a variety of patent and business matters including patent buying, selling, licensing, valuation, prosecution and operations. Kent has licensing and marketing patent portfolio experiences resulting in more than $600M of patent license bookings. Kent has served as an expert witness on patent monetization and licensing practices in cases in England and the United States. Prior to founding the ROL Group, Kent was the General Manager of ThinkFire Services USA, Ltd’s Silicon Valley office. Kent has worked in various senior management roles with such growth businesses as Sezmi, Constellation Capital, Rambus, Numerical Technologies. Kent is a member of the California Bar and a United States Patent and Trademark Office registered patent attorney, and holds five US patents.

Contact Kent via e-mail at kent@richardsonoliver.com, or the Internet at Richardson Oliver Law Group.

Kent Richardson

Erik Oliver counsels clients on patent, licensing and trademark matters. He brings more than ten years of patent prosecution, litigation, and licensing experience and a track record of millions of dollars in both patent and technology licensing deals. Prior to founding the ROL Group, Erik was a Vice President at ThinkFire Services USA, Ltd’s Silicon Valley office. Erik has held various senior positions with a range of responsibilities at Rambus Inc., Synopsys, Inc., and a number of Silicon Valley startups. Erik is a member of the California and District of Columbia Bar and a United States Patent and Trademark Office registered patent attorney.

You can reach Erik via e-mail at erik@richardsonoliver.com, or on the Internet at Richardson Oliver Law Group.

Kent Richardson

Hannes Forssberg Malm is a student at University of Gothenburg where he’s pursuing a master’s degree in law and a master’s degree in innovation and entrepreneurship in biomedicine with a major in Intellectual Capital Management. Hannes works as an intern at the Richardson Oliver Law Group on various IP strategy, IP law and business strategy projects in Silicon Valley. He also has prior experience as the CEO of HandelsConsulting AB, one of Europe’s largest student operated management consulting firms. Hannes is an appointed representative of University of Gothenburg School of Business, Economics & Law on the Student Council of the Royal Swedish Academy of Engineering Sciences.

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.

Discuss this

There are currently 12 Comments comments. Join the discussion.

  1. angry dude July 21, 2017 9:56 pm

    I fail to see any difference between big patent-holding company and so-called “patent troll” except for the fact that patent troll’s license is many many times cheaper

  2. Paul F. Morgan July 22, 2017 8:22 am

    AD, a true patent troll [PAE] does not have any actual products, and thus does not need any cross-licenses. Also, a PAE is far less likely to provide claim charts and engage in a realistic licensing discussion of patent validity or infringement issues than a real company. Rather a PAE is far more likely to sue first – before having any licensing discussions – before the target company can even point out validity or infringement defects in their patent case – and start running up the legal costs of the defendant with discovery demands [easy in E.D.TX] to get a settlement payment before any judicial decision.

  3. Paul F. Morgan July 22, 2017 9:20 am

    BTW, what you do not want in dealing with a licensing demand from a real company is an old-fashioned CPC or other attorney with a “save it for the jury” attitude. That is, refusing to disclose good prior art or non-infringement defense positions to the patent owner in negotiations. It especially makes no sense these days with IPRs available, and with attorney fee sanctions now available against patent owners proceeding with patent suits in the face of good defenses they have been made aware of. It greatly increases the odds of getting a costly patent suit. Only a small percentage of patent suits ever make it to a jury, and one’s defenses have to be disclosed to the patent owner long before then once sued anyway. Plus prompt and un-rebutted defenses disclosures before suit will help avoid charges of willful infringement and thus damages recovery expectations of the patent owner.

  4. angry dude July 22, 2017 9:25 am

    Paul F. Morgan@2

    Ha-Ha-Ha-ha-…….

    Dude,what you describe was exactly my strategy when I sued some SV corp in Delaware some years ago (just before AIA kicked in – I wouldn’t do it today)
    So from your definition I am true patent troll – with all my phds and r&ds and valid and infringed patents
    Thanks, dude
    you are really helpful to discussions here (as I already noticed from your other useless posts)

  5. Paul F. Morgan July 22, 2017 9:54 am

    DA, thanks for your comment “just before AIA kicked in – I wouldn’t do it today.” That was a point I was trying to make in both posts, and of course it is not just the AIA it is also several Sup. Ct. decisions.
    But of course there can still be good reasons to sue certain kinds of companies first before even attempting licensing discussions, especially companies with a reputation for just blowing off license approaches, even when one has established clear infringement, unless and until they are sued.

  6. Anon July 22, 2017 10:09 am

    Also, a PAE is far less likely to provide claim charts and engage in a realistic licensing discussion of patent validity or infringement issues than a real company

    FYI: “real company” is not one defined as a practicing entity.

  7. angry dude July 22, 2017 10:11 am

    Paul F. Morgan @5

    Perhaps you should know that efficient infringers in SV never engage in any patent licensing discussion with small outside entities
    And if you are too persistent and not careful you get DJd in their home jurisdiction
    Thus – sue first, talk later (but that was before AIA)

    Now it’s sue first, get dragged into PTAB for years and zllions of $ and then if you are still alive and not bankrupt you can rinse and repeat in district court or elsewhere

  8. Paul F. Morgan July 22, 2017 11:10 am

    Yes, too many “silicone” valley companies have acquired that “blow off” reputation re non-suit licensing attempts. But one good reason for it is that they have good track records of defeating those who sue them so often on so many software-related patents. [Which is not the case in many other industries re other types of patents.]
    Thanks for noting that the already small % odds of getting sued sued with a DJ action for threatening suit has been further reduced – by the Sup. Ct. venue decision reducing the odds of companies being forced into court in East Decline Texas.
    Most IPRs are over in less than two years, and cost less than $350K to defend even if there is a defense. That is less than the time, and far less than the discovery costs, for most patent suits to ever get to trial in E.D.TX, much less the costs to get a Fed. Cir. appeal sustaining a contested jury decision on validity. Not “years and zllions of $.” [This is not an IPR endorsement, merely an objection to lay readers being presented on blogs like this with hyperbole rather than present realities, which are bad enough for patent owners without the exaggerations and the presentations of rare cases as if they were typical.]

  9. Anon July 22, 2017 11:40 am

    This is not an IPR endorsement

    No one believes that Mr. Morgan.

  10. angry dude July 22, 2017 12:10 pm

    Paul F. Morgan@8

    “Most IPRs are over in less than two years, and cost less than $350K to defend ”

    A real bargain for independent inventors and small mom-and-pop startups out there 🙂

    Thanks dude

  11. Night Writer July 22, 2017 6:46 pm

    @10 That is for one IPR. You can face many.

  12. angry dude July 22, 2017 7:21 pm

    Night Writer@11

    that’ about what my house is worth today

    thanks but no thanks

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