Robert Litan is an extraordinarily accomplished lawyer, economist and author. Indeed, through his research and writings he has become a nationally recognized expert in the field of economics. Along with co-author Hal Singer, Litan recently published a study that concluded that modestly increasing the number of patents under license could generate social benefits ranging between $100 and $200 billion per year. See $200 Billion Could Be Added to Economic Output Annually by Unlocking Patents. I caught up with Litan for an interview on December 1, 2014, and published part 1 of our conversation yesterday.
What follows is the final segment of my conversation with Litan, in which we discuss the importance unlocking the patents that are not being monetized. We specifically discuss Jay Walker’s brainchild — dubbed the Patent Utility — and what it could mean for the U.S. economy and innovation more generally.
QUINN: I think that what you said there is definitely a fair point. As you were saying it I recall an interview I did with Manny Schechter, who is Chief Patent Counsel at IBM. I asked him at one point in time about how they constantly stay in front of everybody else with respect to a true commitment to research and development? I asked him if they ever look at what others do and wonder why they haven’t figured it out? And his answer to me was basically — why we would look at what anybody else does, we’re confident in what we’re doing, our management is in tune with our overall IP strategy and objectives, and we just do our own thing, do our research and development on our own. So IBM doesn’t spend time considering the competition.
Robert Litan is an economist and attorney with decades of experience as an executive in both the private, public and government sectors. He is currently a non-resident Senior Fellow at the Brookings Institution, and he also serves on the research advisory boards of the Smith Richardson Foundation and the Committee for Economic Development. Litan has also served as Deputy Assistant Attorney General in the Antitrust Division of the Justice Department and as Associate Director of the Office of Management and Budget. In short, Litan is extraordinarily accomplished and has seen the world from many different vantage points.
Litan is also a prolific author, having authored or co-authored over 25 books and numerous articles in professional and popular publications. His latest books include The Trillion Dollar Economists (Wiley Press, 2013), The Need for Speed (Brookings Institution Press, 2013, co-authored with Hal Singer); Better Capitalism (Yale University Press, 2012, co-authored with Carl Schramm), and Good Capitalism, Bad Capitalism (Yale University Press, 2009, co-authored with William Baumol and Carl Schramm). Thanks to his writings and Congressional testimony Litan has become a widely recognized national expert in regulation, antitrust, finance, and a variety of other policy subjects.
Most recently, however, Litan co-authored a study that concluded that modestly increasing the number of patents under license could generate social benefits ranging between $100 and $200 billion per year. See $200 Billion Could Be Added to Economic Output Annually by Unlocking Patents. It is through his work on this study that I met Litan. I asked if he would be interested in doing an interview and he graciously accepted.
Doug Croxall on panel at IP Dealmakers on Nov. 7, 2014.
Doug Croxall is Chairman and Chief Executive Officer of Marathon Patent Group (NASDAQ: MARA), which is a patent acquisition and licensing company. Prior to joining Marathon, Croxall was the CEO and Chairman of Firepond from 2003 – 2009. He acquired the public company in 2003, taking Firepond private in an all cash tender offer. While CEO of Firepond, the Firepond patents generated approximately $90 million in licensing revenues.
I met Croxall in New York City in November 2014, at the IP Dealmakers Forum. Croxall has been successful in the patent monetization business for years and had a unique prospective on patents as an asset. “If you are going invest your family’s fortune, I don’t think you will put all your money in one equity,” Croxall explained in a panel discussion at the event. “So it is the same thing with respect to an asset or a portfolio of assets.” He would go on to say that Marathon Patent Group has learned from “what worked in other asset areas and applied it to this one.”
While this philosophy may not be considered earth shattering within he investment community, talking about patents like they are similar to any other asset and applying tried and true investment principles struck me as quite enlightened. Yes, patents are becoming a more widely known asset class, but within the patent industry, or at least the day-to-day patent attorney industry, I haven’t heard many (if any) speak of patent assets in this way. I was immediately intrigued for many reasons, perhaps most directly because I always preach to inventors and entrepreneurs that they should look at what succeeds in business and apply those lessons to their own endeavors, which was at the heart of what Croxall was talking about. I knew right away I wanted to interview him.
The passage of the America Invents Act (AIA) in 2011 was touted as an important moment for modernizing patent laws and making it easier for innovators to innovate. Of course, nothing could have been further from the truth. The AIA further weakened patent rights, which is exactly what the large tech companies wanted. Far more is prior art under the AIA than under the previous regime, the grace period that remains is so infinitesimally narrow that it would be malpractice to suggest the AIA ushered in anything other than an absolute novelty system, there are a trio of new post grant procedures aimed at making it easier to strip patent rights away from owners, and several categories of invention were explicitly made unpatentable. The AIA was hardly the panacea that it was sold to be.
But legislative changes to the patent system are not the most significant blows suffered by the innovators who require strong patents in order to obtain financing and have any kind of chance against the large corporations that would love nothing more than to take their inventions without remuneration. The Courts are where the most dramatic changes to patent law have come, starting back at least as early as 2005 when the Supreme Court rendered its decision in eBay v. MercExchange. That ill-considered decision turned a patent, which had been an exclusive right, into some kind of a ghostly remnant of its former self. Thanks the eBay it has been extremely difficult, if not impossible, to obtain an injunction even after proving infringement and withstanding all invalidity challenges. The irony is that strong patents that have been infringed are really no longer capable of supporting exclusive rights. See The Impact of eBay v. MercExchange. What good is a patent without an injunction against an infringer?
In my experience the reason most people do not succeed is because they just don’t know what to do, not because they are lazy or unmotivated. My hope is that this article will educate inventors and help take some of the mystery out of the steps associated with turning an invention into a profitable endeavor.
Before you consider contacting anyone the best first place to start is with a simple question, which will help you chart the right course. Ask yourself: What you want to do with your invention? Do you want to make and sell your invention? Or, do you want to sell your invention rights to an individual or company who would make and sell your invention? Or, do you want to try and license one or more individuals or companies to make and sell your invention? After you make this determination your initial strategy should come into focus.
At the heart of policy disputes over standard essential patents is a simple truth: Companies whose products depend on standardized technologies want to increase their profit margins by cutting input costs – the royalties they pay to use standardized technologies invented and patented by other companies.
In other words, policy conflicts over standard essential patents (SEPs) tend to pit implementing companies against inventing-and-licensing companies, one business model against another.
So when in the course of patent policymaking it becomes necessary to examine the worthiness of alleged scholarship about SEPs, a decent respect for the consumers and markets ultimately affected requires policy makers to examine the scholarship’s origin and separate fact from advocacy.
Such is the case for a new “working paper” that entered the standards debate last month with a controversial thesis that generated headlines and a lot discussion in patent circles. Its title: “The Smartphone Royalty Stack: Surveying Royalty Demands for the Components Within Modern Smartphones.” Its authors: Ann Armstrong, associate general counsel at Intel, as well as Joseph J. Mueller and Timothy D. Syrett, two lawyers at Wilmer Cutler Pickering Hale & Dorr who work for Intel.
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.
Recently I had the opportunity to interview Jay Walker, the founder of Priceline.com. Walker, with over 700 patents and pending patent applications, is one of the most prolific living inventors in the world. He is embarking on the monumental task to commoditize patent licenses in a way that streamlines the process, keeps costs down, maximizes the number of licenses and charges a low flat fee. A daunting task no doubt, but his methodology is unique and seems to me to be more likely to succeed than any other efforts, which really bear no resemblance to the Patent Properties model. Still, to call the task difficult is an understatement, but if anyone has the ability to pull it off it would be Jay Walker.
WALKER: Let’s switch to the other side before we go to the theory. On the other side are users of patented technology, most of whom don’t know which patents they are using. They have no way to run the kind of sophisticated outlook to say, well, if I’m using patented technology how do I know what it is? I can’t read claim lines, which takes a federal judge to interpret whether I’m actually am infringing or not. It takes a whole Markman Hearing to figure that out. And on top of that when I try to look through the patents that are already issued as a way to learn they’re not written up in a user-friendly language, and I’m often advised by counsels not to do that.
Simply stated, Jay Walker is one of America’s best-known business inventors and entrepreneurs. Walker has founded multiple successful start-up companies across various industries, although he is best known to members of the public as the founder of Priceline.com.
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.
Reckitt Benckiser Pharmaceuticals Inc., a wholly owned subsidiary of Reckitt Benckiser Group plc (OTN: RBGPF), and XenoPort, Inc. (NASDAQ: XNPT) announced yesterday that they have entered into a license agreement that will grant Reckitt rights for the development and commercialization of XenoPort’s promising oral treatment for alcohol use disorders, a condition affecting more than 140 million people worldwide.
Under the terms of the agreement, Reckitt will receive exclusive rights to develop and commercialize arbaclofen placarbil worldwide for all indications, subject to certain rights by XenoPort to negotiate with Reckitt Benckiser Pharmaceuticals on collaborations for non-addiction indications.
According to the World Health Organization, alcohol use disorders are a global public health issue,with an annual economic burden of $224 billion in the United States alone, and alcoholism is directly responsible for more than 2.5 million deaths each year and is a causal factor in over 60 other major types of disease. See Global status report on alcohol and health. While anything can happen during clinical trials that can derail even the most promising drug or therapy, the potential market is enormous. If the drug proceeds through to market it should have little difficulty achieving blockbuster status, but many hurdles obviously still remain.
On Monday, May 12, 2014, Patent Properties, Inc. (OTCQB: PPRO), the brainchild of Priceline.com founder Jay Walker, announced the appointment of Robert Stoll, former Commissioner for Patents at the United States Patent and Trademark Office, to Chair the Patent Properties Advisory Board. Joining Stoll on the Board will be Mona Sutphen, former White House Deputy Chief of Staff for Policy for President Obama; Vinit Nijhawan, Managing Director, Office of Technology Development and Lecturer in the Entrepreneurship Programs Office at Boston University; Louis Foreman, CEO & Founder of Edison Nation; and Stephen Merrill, former Executive Director of the National Academies’ Program on Science, Technology, and Economic Policy.
The purpose of the Board is to advise Patent Properties’ senior leadership on business, policy, regulatory, and legal issues related to the development, launch, and growth. Board members will serve in an advisory capacity without operational or decision-making responsibilities.
This month’s column is based on my remarks to the Association of University Technology Managers (AUTM) at their annual meeting in San Francisco.
First of all, congratulations! You made TheWashington Post and they even spelled your name correctly. Unfortunately, AUTM was specifically called out in an article titled Patent Trolls Have a Surprising Ally: Universities.The name of another article appearing at the same time Patenting University Research Has Been a Dismal Failure, Enabling Patent Trolls: It’s Time to Stop while long winded speaks for itself. And two innocuous sounding reports from the Brookings Institution Building an Innovation Based Economy and University Start-Ups: Critical for Tech Transfer say that Congress should amend the Bayh-Dole Act to give the federal government control over whether you can grant exclusive licenses, that you have been unsuccessful as most technology transfer offices are not self-supporting, that your business orientation conflicts with the mission of a university and your alleged model of “licensing to the highest bidder” has failed. The New York Times accurately summarized the intended message in its headline Patenting Their Discoveries Does Not Pay Off for Most Universities.
For a profession that keeps a low profile and goes out of its way not to antagonize people, you may wonder what in the world’s going on that you are gaining such notoriety. The answer is that you are in the sights of several groups who do not wish you well. Some want to weaken the patent system for their short term benefit, some believe society would be better off if inventions were freely available without patents; some don’t think it’s moral for universities to work with industry, and others believe they should determine who reaps the rewards of innovation. While operating on diverse belief systems, they all have one thing in common: they don’t like you.