I am in New York City this week taping the new patent bar review course, which is a part of our effort to bring the course current with the latest changes in the law and rules that will begin to be tested starting April 2, 2013. After a long day of lecturing and preparing materials and writing questions, I had dinner and found myself sipping a drink at Randolph’s, which is the bar attached to the Warwick Hotel, where I stay when in New York City. Unwinding from the day I decided to catch up on news – for me that means reading Politico or The Hill typically. I learned that Rand Paul engaged in a filibuster over drone strikes and Jeb Bush is on a book tour and folks are speculating about whether he will run for President in 2016. But I also learned that the self-appointed anti-patent billionaire idiot – Mark Cuban – was at it again. I quietly asked for the check and excused myself from an otherwise enjoyable evening of relaxation. Mark Cuban is an idiot!

Mark Cuban, the flamboyant owner of the Dallas Mavericks, has said some truly ridiculous things about patents. Recently, he complained to Tech Crunch about patent lawyers that “make too much money,” which is something that only a truly out of touch billionaire could rationalize. Really? A capitalist billionaire complaining about anyone making too much money ought to be a bridge too far for anyone. But Cuban doesn’t stop there, he talks about “dumbass patents,” and how patents on things that others later figure out ought to be invalidated. As if hindsight doesn’t make everything obvious in retrospect. Seriously, if he really holds these thoughts it has to be a complete accident that he managed to become a billionaire.

But this time it wasn’t that Mark Cuban made this idiotic and completely indefensible statement about the patent system that got me started. Nevertheless, he is still to blame. You see, Julie Samuels is the “Mark Cuban Chair to Eliminate Stupid Patents” at the Electronic Frontier Foundation. What a title! The Mark Cuban Chair to Eliminate Stupid Patents? And folks are actually supposed to take this seriously?

Chief Judge Randall Rader of the United States Court of Appeals for the Federal Circuit kicked off the public programming at the annual meeting of the Association of University Technology Managers (AUTM) in San Antonio, Texas, last night. He participated in a question and answer session in front of a packed theater at the Henry B. Gonzalez Convention Center in downtown San Antonio, Texas, just a block away from the famed River Walk and only several blocks from the Alamo.

The event was billed as a fireside chat with Chief Judge Rader, sans fire. Nevertheless, those familiar with the fireside chat genre get the feel for the evening. It started out a bit biographical before it turned to an in depth discussion of the patent system and heavy issues of the day. The conversation was lead by Sean Flanigan, who is President-Elect of AUTM. Questions were also taken from the audience, which I would estimate at well over 500.

Chief Judge Rader is known for his frank discussions, and he is not afraid to defend the patent system. He did not disappoint with his candor. Very early on in response to a question from Flanigan, the Chief Judge said matter-of-factly: “Yes, I do think there is a litigation abuse problem.” Game on! Chief Judge Rader would go on to discuss the blackmail-like shake-downs that are plaguing the industry and giving the patent system an unjustified bad name.

2013 is going to be an exciting year for patent law and the policies which govern it. From implementation of sections of the Leahy-Smith America Invents Act to anticipated decisions from the Supreme Court, we can expect changes to the patent system that will affect the high tech and biotechnology industries, start up companies and established businesses of all sizes. Just some of the developments we can expect to see include a determination of whether genes are patentable, proposed legislation addressing the litigation strategies of non practicing entities, and harmonization of the US with much of the world through the implementation of the first-to-file patent application system and the introduction of an international design patent application process.

The Patentability of Human Genes

Isolated genes and DNA sequences are claimed in numerous patents and patent applications and are extremely important to the biotechnology industry. Myriad Genetics was granted patents for BRCA1 and BRCA2, two genes linked to breast and ovarian cancer, and is the sole provider in the US of tests for cancers involving the BRCA genes.

The term “privateering” is a new one for some, but by the end of 2013, everyone will talking about it.  It’s the transfer of patent rights, including the right to sue for infringement, from a large company with a strong research and development capability to a patent holding company.

There is a tremendous amount of unrealized (“un-monetized”) value in the patent portfolios of many large companies.  Yet, for one reason or another, such companies have chosen over the years not enforce their patents in court or through a licensing campaign.  In recent times, however, a few of these companies have, one-by-one, started to transfer their patent rights to patent holding companies that are quite willing to enforce those patents.  What does the large company receive in return for its patents?

In October of 2007, Ron Laurie and I first presented our paper, entitled “A Survey of Established and Emerging IP Business Models,” at the 8th Annual Sedona Conference on Patent Litigation.  In that often-cited paper, we presented a new taxonomy comprised of seventeen IP business models in the marketplace.  Although, admittedly, the taxonomy we presented was not perfect, we did feel that it adequately described what we observed as the rise of intermediary business models in the IP marketplace.    So where are we now as we enter 2013?

The latest statistics show that the cumulative value of U.S. intellectual property is approximately $5.8 trillion (or 48.4% of GDP), and each year over half a million patent applications are filed, over a quarter million patents are issued, over 4000 patent infringement suits are filed and IP verdicts total over $4.6 billion with a median patent damage award of approximately $4 million.  Against this backdrop, I now present an updated taxonomy containing 19 IP-related business models.  The business models are in addition to the “traditional” operating companies and their “traditional” IP law firms.  Further, while not pretending to be all-inclusive, a directory of players implementing one or more of these 19 IP business models is available for download at the end of this post.

What are these models and who are the respective players implementing them?  These models and their players are generally referred to as “IP intermediaries” because they are neither the IP creators nor the IP “consumers” (e.g., licensees and purchasers).  These intermediaries, however, attempt to perform one or more services or offer one or more products that connect the IP creators and the IP consumers.

On December 20, 2012, I interviewed Paul Ryan. Not Congressman Paul Ryan, but rather the Paul Ryan that is the CEO of Acacia Research Corporation. See part 1 of my interview with Paul Ryan.

What you think of Ryan and Acacia is almost entirely dependent upon the side of the aisle on which you sit; namely whether you are an innovator or a practicing entity. Even more specifically, those who are innovators but don’t have a voice loud enough to be heard by practicing entities are likely to believe that Ryan and Acacia are the answer to their prayers. Those practicing companies that simply want to make a product and sell it without regard to the underlying patents that might be in place are likely to believe Ryan and Acacia are the poster children for everything wrong with the patent system.

My own opinion is this: independent inventors and small businesses that innovate get trampled. They are ignored by larger entities. Acacia Research is a publicly traded company and opens it books to the full extent required by the Securities and Exchange Commission. There is no mystery about their business model, and there is no doubt that when they partner with a patent owner that patent owner will have a voice that will be heard loud and clear by all those who might be infringing.

But you can decide for yourself. Without further ado, here is the culmination of the interview with Paul Ryan.

Paul Ryan is a more common name than you might think. In the world of politics when one speaks of “Paul Ryan” they are talking about the Republican Congressman from Wisconsin who was Mitt Romney’s running-mate and would-have-been Vice President. But in the intellectual property world, particularly the patent litigation world, the name “Paul Ryan” refers to the CEO of Acacia Research Corporation. It is the later Paul Ryan that went on the record with me to discuss Acacia, patent enforcement, how large companies who are infringers disregard innovative independent inventors and much more.

This two-part interview took place on December 20, 2012. With the holidays looming and various articles already in the pipeline for the end of the year and start of 2013 publication slid a bit.

Sometimes when I’m doing an interview I have a good feeling about it and know it will turn out very good in print. This was one of those times. I enjoyed my conversation with Ryan and think you will find it quite informative and interesting as well. Without further ado, here is my interview with Paul Ryan.

Non-practicing entities (NPEs) are once again thrust into the Section 337 spotlight by way of the “domestic industry” requirement.  Back in 2007, InterDigital LLC filed a complaint at the United States International Trade Commission (“the Commission”), with the intention of blocking Nokia’s import of mobile devices into the United States.  InterDigital alleged that Nokia’s mobile devices infringed its U.S. patents relating to power control and high-speed data transmission in 3G wireless technologies.   The Commission sided with Nokia and found no infringement.  However, Nokia’s favorable decision turned sour when it was reversed by the Court of Appeals for the Federal Circuit (“the Federal Circuit”).  Nokia responded by petitioning the Federal Circuit for an en banc rehearing of the case.  In its petition, Nokia focused specifically on the question of whether InterDigital’s patent licensing activities satisfied the “domestic industry” requirement.  Recently the Federal Circuit, sitting en banc, denied Nokia’s petition for rehearing.  The Federal Circuit decision is nevertheless interesting for its treatment of Section 337’s “domestic industry” requirement as it is applied to NPEs.

Under 19 U.S.C. §1337(a)(2), relief at the Commission is predicated on the existence or establishment of an industry in the United States “relating to the articles protected by the patent.”  This is commonly known as the “domestic industry” requirement.  In turn, section 1337(a)(3) provides that an industry is considered to exist if there is in the United States, “with respect to the articles protected by the patent,” significant investment in plant or equipment, significant employment of labor or capital, or “substantial investment in [the patent’s] exploitation, including engineering, research and development, or licensing” (emphasis added).

Eastman Kodak Company, the once mighty technology juggernaut that has fallen on hard times and found itself fighting to get out of bankruptcy, has completed a series of agreements that successfully monetizes its digital imaging patents. Under the agreements, Kodak will receive approximately $525 million, a portion of which will be paid by 12 intellectual property licensees organized by Intellectual Ventures and RPX Corporation, with each licensee receiving rights with respect to the digital imaging patent portfolio and certain other Kodak patents. Another portion will be paid by Intellectual Ventures, which is acquiring the digital imaging patent portfolio subject to these new licenses, as well as previously existing licenses.

Giant patent aggregators like Intellectual Ventures and RPX being involved will certainly make people stand up and notice, and perhaps also make them wish that they have entered the bidding.

The proposed transaction, which achieves one of Kodak’s key restructuring objectives, follows other recent major accomplishments that include an agreement for interim and exit financing for the company’s emergence from its Chapter 11 restructuring, and resolution of U.S. retiree non-pension benefits liabilities. Kodak’s monetization of IP assets further builds on its momentum toward a successful emergence in the first half of 2013.

A multinational corporate client, who was concerned about potentially defending non-practicing entity (NPE) patent suits, recently asked me about its options for joining a U.S.-based defensive patent pool.  Upon doing the research, I was surprised to learn that there are only really three options: Allied Security Trust, RPX Corporation, and Intellectual Ventures!

First, some background.

NPEs, as most of us know, are entities that own one or more patent portfolios, attempt to license them through targeted letter-writing campaigns and then file patent infringement suits against those letter recipients who refuse to enter into non-exclusive licenses.  In some cases, due the U.S. Court of Appeals for the Federal Circuit’s 2007 ruling in Sandisk Corporation v. STMicroelectronics Inc., NPEs often file law suits first and then attempt to negotiate a license with the accused infringer/defendant.

On Friday, December 7, 2012, the United States Court of Appeals for the Federal Circuit issued a precedential opinion in Raylon v. Complus Data that gives hope to defendants everywhere who face objectively baseless patent infringement claims. For a very long time I have preached that the tools to deal with the bad actors in the patent community (i.e., patent trolls) exist if only the Federal Circuit and the district courts would stand up to the challenge. Rule 11 of the Federal Rules of Civil Procedure give district courts the ability to sanction litigants for frivolous court filings. Unfortunately, Rule 11 is almost never used. Today, however, the Federal Circuit determined that the district court abused its discretion when it denied the defendants’ Rule 11 motions.

At the conclusion of the decision Judge Prost, writing for the majority, wrote:

We reverse the district court’s holding that there was no Rule 11 violation and remand to the district court to determine, in the first instance, a proper sanction. Because the court’s evaluation of § 285 relied on its Rule 11 analysis, we vacate the district court’s denial of attorneys’ fees and costs, and remand for the court to reconsider defendants’ motions in light of our decision.

Of particular note, however, is that Judge Reyna only joined in the decision, but chose to file a separate concurring opinion. Judge Reyna explained that he differed only slightly with his colleges (Judges Prost and Moore). Judge Reyna would not have preferred not to remand the issue for further consideration on the merits of the defendants’ request for attorneys fees, but rather would have found this case exceptional and remanded only on the issue of what sanctions would be appropriate pursuant to 35 U.S.C. § 285.

Between the legacy issue of bad patents, patent auctions and the many who purchase patents, what has started to happen is that the patent system rewards those who have the finances and ability to game the system. But the problem is extraordinarily complex. What is clear, however, is that the enforcement of bad patents is a problem within the patent and innovation industry.

But at the same time it would really be GREAT if the media and anti-patent community would get a clue and understand that the problem with bad patents is largely a legacy issue. Those that say that the United States Patent and Trademark Office continues to hand out dubious patents like candy are flat wrong. The bad patents that we witness being used in unsavory shake-downs have not been granted over the last few years, but rather were granted many years ago, under a different patent regime and when there was little findable prior art for patent examiners to use.

Those that pretend that bad patents issue today by the dozen and for a dime are living in a fantasy world that does not approximate reality. Yet the misinformation continues, undaunted by reality. So if reality doesn’t support the mountains of misinformation about the patent system and how it operates today, what is going on?