Late yesterday I was contacted via telephone by a representative of Google about my article titled Is Patent Litigation Really a Problem for Big Tech? I was told during that telephone conversation that I misunderstood what Suzanne Michel said during the symposium at American University. I was also told that Google does not sell patents to patent trolls, although other big tech companies do, which concerns Google.

There is a video tape of Michel’s presentation, which you can view online courtesy of American University. I have reviewed the pertinent part of the video tape multiple times, and I have asked for input from several trusted advisers. I have also received unsolicited input from others who have also seen the video tape and who were present at the event. What is most clear is that there is a reasonable difference of opinion about the meaning of what was said.

Google has asked for a retraction based on what was said at 58:45 into the video segment, but what I wrote relied upon what was said at 53:45 into the video segment. I am not entirely comfortable with a retraction because I think my interpretation of what Michel said was fair, although I’m willing to accept Google at face value when they tell me that they do not sell to patent trolls. So rather than retract and say I misinterpreted what was said I will leave it to the readers to determine the reasonable interpretation of what was said during the presentation.

UPDATED: May 2, 2013 at 12:17am ET — An earlier version of this article explained that Google sells to patent trolls. Google has since informed me via telephone that they do not sell to patent trolls, but other big tech operating companies do sell to patent trolls, which concerns Google. See Google: We Don’t Sell to Patent Trolls.

Recently at a conference at American University Washington College of Law a senior patent attorney from Google — Suzanne Michel — lamented that big technology companies are practically forced to sell their patents to patent trolls. See Fixing the Patent System. So as it turns out big tech companies are responsible for creating at least a portion of the so-called “patent troll problem” by and through their own actions and business decisions. So how and why should their position relative to patent litigation be taken at all serious when they themselves admit to creating the problem in the first place?

If big tech companies are selling unwanted patents to patent trolls who then turn around and monetize them there are a lot of questions to ask. First, why are they selling to those who then turn around and sue them? There is an obvious solution to this problem, if it is indeed a real problem and not one made up for sake of publicity and swaying public opinion (and political opinion on Capitol Hill). Second, what are they doing selling patents that can be monetized? If they are giving these patents away how is that appropriate at all when the company needs to answer to shareholders? Isn’t the goal of any company to maximize returns for shareholders? Finally, if operating companies are selling to patent trolls then how is it possible that patent litigation is as big a problem as it is claimed to be? Something just doesn’t smell right here, but a room full of symposium attendees were told that big tech companies sells out to patent trolls. Curious.

As counter-intuitive as big tech companies selling to patent trolls may be, equally head scratching is how big tech companies complain about getting sued but refuse to negotiate unless they are sued. Seems like their actions force lawsuits that they complain about and hoist up to proclaim the patent system broken. Talk about the emperor wearing no clothes!

On Friday, April 12, 2013, I was at American University Washington College of Law for a program titled Patent Subject Matter Eligibility Today: Software, Genomics, and Business Methods. I participated on a panel titled CLS Bank en band: Are Software Methods Patentable? What I want to write about today, however, is not our panel presentation, but rather the Keynote presentation by Suzanne Michel (no relation to Chief Judge Michel), a former deputy director of the FTC who is Senior Patent Counsel at Google, Inc., working in Google’s policy office in Washington, DC.

It is no great surprise probably, but I disagreed with practically everything she said, although I did enjoy her presentation. I love to debate the issues, and she is extremely knowledgeable and well briefed on what is happening in the trenches. Those of us who disagree with the proffered narrative that the patent system is broken can’t ignore competent advocates like Michel. She is not a patent-hater and her message is sharp, crisp and clear, although I do think it is misleading. The patent system is not broken, and for reasons I can only guess the best and brightest leaders in much of the big-tech industry are pursuing paths not calculated to succeed; at least if the goal is to stem the rise of patent litigation and innovate for the future.

With this in mind, what follows is a summary of Michel’s presentation, which if not titled was certainly themed — Fixing Problems of the Patent System to Improve Innovation. I also provide my thoughts and comments in the format of comments from the peanut gallery, or perhaps as a patent law equivalent to Mystery Science Theater 3000.  In order to differentiate my thoughts/comments from Michel’s presentation, my comments are italicized, colored, indented and tagged with the IPWatchdog logo.

Public attention is increasingly focused on the phenomenon of patent monetization entities. Known colloquially as “patent trolls,” these entities concentrate on creating income from licensing or litigating patents, rather than producing a product.

The activity of patent monetization is coming under increasing scrutiny from a variety of governmental entities. In December of 2012, the Federal Trade Commission and the Department of Justice held a joint workshop on the behavior of patent assertion entities.[1] The Patent and Trademark Office held its own workshop a month later on proposed sunshine rules that would have the effect of providing greater transparency of patent ownership. The study and identification of activity by patent monetization entities has been hindered by the complex structure and arrangements of many such entities, whose activities are shrouded in complex layers of subsidiaries or revenue-sharing agreements.[2]

In an effort to better understand the nature of patent monetization, Congress directed the nonpartisan Government Accountability Office (GAO) to study “the consequences of patent infringement lawsuits brought by non-practicing entities.”[3]  The directive was passed as part of the 2011 patent reform legislation, the America Invents Act. At the request of the GAO, two of the authors provided data on patent monetization entities using a database from Lex Machina.

Recently I learned that Drinker Biddle & Reath LLP and NERA Economic Consulting are teaming together to co-sponsoring a luncheon on May 8, 2013, at the Four Seasons Hotel Silicon Valley at East Palo Alto to discuss effective responses to patent infringement claims and threats of such claims from patent assertion entities – also known as patent trolls. According to Bob Stoll, former Commissioner for Patents who is currently with Drinker Biddle, “Our program will explore the reasons for the steady — some would say explosive — rise in PAE enforcement practices in recent years and what various categories of the targets of these practices might do about it.”

The reason this luncheon discussion caught my attention was because it cross through my e-mail box at a time when I was already working on updating patent litigation statistics I have accumulated dated back to 1980. See The Rise of Patent Litigation in America: 1980 – 2012.

Certainly there is an increase in the number of patent litigation lawsuits brought, particularly over the last several years. Many want to blame patent wars over smart phones and pretend that they are something unusual, when in fact patent wars over important technologies are hardly new. In fact, there were 600 patent lawsuits brought over an 11 year span relating to the invention of the telephone. See Worldwide History of Telecommunications. Yet, Apple has been involved in 142 patent lawsuits relating to the smartphone since 2006 according to the NY Times.  This should help put into perspective the so-called smartphone patent war problem. The smartphone patent wars are of a much smaller scale and hardly the first battles of their kind. Amazing how telephone technology prospered even with 600 patent lawsuits. The patent nay-sayers would have you believe that is impossible, but we know it happened.

But what is the solution? Do we even need a solution?

There is no doubt about it. Even a casual glance at patent litigation statistics shows a sharp increase in the number of patent cases being initiated over the last several years. For example, see the following three charts. The data for which comes from the Office of Administrative of the United States Courts, and dates back to research I initially started in 1997 while working on my Master’s thesis, which dealt with patent litigation and the use of alternative dispute resolution.

The House Judiciary Subcommittee on Courts, Intellectual Property, and the Internet on March 14, 2013, heard from six witnesses that the business of “patent assertion entities” (PAEs) is inflicting severe harm on a broad range of technology users.

That business involves the enforcement of weak or invalid patent claims against initial and downstream users of devices that are remotely related to the patent claims for the sole purpose of extracting settlements in amounts much lower than the cost of litigating the rights. The witnesses at the hearing agreed that, when confronted PAE demand letters on frivolous claims, settlements by and large are economically unavoidable.

Committee Members Are Cautious

The Subcommittee had before it a particular bill (H.R. 845; the Shield Act) to create a limited loser-pays system. It would award full costs to the prevailing party unless the plaintiff is (1) the inventor, (2) the original assignee, (3) one who produced or sold items covered by the patent, or (4) a university or technology transfer organization.

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).