Ethical Licensing vs. Bad Practices Damaging the Industry

Phil Shaer (right) with law school friend Mervyn Valadares, who was also in attendance at AIPF annual meeting in Washington, DC.

Conversant IP is a patent owner that licenses their portfolio to others. They were the first such licensing company to take on the issue of ethical patent licensing. In fact, in November 2013, Conversant IP issued a groundbreaking set of guidelines for ethical patent licensing practices, in an attempt to initiate a discussion within the industry and to distinguish the many licensing entities that are not abusers of the patent or litigation systems.  Then in July 2014, the company became the first licensing entities to launch a public awareness campaign.

“Sending ill-founded patent demand letters may be legal, but it’s just plain wrong,” said John Lindgren, President and CEO of Conversant said in July 2014. “This practice is hurting small business owners financially. It’s giving legitimate patent licensing a bad name. And it’s seriously undermining the public’s belief in the U.S. patent system and the value of patents as stimulants to innovation and economic growth.”

What brings this issue back to the pages of IPWatchdog is a recent presentation by Phil Shaer, Senior Vice-President and Chief Licensing Officer of Conversant IP, which occurred on Monday, September 29, 2014. Shaer was a featured speaker at the annual meeting of the Association of Intellectual Property Firms (AIPF), which was held at the Washington Plaza Hotel in downtown Washington, D.C.  During his presentation he explained that Conversant IP is wading into the patent troll debate because it is necessary for them, and other licensing companies, to “stand up to the bad practices that are damaging the industry.”

“The fundamental issue is whether the patents are valid, infringed and enforceable, and if they are then we should be having a business discussion,” Shaer explained during his presentation at AIPF. “Ethical patent licensing shouldn’t be any different than ethical legal practice in general.” He would later go on to say, “litigation should only occur as the result of unsuccessful good faith negotiations.”

Acknowledging that many of the problems facing the licensing industry was brought about due to bad actors dominating the discussion, Shaer explained that the absence of legitimate patent owners who license real technologies from the debate has also contributed. Rather than self regulating the industry, legitimate patent owners and licensing entities have stayed in the background, which continues to contribute to the negative public perception of the patent system.

“We are the first licensing company, to our knowledge, to publicly campaign against patent troll demand letters that we believe are undermining public confidence in the patent system,” Shaer explained. “As we all know, the patent troll label is not applied just to NPEs, but indiscriminately to the actions of many patent owners. With this campaign we are trying to shift the label to where it belongs — to the actions of unethical patent owners, particularly to those who use low quality patents to achieve extortionist and nuisance settlements.”

Shaer and Conversant have for some time tried to provoke a discussion of ethical patent licensing. The “campaign” he referred to is represented in the Conversant sponsored website Stand Up to the Demand, which advocates for best practices and educates the small business community about bad patent demand letters. For example, on the Stand Up to the Demand website there is a flowchart that one can follow through to determine whether they are looking at a legitimate claim called a “Notice Letter,” or received a bogus claim called a “Demand Letter.”

Conversant distinguishes between a “Notice Letter” that will include a lot of specific detail that shows that the patent owner has done research, has at least some plausible rationale to believe that there is or may be ongoing patent infringement. A “Notice Letter” typically will also suggest that the patent owner is prepared to negotiate and will invite a discussion. Conversely, a “Demand Letter” is most often crafted by bad actors frequently known as “patent trolls.” These bad acting patent trolls intend to intimidate thousands of small businesses into paying a small amount rather than fighting even if there is no plausible claim of patent infringement.

Stand Up to the Demand also provides an example of what they call a bogus Demand Letter, and an example of a legitimate Notice Letter.  The example letters are highlighted and footnoted with explanation about why various aspects of a letter suggest that it is coming from someone who is only seeking to intimidate you into paying, versus a legitimate claim that you may be infringing upon a patent. The differences between the two types of letters are stark.

One particular characteristic of a bogus Demand Letter is a cease and desist demand coupled with a threat of a lawsuit. Another hallmark of a bogus Demand Letter is an exceptionally short period of time to respond, such as 5 days, which is an unreasonably short period of time to both find an attorney and investigate the possibility that you may be infringing.

By comparison, a legitimate Notice Letter will not threaten a lawsuit, will invite a conversation or meeting, and usually does not contain a cease and desist demand. If you are dealing with an entity that wants to license you a patent or patent portfolio why would they ever want you to stop doing what you are doing and no longer need a license? Generally speaking, licensing entities would greatly prefer that you continue to do what you are doing and pay a reasonable sum for the rights you are using. That would not be true, however, if you were to receive a letter from a competitor who feels you are taking business away.

Stand Up to the Demand is looking for stories about companies or individuals who have received a demand letter for patents you didn’t infringe. To share your story about a demand letter visit Share Your Story.