Posts Tagged: "patent monetization"

In a survey by IQPC (International Quality and Productivity Center) 52% of corporate respondents cited failure to align business strategy with IP coverage as one of the key risks to their company’s IP assets. It’s especially shocking when you know that the “top patents,” patents that are valuable because they have a commercial value (or will in the near future) are limited to 15% of a company’s patent portfolio.

New business realities have led forward thinking business strategists to look for new ways to monetize innovation in spite of the popularly held belief by many in the U.S. that patents are worthless. Not surprisingly, these new strategies for monetizing innovation focus on tried and true business strategies for building tech companies from the ground up. It is back to business basics.

To hear the rhetoric from lobbyists for some large tech companies you would think patent licensing is some sort of shady business, akin to extortion. Never mind the hypocrisy inherent in these same firms earning tens of millions of dollars annually licensing their own patents — most of which are never used in their own products — to other companies. The truth is that patent licensing is as American as apple pie, and always has been.

It is truly a shame that so many have bought into the demonization of patent owners without any critical thought. In order to believe the narrative emanating from certain Silicon Valley giants you would have to believe the existence of helpless multinational, multi-billion dollar companies on their knees and wholly incapable of defending themselves against despicable independent inventors, diabolical universities, and monstrous scientific researchers. After all, looking to find a cure for cancer, or trying to figure out how to clean up the environment, or invent the next great kitchen gadget that will be the darling of QVC by definition makes someone vile, immoral, corrupt and down right sinful! A real devil in disguise!

One of the largest risks for a successful technology-based small business, startup, or individual inventor, is success itself—successful inventions invite predation by large market incumbents. The only protection many inventors have against loss of substantial investment in bringing a raw invention through the process of R&D, manufacturing, and establishing a market, is the patent system; patents provide the foundation of the market for inventions. For the patent system to work in “little guy vs. big guy” situations, the help of patent enforcement specialty firms is often required. This help must be financed, and often the best financing is through contingency arrangements, partnerships, or outright sale of the patents. For over a century, such patent intermediaries have provided important avenues for patent owners to keep control and coordinate investments and appropriate returns on their inventions. The patent enforcement-specialty firms of today are NPEs, more commonly referred to pejoratively as “patent trolls.”

Earlier today the Senate Judiciary Committee held a hearing on patent reform. The hearing was titled The Impact of Abusive Patent Litigation Practices on the American Economy. There was a variety of diverse views presented by the witnesses, including one witness, Krish Gupta, who continued to cite the bogus and thoroughly debunked Bessen-Meurer “study” that erroneously claims that patent trolls…

The order bars the company, MPHJ Technology Investments, LLC, and its law firm from making deceptive representations when asserting patent rights. The settlement with MPHJ, announced in November 2014, is the first time the FTC has taken action using its consumer protection authority against a patent assertion entity.

The U.S. economy is full of intermediaries everywhere you look. But for some reason we have demonized the intermediaries in the market for innovation. Think of it this way. Most people buy their groceries at a grocery story. That grocery store does not grow any of the vegetables, raise the meat, nor catch the fish. It is simply an intermediary. Now I can see why from the point of view of a manufacturer the PAE may be a nuisance. But from the inventor’s point of view the PAE is a valuable intermediary.

Earlier today 40 economists and law professors wrote to Senate and House Judiciary leaders explaining that the data it that keeps being cited to justify HR 9, otherwise known as the Innovation Act, is “flawed, unreliable and incomplete.” The professors caution Congress to proceed cautiously, particularly given the numerous misleading and flawed studies that “highly exaggerated claims regarding patent trolls.”

The legal costs of the IP system should be measured against the value of intellectual capital in the U.S. economy, estimated in a study by Kevin Hassett and Robert Shapiro to equal between $8.1 trillion to $9.2 trillion… Weakening the US patent system harms economic prospects for middle income earners because it will stifle innovation, discourage patenting, reduce private investments in new technologies protected by patents, slow economic growth, increase unemployment, and harm consumers. The proposed reforms will reduce prospects for economic advancement for middle income earners because they damage entrepreneurship and small business and favor large incumbent firms over inventors and innovators.

There are a variety of problems with this paper, the conclusions reached and the methodology. Perhaps the largest problem is that Professors Feldman and Lemley rely on subjective evidence rather than volumes of objective evidence that contradict the self-serving responses from those who are licensing rights they are already infringing. What else would you suspect from a homogenous subset of individuals who collectively don’t like the patent system very much? Collective bias seems a far more likely answer as to why there is “near unanimity,” as the Professors claim. Even so, how is it possible that any group could ever achieve near unanimity about anything? The fact that there was near unanimity demands one to question whether there is a bias or flaw in the survey, yet no such inquiry seems to have been made.

Phil Hartstein is the President and CEO of Finjan Holdings, Inc. (NASDAQ: FNJN)… On January 6, 2015, I interviewed Hartstein, which appears below. We had a wide ranging and lively discussion about the current state of the patent market, how the pejorative use of the term “patent troll” does nothing but attempt to denigrate innovators as second-class patent owners simply because they don’t manufacture, efforts to promote ethical licensing standards, and patent reform.

While timing a bottom is never a good investment strategy, recognizing a bottom does present real opportunity. As the 18th century British nobleman Baron Rothschild is famously quoted as saying: “The time to buy is when there’s blood in the streets.” This contrarian philosophy is based on the realization that when things hit bottom they can’t get any worse, and can only get better. In the patent/innovation sector there are some recent signs that things may have hit the bottom and be trending up. The Supreme Court did not say software is patent ineligible, and we know from previous decisions that at least some business methods are in fact patent eligible. The Federal Circuit finally found software patent claims patent eligible and Senator Dick Durbin (D-IL) seems to have no appetite for patent reform.

Of course, if the debt provider is doing their job properly the valuation of the assets is to provide a safety net in the event of default. The fact that certain patents are currently under assault has to weigh into the valuation proposition, but the debt provider is not in the business of providing money to acquire patents. The debt provider would rather never have the assets revert to them. They want regular payments to service the debt. Thus, who you work with matters on at least one level. “The story matters a lot, and management is super important,” Zur explained. “One should look at the management because it is extremely important how the company itself, not the assets, are going to succeed.” If management is bad that increases the risk and debt providers have to act accordingly.