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What Patent Trolls Can Teach TTOs about Extracting Value From IP Mary Anthony Merchant, Ph.D. Lawrence K. Nodine April 30, 2009.

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Presentation on theme: "What Patent Trolls Can Teach TTOs about Extracting Value From IP Mary Anthony Merchant, Ph.D. Lawrence K. Nodine April 30, 2009."— Presentation transcript:

1 What Patent Trolls Can Teach TTOs about Extracting Value From IP Mary Anthony Merchant, Ph.D. Lawrence K. Nodine April 30, 2009

2 WHY ASK THE QUESTION? What have trolls taught us about IP Should Universities use trolls or their methods to exploit their IP?

3 WHY ASK THE QUESTION? Universities have vast IP resources University IPs value not fully extracted Litigation is costly and controversial Aggressive enforcement feels contrary to University mission

4 Where are we now? –Increased Patenting Activity by Universities and others –Increased value in IP –Certain types of patents are more vulnerable to trolls –Scope of improvements may be incremental SET THE STAGE

5 RISE IN UNIVERSITY PATENTING Universities obtained 16X as many patents in 2004 as in 1980 –250 in 1980 –3933 in 2003 Tech transfer offices 100X Bayh-Dole $1 Billion/yr 12% nanotech patents go to universities 18% of biotech patents to U.S.

6 VALUE OF IP In 2006, 75% of the value of publicly traded companies was linked to intangible assets Up from 40% in 1980

7 UNIVERSITY LICENSING REVENUE o In 2000, Universities collected $1.1BB in license royalties from 13000 patents o Reinvested in education o University IP not fully exploited o Less than 1% of licenses generated more than $1MM.

8 COMPARE TO OTHERS When compared to others, It seems like trolls are doing better

9 Examples- Blackberry v RIM Threat of injunction significant Plaintiff NTP (troll) demanded 6% of sales through 2012-- $1BB Settled for $600MM

10 MORE EXAMPLES ACACIA Traded on NASDAQ In 2006 revenue over $50MM LEMELSON Lemelson Medical, Education & Research Foundation earned estimated $1.2BB in licensing revenue since 1988

11 SHOULD UNIVERSITIES EXTRACT FULL VALUE OF THEIR IP? Are troll methods compatible with University culture? Should Universities use trolls or troll methods to extract value? If the answer is mixed, –Whats good? –Whats bad?

12 UNIVERSITY CULTURE Is there a contradiction? TTOs often isolated Larger University communitythe Academy– not sure it wants to play hardball TTOs increasingly viewed as revenue centers

13 PROBLEMS w/ LITIGATION FOR UNIVERSITIES Discomfort with aggressive enforcement Discomfort with litigation Resources for litigation Concern about the mission

14 Are Universities comfortable with litigation? Evolving……. Litigation Cost Patent litigation has median cost of $2MM for suits with 1-$25MM at stake

15 EVOLVING…. University patent Infringement Lawsuits Since 2000 139 lawsuits with licensees 51 by Universities alone

16 UNIVERSITIES, LIKE ALL LITIGANTS, HAVE WON AND LOST U. CALIFORNIA AND EOLAS: –$521M verdict for U. California and EOLAS in 2003 –Settled in 2007 after appeal remanded for new trial ARIAD (HARVARD AND MIT) V. LILLY –$65M verdict in 2008 –Reversed April 2009; patent invalidated for lack of written description

17 LITIGATIONS INDIRECT COSTS/ISSUES Patent litigation takes time and attention of licensing managers from marketing, search and negotiation activities Litigation at the expense of licensing may reduce the amount of technology licensing that would have occurred At larger or more experienced TLOs, the risk perception of litigation is reduced More royalty income makes a TLO able to fund litigation and to convince Administration that litigation is worthwhile DMEAST #10226950 17

18 LITIGATIONS INDIRECT COSTS/ISSUES When levels of industrial funding are low, universities have less to lose with damaged industry relationships- leading to more litigation When universities rely more on exclusive licenses, which makes it easier for their licensees to bear the cost and risk of patent litigation, universities engage in lower levels of litigation DMEAST #10226950 18

19 THE QUESTIONS Can trolls help? Should troll methods be adopted by Universities? Should Universities act like trolls? Should Universities let trolls do their dirty work?

20 What is a troll? Are Universities trolls? ORIGIN OF THE TERM Intels Asst GC in 2001 Referred to Plaintiff in action against Intel as Patent Troll ALTERNATIVE TERMS Non-producing patent owner Non-Producing Entity (NPE) sounds nicer That extracts licensing fees Or, worse, dares to litigate

21 TROLL CHARACTERISTICS-BAD ACTORS Patents are bought by an opportunist at a low price Enforced after public treats innovation as if its in the public domain Delay issuance Delay enforcement Enforced regardless of true value Wielding injunctive threat

22 TROLL CHARACTERISTICS-Litigation style Trolls cynically exploit high cost of litigation Trolls exploit uncertainty of litigation Routinely settle at less than cost of litigation As do all plaintiffs

23 HISTORY Old issue Thomas Edison obtained and sold hundreds of patents And tried to control the marketplace

24 AGRARIAN DESIGN PATENT TROLLS 1870s Patent Office allowed patents for design improvements to standard tools, like shovels The was a gold rush for these patents Patent sharks extricated license fees from farmers Congress got mad, but –Other inventors (Thomas Edison) objected to reform (innocent purchaser exemptions) –No reform passed

25 HISTORY REPEATS ITSELF- 2X THEN Scapegoat-US Patent Office Change in law changed landscape Substitution Effect-hard to remove patented item Marginal Improvement in Technology Low cost patents NOW Scapegoat-US Patent Office Change in law changed landscape Substitution Effect-hard to remove patented item Marginal Improvement in Technology Low cost patents DMEAST #10226950 25

26 HISTORY What stopped the last Patent Shark/Troll plague? The change in the design patent law (not Congressional action) Now- the courts, and maybe Congressional action DMEAST #10226950 26

27 REMEMBER One mans troll…..

28 Is another mans…

29 Trolls have their defenders Provide capital to extract rent from squatters Fund enforcement that undercapitalized IP owners cans afford

30 The problem is changing

31 Troll power decreasing eBay Eliminated absolute entitlement to permanent injunction –Reduced leverage of all plaintiffs, including trolls –Viewed by many as an anti-troll opinion Bilski and LabCorp signal weakening of business methods patents

32 Trolls evolving Troll Armies Emerging


34 IV as new troll Peter Detkin coined the term patent troll while fighting patent assertions against Intel, for whom Peter was a self-righteous wage slave at the time. But now, being the managing director of a patent troll, Intellectual Ventures, which "invests in pure invention", Peter's pointing the finger elsewhere, to smellier trolls. Intellectual Ventures Detkin trilled that patent trolls are different from patent licensing companies, such as his now-beloved Intellectual Ventures, because patent trolls buy patents to: 1) game the system, 2) are quick to litigate, and 3) assert patents of highly questionable merit. Patent Prospector 2005 /03/dc_patent_troll_hoedown.html&usg=__IFuMW-ok47NfllZK1so- pQEscsY=&h=527&w=451&sz=67&hl=en&start=15&tbnid=FjShXB7ZcQTZtM:&tbnh=132&tbnw=113&prev=/images%3Fq%3Dtroll%26gbv% 3D2%26hl%3Den%26sa%3DG

35 Intellectual Ventures Has amassed 20,000 patents Says litigation not objective, but not ruled out University participation uncertain

36 Intellectual Ventures (IV) Investors get rights to portfolio Investors get license to the portfolio Irony: Peter Detkin, who coined the term patent troll, worked for IV



39 Aggregators as anti-trolls Troll blocking strategies

40 Blocking concept Good guys buys the distressed assets before the bad guys

41 Aggregators Good guys pool patents so that members get defensive licenses Opposite of trolls Examples –Linux Open Invention Network –AST –RPX


43 Aggregators: A force for Good?

44 Or Evil?

45 Choices? Should Universities act like trolls Should Universities cooperate with holding companies like IV or aggregators like RPX?

46 What works for trolls? Are there any lessons

47 What is good troll patent? Patent rights in area where there is commercial competition Broad rights Vague rights Cheap to acquire; bankruptcy auctions

48 Factors affecting troll patent value Target cant change (because invention is incorporated into complex device) –E.g. integrated chip component Incremental innovation area, which makes it hard to show non-infringement –Old isnt much different from new

49 Factors affecting troll patent value Strict Liability Patents easy to overlook; enforcement (or absence of it) signals existence of rights No enforcement=no problem

50 Troll targets Companies that cannot afford stigma or cost of litigation High revenue products where downside risk unacceptable Companies that cannot take injunction risk –Multiple component products especially vulnerable

51 Target areas Technology Software Pharma Biotech

52 High tech patents are broad Why? Areas of rapid innovation? Overworked examiners: average time spent on patent application? –25 hours High approval rate: 66-90% Quality concerns greatest in business method and genomics

53 Patents inexpensive Trolls often buy patents at bankruptcy auctions

54 Asymmetry Trolls not vulnerable to counterclaims for infringement of defendants patents

55 Are Universities patent trolls?


57 Which troll techniques useful Universities do not buy patents; they are not holding companies –However, universities could license companies that have acquired complementary patents –Universities might buy related patents –Third party ownership of related technology could block exploitation of Universitys patents Asymmetry –Universities have little counterclaim risk –However, relationships suffer Universities have IP in troll markets –Pharma, Bio and IT

58 Which troll tactics wont work for Universities Cynical enforcement of bad patents Nuisance value lawsuits –Exploiting the cost of litigation to extract settlement for bad patents

59 Dos and Donts Do License broadly Litigate if necessary Delegate enforcement to good faith actors Dont: Abdicate Sue for bad patents Exploit judicial process defects Block use Demand excessive compensation

60 Is there a better way? Goal: Maximize Social Impact of Technology

61 Alternatives How could Universities co-opt trolls to do good?

62 Exclusive v. Non-exclusive AUTM report: 60% U. licenses are exclusive Appropriate in Pharma Not appropriate in IT For enabling technologies non-exclusive better –Opens up many areas to improvements

63 Instead of outright transfer to trolls Field specific exclusivity Exclusive for limited term Exempt research Dissemination goals as condition of exclusivity Override rights

64 TTO Cultural Changes End TTO isolation Treat TTO as part of larger U. mission; not just revenue Retain march in rights Require compulsory license to publicly funded research


66 What Patent Trolls Can Teach TTOs about Extracting Value From IP Mary Anthony Merchant, Ph.D. Lawrence K. Nodine April 30, 2009

67 BIBLIOGRAPHY The Effects of Patent Litigation on University Licensing Efforts Scott Shane, Case Western Reserve U. Deepak Somaya, U. Maryland Technology Licensing and Patent Trolls 12 B.U. J. Sci. & Tech. L. 388 (Summer 2006) Blackberries and Barnyards 82 Notre Dame L. Rev. 1809 (June 2007) Santa Clara Law School 2009 PowerPoint Stop Looking Under the Bridge …. 17 Fed. Cir. B.J. 165 (2007/2008) Are Universities Patent Trolls? 18 Fordham Intell. Prop. Media & Ent. L.J. 611, Mark A. Lemley

68 DMEAST #10226950 68 What the Company Can Do Keep good records/files For Patents/applications Trademark app/registrations –Title/ MARK –Filing date –Claimed subject matter –Issue date –Assignment confirmation/PTO record –Type of application –Product relationship to claimed subject matter

69 DMEAST #10226950 69 How to Make $$ from IP Patents – Trademarks – Trade Secrets Sell it (yourself) Sell it (assign) License it Monitor royalty stream Monitor compliance Monitor competition Joint Venture Strategic Alliance Start a spin out to exploit

70 DMEAST #10226950 70 Managing Your IP Portfolio Set up regular review of IP estate – cost reductions –Eliminate unnecessary IP Patents and applications Trademarks and applications –Is application likely to issue as worthwhile patent? –Are patents/trademarks still valuable in current business models –Improve criteria used to decide if you will file application –Review and update standard country filing list

71 Litigation Considerations Keep the portfolio in good shape Delaying costs by choosing forum Rocket docket- more costs earlier in process Regular courts- slower, more time for negotiations File but wait to serve- preserves forum, allows for negotiation without litigation costs Re-examination of patent if possible Cancellation of trademarks DMEAST #10226950 71

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