Nothing New in the World of Patents: "Patent Licensing and Secondary Markets in the Nineteenth Century"

In a recent blog post "Nothing New Under the Sun: “Patent Trolls” Have Been Around Forever," I discussed Professor Zorina Khan's review of Nineteenth century patent assertion entities.  In a recent essay, Professor Adam Mossoff of George Mason University Law School provides another supportive account of patent licensing and secondary markets in the Nineteenth century.  Specifically, Professor Mossoff, in a short and readable paper, "calls out" those commentators who assert that the "patent licensing business model" is a new phenomena. Professor Mossoff summarizes and reviews Professor Khan's research as well as the research of other historians that demonstrates there really is nothing new (at least not much) in the world of patents. 

Professor Mossoff provides the example of three inventors who licensed their patents.  He discusses Charles Goodyear (process for vulcanized rubber), Elias Howe, Jr. (lockstitch in sewing machines), and Thomas Alva Edison.  About Goodyear, Mossoff notes, "Some of Goodyear's assignees and exclusive licensees, who were patent licensing companies themselves, filed hundreds of lawsuits in the nineteenth century; they sued firms, individuals, and even many end-users such as dentists, for patent infringement."  He further states that, "Contrary to many claims today, end-user lawsuits even by patent licensing companies are nothing new in America's innovation economy."  

Notably, Mossoff states that Howe used "third-party litigation financing."  Howe also joined "the first patent pool in American history."  "[Howe] made almost the entirety of his fortune on the basis of the royalty stream from his license to this patent pool, which further licensed his rights to other companies."  Mossoff makes an interesting point about Edison.  Interestingly, he notes that Edison was famously a terrible businessman, but a great inventor.  The point here seems to be that specialization matters--licensing for commercialization to those who know how to do it is critical to getting patented inventions to the public. Not all inventors will be good businessmen--experts in manufacturing or finance. Edison's "employ[ment of] the patent licensing business easily meets today's definition of an 'NPE.'"  

Professor Mossoff also provides interesting examples of the secondary market, which include the classified advertisements in the magazine Scientific American. The classified advertisements included numerous "ads for the sale of patents and patent rights."  Moreover, he discusses the research of economists Naomi R. Lamoreaux, Kenneth Sokoloff, and Dhanoos Sutthiphisal: "Their research revealed the fundamental and significant role performed by a group of market intermediaries known at the time as 'patent agents.'"  Professor Mossoff asserts that these "patent agents" are "predecessors of today's patent aggregators." 

Finally, Professor Mossoff states that a historian notes "after detailing the problems for nineteenth-century inventors who usually lacked manufacturing and commercial finance skills, that 'given the risks associated with manufacturing, many nineteenth-century inventors preferred to either sell or license their patents.'"  He concludes that, "In sum, it is simply false to assert that these commercial mechanisms for bringing patented innovation to market are a new phenomenon today." What should be the role of this type of research given the state of the debate on NPEs/PAEs today?  Does it change the analysis concerning the merits of NPEs/PAEs?  

Intellectual Ventures versus Symantec: when a troll is not a troll, and a victory is not a victory?

In case you missed out, Intellectual Ventures (IV) reached a milestone of sorts last Friday, when a jury in Delaware ordered Symantec, the computer security giant, to pay IV $17 million in damages for infringing two US patents. It marked the first time that IV had received a favourable jury verdict. Remember the days when Intellectual Ventures talked about litigation as the least desirable business alternative? That may have been true before 2010, but since then the company is reported to have filed more than 50 lawsuits. So is IV changing business course, with greater emphasis placed on litigation to complement its on-going licensing business? Probably not.  After all, IV claims that it has received $3 billion in licensing revenue, while the jury verdict amounted to "only" $17 million. Still, this jury verdict is significant enough to warrant further comment.

As reported by artstechnica.com, the case at issue involved three US patents, two of which were found by the jury to have been infringed, while a third was not. The infringed patents are #6,073,142, filed by Utah's Park City Group in 1997 and #6,073,142, filed in 1999, and which later found its way to AT&T before being purchased by IV. A third patent, #6,460,050, was held not to be infringed. Winning on two out of three patents does not seem too bad. But consider that IV is reported to have asked for $299 million in damages, which means that IV was awarded less than 6% of the amount sought in the complaint. Moreover, the jury declined to award IV ongoing royalty payments. Against this backdrop, did IV really win? It depends who you ask. The head of litigation at IV, Melissa Finocchio, after thanking the jury for its verdict, stated:"We remain committed to defending inventor rights and protecting the interests of our investors and customers." To the contrary, a spokesperson for Symantec said in an email that "[w]e are pleased the verdict came back for substantially less than the amount that Intellectual Ventures was seeking, and are considering our options to reduce the damages even further." Stated otherwise, both sides seem to have been satisfied with the verdict.

When considering this jury verdict in light of the broader IV patent litigation context, one gets the feeling that, whatever the award that IV ultimately banks from Symantec, there is something "oh so yesterday" about IV's litigation strategy. Recall that IV filed suit against Symantec and other defendants in late 2010. Some major companies, such as Check Point and Intel's McAfee division, are reported to have settled with IV. Symantec refused to do so and it received the jury verdict finding the company liable for infringement. Another company, Trend Micro, will have its day in court in May 2015. To round off the picture, the case against Motorola Mobility ended up as a mistrial when the jury could not reach a unanimous verdict. A retrial is set for next month. The upshot is that IV has won some cases and lost some cases in seeking to enforce these patents, but the amounts appear to pale in comparison with the amounts that it has has allegedly obtained by non (or less) litigious means."Oh, so yesterday", unless the increased interest in litigation is a signal that IV's business model resting on non-litigious means is faltering.

Moreover, one wonders just who much IV wishes to be portrayed in the media as exploiting its huge patent portfolio via litigation. Notably, bbc.com reported that the judge barred Symantec from using the term "patent troll" in the context of the case, showing just how toxic the term has become. This is so, despite the fact that mass-scale patent aggregation per se is not equally decried. One can point to defensive patent aggregators, such as RPX, which buy up patents and then announces that it will not assert those patents against the company's member subscribers. Litigation is (at least up to now) not part of the business model of the defensive patent aggregator. Also, some respectable commentators have suggested that patent aggregation may have value as a means for reducing transaction costs in the context of commercial transactions. IV probably cannot remake itself (back to the future?) as a defensive patent aggregator. But perhaps it can try to take steps whereby it becomes better known as a facilitator of IP transactions than patent litigation -- if, of course, IV ultimately cares.

The giants among us -- or US"?

"The Giants Among Us" is an article by Tom Ewing & Robin Feldman that has recently been published at 2012 Stanford Technology Law Journal 1.  You can read it online here. Astonishingly, given that it was posted three weeks ago and covers such an important subject, no readers' comments have yet been posted in response to it.  IP Finance readers may wish to take note of its abstract:

"The patent world is undergoing a change of seismic proportions. A small number of entities have been quietly amassing vast treasuries of patents. These are not the typical patent trolls that we have come to expect. Rather, these entities have investors such as Apple, Google, Microsoft, Sony, the World Bank, and non-profit institutions. The largest and most secretive of these has accumulated a staggering 30,000-60,000 patents.

Investing thousands of hours of research and using publicly available sources, we have pieced together a detailed picture of these giants and their activities. We consider first the potential positive effects, including facilitating appropriate rewards for forgotten inventors, creating a market to connect innovators with those who can manufacture their inventions, and most important, operating as a form of insurance – something akin to an Anti-Troll defence fund.

We turn next to the potential harmful economic effects, including operating as a tax on current production and facilitating horizontal collusion as well as single firm anticompetitive gamesmanship that can raise a rival’s costs. Most important, we note that mass aggregation may not be an activity that society wants to encourage, given that the successful aggregator is likely to be the one that frightens the greatest number of companies in the most terrifying way.

We argue that mass aggregators have created a new market for monetization of patents. It is vast, rapidly growing, and largely unregulated. We conclude with some normative recommendations, including that proper monitoring and regulation will require a shift in the definition of markets as well as a different view of corporations and their agents".

Slightly mischievously, I did a word count on "Intellectual Ventures" which revealed 279 references to that remarkable business. Even more mischievously I did a word-count for "Europe", which secured just three mentions. This is an absorbing, well-reasoned and attractively-presented essay -- but it cries out for a counterpart based on European data, regulatory mechanisms and legal background with which to complement it. Is there anyone in Europe who is prepared to take up this task?