Who are the “Good” “Trolls”? Or, How to Monetize Well?

This blog, in the past, has discussed the merits of so-called “patent trolls” or patent assertion entities (PAEs), here, here and here.  For sure, some PAEs or "trolls" provide a helpful service for firms, universities and some inventors without the wherewithal to enforce their patents.  And, defining exactly what is a “troll” may be a difficult task.  But, are all PAEs and “trolls” the same?  Are there good PAEs and “trolls”, and bad PAEs and “trolls”?  How do you tell the difference?  Joe Beyers and Wayne P. Sobon (both of Inventergy) recently published an article on Corporate Counsel titled, “Do’s and Don’ts of Corporate Patent Monetization.”  The article helpfully explains why patent owners should beware the bad “trolls” or PAEs and should partner with the good “trolls” or PAEs.  Why should they be concerned?  The authors wisely state that protection of the brand is paramount.  Association with a “bad” PAE or “troll” could reflect negatively upon the patent owner.  The authors provide a list of criteria for choosing a “licensing partner”.  Here are the “Don’ts”:

1. DON’T choose a licensor with a reputation for acquiring poor-quality patents and quickly suing.

2. DON’T select a licensor with a history of settling claims for a lot less than the cost of litigation (i.e., “nuisance fees”).

3. DON’T work with a licensor that sends widespread demand letters to multiple companies with little or no evidence that its patents are being infringed.

4. DON’T use a licensor that’s been the subject of any state actions or consent decrees, or has been forced to pay an opposing party’s attorneys’ fees.

5. DON’T partner with a licensor that operates behind hidden shell companies or otherwise has a reputation for abusive patent assertion behavior.

Here are the Do’s:

1. DO select a licensor that has made a public commitment to transparency and ethical business practices—and then speak with its licensees to confirm that this commitment is genuine in deed as well as word.

2. DO work with a licensor that seeks licenses only from appropriate companies (rather than startups or small retail businesses), and that comes to negotiations with substantive claim charts and other evidence of use.

3. DO choose a licensor that selects, owns and manages high-quality patent assets developed by global operating companies with reputations for innovation, like you.

4. DO use a licensor that takes active steps and commits material resources to ensure the quality of its patents, and vets them prior to licensing.

5. DO ensure that members of the licensor’s executive team have product or service company experience, and understand the needs and concerns of companies like yours regarding patent value creation.

This brings me to my next question.  Well readers, who are the “good” “PAEs” or “trolls”?  Please name them.  

I suppose maybe there are no “trolls”--just naughty behavior. 

Fordham conference discusses patent monetarisation

This year's Fordham IP Conference dedicated a "sunrise seminar" session to extracting value from patents, moderated by Michael G. Lubitz (GTT Group).. First to speak was David Anderson (VP Corporate Development, RPX, right), who addressed the massive inefficiency of monetarisation of patents by non-practising entities (NPEs), given the cost of litigation: it costs around $52 million to extract a profit of $8 million, he said. Last year some 2,500 companies were sued by NPEs in the US. We can expect to see some of the inherent inefficiencies whittled away, he added.

Peter Holden (IP Value) spoke next. IP valuation really started some thirty years ago, with securitisation, but has now become a large driver of value in IP transactions, he noted.  What we see now is the rise of risk capital as a force in driving patent value, as corporate and private investors invest in bets worth hundreds of millions of dollars on the outcome of IP litigation. This correlates to an increased level of focus on IP value at board level. Most funds are not captured by IP per se but are project-based, the projects being based on such factors as a need to sell for liquidity or acquisition for risk distribution.

Daniel Ilan (Cleary Gottlieb) then addressed some of the pitfalls of buying patents from a bankrupt seller, as well as the importance of conducting proper due diligence wherever time permits.  Following bankruptcy, people and documents tend to disappear, along with engineering data, and it can be difficult to obtain statements from inventors. Claims against the bankrupt business can spring out of the  woodwork, since the bankruptcy process encourages them to come forward. There can however be advantages: a court can give good, clean title -- and encumbrances such as existing licences can be rejected or removed. If a licensee exercises its right to reject the licence following a licensor's bankrupcty, that can be good too.  However, it is not clear how far the US provisions apply to non-US parties.

Jose Esteves (Skadden) considered the legal dimension of government involvement or interference in IP monetarisation deals, particularly where state-backed or important national businesses are at stake, as well as legislative and enforcement issues such as the proposed SHIELD Act in the US and the US ban on the import of Chinese telecoms goods while allowing thousands of Chinese patent applications in the same sector. Said Jose, government involvement can result in greater complexity in an area where more simplicity is required.

This session continued with talks by Owen Byrd (Lex Machina) and Selvyn Seidel (Fulbrook Capital Management), which this blogger had to miss on account of his participation in another conference session.