ITUS Corp. CEO Rob Berman sees disarray in the patent monetization business caused by the U.S. Supreme Court’s ruling in CLS Bank v. Alice Corp. as a buying opportunity.
“Whenever markets are in disarray as they are currently, it’s generally a buying opportunity,” Berman said in an interview. “We’re seeing some very good patent portfolios for not a lot of money.”
Berman said Melville, N.Y.-based ITUS may acquire portfolios of patents in the current market dislocation to diversify its portfolio.
“We’re interested in patents with a good story behind them such as an investor rolled over by a large tech company,” he said. “We’re agnostic about tech areas. And we turn down a lot more than we accept.”
Berman said ITUS likes to structure acquisitions as revenue sharing deals because it keeps the inventors engaged and makes bringing the case more compelling.
Currently, ITUS has about $6 million in capital, which Berman said is enough to run the business as it is for two years. This is after the company raised $4 million in a registered direct offering of common stock and 5-year warrants on July 15.
“We’re not just limited in what we could buy by our capital,” he said. “If there was a $20 million portfolio that we liked, we have the ability to raise additional financing. We’ve had people approach us and tell us they’d be willing to finance us in such an acquisition.”
He declined to identify the parties ITUS has had such discussions with.
“We think there are a lot of opportunities in the patent monetization market.”
ITUS isn’t currently planning to raise additional money, though Berman conceded that it’s generally easier to raise money when a company doesn’t need it.
In the meantime, ITUS and other patent assertion companies are learning to live with the disarray caused by the Alice decision, which was handed down in June and concerned patents that involved schemes for mitigating risk that only one party to an agreed-upon financial exchange will meet its obligations.
CLS Bank, a provider of cash settlement services to the foreign exchange market, sued Alice, a Victoria, Australia-based company that claimed rights to intellectual property for the operation of electronic markets, in U.S. District Court in Washington, seeking a declaratory judgment that Alice’s patents were invalid and unenforceable.
Alice had sought licensing fees from CLS since 2002 for a risk-mitigation product that Alice claimed used its intellectual property.
Alice counter-claimed, alleging infringement. In 2011, the district court granted CLS Bank’s motion. That decision was reversed by a panel of the Federal Circuit, but was later upheld by the full appellate court.
In June, the Supreme Court affirmed the appellate court’s ruling. It held that the claims at issue were drawn from an abstract idea of an intermediated settlement that was not eligible to be patented.
Unfortunately for ITUS, the ruling was cited by the U.S. District Court in Marshall, Texas, which invalidated several patents at issue in a case brought by Loyalty Conversion Systems Corp. against nine airlines including American Airlines Inc.
Loyalty, which is now a unit of ITUS, alleged that the airlines had infringed on two of its patents, U.S. Patent Nos. 8,313,023 and 8,511,550, whose common specifications explained a system by which non-negotiable credits are earned in an awards program such as airline frequent flyer miles or hotel loyalty award points.
In dismissing Loyalty’s case against American Airlines and other defendants, Judge William C. Bryson ruled “that the invention claimed in the ‘023 and ‘550 patents is not fundamentally different from the kinds of commonplace financial transactions that were the subject of the Supreme Court’s recent decisions” in Bilski v. Kappos and CLS v. Alice.
In Alice, Judge Bryson said the high court “held that the claims at issue were drawn to the abstract idea of intermediated settlement and that ‘merely requiring generic computer implantation fails to transform that abstract idea into a patent-eligible invention.’”
Whenever "the Supreme Court rules on a patent case people expect it’s going to cause clarity but sometimes it creates murkiness," Berman said. "But it can take years for the lower courts to sort it out. Things are in a bit of disarray.”
ITUS is still studying the decision and trying to figure out whether it should appeal, Berman said.
Judge Bryson also sits on the appellate court that would review the case, Berman said.
Berman described Judge Bryson as “smart” and his decisions as “well reasoned.”
“We’re studying our options,” he said.
Meanwhile, Berman said the Alice decision isn’t the only headwind being faced by the patent monetization business.
“You have the legislative branch, the judicial branch and the executive branch all looking at the patent system to some extent.”
To be sure, patent reform legislation that could have made it even more difficult for non-practicing entities like ITUS by making them responsible for opponents defense costs if their cases were determined to be frivolous, never went anywhere in Congress.
"Things aren’t as clear as they might have been” for ITUS and other NPEs., he said.
Even the U.S. Patent Office has contributed to the murkiness, he said.
“The patent office recently granted us 10 patents having to do with Loyalty Conversion System technology and that was after the Alice decision,” he said.
“One side of the Patent Office is issuing patents while the part that oversees IPRs has been overturning them.”
IPRs, or Inter Partes Reviews, have become one of the first defenses against infringement suits, and companies often ask for an IPR in the hopes of invalidating the patent or patents at the center of a dispute.
“What’s sound about our business is the number of different patent portfolios we have.” he said. “We diversify.”
Indeed, ITUS currently has 10 patent portfolios in the areas of Key Based Web Conferencing Encryption, Encrypted Cellular Communications, E-Paper Electrophoretic Display, Nano Field Emission Display, Micro Electro Mechanical Systems Display, Loyalty Conversion Systems, J-Channel Window Frame Construction, VPN Multicast Communications, Internet Telephonic Gateway, and Enhanced Auction Technologies.
“If anything goes wrong with one patent portfolio, it doesn’t have a major impact on the business,” he said. “We still have seven other portfolios going strong.”
ITUS’s management team has over 30 years of combined experience in patent monetization and patent assertion, and has generated more than $150 million of patent licensing revenue.
Prior to joining ITUS in Sept. 2012, Berman was the founder of IP Dispute Resolution Corp. from 2007 to 2012. Prior to that he was COO of Acacia Research Corp. from 2000 to 2007, and the founder and architect of the company’s licensing business.
Earlier this month, ITUS changed its name from Copytele Corp.
“ITUS was the Greek goddess of protection and we’re protectors of intellectual property,” he said.
The old name, Copytele, was a relic from the 1980s when the 30-year-old company was more of a developer of patented technologies.
On Sept. 3, ITUS also said it settled four infringement suits involving patents covering its J-Channel Industries Corp. window frame technology for an undisclosed amount.
The company said J-Channel entered into licenses with Atrium Windows and Doors Inc., Pella Corp., Ply Gem Industries Inc., and Simonton Building Products Inc., all in connection with the patented J-Channel window frame construction technology.
The agreement resolved four of 27 infringement suits brought by J-Channel in August and October of 2013 in the U.S. District Court for the Eastern District of Tennessee.
The August 2013 suits named Lowe’s Cos., Clayton Homes, Pella Corp., Jeld-Wen, Atrium Windows and Doors, Ply Gem Industries, RGF Industries, Tafco Corp., Kinro Manufacturing, and Elixir Industries, all in connection with U.S. Reissue Patent No. 40,041, covering the J-Channel window frame construction technology, which expired in 2012. The lawsuits cover infringements for periods prior to the expiration of the patents.
The October 2013 complaints named Home Depot U.S.A. Inc.; Anderson Corp.; American Builders & Contractors Supply Co. Inc.; Comfort View Products LLC; Croft, LLC; Moss Supply Co.; Wincore Window Co. LLC; Vinylmax LLC; Simonton Building Products Inc.; HWD Acquisition Inc.; Magnolia Windows and Doors LLC; MGM Industries Inc., MI Windows and Doors LLC; PGT Industries Inc.; Quaker Window Products Co.; Sun Windows Inc.; Weather Shield Manufacturing Inc.; West Window Corp.; Woodgrain Millwork Inc.; and YKK-AP American Inc.
ITUS said J-Channel has now entered into 11 settlements and/or license agreements in connection with the window frame technology.
In the year ended Oct. 31, 2013, ITUS licensed the J-Channel technology to Tafco Corp., RGF Industries and Elixir Industries. It also licensed the Loyalty Conversion System technology to Alaska Airlines Inc. Terms were not disclosed.
In the year ended Oct. 31, 2013, ITUS reported licensing revenue of only $214,000 and a receivable of $175,000 from the four licensees.
One of those licenses accounted for 90% of the total, according to a March 13, 2014 letter sent to ITUS by the Securities and Exchange Commission requiring changes to a registration statement.
Berman declined to comment on the settlements citing confidentiality agreements.
The Loyalty Conversion System patents licensed to Alaska Airlines were the ones invalidated for obviousness by the U.S. District Court in Marshall, Texas.
To contact the reporter responsible for this story please contact Dan Lonkevich at 707 318-7899 or email him at firstname.lastname@example.org.