A rich history of innovation and billions of dollars spent on developing technology and protecting it from patents can't immunize Yahoo! Inc. (YHOO), Blackberry Ltd.(BBRY) and Cantor Fitzgerald from being called a patent troll as they look to monetize their portfolios.
Sunnyvale, California-based Yahoo! is trying to sell its portfolio of 4,000 non-core patents for at least $500 million, though it has lately indicated it may seek to monetize them itself if it can’t get fair value.
Similarly, Waterloo, Ontario-based Blackberry, which developed the once extremely popular Blackberry device, has launched a software licensing program and filed an enforcement action against Avaya Inc.
New York-based Cantor’s CG Technology in April filed enforcement actions in U.S. District Court in Las Vegas against seven sports betting and gaming companies including DraftKings Inc., FanDuel Inc., Zynga, Double Down Interactive, 888 Holdings, Big Fish Games and Bwin.Party Digital Entertainment PLC.
All have been labeled patent trolls by critics and the media.
“Yahoo! and its Excalibur division are not a troll by definition,” said David Pratt, a managing director of M-CAM, a patent asset management advisory firm based in Charlottesville, Virginia.
"A troll for us is an entity that has no actual business, and never had any," Pratt said. "Yahoo! has been a going concern delivering services for years. The portfolio in Excalibur scores out as highly commercial and can and should be legitimately licensed across a broad swath of online businesses.”
He said it’s also not fair to describe either Blackberry or Cantor as a troll either.
“The people who use that [patent troll] language are people who steal other people’s inventions and media who don’t understand the nuances of the patent system,” said David Pridham, CEO of Dominion Harbor Group, a Dallas-based patent licensing and advisory firm.
Another problem with the patent troll term is that it has become overly broad in its use, he said. It now includes universities, inventors and companies, many of which have invested millions of dollars in their portfolios.
Pridham said Yahoo!, Blackberry and Cantor each invested “tons of money” in their innovative technologies and patents and deserve fair value for that investment if companies are infringing.
He conceded, however, that in the current anti-patent owner environment, even with their deep pockets Yahoo!, Blackberry and Cantor will face very long odds in securing an injunction or an actual reasonable royalty. “Getting good value — if not completely fair market value — can happen.”
That’s because big tech companies like Google and Newegg today practice efficient infringement, or the notion that it pays to infringe and litigate due to changes to a patent system rigged in favor of the infringer.
Indeed, the America Invents Act of 2012 created the Patent Trial and Appeal Board to oversee inter partes reviews (IPR) and covered business method (CBM) reviews of patents. Moreover, the U.S. Supreme Court’s decision in eBay v. MercExchange made it extremely difficult to win injunctions; the high court’s CLS Bank v. Alice ruling also made it much more difficult to enforce software patents that were deemed to be based on an abstract idea.
“Alice is a total game changer," Pridham said. "It had taken property right from individual who bargained for them and paid for them — meaning they negotiated with the Patent Office, disclosed their invention and paid considerable sums to the Patent Office and to their counsel.”
“If someone is stealing your IP, then it is your right to stop them,” Pridham said. “You can’t do it as easy as you could 10 years ago, but you shouldn’t care if someone calls you a patent troll.”
He added, however, that a patent owner has to have "a compelling reason to protect" his or her IP.
While in the past Yahoo! has been a critic of NPEs, it now says it is agnostic as to whom it is willing to sell its patents.
Officials from Yahoo!, Blackberry and Cantor declined to comment for this story.
“The pejorative term is being used to discourage these entities and individuals from protecting their rights,” he said. “This is just wrong and the fact that people can use language as a club to scare people to surrender their rights shows the system is broken.”
“When Thomas Jefferson and the founding fathers created the U.S. Patent System, they were responding to a British Patent System, which was set up to benefit the interests of the biggest companies. It’s what we are gravitating toward today.”
Many large companies don’t just want to minimize what they pay for infringing, they don’t want to pay anything for what others have invented, he said.
As a result, they’ve fostered changes to a system that have radically altered the value of patents to the point that they are worth much less and close to worthless.
Yahoo! has set a minimum bid for its Excalibur portfolio of $500 million and is rumored to have turned down a $300 million bid. So far, however, bids from third parties and consortiums of companies have coalesced around $100 million.
The $500 million threshold is a fraction of the $1 billion to $3 billion value Yahoo! initially put on its non-core assets including real estate and patents.
Pridham has said Yahoo!’s portfolio is worth anywhere from $50 million to $195 million, which is low enough to allow buyers to earn the 5X return on investment financial buyers typically look for on patent purchases.
The value of the Excalibur portfolio is limited in part by Yahoo!’s decision to license its Linux Network related patents though Open Innovation Networks (OIN), a patent pooling network run by CEO Keith Bergelt.
Bergelt, a former CEO of hedge funds Paradox Capital and IPI, couldn’t be reached for comment.
While OIN no doubt limits the value of the Yahoo! portfolio, Pridham said at least it wasn’t a member of the LOT Network, which was founded by Google Inc., Newegg Ltd. and SAP SE in June 2014.
The LOT Network describes itself as “the only true cure to the $80 billion patent troll threat,” though RPX Corp. (RPXC), Allied Security Trust and Unified Patents would probably argue the point.
“If Yahoo! had signed up for LOT Network it would have completely decimated the value of what was left of the patent portfolio,” Pridham said.
“If you’re a public company and you’re putting patents into a pool like that you’re killing shareholder value,” Pridham said. “I don’t see how any CTO could agree to that.”
To be sure, Sanjay Prasad, principal of Prasad IP, a Los Altos, California-based IP law firm, said "the potential diminution in patent value by joining a network such as LOT needs to be balanced against the benefits of reduced infringement risk. So it's not so clear that it hurts shareholder value.”
Pridham believes that the whole basis for the pools and for patent reforms such as the America Invents Act, which created the IPR and CBM processes to invalidate weak patents, is based on “this paper tiger patent troll problem.”
The success that Google, Apple and others have had in decimating the U.S. Patent System “is a proxy for how special interests operate in this country,” said Bill Marino, CEO of Pragmatus, a patent licensing and advisory firm in Alexandria, Virginia
The patent system’s protection of patent owners “was taken down because large corporate interests decided to take it down.”
The pejorative patent troll was coined in the late 1990s by two former Intel executives: Peter Detkin and Anne Gundelfinger, who had been associate general counsels at Intel. Detkin later helped found and became vice chairman of Intellectual Ventures.
The dominance of the infringement lobby culminated in former Google counsel Michelle Lee being named director of the U.S. Patent and Trademark Office. “It was akin to naming the head of a Right to Life group as the president of Planned Parenthood.”
For his part. Marino said corporations were right to be frustrated by the proliferation of NPE nuisance suits because of the many concerns about patent quality and the difficulty of valuing patents.
But rather than think through how to fix the patent quality and valuation issues, big tech decided to use its muscle in Congress and the White House to take down an entire industry that had been around for hundreds of years.
“When institutional investors-guys like Rob Kramer, who founded Altitude Capital Partners, started raising funds, people said this is a problem. It caused a backlash.”
For his part, Marino said Yahoo! should do nothing with its patents because if it tries it will “end up with egg on its face. They will not get any significant money. No one will take a license. Look at Unwired Planet. They had all those Ericsson standard essential patents and still nobody saw any need to take a license without litigation.”
“There needs to be a recognition among these big tech companies that they’ve gone too far, but I don’t think they spend two seconds a day thinking about it. It’s a real failure of corporate leadership that brought us here.”
“In a functioning patent system money should change hands. That’s the way it’s supposed to work. These companies don’t want any money to change hands and they created a system to make sure that it happens as infrequently as possible. They should have be focused on designing reforms to improve patent quality and to make sure that ‘fair value’ changed hands.”
Marino said he’s skeptical that the system will change in any meaningful way any time soon. “I am skeptical that that big technology companies have any interest in developing constructive ways to fix the system now that they don’t have to pay anything.”
Big technology companies still believe NPE litigation is a problem, though not quite the threat it was 10 years ago when Altitude Capital made more than a billion dollars in its enforcement campaign. And sometimes, they even agree to pay for a license.
Apple, based in Cupertino, California, recently reached settlements with Network-1 Technologies Inc. (NTIP) for $25 million and Marathon Patent Group Inc. (MARA) and Rensselaer Polytechnic Institute for $24.5 million. The computer giant was successful however in tossing a $625.6 million award in favor of VirnetX Holding Corp. (VHC) and a $533 million award in favor of Smartflash. It is still fighting a $234 million award in favor of the Wisconsin Alumni Research Foundation.
For his part however, Prasad IP’s Prasad is slightly more philosophical about the battle between the infringement lobby and the NPEs.
“The patent system is supposed to be there for the overall public good but in the context of an infringement suit, it's set up so there’s a winner and a loser, and of course no one enjoys having to pay for patent infringement."
He conceded that the system has changed from seeing patent rights as a positive to the perception that anyone who enforces a patent as bad. “It’s an easy label that avoids the merits of the case.”
Asked whether he sees the pendulum swinging back, Prasad said “there’s the law and there’s public perception.”
He said while the public perception doesn't seem to have changed much at all, the law is changing in some small but important ways. He cited the Supreme Court’s rulings on willful infringement, enhanced damages and exceptional case fees, and also recent Federal Circuit rulings on subject matter patentability.
He said there’s been no significant recent change to help patent owners on many important legal issues such as injunctions, damages and obviousness.
“In the court of public opinion, the patent monetization and patent licensing companies have lost badly,” said Bruce Berman, CEO of Brody Berman Associates, a patent advisory firm in New York. “The good news is that there’s still a lot of licensing going on. The prices have been driven down.”
More importantly, Berman said many of the biggest targets of NPEs including Google and Apple and even banks and other financial institutions, who in the past have been patent poor, have been actively catching up by acquiring patents or filing for new ones.
“When those patents issue what will they do with them?,” he asked rhetorically. If they use them aggressively, they will be subject to the same pejoratives as Yahoo!, Blackberry and other licensing companies.
Furthermore, he noted that someday even Google or Apple may stumble in their quarterly earnings. If and when they do, they may have to turn to their patents to maximize shareholder value and face being called a patent troll themselves.
And ironically the circle will start over again.
-—To reach the reporter responsible for this story, please contact Dan Lonkevich at 707 318-7899 or email@example.com