“Odds of success are just too small now” for licensors, says outgoing WiLAN CEO Jim Skippen
Back in June WiLAN announced that its CEO Jim Skippen would be stepping down after nine years at the helm. When he took the top spot at the Canadian NPE, it had a market capitalisation of less than C$30 million. Today, it stands at well over C$300 million. Despite the turbulence and uncertainty in today's public IP-centric company (PIPCO) market, Skippen's hard work in transforming WiLAN from a defunct operating company into one of the major players in the NPE space should stand it in good stead for the future. I caught up with Skippen recently to hear his reflections on his career, the current state of patent licensing and the health of the industry looking ahead.
How did you originally start out in the IP strategy industry, and what was your motivation for joining WiLAN?
My undergraduate courses were focused on computer science, and after law school in the mid-1980s I went to work as an associate in a technology transfer practice under Fraser Mann, a partner at one of Canada’s largest law firms [now called Borden Ladner Gervais].
Some of my first ideas about patents were fostered by a client, an author and economist named Nuala Beck, more than 20 years ago. Nuala had written a book talking about the ‘new economy’, a term she actually trademarked. In this book she emphasised patents and their importance to the economy. She had also developed an investment fund that focused on the number of patents a company owned. This was all very revolutionary at this time but really started me thinking about a company that didn’t make products but just focused on patents.
After becoming a partner at my law firm, I decided to make a big change in 1996 and joined MOSAID [now Conversant] as general counsel. From the beginning I worked on a project to get value from MOSAID’s DRAM patent portfolio. Over the next 10 years we would develop, and I would eventually lead, what became Canada’s most successful patent licensing business at that time.
In 2006, I made another big change when I quit MOSAID and joined WiLAN as CEO. Although I had a great position at MOSAID, it was a conglomerate at the time with two other businesses and I wanted to lead a pure-play IP company.
When you joined WiLAN, it only owned a few patents and was not focused on monetisation as a business model. How did this change, what has driven its growth over the years and your role in this process?
WiLAN at that time was really on its last legs. It was a failed product company that owned a handful of promising patents but had no employees, revenues or cash in the bank, so it was risky. At that time I felt that WiLAN, as a public shell with a handful of valuable patents, was a good vehicle to get a patent licensing business going.
Prior to my joining, WiLAN had been trying for the better part of a decade to license its patents but had met with very little success. This really wasn’t surprising when you looked at the approach they were taking.
I think the people that brought me in to WiLAN envisioned me licensing the handful of patents they owned out of my car on a shoestring, doubling the 70¢ stock price and then calling it a day.
My plan was definitely bigger. It was to use this platform to build a very large patent portfolio that hopefully would be licensed by many major companies in the world. My original notion was that each licensee would get a five year guillotine licence to the entire portfolio. After the five years expired the company would hopefully renew at the same or a higher rate. Meanwhile WiLAN would continue to make patent acquisitions, adding to the value of the portfolio.
One thing I did was move the company from Calgary to Ottawa. This made a big difference because Ottawa was closer to money centres like Toronto, Montreal and New York. It also made things like finding auditors and legal help easier because Calgary was focused on oil and gas, while Ottawa focused on high technology. Finally I knew technical and other people in Ottawa and was able to put together a team much more easily.
What have been the most momentous turning points for WiLAN during your time as the company's CEO?
Wow - there have been many of them! There are many I could mention, but in addition to those I have already spoken about there are a few key events.
One was the first deal we did with Nokia. I travelled to Finland during my first week at WiLAN and had a good meeting with them, and not too long after that we had crafted a deal where Nokia paid us some money for a very comprehensive licence to our patents. As part of the deal, Nokia provided us with another portfolio of about 100 patents with applicability to DSL technology and other products. Although objectively speaking I think Nokia did very well with this deal, it was critical for us because it put us on the map and raised our weight class.
The Nokia deal not only gave us much needed cash from the licence. It also increased the size of our portfolio from under 10 patents to well over 100, and it piqued licensee and investor interest. Since Nokia had taken a licence others were now willing to sign up. Finally, we were able to raise an additional $70 million dollars on the back of the deal, which changed everything.
To me the Nokia deal really illustrated a critical point for patent licensing companies. The point is that it is often better to sign a deal when you are starting for less money than you really expect or want. This is because in the long run the collateral benefits will more than make up for any shortfall in the actual deal proceeds.
I guess I would be remiss if I didn’t mention the settlements we got done in late 2010 and early 2011. At that time we were in a fight with both cellular phone companies and the wireless chip producers. Early on, both LG Electronics and Intel settled with us, and this really started a domino effect in which all the wireless companies and almost all the phone companies took licences. This gave us several hundreds of millions in signings and really changed us from a company with potential to a company that had delivered significant revenues.
How do you think legislative reform and recent jurisprudence in the United States is impacting on the patent monetisation business model? Is there still a viable licensing/sales market to be exploited?
There is still a viable licensing model but several developments have made it much more challenging.
The combination of cases like Ebay on injunctions, KSR on obviousness, Seagate on willful infringement and others have significantly weakened patents overall. Also, prior to the STMicroelectronics and Medimmune line of cases on ability to file a suit for declaratory judgement, many licensing companies’ modus operandi had been much more focused on good faith licensing. These cases made it much more difficult to have a good faith discussion, since the other side could drag you into court at any time. This created an itchy trigger finger for both sides and really made it more difficult to resolve patent matters without litigation. The various damages cases have served to dramatically reduce the amount of damages that could be obtained for patent infringement by doing away with the total market rule and other approaches to calculation. They also put too much reliance on the royalties obtained in previous licence agreements.
Alice has significantly reduced the number of valid patents. One big problem with the Alice case is that there is no consistent view of the principles it espouses. Ask three different patent experts what Alice says and you will likely get through different answers. It has also almost given licence to any anti-patent judge to throw out patents on a Section 101 challenge with little explanation. It really is a disaster not just for NPEs but the entire patent system.
The statistics on inter partes reviews [IPRs] speak for themselves. Recently a study by law firm Fitzpatrick Cella Harper & Cinto found that approximately 74% of patents being challenged were being invalidated under the IPR system. Considering that these are patents that were already found valid by the patent office and often relied upon by the patentee this is a staggering number and really speaks to a system that doesn’t work for the patentee. The policy of applying the broadest possible interpretation of the claim in the IPR process for determining validity really makes no sense at all unless the goal really is to kill patents.
Do you see a bright future for the PIPCO (publicly-traded IP monetisation company) model, or has it had its day and will we see most NPEs going private? What changes do you think we will see in the sector?
This is a tough question for a CEO of a PIPCO. We are always cheerleaders for our companies but the sad reality is that very few PIPCOs created in the last decade, and particularly the last five years, have really thrived. It is pretty clear that some will go out of business and that there may be consolidation in the industry.
I will say that the larger well-capitalised PIPCOs with many varied high quality patents and portfolios are much more likely to survive and possibly prosper. Patents are also cheaper now so while revenues are under pressure, costs may be somewhat reduced.
One development I have noted with interest is that a number of the better-known PIPCOs have announced that they are exploring diversifying their product mix beyond pure patent licensing. WiLAN, too, is exploring this as a possibility.
Anyway, it is clear that in an attempt to attack the NPE model a number of larger dominant companies have not only negatively impacted NPEs they have also crippled the patent system. This is truly sad because an objective examination of the NPE industry and its economic impact reveals that there really is not a significant problem, in that the amounts paid to NPEs turn out to be simply what you would expect to be paid for the patents they hold.
In fact, I would say that the anti-‘troll’ propaganda has been so effective that now some judges and juries may feel they are doing some civic duty if they put their thumbs on the scale of justice against the patent holder. Again, this is a sad development and increasingly patent holders are looking beyond the US to enforce patents because the US is developing a reputation as an unfriendly place for patents.
The final comment here is that depth and quality in a patent portfolio are absolutely critical. There will be fewer and fewer single patents developed by a lone inventor that can be licensed or litigated in the United States. The odds of success are just too small now.
Why have you chosen to leave WiLAN now? And what can we expect to see from Jim Skippen in the future – will you be staying in the IP monetisation business?
My decision is a personal one. I tend to like to do a job for about a decade and then crave a change. This is really my third decade-long job and as I enter my mid-fifties, I want to make sure I have time to try a few other things that interest me while I am healthy and young enough to do them.
I will continue to keep an oar on the water though in the IP area and will be open to limited opportunities where I think I can help. I will also continue as a board member at WiLAN but will leave the 24/7 grind of running the company to someone else. As a general rule, I have always believed that it is healthy for occasional renewal at the top in politics, and the same probably applies to running a public company like WiLAN.