13 Mar
2015

Patent reform on a knife-edge; Germany's growing appeal; PIPCO consolidation; and other highlights from NPE 2015

Yesterday, IAM hosted the NPE 2015 conference at the Convene Center in New York’s Financial District. Close to 200 delegates attended the event, including ,many senior leaders at public and private NPEs, inventors, investors, DC lobbyists, analysts and lawyers. Myself and Richard Lloyd, IAM’s North America editor, were also there. Following are a few of our observatins from what was a very illuminating day.  

Young man’s game - In the first panel of the day, David Kappos, the former director of the USPTO and now a senior adviser to the Partnership for American Innovation and a partner at Cravath Swaine & Moore, brought a valuable outside investor perspective to the uncertainty that is currently hovering over the US patent system. Kappos recounted a recent visit he had made to a private equity investor in New York. In the course of the meeting the investor said: “Listen son, I have one job when I come into the office every day - I need to make sure that I have more money at the end than I did at the start. I need to know we have an IP system in this country that protects the money I’m investing and if it’s screwed up I’m just going to go and spend that money somewhere else.” When asked, Kappos confirmed that, yes, the investor really had called him “son”. RL

Kappos crusade - What was very striking about all of the former USPTO director’s contributions yesterday was how direct he was. Kappos can often be quite guarded in his public comments, but yesterday he was not holding back on why he believes the Innovation Act is such a damaging piece of legislation. It will cause, he said, the mass devaluation of the patent system, which in turn means the mass devaluation of innovation. And when that happens, he continued, you will get much less investment in innovation – that’s how the free market system works. As for fee-shifting under the Goodlatte Act, it is 100% certain that there is a presumption it will take place. Congressman Goodlatte himself has denied this, but Kappos obviously believes he is wrong (as do many others, it should be added). When you hear him speak in this way, it is clear that it would have been impossible for Kappos to have remained at the top of the USPTO and to have advocated support for the Innovation Act. With the White House having backed Goodlatte’s legislation, it’s hard not to wonder whether there was more to Kappos’s decision to stand down in 2012 than has been made public. JW   

Walking the halls - If there was one rallying cry from the event it was that those in the audience, as well as the NPE and licensing communities in general, should be more actively engaged in the patent reform process in Washington DC. Both Russ Merberth, chief policy counsel at Intellectual Ventures, and former AIPLA executive director Todd Dickinson, urged delegates to put their arguments against fundamental change to members of Congress and their staffers. “In DC you’re not visible and you’re up against a behemoth,” warned Dickinson, who recently joined the law firm Novak Druce Connolly Bove & Quigg. “You need to have your war stories in hand - like the small inventor who’s being run over by the process,” he added. “Licensing is under attack and industry needs to be more visible and voluble,” Merbeth stressed. The message from those who support a more targeted package of reforms is, to some degree, getting through – the STRONG Patents Act, recently introduced in the Senate, was supported by most if not all of the panellists throughout the day. But Merberth pointed out that it was a sign of the climate on Capitol Hill that the introduction of that legislation was seen as an act requiring significant political courage in the face of the powerful and well-funded pro-reform contingent. The message was clear – walking the halls of Congress has never been so important. RL

Turning tide - There were some senior NPE executives present yesterday who have taken the time to go to Washington DC to make the case against big change. It has been a sobering experience. Perhaps most tellingly is the realisation when you get there that for the vast majority of legislators and their staffers, patent law is not a priority. Instead, they take their cues – and their voting instructions – from briefing papers sent round by party leaders. If they say vote for this bill, that is what will happen. To get a hearing and to be taken seriously is time-consuming and often very frustrating work. But it does pay to stick at it. Both Phil Hartstein, CEO of Finjan, and Conversant CIPO Scott Burt, reported that people are beginning to listen. “When we started going to the Hill two and a half years ago for many of those we spoke with it was the first time they had ever met someone from a patent licensing entity. We were like unicorns,” Burt joked. “What we have come to understand,” he continued, “is that most people in DC are well-intentioned and work extremely hard, but they just do not have the time to research issues deeply. What they hear is what people tell them, so if you don’t go to make your case they will never hear it.” Talking to a few people during the breaks, there seems to be a growing sense that while the Goodlatte Act will make it out of the House, there will have to be a degree of compromise between pro and anti reformers before anything emerges from the Senate. It will then be a matter of reconciling what could be very different bills. So, while it would be a huge surprise if there were not further patent reform legislation placed in front of President Obama to sign some time before his presidency comes to an end in January 2017, what form it will actually take is still very much up in the air. There seems to be a growing confidence in the anti-camp that the pro-side will not get things all its own way. But up against such a deep pocket opponent, no-one can take anything for granted. It’s going to be a battle all the way down to the wire.  JW

It’s the incentive, stupid - It was a simple point, very well made by Louis Foreman, the CEO of Edison Nation. There are many individual inventors out there who do not have the inclination, the temperament or the skill-sets to be entrepreneurs. That means they need to partner with entities that have production, distribution and/or marketing expertise; and that means licensing. If you make licensing harder – which is what making patent litigation riskier and more expensive does – then you reduce the incentive for inventors to invent. It’s obvious once you see it in black and white. JW       

SCOTUS’s patent nadir - It should come as no surprise that the second panel of the day, focused on the legal climate, wasted no time in dissecting the Supreme Court’s high profile decision in Alice Corporation v CLS Bank. For many, that case, which was decided last June, was just the latest example of the confusion in the jurisprudence around patent eligible subject matter under section 101 of the US patent statute. Professor Adam Mossoff of George Mason University described it as “the nadir of the Supreme Court’s engagement on patent eligible subject matter”, and added that the decision was “having an incredibly destructive impact on creative industries”. Ashley Keller, of litigation funders Gerchen Keller Capital, described the case as “a huge problem” and then went on to add that, “a lot of the decisions that are defining things as abstract are not intuitive”. As an example, he cited a case involving a patent relating to an online bingo game which was ruled invalid under 101. “I don’t think bingo is an abstract idea, it might have been obvious under section 103 but I don’t think it’s abstract,” he pointed out. The overall confusion, he warned, has made patents extremely difficult to value and has made capital, offered by the likes of Gerchen Keller, more costly. RL

Germany calling – This blog has said for a number of years that Germany should be an attractive venue for NPEs – it’s a big market, it’s a rich one, the court system is quick and relatively cheap, and if you win you get an injunction. What was clear yesterday is that a number of US-based entities and their advisers now agree. As the US becomes a harder place to enforce, so the search is on for other venues – and when you are looking for global settlements, the ability to lock someone out of a G8 economy of 80 million souls can be all it needs to get a deal done. Deirdre Leane, the CEO of IPNav, said that the firm always looks to Germany first now and declared herself a big fan of the country’s patent litigation system, as well as its judges; while plaintiffs lawyers Bob Cote of McKool Smith and Mike Renaud of Mintz Levin also stressed Germany’s importance for their clients. According to one European market player I spoke to yesterday the result of this push across the Atlantic is that while US patent prices may be falling, in Europe they are starting to edge up. And as the prospect of a Unified Patent Court, based mainly on the German system, gets ever closer, we can expect that trend to continue. Alongside this, we are already seeing concerted moves by some big US tech companies to advocate the restriction of injunctions under the UPC, with the bosses of some SMEs prominent in their campaign. But the problem that US big-tech faces is that patent litigation in Europe is relatively cheap and in countries like Germany the SME sector likes the fact that injunctions are widely available as it gives them teeth in battles with the big boys (and with each other, of course). Trying to change this perspective will be a challenge as there are no active trolls asserting poor quality patents that can be used to hang a story from.  JW

Going international - Notwithstanding Germany’s growing attractiveness as the position for plaintiffs worsens in the US, the internationalisation of the patent market is inevitable whatever happens State-side over the coming years. As Acacia’s Vella stated: “It’s a big world out there, with billions of people buying smartphones.” And what goes for smartphones goes for many other kinds of technology too. Living standards, disposable incomes and consumer markets are growing across the world, and that means opportunities. Countries mentioned in dispatches, alongside Western Europe, Japan and the US, were Indonesia, India, Turkey, Brazil and, of course, China. If that country gets its damages regime right, noted Yann Dietrich of France Brevets, it could become very interesting. But some things look likely to stay the same. In terms of dollars and patent numbers, said Vella, the tipping point has already been reached in Asia; but in terms of where technology is originating from the West still leads the way. Proponents of major patent reform in the US would do well to think that through, especially in light of the Kappos and Foreman comments noted above. JW

The $500 million question - The prevailing view on the legal climate panel seemed to be that there was little chance of the recent $530 million damages award made by a Texas jury against Apple in a case brought by NPE Smartflash Technologies being allowed to stand by the Federal Circuit. Ashley Keller insisted that the reason why boils down to a fairly simple reading of recent precedent and has little to do with the merits of the case. “The reason the Smartflash award won’t stand is because of the headline number and the fact that it’s coming out of the Eastern District of Texas,” he insisted. Of course, the case may always settle before it reaches the CAFC, but in the current climate the smart money must surely be on Apple fighting it all the way. RL 

Quality counts – One positive thing to have emerged from the reconfiguring of the US patent market as a result of the America Invents Act and recent Supreme Court decisions is that there is now a complete focus on building NPE business models around quality assets. If you are a serious NPE, focused on developing long-term revenue streams there is no way that you are going to bother with marginal or junk patents. No-one will finance you, no-one will negotiate with you and no court will find in your favour. Want to know the best way to distinguish a troll from an NPE? Try looking at the portfolio they hold and the time and money that has been spent assembling it. JW

Time to consolidate - Although this blog and other observers have predicted that consolidation will come to the patent licensing industry as market dynamics increase the rationale for larger, better funded NPEs there have so far been few examples of proposed deals in the sector. Earlier this year Spherix announced that it had rejected an offer from Marathon Patent Group, but we’re still waiting for any serious deals to emerge.  According to Matt Vella, CEO of Acacia Research, that’s because of the uncertainty that continues to dog the sector which makes assets hard to value on both sides of any deal. “We’re not seeing consolidation so far because there’s too much vibration going on at the edges and people are not sure where it’s going to end up,” Vella observed. He admitted that could change if there was one company rich enough to afford to make a mistake. The problem of valuation as a major block on consolidation was a point that was picked up by Ron Laurie of Syndicated Patent Acquisitions. “People’s inability to put a price tag on a portfolio is due to an inherent uncertainty in patent valuation,” he claimed. “Far fewer deals get done when a person in either company is afraid they’re going to lose their job because of a bad valuation.”  RL

Thank-you – As luck would have it, NPE2015: The International Plastics Showcase has been taking place this week Orlando. Oblivious to each other, we both chose the twitter hashtag #NPE2015. Apologies to one and all for any confusion caused. Putting that to one side, though, we would like to give a big thank-you to the non-plastic NPE event’s delegates, as well as the speakers and sponsors. Hopefully, we will be doing it all again soon – and next time we’ll choose a different hashtag! JW

Joff Wild

Author | Editor-in-chief

[email protected]

Joff Wild