Change is a constant, that’s a given. But there seems to be a bit more than usual in the offing these days. Maybe it’s related to our incremental rebound from the global pandemic, unsteady economic and political conditions, or just that feeling you get in your knees when the weather is about to take a turn.
There are many developments and trends to track. The USPTO has a new director, and all eyes in the IP sector are on what direction Kathi Vidal will take the office, particularly with regard to widespread concern over PTAB and the IPR process.
The role of litigation finance and NPEs continues to evolve at a rapid pace. At the same time, monetization seems to have become a dirty word in some quarters, even as corporate legal departments feel increased pressure to mine the value of their portfolios in anticipation of a market downturn.
Also noteworthy are significant changes in tack in Big Tech, where some giants now embrace open source models as others sell off large chunks of their patent portfolios, leading some observers to wonder if the fundamental relevance of patents and their future value in that space is shifting.
We have a novel perspective at Dealmakers. Our community touches many facets of the IP business, so we hear a lot in our ongoing conversations. For this article we spoke to leaders in four distinctly different corners of the IP world to get their perspectives on the current landscape and what lies ahead.
“You can’t just take out the 12 gauge and fire it everywhere, it’s a rifle shot now. Far fewer patents, far more precise. It takes more integration of the IP department and the inventor with the strategy of the company to understand where to invent.”
Open Invention Network
The Open Source Guru
Making the brittle supple
Keith Bergelt lives at the center of an open world. As CEO of Open Invention Network, he leads an effort to enable collaboration and innovation around Linux software. The companies that have joined his community include many that are no strangers to patent litigation, including Google, IBM, Sony, Toyota, and Microsoft. These giants are changing the way they approach innovation in software, he says, because of significant shifts in the way value is created in the new economy. It’s not always an easy transition.
“How do the traditional proprietary companies that have significant monetization programs live in this world that is increasingly open?” he asks. “No one’s gotten this automatically. Except maybe the ambition-based companies like Baidu, Alibaba, Tencent, Google, Facebook/Meta, and Amazon. These are companies that have never been tied to what they do.”
Instead, he says, those companies do whatever it takes to be able to disintermediate existing players, and to change markets through dynamic business models and technologies based on open source. They were born into open source, and so they’ve had a different approach and a different attitude. They’re adopters, integrators, and disruptors, because that has always been their culture. That’s not so for most others.
“There was a brute force approach for many companies, let’s patent everything. Let’s have significant portfolios,” Bergelt says. “I’ve had many discussions/arguments with IP directors that they should be well beyond thinking about themselves as measured only by what they file and what gets granted.”
Instead, he says, they should pay more attention to what hits the cutting room floor. Sometimes that means recognizing that it’s better not to monetize in a direct way looking for capital, but rather for market position and the opportunity to compete more effectively. This thought bridges to the concept of competitive cooperation, or coopetition.
“Coopetition has never been more effectively realized than in open source,” Bergelt says. “We cooperate to compete more effectively. And if we don’t cooperate, then it’s going to cost us a tremendous amount of money.”
The tension of living with the duality of open and proprietary can be difficult for IP directors, Bergelt says. He describes a proprietary approach to software IP as brittle — hard lines that can be easily fractured — while an open model is more supple, able to adapt faster and realize innovation without legal conflict, letting the best products win in the marketplace.
“It’s really challenging because when it comes to the nimbleness and the suppleness of IP directors — that’s never been a particularly strong suit,” he says. “I don’t think the concept of monetization has outlived its usefulness. I think there are creative opportunities to monetize. The problem with monetization and the problem with patent systems inside many companies is that this is seen as liquid EBITDA. It’s like quicksilver. It just floats onto the bottom line. And that’s so alluring.”
Even companies that have tens of thousands of patents are recognizing that this broad approach is becoming too expensive and cumbersome, at least in the software space. The realities of coopetition call for a more precise approach.
“You can’t just take out the 12 gauge and fire it everywhere,” Bergelt says. “It’s a rifle shot now. Far fewer patents, far more precise. It takes more integration of the IP department and the inventor with the strategy of the company to understand where to invent. The system now and going forward will not reward broad-based filing. This is not the demise of IP. This is just a reorientation of what IP is, and recognizing that it’s far more sophisticated and requires more sophistication to implement.”
“Doubts about the future of the US patent system aren’t new but they are growing.”
CEO and Chief Legal Officer
Jumping higher hurdles in patent enforcement
“From the patent owner perspective, there is a change related to the perception of the value of patents, due to the fact that enforcement is more and more challenging,” says Noel Egnatios, CEO and Chief Legal Officer of the video technology company DivX. “Patent owners are acknowledging the reality of facing higher hurdles in US patent enforcement than they had 10 or 20 years ago.”
Egnatios strips patent law down to the fundamentals. “If the patent owner has invested in innovation and protecting those innovations through patent filings, the entire industry — and beyond — has benefited from those patent filing disclosures. Monetization should be perfectly appropriate,” she says.
But without some level of certainty that a granted patent will withstand subsequent validity challenges, be timely assessed for infringement, be enforced if infringement is found, and yield a reasonable royalty, there is no incentive to file patents, and thus no incentive to make the public disclosure, she says.
“Doubts about the future of the US patent system aren’t new but they are growing,” Egnatios says. “From the perspective of a relatively small operating company with a well-known technology pedigree, like DivX, it’s clear that even a company with truly innovative IP needs a long-term commitment from management to engage in the expensive and time-consuming efforts to license its hard-earned patent portfolio. DivX has that. And it’s not shying away from the time or investment necessary to monetize the fundamental portfolio that it spent so many years developing and maintaining.”
Due in large part to that commitment, the company’s licensing efforts have seen some real successes to date, she says, but DivX has had to grow comfortable accepting that licensing and monetization can be manipulated to be dirty words.
“Big Tech has been really good at building the narrative of saying it’s not fair or not appropriate for smaller industry players and patent owners to try and monetize a patent portfolio,” Egnatios says. “Many established players have a clean, concise narrative with coordinated money behind them. Smaller companies and individual inventors simply don’t have the same resources or coordination.”
Of course, there is some irony in the messages tech giants are sending.
“What’s interesting to me now about monetization is that some of the largest patent owners — the ones who want to make monetization a bad word — are also selling their patents to IP monetization firms,” Egnatios says. “If the economy continues to decline, we may see more doing the same. It wasn’t that long ago that companies like Silicon Graphics or BlackBerry moved from industry leaders to patent licensing entities. More will surely follow.”
“Patents are the slingshot that David carries into the battle with Goliath. If you take away that slingshot, I don’t like David’s chances.”
Senior Vice President for Applied Innovation and Industry Partnerships
The Tech Transfer Leaders
David’s shrinking slingshot
The value of patents changes significantly depending on industry, business model, and CapEx profile, and on the size and lifecycle of the company itself. Large, well-established companies that can rely on their market dominance may rely less on IP assertion as a proactive measure, but might see patents as very important defensive tools. But for emerging ventures, the entire business may hinge on protecting innovation.
“Patents are the slingshot that David carries into the battle with Goliath,” says Orin Herskowitz, Senior Vice President for Applied Innovation and Industry Partnerships for Columbia University, as well as Executive Director of Columbia Technology Ventures. “If you take away that slingshot, I don’t like David’s chances.
“That means startups and small companies, in no matter what industry, are going to rely on patents in a way that the big incumbents don’t have to. So, I don’t think that patents are more or less valuable, but the patent market is fragmenting, and in a really interesting and complicated way.”
As a tech transfer leader who works with enterprises large and small, Herskowitz has an ecumenical view of the field. Nonetheless, he acknowledges that field isn’t exactly level. Columbia University’s Chief Patent Counsel, Jeff Sears, agrees.
“It is complicated,” Sears says. “There are changes that have happened recently — some on the litigation side, others on the patent prosecution side — that make it harder to get patents of commercially significant scope in certain spaces, harder to enforce them, and harder to get a fair return.”
Sears returns to the David and Goliath analogy. If it’s Goliath versus Goliath, all players are equally sophisticated and well heeled. They know the rules of the game. But when it’s David versus Goliath, the gap is growing.
“It’s unfortunate,” Sears says. “It’s just the dynamics of litigation, the cost of litigation, and the risk of invalidity in a post-grant proceeding. That risk is hard to counterbalance. Unless you have a very large portfolio of independent inventions, it’s a hard risk.”
In May, Columbia prevailed in litigation with NortonLifeLock Inc. that lasted 12 years. In the end, Norton was ordered to pay Columbia $185 million for violating cybersecurity patents. The prolonged case was incredibly expensive on both sides. Despite that the university won in the end, Herskowitz says most enterprises could not weather such a storm.
“We are willing to defend the patent rights that our inventors have worked so hard on, and we have the resources to do that in terms of both capital and people,” he says. “But most individual inventors, startups, smaller universities, and research institutions don’t have that ability. As the costs of litigation go up and the timelines to get a resolution grow — which they are — then that’s an increasingly hard burden to bear.”
Tech transfer programs occupy a middle ground. They don’t seek to monetize so much as to commercialize — to bring innovations out of the lab and into the market for the benefit of society. In doing so they seek a fair and reasonable return to fund more research. That, at times, means litigation, so they are not immune to the shifting sands that enterprises of all types and scales face. They just have a different raison d’etre.
“At the world’s research universities, we look at the world through an innovation lens. Patents are a tool to help us get those to market,” Herskowitz says. “The money is important, and it’s nice, but it’s not the point.”
“It’s just the dynamics of litigation, the cost of litigation, and the risk of invalidity in a post-grant proceeding. That risk is hard to counterbalance.”
Chief Patent Counsel
A more rational approach
Bigger and bigger companies are opening up not just to the use of litigation finance, but to the idea of monetization in general. Fortune 500 companies are less fearful they’ll be viewed as patent trolls if asserting and monetizing their patents. They sense an impending recession and are digging deep into their portfolios to find latent assets to generate income and improve their bottom lines in tough times.
These are the views of Sarah Tsou, Portfolio Manager for Global Intellectual Property and Senior Investment Manager at the litigation finance firm Omni Bridgeway.
“Intel recently made a big splash by selling almost 5,000 patents to IPValue,” Tsou says. “That was surprising to me, because Intel is not known to be active in the enforcement of their IP, although they have certainly accumulated a lot of it. For them to get actively involved in this aspect of the IP monetization market was notable.”
With clouds on the horizon, IP departments at large corporates are looking both to avoid being cost centers, and to generate what revenues they can in what they anticipate to be tougher times ahead. As they initiate or expand these efforts, Tsou has a clear outlook.
“My hope is that claimants, defendants, and everyone’s counsel will start thinking more like funders,” she says. “We are not aiming for the prospect of billion-dollar judgments and headline-winning jury verdicts. We know too well that the higher the award, the higher the stakes, the harder the other side will fight, and the harder it will be to settle. And the more likely it is that you’re going to lose all or a substantial part of it on appeal.”
Funders, she says, bring a more rational approach to the table, and look not just at what can be achieved through the courts and aggressive enforcement, but what reasonable expectations should be.
“Oftentimes I’m talking with claimants and their counsel, and they have big dollar signs in their eyes,” she says. “The level of sophistication that these companies and counsel have is undeniable, but on this one topic, we find that they can be too optimistic about what they can achieve.
“We don’t have to speculate,” Tsou says. “We have data on the real settlement points, what defendants are willing to do, what they’re not willing to do, and what’s realistic. We’re often talking people down to a more rational, more fair result.”
The perspective funders bring to the equation is as much about efficiency as it is about fairness, she says, and the value in reaching a resolution before the riskiest milestones, such as trial. In this regard she sees funders as voices of reason in what is often an inherently reflexive decision-making process.
Tsou says that for many, IP monetization can be very emotional. Claimants often spend years, even decades, developing innovations with their own sweat, tears, and resources, only to face intractable infringers who believe that they can get away with it. Claimants often feel that nothing less than hundreds of millions of dollars will make them whole.
“For us, it’s unemotional, because we’re looking at it purely from a value perspective, including the realities of how much it will cost to get different levels of results. And depending on what you’re seeking, how much risk that will entail.”
Funders, she says, don’t control decision-making or strategy, but can serve as dispassionate and rational guides for companies and their counsel throughout the process, from case selection to successful resolution. Going forward, she believes they will increasingly be viewed as experienced litigation advisers who can enable faster, fairer, and more certain resolutions.
“My hope is that in the future there won’t be so much efficient infringement where defendants know they’re infringing, but drag claimants through expensive litigation and make them jump through all the hoops to actually get their compensation,” she says. “I hope that both sides can come to the table rationally and resolve the dispute fairly, and let everyone get back to business.”
“Oftentimes I’m talking with claimants and their counsel, and they have big dollar signs in their eyes. The level of sophistication that these companies and counsel have is undeniable, but on this one topic, we find that they can be too optimistic.”
Portfolio Manager for Global Intellectual Property and Senior Investment Manager
Cracks and Crazes
Thinking beyond divisions
When we set out to write this article, we had what we thought was a straightforward question in mind: Is there a growing divide in the patent sector? This is, admittedly, a bit of a foolhardy question. At the very least it can fairly be called simplistic. But it yielded diverging opinions, and more than one first response was simply, “It depends who you ask.”
The one word that came up over and over, in various forms, was fracture. Not the Great Divide we had gone looking for based on what we hear and read, but the many cracks and crazes in the enamel of a system that must shift and reorient each and every time it seems to solidify.
The economic pendulum is certainly a variable on many minds, as is the well-acknowledged gap between the haves and have nots. But if there’s a single thread that ties all these perspectives together, it’s one of subtlety, nuance, and sophistication. There’s still plenty of blockbuster litigation and steamroller licensing programs out there, but smart players in intellectual property are thinking deeper than they have in the past.
If we do fall into a recession, the impetus to extract value from all intellectual assets will be present, but corporate legal departments won’t likely face the blind pressure from management to monetize that many did starting in 2007. There are many more players in the space now, taking on roles that didn’t exist just a few years ago. The dialogue around rifts in the various corners of IP is naturally subjective, owing to specific interests, obstacles, and frustrations, but it’s not born of the largely reactive mindset we’ve often seen in the past.
If one had to pin down a single characterization of the shifts and fissures in today’s patent landscape, it might be simply this: More mature.