Tangible IP's Latest IP Market Update
March 28, 2018
Is Alice back in Wonderland?
In this wonderful world of intellectual property, a lot can happen in the course of a month and this last month between our newsletters is no exception. So, where do we start? Let’s maybe launch with the latest news that the Trump administration’s new trade war is now aiming squarely at China as payback over what is alleged to be systematic IP theft. Last Friday, the US officially launched a complaint against China at the World Trade Organization. “China appears to be breaking WTO rules by denying foreign patent holders, including US companies, basic patent rights to stop a Chinese entity from using the technology after a licensing contract ends,” the US Trade Representative's office said in a statement. “China also appears to be breaking WTO rules by imposing mandatory adverse contract terms that discriminate against and are less favorable for imported foreign technology,” it said. China, not surprisingly, was expecting such a move and has already vowed to contest the complaint while levying its own set of tariffs to counter those announced by the US.
Some may find this move by the current US administration, in a rare moment of actual policy making, a sign of optimism for the US IP market. While IP rights are the very backbone of our innovation engine and must to be protected against unfair competition by foreign powers, one can only hope that our administration/government agencies start by cleaning its own backyard, no? Indeed, US inventors still live with a US patent system that has been erected as a highly efficient invalidation machine, whether they succumb during Inter Partes Reviews in front of the much maligned PTAB, or are axed by the Federal Courts under the “Alice” doctrine (based on the US Supreme Court decision of the same name) which states that inventions that cover “abstract ideas” are not per se patentable subject matter.
Sadly, until recently, nearly 80% of all patents challenged under the “abstract idea” argument have fallen prey to the courts’ decisions, generally by way of summary motion at the very beginning of a case. To clarify, this means that most Plaintiffs filing suit against infringers were simply told to pack their bags very early in the process, thereby denying their right to a day in court. As a result, with the prevalence of this new doctrine, there is little incentive for an operating company approached by a patent owner to negotiate a license in good faith as the odds of killing the patent(s) at stake are so high and the costs to do so are still very low compared to a full trial on the merits. Needless to say, this has had an important ripple effect on both patent valuations (it brought them down significantly) and on the very appetite for patent owners (inventors and NPEs alike) to initiate a law suit, even if the infringement is blatant (most recent statistics show that patent litigation in the US is in decline over 40% so far compared to last year). As a concrete illustration of this, we often receive offers on our portfolios for sale from NPEs who claim that they cannot offer any cash up front for the acquisition, as the risk of losing on Alice grounds is too high and they need to keep their powder dry for the fight, so to speak. Just a few years ago, all these offers would have comprised a significant cash component.
However, there may finally be some light at the end of this rabbit hole as patent owners have recently received some good news from the Federal Appeals Court. In the past few weeks, two subsequent decisions from the Court in Berkheimer V. Hp Inc. and in Aatrix Software, Inc. V. Green Shades Software, Inc. stated that deciding whether a patent may simply embody an “abstract idea” may also be a question of facts, not simply one of law. Why is this important? Very simply, a question of law can be adjudicated upon by a judge on summary motion while a mixed question of law and facts must go before a trial jury. This means that defendants may no longer be able to count on summary motion to dispose of law suits quickly and inexpensively, as previously prevailed after the Alice decision. Facing the prospect of a full trial on the merits and the possibility that a jury of peers may be more sympathetic to an inventor than a judge, infringers could be forced to revisit their assumptions and realize there is value in that licensing discussion after all.
While everyone waits patiently for the upcoming Supreme Court decision regarding the constitutionality of the PTAB itself in the Oil States case, we believe these decisions in the meantime, should they become the new normal, could have a significantly positive impact on patent valuations going forward, especially in the software arena where patents have been hit the hardest.
Time will tell if Alice is back in Wonderland after all…
New Portfolios for Sale:
We are pleased to announce that we recently made available for sale exclusively 3 distinct patent portfolios currently owned by Google and pertaining to document/email processing & enterprise malware areas respectively. You can retrieve our executive summary for each portfolio here (TIP#2400) (TIP#1404) (TIP#2901). Note that industry representative EoU is also available under NDA to serious buyers.
We also recently made available for sale several other high-quality portfolios pertaining to:
? TIP1006: Computer Security, Communication and Mobile Advertising Portfolio (10 assets, 6 claim charts)
? TIP2700: Field Emission Video Display Technology Portfolio (27 assets)
? TIP1316: Network Infrastructure and Enterprise Communications Portfolio (13 Assets, 16 Claim Charts)
? TIP 2500: Diaper Compression Packed and Vacuum Sealed Patent Portfolio (25 Assets)
Industry Buyers & Sellers
The big news earlier this month was the acquisition by publicly traded NPE InterDigital (after a recent executive shake up) of the whole Technicolor Licensing patent portfolio of 21,000 patents, which is one of the largest, around video coding technologies. The reported deal structure was an upfront cash payment of $150 million, plus a sizable percentage (42.5%) of future revenues in the consumer electronics field.
Another well-known NPE (Dominion Harbor) turned to former patent aggregation behemoth Intellectual Ventures and acquired a large swath (over 1000 assets) of patents formerly owned by American Express. This is an interesting move considering the difficulty of asserting fintech patents because of Alice (see supra) and the Covered Method Business (CBM) review process under the PTAB. We can only surmise that this was reflected in the price and deal structure, which has not been reported.
In previously weeks and on a smaller scale, we witnessed several transactions involving well known players: Samsung bought a small portfolio of former Yahoo patents (now belonging to Altaba), while Google acquired virtual reality camera maker Lytro for $40 million, as what seemed to be mostly a technology and IP deal (i.e. almost no employees moved to Google). This would likely qualify as a fire sale as Lytro was valued at over $360 million after a $200 million investment round just a year ago.
In China, it was reported that the Chinese Academy of Sciences (CAS) put 36 of its patents up for auction and they were snapped in less than 3 hours for a total price of 5.03 million yuan ($794,600 USD). Before anyone jumps to the conclusion that the Chinese market can move assets a lot faster than in other jurisdictions, it is important to remember that under the current Chinese IP 5-year plan, one can receive up to 5 million yuan in government subsidies for bringing innovations to market. In other words, the full acquisition price was indirectly paid for by the Chinese government here.
In Canada, Carmanah Technologies Corp. announced that it has acquired a portfolio of patents and patent applications from Stop Experts, Inc. and R.D. Jones. related to traffic control devices most specifically, Rectangular Rapid Flashing Beacons (“RRFB”). The price was US $2.4 million, to be paid over 48 monthly installments. I’d be curious to know if title to the patents will only transfer once the last payment has been received.
Finally, it has been reported that ZTE and Panasonic have both transferred small packages of patents to a relatively new US NPE called Global Innovation Aggregators, a Delaware registered entity with offices in Pasadena, California. This is another example of the “privateer” model, whereas large operating companies transfer patents to an NPE that will do the assertion under its own name and control, thus shielding the original owners from the reputational damage of being perceived as an aggressive patent enforcer and attracting retaliating attacks. This is a page taken from the playbook of most large US telcos in the past years.
Winners & Losers
Publicly traded NPE Finjan scored another big win with the announcement of a large patent settlement (reported elsewhere to be of $65 million, with a potential for another $45 million) from security firm Symantec. Finjan is one of the few NPEs who seems to have found a winning formula inside and outside the court. Its stock was up 20% on the news, however, it still hovers at a fraction of its former glory a few years back, thus reflecting a more generalized pessimistic view by investors of the IP monetization market.
Do you hold patents around e-cigarettes? Good for you. Despite all the hurdles that e-cigarette manufacturers are confronted with these days, these apparently are the fastest growing patent segment in terms of new patent applications, followed by 3-D printing and AI. It was also reported that over 1,200 Blockchain patent applications were filed in 2017, up from 594 in 2016. One must remember though that this information is at best 18 months old, as this is the time it takes for these applications to be published and thus be searchable. Still, this is an interesting look at recent industry trends.
On a related note, health-tech seems to be the latest expansion strategy of several large telcos as reflected by the 300+ patent filings by the Big 3 (Alphabet, Microsoft and Google) these past years. While the number is relatively small compared to their annual filings, these three are definitely not healthcare companies and it is interesting to see that they intend to play an increasing role in that area.
I’ll see you in court
Blackberry is still flexing its patent muscles and its latest targets are social media companies as it recently filed suits against Facebook, Instagram and WhatsApp for willful infringement of some mobile communications patents. Meanwhile, NPE Dominion Harbor just asserted former Kodak patents it acquired last year against GoPro and SZ DJI Technology, among others.
Another suit that caught attention was Tinder’s parent, Match (of eponymous Match.com) against competitor Bumble. This is one that won’t be easy to swipe left… Apple was also pretty busy lately, launching their own law suit in the UK against Qualcomm over SEP patents, while it was itself the recipient of distinct complaints filed from Portal Communications and Inventergy.
Alphabet’s subsidiary Waymo, just fresh of a major settlement against Uber, apparently decided that being in court was just too much fun and filed for a preliminary injunction against Uber, Ottomotto and Otto Trucking. Finally, Quarterhill’s subsidiary Wi-LAN filed infringement actions against Ericsson, AT&T Verizon and other wireless carriers.
Handshakes
All is not conflict in the IP space and some companies still find ways to license one another’s patents without the need to always argue in front of a judge or jury. They should be commended for being the adults in the room. In this regard, Rovi announced that South Korean Alticast had renewed its previous license. The company said the IP license covers the patent portfolio of Rovi Corp., which acquired TiVo and took its name. Meanwhile, RevoLaze, LLC, a laser technology company, said it has reached a new licensing agreement with Levi Strauss & Co. regarding additional denim laser patents from its intellectual property portfolio. Finjan inked a much smaller deal than reported above, but nevertheless signed a licensing agreement with Veracode for $2M in cash. Finally, Dolby Laboratories, Inc. announced that it had formed a global, strategic intellectual property (IP) partnership with Guangdong OPPO Mobile Telecommunications Corp., Ltd. The new collaborative partnership will encompass Dolby’s High-Efficiency Advanced Audio Coding (HE AAC) and JPEG-HDR technologies.
From the bench
In one of the two cases we referred above, the Federal Circuit opened the door for extrinsic evidence in patent eligibility matters. Extrinsic evidence, as the word suggests, is what happened outside of the boundaries of a legal document or, in this case, in the US. It was held by a certain commentator as a “love letter to Innovation”. While we already discussed above the effect of Aatrix on motions to dismiss and motions for summary judgment in general, it is worth mentioning another impact: it permits a patentee to rely on evidence or allegations outside the patent itself. In that case, despite the patent at stake being silent on a subject, some extrinsic information nonetheless contributed to the majority’s decision not to hold the invention was conventional or routine.
On the legislative front
One would be remiss not to mention the introduction of two separate bill proposals in Congress (yes, they still work!). The first one dubbed the Small Business Innovation Protection Act, is a “feel good” law and helps small businesses protect their intellectual property by improving education related to obtaining and protecting patents. The bill requires the U.S. Small Business Administration (SBA) and the U.S. Patent and Trademark Office (USPTO) to work together to leverage existing outreach programs to better educate small businesses on domestic and international patents.
The second, the STRONGER Patent Act, is much more substantial and was introduced in the House after its introduction in the Senate a few months ago. It is sponsored by both US Reps. Stivers and Foster, who indicated that the STRONGER Patents Act is needed now because “recent changes to patent laws have made patents harder to defend and enforce, and they have devalued American intellectual property.” They also enumerate perceived shortcomings of the Patent Trial and Appeal Board (PTAB), including that “the PTAB now routinely throws out patents that have been duly awarded by the U.S. Patent and Trademark Office using loopholes and weaker disparate standards,” that “it has canceled patents after district courts upheld the patent,” and that patent owners are forced to frequently battle both in court and at the PTAB with conflicting decisions.” BIO, the industry association representing the biotech businesses came out publicly supporting the bill.
Although this bill joins a large group of other legislation intended to further reform patent law, it is noteworthy that the most recent bills introduced in the SU Congress tend to support stronger patent rights, which would suggest that the anti-troll narrative may have finally met its Waterloo. But never underestimate the power of lobbying and nobody should presume of how this is going to end just yet.
In China, a major announcement saw a consolidation of powers with SIPO, the Chinese patent and trade mark office to help “a more stringent IP protection system to reinforce IP protection”.
On the Move
Former IBM and Microsoft licensing executive Tanya Moore (also past president of LES US/Canada), who had become the Chief Licensing Officer of Audio technology Sonos in February last year, recently left the company.
These and other relevant news below.
Happy reading!