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IP, Patent, Walker Digital

Behind Walker Digital’s Velvet Glove Lies An Iron Fist

Patent licensing without the backdrop of litigation shouldn’t be rocket science.  But Intellectual Ventures figured out last year that before shaking hands with the velvet glove, opponents want to peek at the iron fist.  Of course, if you oblige and peel back the glove, or even offer to peel it back, you’ll often just find yourself getting whacked on the head.  Walker Digital has learned its lesson.  In a statement from CEO Jon Ellenthal this morning, he explained, “We are disappointed that after reaching out to so many companies in an effort to secure reasonable licenses, we were consistently told that without litigation our requests would not be taken seriously.” (emphasis mine).  I doubt corporate America is laughing this morning as more than 100 defendants have been named in 15 separate patent infringement lawsuits.  Among the accused are Microsoft, eBay, Amazon, Facebook, WalMart, Groupon, Apple, Sony and Google.

Recall not that long ago that Walker Digital was the recipient of several serious bids for covenants not to sue under some of its patent portfolios, demonstrating clear interest in extra-judicial processes for IP rights.  So how did we get here?  First, as I’ve explained in the past, litigation is always a risk when negotiating patent licenses.  Second, the weakening of IP rights, such as the post-eBay injunction rules, and Judge Rader’s new damages regime incentivize accused infringers to “take their chances” in litigation. This puts patent owners at a distinct disadvantage, since companies generally prefer not to part with money when there’s no risk of a court stepping in and taking it. Judge Rader, meanwhile, wants to go even farther to “price some parties out of the judicial marketplace,” but what he and his supporters simply don’t understand is that these policies actually encourage litigation over negotiation.

Getting back to Walker Digital, their efforts to license their IP rights without litigation has been met with limited success. “Filing these lawsuits is not a step we sought or preferred,” said Walker Digital’s CEO Jon Ellenthal. “We have reached out to a wide range of companies that are engaging in commercial activities that clearly depend on inventions created and owned by Walker Digital. Unfortunately, many of these companies have refused to engage in meaningful negotiations that acknowledge the market value they derive from the use of our property.”  When that didn’t work, Walker Digital turned to ICAP Ocean Tomo to auction off its portfolio, but the auction house was only able to pull in a top bid of $135 Million.  Convinced that its portfolio was worth far more, Walker engaged monetization advisor IP Nav because of their “depth of experience, resolve, understanding and an approach that we have not seen with other advisors,” according to Ellenthal.  Erich Spangenberg, head of IP Nav, said at the time “We recognize that no one single approach works for all companies, and we are ready with a flexible strategy.”

Part of that strategy, as it turns out, was a return to ICAP Ocean Tomo, this time selling rights to operate under certain portfolios, instead of auctioning the assets outright.  While nothing was sold when the hammer fell, an impact was made that will keep IP analysts talking for a long time yet.  Meanwhile, Walker’s celebration was short-lived as IP Nav recognized that there is still work left to do. Noting the seriousness of Walker’s and IP Nav’s efforts, Spangenberg commented, “At the end of the day, a patent is a government granted property right that simply permits the owner to exclude others from copying his invention. We contacted these companies and urged them to come to the table. Some have been sitting down with us and we will continue to work with them outside the courtroom. But dozens of companies have responded with silence, indifference, delay or worse
yet, by taking legal action against Walker Digital. Perhaps now we can start good faith negotiations. Walker Digital desires to license its intellectual property and not to prolong the legal process.”

Spangenberg also agreed that the current structure of the legal system essentially encourages patent owners to aggressively use the legal system, saying “This is a plain and simple case of some companies taking advantage of the high costs and built-in delays of the U.S. legal system with their refusal to negotiate. We are committed to help protect Walker Digital’s intellectual property through the only means available.”

In the end, Walker is seeking a return “the work of more than 100 people and enormous private financial investments over the past 17 years” according to Ellenthal.  But more than a fair return, Jay Walker is hoping these new efforts will signal a sea change in how patent licensing negotiations take place, saying, “Our goals are two-fold. Obviously we want to realize a fair return on the use of our property. Who would want any less? But we also hope this effort will contribute to the process of moving the asset class of patents and Intellectual Property out of the stone age of litigation and into an efficient market which, in the end, would benefit America and its economy.”

Below is a copy of the Walker Digital press release:

View this document on Scribd

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Discussion

16 thoughts on “Behind Walker Digital’s Velvet Glove Lies An Iron Fist

  1. Walker Digital is learning the lessons that many in the tech transfer world learned (or should have learned) a long time ago. You cannot expect anyone to take a license if they don’t they don’t think that you have the wherewithal to actually go to battle with them. Put another way, everyone else is likely to value your licenses on the cheap if they think that you can’t take them to court or believe you think your patents won’t survive in court.

    It is also a point on which independent inventors should be counseled early in the patent process. A patent grant is not a destination, merely a ticket.

    Posted by MadisonIP | April 12, 2011, 11:31 am
  2. Unfortunate, but true. I say “unfortunate” because this is rather childish behavior. When the school bully steals your lunch, he taunts, “What are you going to do about it?” If you punch him in the nose, he’ll go steal someone else’s lunch.

    I wish we could be more sophisticated than that, but evidently we’re not.

    Posted by Patrick | April 12, 2011, 11:51 am

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