We’re not rewarding the people bringing products to market. That’s a net negative for the economy.

First, the patent system operates to reward invention thereby promoting industrial progress.  To paraphrase James Carville, it’s the invention, stupid!  Your reward for bringing products to market are sales.  The patent system ensures that you share your profits with those who invented the technologies exploited by your products.  Of course technology takers would prefer to use knowledge produced by the labor of others without compensating the creators, but the patent system is in place to prevent exactly that.

Second, how does Barr propose to prove that patent licensing represents a net negative?  Under the current system, which relies heavily on litigation, a large portion of licensing revenue flows to facilitators like law firms and other middlemen, making the situation is far from ideal.  However, Barr makes an unjustified leap to suggest this creates a net negative.  As Dale Halling observed yesterday, patent licensing facilitates division of labor between creators of technology and developers of products.  The secondary patent market facilitates division of labor by rewarding investors for identifying essential inventions than enable future product development.

As far as curing some of those inefficiencies, Walker’s work may ultimately prove essential.  Quoting from IP Navigation Group Chairman Erich Spangenberg, the WSJ piece concludes by pointing out that Walker’s aggressive commitment to patent enforcement may enable him to avoid the expense of litigation in the future.  Hopefully, a residual effect will benefit other inventors as well.

Related articles

• Patent Licensing Is The Answer, But What Is The Question? (gametimeip.com)

Speculation has abounded regarding the identity of the third company with some blogs noting that the candidates included “Amazon, Sony, Microsoft, Google and Facebook.”  Of course, the identity of the third patent-licensing suitor is not really as big a mystery as the blogs claim. All signs clearly point to Facebook, which Walker Digital has pursued aggressively.  (See Jay Walker “Likes” Facebook — Mystery Deal Revealed).  Not only are the lawsuits against the other four major candidates marching forward, but Facebook has been dismissed with prejudice in all five lawsuits pending against Walker Digital.

In the four most recent cases, Walker Digital’s dismissal notice was filed voluntarily.  In the fifth case, pending since last year, Facebook and WD jointly filed a stipulated motion for dismissal (embedded below).  While the words “settlement agreement” don’t appear in the filing itself, anyone with experience in patent litigation would recognize that the joint filing suggests the existence of a settlement agreement. Combining that information with the leaked revelation of three major companies concluding deals with Walker Digital, the most logical conclusion is that Facebook is one of the companies CEO Jon Ellenthal mentions as “taking meaningful licenses to our technology.”

Another interesting point, dismissal of the lawsuit over four patents related to network-based purchases came on June 21, 2011 … the same day Walker Digital issued this announcement about selling several pioneer patents.

Related articles

• Jay Walker “Likes” Facebook – Mystery Deal Revealed (patentcalls.com)
• Developing: Walker Digital May Have Struck A Deal With Apple (patentcalls.com)
• Apple, Groupon named as settling in Walker Digital lawsuits (electronista.com)
• Walker Digital ‘Pokes’ Facebook (Again) – Two More Patent Lawsuits (gametimeip.com)

The first of the two new cases (Civil Action No. 1:11-cv-00434-UNA) also includes Yellowbook.com and Goldstar and asserts four patents:

• 7,039,603: “Settlement systems and methods wherein a buyer takes possession at a retailer of a product.”
• 6,249,772: “Systems and methods wherein a buyer purchases a product at a first price and acquires.”
• 6,754,636: “Purchasing systems and methods wherein a buyer takes possession at a retailer of a product.”
• 7,689,468: “Purchasing, redemption and settlement systems and methods wherein a buyer takes possession at a retailer.”

These patents related to a group-buying business plan have already been asserted against established daily deal players like GroupOn and BuyWith Me.  Famously, Google was also named in the lawsuit immediately after announcing its own daily deal product.  Facebook’s accused product is most likely the recently announced Deals on Facebook. This new service brings an interesting monetization opportunity to Facebook, which may be what piqued Walker’s interest.

The second lawsuit this week (Civil Action No. 1:11-cv-00435-UNA) was filed only against Facebook and implicates a patent only issued in the past month:

• 7,933,893: “Method and system for providing a link in an electronic file being presented to a user.”

The patent relates to customization of ads presented to Facebook users, and again directly implicates a Facebook revenue model.

Overall, the Connecticut research firm is actively seeking to license its patent portfolio to more than one hundred operating companies claimed to be already benefiting from use of technology Walker Digital owns.  Patent law expert Adam Mossoff said, in relation to a spike in lawsuits over smartphone patents last year, “Oftentimes the way a party signals to another party in one’s industry, ‘I’m serious about this–you need to speak with me,’ is by filing a lawsuit.”  Walker has “signaled” its seriousness in five lawsuits asserting ten patents over a six-month window.  If Zuckerberg doesn’t respond this time, Jay Walker may need to send him a friend request …

Related articles

• No Rest For Walker Digital – Patent Sales Announced On Heels Of Unprecedented Monetization Efforts (gametimeip.com)
• Amazon Subscription Purchasing System Accused Of Infringing Walker Digital Patent (gametimeip.com)
• Ocean Tomo ‘Freedom To Operate’ Auction Helps Patent Owners Build Value (gametimeip.com)
• Behind Walker Digital’s Velvet Glove Lies An Iron Fist (gametimeip.com)

So, the student of war who is unversed in the art of war of varying his plans … will fail to make the best use of his men.

– Sun Tzu

According to a statement issued today, Walker Digital “commenced the first sales of certain portions of its patent portfolio as part of its patent monetization program announced earlier this year.”  Some may remember that the entire portfolio was on the auction block last summer, and while bidding reportedly reached $135 Million, no sale was made.

Since announcing IP Nav as its monetization advisor in January of this year, Walker Digital has obtained significant offers from operating companies wanting freedom to operate under certain portfolios and initiated a patent litigation effort of historic proportions.  Jon Ellenthan, President of Walker Digital, said “the sale of a significant number of our patents and applications to interested parties is a natural next step of the monetization process.”

Although the patents sold by Walker Digital have not been identified, this demonstrates another aspect to the balanced monetization efforts, recognizing the importance of diversifying the assets to maximize effectiveness. Are more announcements expected?  Erich Spangenberg, CEO of IPNav, said “We have received numerous indications of interest from third parties and look forward to continuing to execute on this phase of the process.”

Related articles

• Ocean Tomo ‘Freedom To Operate’ Auction Helps Patent Owners Build Value (gametimeip.com)
• Behind Walker Digital’s Velvet Glove Lies An Iron Fist (gametimeip.com)
• Patent Litigation Experiences K-T* Event? (gametimeip.com)
• Amazon Subscription Purchasing System Accused Of Infringing Walker Digital Patent (gametimeip.com)
• Has Jay Walker Rendered Intellectual Ventures Irrelevant? (gametimeip.com)

Walker Digital’s patent claims a sales method involving storing data in a table identifying buyers, products, and agreements between the buyers and sellers to purchase a certain amount of products within a period of time.  Amazon’s program similarly provides customers with the ability to purchase items and set delivery schedules to have the items periodically purchased and delivered automatically.

This is the fifth lawsuit Walker Digital has filed against Amazon in the past month over various e-commerce technology, including patents dealing with group discounts, providing cross-benefits and product bundling.  When the previous four lawsuits were filed, Walker Digital CEO Jon Ellenthal said  “Filing these lawsuits is not a step we sought or preferred. 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.”

Amazon is no stranger to patent lawsuits.  In 1999, the internet retail giant sued bookseller Barnes & Noble for infringing Amazon’s Patent No. 5,960,411 related to a “single-action ordering component” (colloquially referred to as the Amazon “One-Click” Patent).  Apple licensed the One-Click Patent in 2000 to provide one-click ordering for the iTunes store.  In 2006, the USPTO confirmed patentability of certain claims of the one-click patent, and required Amazon to amend others.

The complaint is embedded below:

Related Articles

• Google Offers Sued by Walker Digital (webpronews.com)
• Behind Walker Digital’s Velvet Glove Lies An Iron Fist (gametimeip.com)
• Google Sued Over Daily Deal Business Venture (gametimeip.com)
• Has Jay Walker Rendered Intellectual Ventures Irrelevant? (gametimeip.com)
• Does The New Patent Licensing Regime Look Like The Old Patent Licensing Regime? (gametimeip.com)
• Walker Digital Litigation: The Bruce Schneier Effect (And Other Miscellaneous Updates) (gametimeip.com)

The lawsuit filing provides an example of "Google Offers"

This new lawsuit involves four Patents owned by research firm Walker Digital and is the latest in a series of actions the firm has taken to protect and monetize its patent portfolio.  Though filed separately, the lawsuit will team Google up with Amazon, BuyWithMe, Dealon, and (of course) Groupon who were all also accused of infringing the following patents:

• 7,039,603: “Settlement systems and methods wherein a buyer takes possession at a retailer of a product.”
• 6,249,772: “Systems and methods wherein a buyer purchases a product at a first price and acquires.”
• 6,754,636: “Purchasing systems and methods wherein a buyer takes possession at a retailer of a product.”
• 7,689,468: “Purchasing, redemption and settlement systems and methods wherein a buyer takes possession at a retailer.”

These patents originated with filings in 1996 and ’97, and began to issue between 2001-2010, and have been cited as prior art for later patents held by IBM, Expedia, Scientific-Atlanta (now Cisco), Amazon, and eBay, among many others.  Google recently lost a jury trial, being found to infringe a patent owned by Bedrock related to data storage methods.  The Bedrock loss could have broader implications for the IT industry in general.

You can view the complaint here:

UPDATE: For my thoughts on the new lawsuit, see my the recent post: So Let Me Get This Straight.

Related Articles

• Has Jay Walker Rendered Intellectual Ventures Irrelevant? (gametimeip.com)
• Answering The Bell – Google’s Attempt To Leverage Nortel Patent Acquisition (gametimeip.com)
• Behind Walker Digital’s Velvet Glove Lies An Iron Fist (gametimeip.com)
• Google Doesn’t Need Patents, It Has Mister Verhoeven (gametimeip.com)
• Google’s Daily Deal Groupon-Clone Now Live (wired.com)
• Google Launches Groupon Competitor, Groupon Poaches Google Exec For COO Job (fastcompany.com)
• Google starts making Groupon rival available (marketwatch.com)
• Google’s Daily Deals Service Emerges to Take on Groupon (gigaom.com)

Walker Digital was at the forefront of the most aggressive patent assertion effort ever to be attempted.  (That’s not hyperbole. I challenge anyone to find an instance where a patent owner asserted more patents against more companies in a comparable period of time).

via Does The New Patent Licensing Regime Look Like The Old Patent Licensing Regime? (emphasis added)

Gametime IP reader Jerry Hosier stepped up to this challenge offered up the storied inventor Jerome Lemelson, and the licensing campaign involving his “machine vision” patents, including U.S. Patent Nos.  4,338,626, 4,511,918, 4,979,029, 4,984,073, 5,023,714, 5,067,012, 5,119,190, 5,119,205, 5,128,753, 5,249,045, 5,283,641 and 5,351,078.   This campaign included patents like U.S. Patent Nos. 4,969,038, 5,119,205, 5,128,753, and 5,144,421 related to “automatic identification” (a subset of the machine vision patents) and U.S. Patent Nos. 5,039,836 and 4,390,586 relevant to the semiconductor industry.  (You can view all of these patents here.)

This licensing campaign kicked off in November 1989 with letters being distributed to well over 200 companies, including the top electronics, semiconductor and automotive companies of the time.  Within two years, many foreign companies were asking for licensing terms that would cover the entire Lemelson portfolio, and before the end of ’92 licensing revenue from the campaign was approaching half a billion dollars from over 40 licensees.

The first lawsuits were initiated in late 1992 and early 1993 against eight companies, with subsequent rounds following in 1998, ’99, 2000 and 2001 against the likes of Intel, Lucent, Alcon, CompUSA (obviously a much bigger retail player at the time), and Broadcom.  A key moment came in June of 1998 when the storied “Big 3″ automakers simultaneously settled their pending litigation.  This proved to be a tipping point as it later became fashionable for American companies to do business with Lemelson.

A significant number of Lemelson’s patents stemmed from a 150 page patent application he filed on Christmas Eve in 1954, after conceiving of a way to design machines that could “see,” process information and handle numerous automated manufacturing tasks.  Various continuations and continuations-in-part relying on this original specification issued between the 1960′s through the 21st Century.  Lemelson is often accused of manipulating patent office rules in order to extend prosecution of his patents, thereby “lengthening” his patent term.

However, other reports suggest that Lemelson’s original 1954 application was subjected to an unprecedented 20-way restriction requirement.  In other words, the patent examiner’s ordered Lemelson to pick from one of 20 distinct inventions, and forced him to apply for each invention separately! Practitioner’s know that restriction requirements are fairly common, with examiner’s asking inventors to elect between 2 or occasionally 3 different species of invention.  But 20?  Naturally, in the 1950′s, Lemelson was anything but wealthy, so he did the only thing he could afford to do, which was to prosecute these applications one at a time.

Others criticize Lemelson for not personally commercializing any of his inventions, but this is a dubious distinction. The very purpose for granting exclusionary rights to inventors is to allow those inventors to control the use of their inventions.  The patent rewards the mental, not physical, labor of inventor with exclusionary rights to control implementation of the invention.  How the inventor chooses to implement those rights is irrelevant to the value of the invention in the first place.

So is Jay Walker the next Jerome Lemelson?  Like Jay Walker, Lemelson had also been compared to Thomas Edison, although Edison’s 1000+ patents significantly overshadows Lemelson’s 600+ and Walker’s 200+ (and counting).  But unlike Lemelson, Walker has gained prominence as a businessman and entrepreneur prior to his more recent efforts at monetizing his IP.  Lemelson essentially worked as a full-time inventor in the 1950′s and never looked back, despite having to wait until the 1970′s to see any significant return for his licensing efforts.  And even then, it was not until the 1990′s, when he teamed up with Jerry Hosier that his licensing success really took off.

Lemelson’s litigation team was also much leaner than Walker’s is today.  Walker Digital is represented by a combination of Russ, August & Kabat, Agility IP and SNR Denton.  Lemelson had Jerry Hosier along with a handful of attorney’s and staff.  Of course, after seeing the success Lemelson enjoyed, patent lawyers started to take more interest in contingent fee cases.  Ray Niro worked with Jerry Hosier in the 90′s to license patented technology for Acacia, a company virtually unknown at the time, but today synonymous with monetizing patents.  These days it seems like there’s a new contingent fee firm popping up every day, such as the Uniloc trial team that just left Mintz Levin to start their own IP boutique.

Although it might seem that way, this was not intended to be a post about Lemelson himself. As I continue to research, I’m finding his story to be quite compelling, and I’ll likely have more to say about him in future posts.  Getting back to the topic, which was comparing Lemelson’s licensing campaign to Walker’s, there may ultimately be more differences than similarities.  As far as which campaign is more “aggressive,” I think Walker’s involves more patents over a more diverse array of technologies, but Lemelson’s move was way ahead of its time.

Lemelson and Hosier also proved the simple fact that, with enough skill, strategy and perseverance, the little guys can beat the big guys, which opened the door to the competitive patent marketplace we see today.

Related Articles

• Has Jay Walker Rendered Intellectual Ventures Irrelevant? (gametimeip.com)
• Walker Digital Litigation: The Bruce Schneier Effect (And Other Miscellaneous Updates) (gametimeip.com)
• Does The New Patent Licensing Regime Look Like The Old Patent Licensing Regime? (gametimeip.com)
• Behind Walker Digital’s Velvet Glove Lies An Iron Fist (gametimeip.com)
• Patent Litigation Experiences K-T* Event? (gametimeip.com)

Litigation is simply obsolete, and will most likely end up being reserved for those cases where the fact of the battle is more significant than the outcome.  For companies based on patent assertions, it’s all about the outcome.

Then, but a few days later, Walker Digital was at the forefront of the most aggressive patent assertion effort ever to be attempted.  (That’s not hyperbole. I challenge anyone to find an instance where a patent owner asserted more patents against more companies in a comparable period of time). So what’s going on?  Is this really part of a new licensing model? Or is it just the old licensing model on steroids?

Could I have simply gotten it wrong?  I’m sure that’s what the skeptics think.

Patrick believes that IP litigation like this may become extinct if patent auctions profligate – and I hope he’s right. On the other hand, and you can call me a cynic or closed-minded, but I don’t think so. Why pay for a slice of the pie when you can fight and win for the whole thing?

via Walker Digital Sues the Bejesus Out of Everyone

Admittedly, Aaron may have been having a little fun at my expense, but anyone who genuinely believes that this is business as usual simply hasn’t been paying attention. So what are the skeptics actually saying? Primarily, they’re not buying the “reluctant plaintiff” claims.  After all, who can blame them?  If you don’t “want” to sue someone, the solution is easy. You just don’t sue.  Easy, right?  From Mike Masnick:

The press release also plays up the claim that they prefer not to sue (uh… yeah…) and that they would have liked it better if these companies had just agreed to give them money in the first place. That’s pretty amusing coming from a company that has teamed up with Spangenberg who has flat out said he prefers to sue first. If you don’t want to sue, you don’t work with someone like Spangenberg.

via Jay Walker Sues Nearly Every Successful Internet Company, Claiming They’re All Built Off His Patents

Of course, Masnick completely missed the boat on the Walker Digital auction attempt, the years of failed attempts to get the attention of infringers in the industry, and (conveniently enough) the fact that Walker was repeatedly told to go away unless he was prepared to litigate.  So prepare he did, but teaming up with the “most experienced name in widespread patent litigation.”  (Quote from Joe Mullin).

Why team up with someone who has a reputation for IP litigation when your goal is to license the portfolio?  Because unlike every run-of-the-mill law firm in the world, Walker picked an advisor that understands litigation is a tool to be used in licensing, not a solution.  In fact, it’s not just a tool, it’s really the only tool.  Take a closer look at Spangenberg’s comment from the press release:

“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,” stated Erich Spangenberg, CEO of IPNav. “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 a world where even an invitation to discuss a licensing arrangement can result in an anonymous/John Doe lawsuit, the avenues for patent licensing automatically get funneled straight into the courtroom.  What we’re left with is a slow and expensive legal system that ends up abusing the patent owner. Ironically, it’s the patent owners who are accused of “abusing the legal system for profit …”

How do we know this?  Because the overwhelming majority of cases settle before trial anyway, which means that companies, almost universally, end up paying the patent owner some amount of compensation … too bad most of what the companies spend goes to the lawyers on either side …

And on that note, I’ve had more than a few conversations expressing extreme skepticism about the genuineness of the bids for Walker and Round Rock’s portfolios.  We won’t really know for sure until there’s an announcement about finalizing the Round Rock sale (and even then, I suppose one could still argue that deal was already done and the bidding staged).  But as far as whether it is (or isn’t ) colossally stupid, bear in mind that companies often get stupid with their the shareholder’s money by spending millions on litigation, only to settle a case on the eve trial for the same amount they could have settled for on day one.  (Yes, this has happened. It has happened more than once. I suspect it happens far more often than you’d want to believe.)

One of the ultimate acts of irony, however, has to be the existence of a patent system that fostered the growth of inventions like electric lighting, controlled flight, and telecommunications which is forced to use a centuries-old, archaic ritual in order to move compensation from users of intellectual assets to its rightful owners.  Jay Walker wants his compensation too, but he also recognizes hat its time for a change, saying:

…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.

Unfortunately, revolutionizing the system can probably only come from within the system itself.

Related Articles

• Behind Walker Digital’s Velvet Glove Lies An Iron Fist (gametimeip.com)
• Walker Digital Litigation: The Bruce Schneier Effect (And Other Miscellaneous Updates) (gametimeip.com)
• Patent Litigation Experiences K-T* Event? (gametimeip.com)
• The New Patent Licensing Regime (gametimeip.com)
• Walker Digital Sues the Bejesus Out of Everyone (tacticalip.com)