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IP, Patent, Walker Digital

The New Patent Licensing Regime

I’ve said it before and I’ll say it again: throw the old rulebook out the window.  The rules for patent licensing changed suddenly and quickly last week when patent owners, for the first time ever, successfully exchanged freedom to operate under a patent portfolio without the ridiculous litigation dog and pony show… as Erik Sherman at BNet writes, that was the old way…. This is the new way:

Instead of identifying corporations whose activities might infringe on the patents and then suing them, Round Rock offered a chance to bid on one of several covenants not to sue through intellectual property auction house ICAP Ocean Tomo. Only one of these “get out of lawsuit jail free” cards sold, but it went for $38.5 million.

via Patent Troll Auctions Free Passes From Lawsuits: Mobile in Its Sights

 

The door closes on patent lawyers as the operating companies line up to kiss the patent owner's ring ...

It doesn’t matter that only one of them actually sold.  They all received bids, which is more than you can say for the vast majority of patent portfolios that were up for sale. And Erik mentions that litigation still remains for those that don’t want to come willingly to ICAP, but I honestly believe we’ll be seeing much less of that in the years to come.  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.  Will there be an ugly divorce between Kay the litigators and Don Corleone patent owners? Time will tell.

For one thing, litigation is too uncertain, and, frankly, too easy to screw up.  Take a look at Mirror Worlds for a prime example. There seemed to be no question that the Apple products being accused were fully capable of performing the steps required to infringe the asserted patents.  The theory of the case was more or less sound in terms of Apple’s use of the inventions — in order to create a software tool that worked, they must have used it themselves, at least for testing purposes.  Unfortunately, the lawyers failed to progress this argument past the “theory” stage and present actual facts.  Even worse, these facts must exist! It would be utter lunacy if they didn’t, but that doesn’t matter. The lawyers just blew it by ignoring a fundamental aspect of any jury trial.

Getting back to the ICAP auction, I’ve been hit with a few questions from folks raising skepticism about the bidding process.  On that note, I was delighted to read this comment from Terry Ludlow of Chipworks:

The sale and the bidding for these covenants appeared to be quite genuine. The experience leaves me impressed. I think that Dean Becker and the ICAP Ocean Tomo team have created a new business model around an open forum for covenants – essentially a public auction of patent licenses. An aggressive patent licensing group such as Round Rock may see a forum like this as an easy and quick way to close a limited number of licenses. A potential licensee, one who is convinced they will need a license eventually may see this forum as a reasonable way to get a license and inoculate themselves from any future licensing pain. This would be of particular advantage to an entity with very large exposure who might pay a lower equivalent royalty rate in an auction environment than they would in a face to face discussion backed by the threat of litigation.

via a comment left at the IAM post Did the ICAP OT auction change the IP litigation rules in the US?

In fact, when you compare the bidding break down, ICAP obtained $325,000 in bids for the more “traditional” patent sales, and $35,000,000 for a single covenant not to sue under one portfolio. If they decide to sell any patents outright in the next auction, I’ll be very surprised.

But there is one thing still missing from the process.  While Round Rock and Walker Digital have both been active in litigating and licensing their respective portfolios, this won’t be true of every portfolio offered through ICAP.  Just like Michael gained the respect of his peers by murdering the heads of the five families, each patent being offered might have to earn some credibility through fear of litigation.  But I’m confident they can figure that out.

Terry also raised another good question:

Could there be some issues in a litigation context though? With HTC now defending against Round Rock, would a discovery order compel ICAP-Ocean Tomo to disclose everything known about the buyers and bidders? Could the sale price set a lowball royalty rate for comparison and set a ceiling for future damages?

Fortunately, this is actually an easy one, leaving room for some lawyers after all. At the next auction, lawyers will be lining up to represent bidders for the various covenants that are sure to be listed.  The identity of their clients will be privileged, and ICAP likely won’t even know what company each attorney represents.  So in answer to any discovery request, ICAP might be forced to reveal the names of the attorneys who registered at the auction, but I can tell you what the response will be when the attorneys get asked to divulge the identity of their clients.

I doubt we’ve heard the last announcement to fall out from this auction, but stay tuned.  Things could get very interesting over the next few months.

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