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IP, Patent, Walker Digital

Walker Digital Litigation: The Bruce Schneier Effect (And Other Miscellaneous Updates)

Since Walker Digital‘s announcement of 15 lawsuits against more than 100 companies, news coverage has exploded, the vast majority of which simply recycle the press release, or drop in miscellaneous notes about other Walker Digital lawsuits.  Among the rare exceptions for some original contribution, there’s a local Stamford, CT paper that managed to contribute more than CNet, PCWorld, or any of the dozens of so-called “tech” journals that cover Apple news.  What does Bruce Schneier have to do with any of this? I’ll get to that later.

Of Walker Digital’s selection of IP Nav, led by Erich Spangenberg, as its licensing advisor, Stamford Advocate staff writer Richard Lee reports:

Attorney Paul Greeley, a patent attorney and partner in Ohlandt Greeley and Perle, a Stamford law firm, described Spangenberg as a “patent troll.”

“He makes his money by enforcing patents,” he said. “In the past decade, people are seeing an opportunity to enforce patents that haven’t been commercialized. This is big because Walker Digital has all sorts of patents.”

via Walker Digital targets Microsoft, eBay and 98 others for patent infringement

Mr. Greeley needs a lesson in both patent law and history.  First of all, there is no opportunity to enforce patents that haven’t been commercialized.  If no one is making, using or offering to sell something described in a patent claim, then there’s no liability for infringement (and thus, outside of an intent to make, use or sell, no reason to take a license). Second of all, opportunistic speculation in patent licensing is a centuries-old business model, not something unique to the past decade.

Speaking to Mark Nowotarski, president of Markets, Patents & Alliances, about the strength of Jay Walker’s portfolio, Lee reports:

“Walker Digital’s patents are designed for withstanding litigation. When you’re playing in this league being sued is part of the licensing process,” he said, estimating that 95 percent of patent lawsuits are settled before a verdict is rendered.

What Nowotarski is explaining is how the litigation process weeds out weak patents before trial.  Patents that are too narrow to be infringed are generally vetted during claim construction, where the court decides the scope of the patent.  Patents that plainly overreach in terms of breadth are vetted during summary judgment, where trials may be unnecessary when the existence and content of documented prior art is uncontested.

In other words, Walker Digital patents, according to Nowotarski, are strong enough (in terms of breadth and validity) to survive these potholes.  Is he right? Enter Bruce Schneier.

Listed as co-inventor on eight of the 30+ patents asserted in yesterday’s offensive was a Bruce Schneier. I presume that Yes, that would be tech guru Bruce Schneier. (On the off chance that it’s just a really common name, I sent a quick note to Schneier to see if he’s willing to confirm his participation as co-inventor. UPDATE: Confirmed via email. 4/13/2011)  It’s also important to note as well that a co-inventor doesn’t necessarily have any involvement in the actual deployment strategy behind the patent portfolio.

The Schneier patents are:

  • 6163771 – Method and device for generating a single-use financial account number
  • 7844550 – Method and device for generating a single-use financial account number
  • 5970143 – Remote-auditing of computer generated outcomes, authenticated billing and access control, and software metering system using cryptographic and other protocols
  • 5947747 – Method and apparatus for computer-based educational testing
  • 5768382 – Remote-auditing of computer generated outcomes and authenticated biling and access control system using cryptographic and other protocols
  • 5884270 – Method and system for facilitating an employment search incorporating user-controlled anonymous communications
  • 5884272 – Method and system for establishing and maintaining user-controlled anonymous communications
  • 7483670 – Method and apparatus for educational testing

Schneier has long been a strong voice in the tech community, and is the hero of many writers covering IT and software issues.  Writers that follow Schneier’s work are often the same who are quick to criticize patent litigation.  In fact, writing about Leon Stambler’s litigation over patents claimed to be related to SSL encryption, Schneier wrote:

Stambler isn’t stupid. He accepted $400,000, plus some ongoing royalties, from Certicom. I’m sure Certicom looked at the patent and said: “This can’t be valid.” But Certicom’s lawyers said: “Look. It’ll cost you $400,000 for us to read the patent, read the wrapper, and engage in litigation. And the outcome of litigation is never without doubt.” Certicom isn’t stupid, either. They reasonably decided that paying was cheaper than fighting. Openwave paid the same amount, and First Data supposedly paid $4 million! (I honestly don’t believe that number.)

I’m pleased that VeriSign and RSA fought, and thrilled that they won, but the game illustrates a serious problem with the current patent system: it falls to a divide-and-conquer attack. Let’s say that successfully fighting a patent costs $5 million. (I’m making these numbers up, but that’s not an unreasonable cost for a patent litigation.) The patent owner approaches ten companies and offers to license the patent for $1M. Since fighting costs $5M and the companies are rational, they pay up. But if the ten companies banded together and successfully fought the patent, they would each save $500K.

By fighting, RSA and VeriSign did charity work for the industry, in addition to serving their own self-interest. If they succeed in nullifying these patents, they’re doing everyone an enormous favor. (Who knows what other key negotiation protocols Stambler will litigate against next. Stambler has already claimed that his patents cover Microsoft PPTP, PCK, FIPS 196, SET, and Authenticode, and he’s probably looking at the various Digital Rights Management protocols.) But it’s because of this flawed U.S. patent system that they had to do so in the first place.

via Crypto-Gram Newsletter, March 15, 2003 — SSL Patent Infringement (emphasis mine)

Schneier’s math is generally correct, but equally important is to recognize that the ability to turn patent assertion into a “numbers” game does not automatically mean that every lawsuit is a meritless shakedown.

From Walker Digital’s perspective, participation from a high-profile expert like Schneier is really no surprise.  Jay Walker’s approach and creativity has long been considered “different” from the mainstream:

If I offered you a billion dollars for your left arm, would you sell it?” asks Jay Walker, the hyperactive founder of Priceline.com. “Of course not,” his guest replies. “Then you’re a billionaire on paper,” he says defiantly. “You have a billion-dollar asset. I have a billion- dollar asset. It’s a bunch of paper.”

That’s an imaginative way to think about value. But then Jay Walker makes a living with his imagination.

Get a patent, start a business. The process sets Walker apart from fellow Web billionaires Jerry Yang and Jeffrey Bezos, whose fortunes are built on being first, not exclusive.

via An Edison for a new age?

Demonstrated by Priceline’s success, this doesn’t seem like a bad way to start a business … the success of the current licensing campaign will go along way toward demonstrating whether it’s objectively “better” (and if so, how much better).



7 thoughts on “Walker Digital Litigation: The Bruce Schneier Effect (And Other Miscellaneous Updates)

  1. If I offered you a billion dollars for your left arm, would you sell it?” asks Jay Walker, the hyperactive founder of Priceline.com. “Of course not,” his guest replies. “Then you’re a billionaire on paper,” he says defiantly. “You have a billion-dollar asset. I have a billion- dollar asset. It’s a bunch of paper.

    …Wow, does he really think that’s a logical argument? Really?

    Posted by ck | April 13, 2011, 5:53 pm
  2. Ck —

    If you’re not following the logic of Walker’s argument, then I suggest reading up on how our fiat currency system works.

    Here’s a good primer: http://dailypaul.com/145854/the-wonderful-advantages-of-fiat-money-republicae

    Posted by Patrick | April 14, 2011, 1:12 pm


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