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IP, IP Asset, Patent

How Much Is The Internet Worth? Another Eolas Post Mortem

It’s over (even though it isn’t).  Eolas lost.  Three more back-to-back trials over liability and damages will not take place.  Unfortunately, the defense lawyers did too good of a job during the validity phase, costing themselves hundreds of thousands (if not millions) of dollars worth of billable time for the three additional back-to-back trials that, now, will not take place.

With nothing left to write about, writers turn to the what if meme.  The EFF takes a predictable policy-based approach, claiming that software needs no patent protection to spur innovation.  Meanwhile, a Forbes contributor jumps at the lowest of the low-hanging yet high-brow sounding anti-IP arguments by improperly characterizing patents as a regulation, instead of correctly treating them as property rights. The best of the what if articles, however, is undoubtedly Joe Mullin’s Wired column, in which he asks “so what?”.  Mullin reminds us that Eolas’ inventors did not create companies like Netscape, Amazon and Google. In other words, they did not develop their technology in the respective fields of endeavor in which they now assert property rights.  (Their day job, bioinformatics research, may have kept them somewhat distracted.)  Yet, they are asking, from the less than a dozen companies going to trial, a windfall of $600 M!  Mullin cites this as evidence of “the huge imbalance in the U.S. patent system.”

So, continuing on the what if meme, what if the complainers were right?  What if Eolas actually owns property rights to Internet technology frequented by all web-comers?  What is the appropriate amount, and under what circumstances do these impertinent property owners dare demand $600 M?  One place to start is by asking ‘How much money are these participants making by utilizing this property?’

Of the seven companies left standing throughout the trial, six are publicly traded: Adobe, Amazon, Google, JC Penney, Staples, and Yahoo!.  A cursory review of financial information for 2011 shows that these companies took in a combined $125Billion.  As of their most recently published financial statements, these companies combined for a total of $53 B in cash on their balance sheets, and are currently valued at a combined $333 B (dominated by Google’s nearly $200 B market capitalization). Over the last four years, these six companies took in just shy of $430 B in total revenue.

These figures provide a little perspective on Eolas’ apparent request of $600 M, which amounts to 0.14% of the companies’ combined revenue–that’s $0.0014 for every dollar in revenue.  The $600 M ask amounts to about 0.18% of the combined market cap, and 1.13% of the cash these companies currently have on hand. 

But wait! Don’t some of these companies (particularly Staples and JC Penney) still make a lot of their money doing things having nothing to do with the Internet?  Of course they do. In fact, assume they all do.  Assume that all of these companies make a substantial majority of their money from things having no relation to the Internet at all.  Reduce that total revenue earned by as much as awhopping 85%, and Eolas’s $600 M payment would still be less than 1%.

I am not suggesting that Eolas should have won its trial (I wasn’t there), and I am not suggesting that their damages calculations are appropriate or accurate. I am merely providing a few basic facts (these financial numbers are all public, and you can check my math for yourself) to put everything in perspective.  Some readers are still inclined to believe that Eolas’s request (fractions of a penny on the dollar) represents an “imbalance” associated with the patent system, but consider the following analogy.

Imagine that you buy some land in a relatively unpopulated area, planning to one day use it for something–retirement, investment, mining–the purpose doesn’t really matter.  Meanwhile, you go about your normal routine: get a job, start a family etc. For the most part, you’re too busy living your life to worry about this piece of property you bought.  But one day, deciding the time may be right, you decide to check it out.  When you arrive, you find that your “unpopulated area” is now a thriving metroplex, complete with roads, homes, apartments, offices and stores.  In fact, one of the largest and most profitable business in the entire area has set up shop squarely on the land you thought you owned!  Fair enough, you think, you haven’t put the land to use, and you’re glad that someone has (validating your original belief that the property did hold some future value).  Even still, it is your land and you would have, theoretically, been willing to sell or rent it out.  You decide to approach the business owner about some compensation.  How much are you going to accept? If he offers you 0.14%, will you take it?  Would you call that balanced?



9 thoughts on “How Much Is The Internet Worth? Another Eolas Post Mortem

  1. after reading about the Eolas case and going through the thought experiement of assuming the Eolas patent is valid one then gets to estimating reasonable damages. Let`s assume 0.1% as a starting point. Lets then ask are there 1000 other Eolas` out there with patents that claim the Web is infringing ? It`s not hard imagine there have been 1000 compaines innovating since the early days of the web till now. This naturally leads to the question if the 1000 companies deserve all the assets of these seven defendants and all other companies doing business on the web?

    Based on this thought experiement it leads me to think that the land/property this imaginary person purchased and then later found a successful business was built on the land should find a surveyor to determine how much of his land was encroached. if the surveyor finds the encroachment is one square foot, i think the land owner should consider what fee he expects. Better still if the surveyor determines that this same successful business also encroached on one square foot of 1000 other land owners, what then?

    Posted by Ray Fifo | February 17, 2012, 7:44 am
    • Ray –

      Thanks for reading. I reiterate: “I am not suggesting that their damages calculations are appropriate or accurate.”

      In addition, my “though experiment” scenario assumed the truth of the complainers’ arguments that Eolas claimed to “own the web.” As I’ve already pointed out, they never did (even if their patent was valid).

      What I did intend to suggest in the post (albeit not explicitly) is that perhaps the $600 M figure is an appropriate starting point for the value conversation.

      Posted by Patrick | February 17, 2012, 7:57 am
  2. Every patent attorney must be breathing a sigh of relief that Eolas lost this case because it would have fundamentally changed the Internet. There would have been a world wide outcry against patents that elected officials would have had no choice but to severely restrict patents. It would have caused a revolution that patent holders could never win.

    Posted by Ken Bingham | February 19, 2012, 4:01 pm
    • There would have been an outcry, but it would not have been the first time someone predicted catastrophic consequences based on the result of a patent trial. If you study history, you’ll find such comments going back to the 1800’s. For more recent worries, recall the reaction to the RIM v NTP trial from several years ago.

      As always, these fears as much ado about nothing.

      Posted by Patrick | February 19, 2012, 4:22 pm
      • I understand but the mood right now is moving against heavy patent and copyright enforcement. SOPA and PIPA have been shelved for now and ACTA is on life support because of the growing opposition. If Eolas had of won and essentially could claim ownership of practically the entire Internet the results would have made SOPA/PIPA/ACTA seem like a minor skirmish in caparison.

        Posted by Ken Bingham | February 26, 2012, 10:42 am
  3. Good news that the court made such a sensible ruling. It’s patent enforcement actions like this one that bring software patents into disrepute. While I’m not against the idea of patenting software, this particular patent litigation makes me think that maybe the ability to do so should be limited.

    Posted by patent litigation | February 26, 2012, 7:05 pm
  4. Another example of why patents drive me crazy because of ones like this that is so vague and general that almost anything could fit inside it. The patent office is re-examining this particular patent on the request of Facebook. Hopefully they toss this patent along with so many others that are for general and abstract concepts.



    Posted by Ken Bingham | February 28, 2012, 1:36 pm
  5. I am glad to see many patent victims not only challenge the patent infringement lawsuits against them but questioning the validity of the patents themselves as part of the defense. The risk of completely losing a patent is a good deterrent in filing frivolous lawsuits.

    Posted by Ken Bingham | February 28, 2012, 1:45 pm

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