When Alcatel-Lucent announced recently that Rational Patent Exchange (RPX), the defensive patent aggregator, would be presenting its 29,000 patents for license to RPX’s some 50 blue chip clients, it received notable attention. What was not detailed is how the revenues will be generated and sustained.

IP CloseUp has learned that the licenses being offered may, in fact, be short-term agreements that must  to be renegotiated when they expire in a year or so. That would mean that, depending on any encumbrances for currently licensed patents, the value to AL may be spread out over time. It also may mean that RPX members not covered by AL patents may find themselves scurrying for patent protection at various times in the future.

Alcatel-Lucent (ALUA.PA) announced it had signed a deal with patent licensing specialist RPX Corp (RPXC.O) that would allow it to generate substantial new revenue from its portfolio of 29,000 patents on everything from fixed and mobile communications to semiconductors and consumer electronics.

Under the agreement, RPX will market Alcatel-Lucent’s patents to its members, which include companies like Google and Intel. By next summer, RPX will present Alcatel-Lucent with the option to sign licensing deals with the individual companies. It is not clear how RPX will be compensated.

Bloomberg BusinessWeek said that “Alcatel-Lucent could generate 500 million euros to 1 billion euros in revenue in 2012 from the patents, according to four analysts.”

Reuters added that “Alcatel-Lucent did not specify how much money it thought it could make from the deals, but Oddo Securities estimated that it could be 1 billion euros in 2012.” 

IAM coverage  hailed it as breaking new ground, and reported that RPX’s stock price was up more than 10%. (AL’s was up about 17% over the five-day period following the announcement.)

An IP transaction expert that IP CloseUp spoke with suggested that AL-RPX will likely generate significant licensing income the first quarter or two, but the billion euro figure will be difficult to attain without almost universal participation of RPX’s membership. Partial or short term licenses could be a launching pad for future litigation.

Alcatel-Lucent CEO Ben Verwaayen said the February 10 investor conference call that coincided with the patent licensing announcement:

“Let me spend 2 minutes to clarify why this is an innovative approach and why I think it’s very important. It’s important because the first thing we are not doing is sell our portfolio. That’s not what we’re doing. It’s important to understand that. We have a position in the telecom market for which it is very important that we have the strongest portfolio in patents in the industry, and we will maintain to have that. 29,000 patents that we have is not just an illustration of a strong past. It is, at the same token, a great basis for a great future. That is not at all at stake.

“But also in that particular market of patents, innovation takes place, and innovation takes place because people think about value very differently than they may have done in the past. So when we are working together with RPX, we discovered that the ability they have to do syndicate licensing, where basically, you’re part of a club, you pay for the usage of it, but you don’t own it because we own it, but you have the same protection as if you would buy it, is a very innovative new way of looking to a patent. And it gives us reach far beyond the classical reach that we would normally have because we don’t run a patent syndicate.

“We don’t run the capabilities in-house to go out and reach out of our industry to other industries for some of the patent reach, but they do. And they have a capability that we find extraordinarily interesting, extraordinarily interesting for 2 reasons. First of all, as Paul will everybody — remind every single time, this is time-limited. This is not forever, so the opportunity to go do something is relatively short-term. Second, we have the capability, if necessary, we are not satisfied, to walk away. And third, it is nonexclusive, so it allows us to do what we’d normally do. It gives us choice, and it gives us an impact that we think is substantial.

“And I think innovation in many different ways of an organization is a sign of strength. So some of the comments I read this morning are really, I think, not really — are really not on the mark. This is about not selling the family silver. This is about getting a creative capability to leverage the assets that you have. And that is what enterprise is all about.”

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There are many unanswered questions here. Most importantly, what if RPX clients elect not to take a license? Can they expect to be sued?

Will all RPX members be offered the same licensing deal? Will royalty rates vary by industry? Will those who pay more have the right to shape the agreements that other members participate in? Could the AL-RPX deal serve as a catalyst for patent infringement suits? Will they force some members out of the exchange?

While I personally hope this arrangement succeeds it will not be easy. I have to believe that before the announcement at least a few licensees had been lined up, so the first few deals may not be an accurate indication of future ones. The potential for RPX members competing against each other for favorable terms has to be a concern.

Another IP analyst was even less sanguine about the agreement:

Things are rarely what they appear to be, said he. Alcatel may be granting RPX members a short-term license though a favorable collective bargaining agreement via RPX. Think of it as a special offer “group” discount. But thereafter, they will need to renew directly with AL. It’s actually a very clever marketing tool by AL to encourage members to follow-up with a full and commercial rate license. For RPX, it’s a good PR maneuver and a nice twist on their model that will generate some revenue. How much is unclear.

I’m sensing that there is more of this story to unfold. Will AL, RPX and the operating companies that rely on RPX for protection produce the necessary licenses to keep everyone happy and out of court? Time will tell.

Illustration sources: mobilenewscwp.co.uk; dailyfinance.com

Broad and largely unfounded disdain for intellectual property rights and holders has gone beyond bickering between operating companies and NPEs, or Hollywood (old economy) and Silicon Valley (new economy). It  is starting to have an impact on innovation and investment, and how stakeholders view intangible property, like music, software and new drugs.

The perfect IP storm is about to make landfall. Those already dubious about the use of patents and other rights see an opportunity to cut them down further. Inducing broad audiences to see IP as casually issued monopolies in the best interests of a few is getting easier and, worse still, somewhat fashionable.

Technology and business media are joining with political organisations, such as highly successful Pirate political parties in Germany and Sweden, some tech businesses, law makers and an increasing number of academicians to challenge IP. Disdain for patents and copyrights is not new. Its political correctness is.

Rights or privilege? 

Nurtured by half-truths about IP abusers locking out competitors and shaking down businesses, many people believe that intellectual assets impede innovation and represent privilege; they are akin to bank bailouts and inflated CEO compensation. Having been dealt stiff body blows by the courts and recent legislation, IP is on the ropes.

I would venture to say that many, including some OWSers, believe IP is simply 1%-type control masquerading in sheep’s clothing.

Of greater concern (to me, at least) than naysayers are IP managers and attorneys (executives and investors, too) who know better, but remain silent about how IP works and who it serves. What are you waiting for?

Read the full story, “The Imperfect Storm,”  in this month’s The Intangible Investor in IAM magazine.

Image source: www.iphonasia.com

[The following appears as an "Insider Views" commentary on Intellectual Property Watch]

Have copyright holders become their own worst enemies?

Poorly drafted bills in the U.S. Senate and Congress designed to curb music and other Internet piracy, in some cases by holding information aggregators who enable it responsible, is fueling a new wave of anger towards lawmakers and copyright holders.

SOPA, Stop Online Piracy Act, and PIPA, The Protect IP Act, will need to be heavily reworked if they are to pass and be accepted.

Part of the problem is that for the past 20 years or so the music industry failed to successfully enforce its copyrights on the Internet and curb piracy from Asia. Now, experiencing the desperation of a dying industry, it believes it must do something. They reason that even the Wild West was tamed, eventually. A generation of file-sharing listeners and content users does not agree. There is fear that any intervention in the Internet or restriction is a potential threat to individual freedoms and will promote spying and stifle innovation. Many believe that controls do not have to play out that way.

In my not-so-humble opinion the Internet — and social networks in particular– can and should have some borders. Rampant abuses, not just to copyright holders but individuals’ personal information, have been swept under the rug. It’s difficult to say what form the oversight should take, or how much is onerous, but the current situation is dangerous and too important to ignore.

The film and book publishing industries are not far behind the foibles of the music business. Google has tried to post all books and force blanket agreements on authors, great for readers and even some writers, but not for those who live by book sales. For better or worse content-capturing or file sharing has become to many an acceptable way of life, and piracy is now simply the new technology doing its digital thing — not.

Enablers or Pirates?

Some say content providers need new business models that incorporate innovative technologies and the current culture. I’m not so sure the problem is that easily resolved. Sweden-based Spotify, for example, relies on copyrighted content deals negotiated directly with the labels and some artists. Not all agree that is they best place or deal for their content. Eventually, they may not have much of a choice. The major recording artists at least may have some bargaining leverage, the lesser names not. The French, ironically, have been tougher on file sharing than most countries, possibly because of its history of  respect for artists and innovators.

Part of the problem in the U.S. is that (1) it is the largest content provider, (2) expectations have changed from years of failed enforcement, (3) content can be expensive, and (4) today, well established, new economy information aggregators and social networks are o.k. bending privacy and ownership rules. (Their advertisers don’t seem to mind.)

Google, Facebook, YouTube and other business models depend on compelling but highly accessible content to prosper. So, to put it crudely, it’s sort of Hollywood (content providers) vs. Silicon Valley (device and distribution owners).

While there have been attempts to work together, the fundamental differences between old and new economy businesses have kept them apart. A few artists may benefit from the free Internet visibility which may support their (paid) performances or what they can sell or license; most will not.

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Useful Background:

Below are links to several stories and a video which help to put into context the controversy over Internet piracy and regulation. Caveat: They provide good perspective but should be digested with a hefty grain of salt.

Remember CNN-Money is owned by content provider Time Warner and YouTube distributed is owned by Google. Wikipedia has a somewhat similar perspective to Google.

- Short video: “What Is SOPA?”

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- Anti-Regulation: The Wikipedia perspective.

- Story from CNN-Money: “SOPA Explained: What it is and Why it Matters”

- From the Wall Street Journal: “What is SOPA Anyway? A Guide to Understanding the Online Piracy Bill”

- Astute Op-Ed (please read this): “It’s a mistake to think the danger is from big media choking the Internet.”

Image sources:
http://www.cwu.edu/~ryanma/piratecopyright.html
http://redd4a3.wordpress.com/2011/08/08/intellectual-property-and-my-copyright-stance-and-policies/

A recent Reuters BreakingViews story that ran in The New York Times that says the United States Supreme Court should reverse the “mission creep” in patent law that is stifling innovation has misrepresented several key facts.

What ran on page two of Business Day in the November 18 print edition of The New York Times as “Making Sense of Patent Law,” also ran identically as “Patent Case Will Test Court” on the Times’ digital edition of Business Day, as “Patently Not Logical,” on BreakingViews.com, and as “U.S. Patent Law Mission Creep Needs to Be Reversed” on the Reuters website.

Why the different headlines for the same but questionably accurate story?

You could say it was to get maximum mileage out of the same amount of copy or it could be to convey in search engines the impression that the developments are being well covered. It also may be possible that the author, Reynolds Holding or his employer may have wanted to make sure their point of view was clearly understood before a key appeal was heard. (Mr. Holding and Robert Cole, an Assistant Editor for BreakingViews based in London, are both listed as authors for the items that appear in the NYT-owned media.) The Supreme Court heard oral arguments in Prometheus Laboratories v. Mayo Collaborative Services on December 7.

A “Broken” System 

Mr. Holding, a former ABC News and Time magazine legal affairs correspondent, explains that “The seven years of litigation [over a method patent involving Prometheus v. Mayo] are one cost of a broken system. The number of federal patent infringement lawsuits has soared, to more than 3,300 last year from about 800 in 1980. Legal experts say the suits have cost companies hundreds of billions of dollars a year.”

The use of these figures did not sound right to me and I did some checking. Adjusted for the 753 false patent marking suits (which have nothing to do with invention disputes), says Professor Paul M. Janicke of the University of Houston Law Center, the total number patent law suits (utility and design) filed in 2010 is 2,853, down from the peak in 2004. The number of suits filed annually since 2002 has been virtually flat at about 2,750. While suits are up more than three-fold from 1980, the number of patent filings and grants were up much more significantly. In proportion to patents granted suits also are down.

Patent suits remain a fraction of the record 244, 341 patents issued in 2010, about 1.2%. The vast majority settle. Those that do go to trial are under 100 cases annually. The median patent damages award in 2010 was just over $2 million, according to PwC, the lowest in the 1995-2010 time period. Because the stakes are higher some of the damages awards have been higher than in the past, but two largest, Centocor v. Abbott Labs, $1.7 billion and Alcatel-Lucent v. Microsoft, $1.5, billion were reversed on appeal. (More on patent litigation data in a future IP CloseUp.)

The Reuters item is described as “independent financial commentary and analysis.” According to Mr. Holding’s biography it was written by a former investigative reporter for the San Francisco Chronicle and a Pulitzer Prize finalist who practiced law at Debevoise & Plimpton.

Mr. Holding goes on: “But the greater expense may be lost innovation. The risk of getting sued discourages research investment and delays medical breakthroughs — the opposite of what those who devised the patent system intended.”

While delays do sometimes occur, few science or technology companies would agree that investment has been significantly discouraged by patents, or that it has delayed more breakthroughs than it has hastened, or that the patent system is not being used successfully. The U.S. system is one that others nations frequently model theirs on. An article in Genetic Engineering & Biotechnology News views the Prometheus case quite differently. Mr. Holding’s point of view is well taken, but not the garbled facts.

Commentary is Not Necessarily News

BreakingViews in The New York Times runs with the following caveat at the bottom edge of the column, “For more independent financial commentary and analysis, www.breakingviews.com.” Many of readers that scan page may not automatically see that this story is, in fact, a commentary, not a Times news item.

Reuters is owned by Thomson Reuters, which has a significant intellectual property practice. It bills itself as “The world’s leading provider of IP solutions.” Some of Thomson Reuters’ products and services are used to invalidate patents on behalf of defendants in litigation.

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When it comes to IP media coverage, please consider these suggestions:

(1) Read critically, separating news from news-worthy commentary.

(2) Don’t assume that all the facts provided are always accurate or without bias.

(3) Be aware of the source of the news or commentary.

Illustration source: Bowdoin College Museum of Art, as run in The New York Times

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Thomas Jefferson, the nation’s first patent commissioner, questioned patents because they provided limited monopolies. However, it also was Jefferson, an inventor and then Secretary of State, who was responsible for amending the Patent Act of 1793 to include a definition of a patent which persists to this day: “Any new and useful art, machine, manufacture or composition of matter and any new and useful improvement on any art, machine, manufacture or composition of matter.”

For many businesses abundant R&D and patent filings provide a good foundation for innovation and sales freedom. But that may be changing.

Information technology companies are learning what Big Pharma realized some years ago: a strictly internal pipeline rarely is sufficient to fill all of most business’ IP needs. This is  especially true in fast-growing consumer industries like mobility and social networking.

After the Nortel auction, Motorola sale and a spate of momentum changing patent litigation, traditionally tangibles-oriented executives are learning to be less sanguine about their IP resources.

Says Bruce Berman in his bi-monthly column, The Intangible Investor: “When it comes to patents, it is sometimes more efficient to secure what is needed from others rather than roll the dice on what a business might be able to generate internally or get away with legally.”

This month’s The Intangible Investor, “Build, License, Buy or Steal,”  looks at how the decision to create, rent or acquire patents is becoming less confusing for some cash-rich companies.

It looks like a new role for C-level executives and activist investors may be emerging, now that IP value is on their radar.

Does this mean that highly significant patent portfolio or IP-based acquisitions will not get done without them? Should they?

A new level of IP/financial oversight will likely be good for most large businesses. Let’s hope we are right.

Image source: www.iam-magazine.com

Scott Adams’ Dilbert is one unique comic strip. In it Adams regularly regards innovation, technology, and (mis)management, and is not afraid to occasionally take on IP rights, especially, patents.

First published in 1989, Dilbert is known for its satirical office humor about a white-collar, micro managed office featuring the engineer Dilbert as the title character.

The strip has spawned several books, an animated television series, a computer game, hundreds of Dilbert-themed merchandise items and numerous awards.

Dilbert appears in 2000 newspapers worldwide in 65 countries and 25 languages.

Dilbert portrays corporate culture as Kafkaesque — a world of bureaucracy for its own sake in which office politics stand in the way of productivity, where employees’ skills and efforts are not rewarded, and busy work is praised.

From time to time IP CloseUp will draw from Adams’ droll IP insights.

©2011 Scott Adams, Inc., Dilbert.com

By Daniel Scotto, Whitehall Financial Advisors LLC

The value of energy assets has taken a giant leap backward. What used to be simply bricks and mortar has transformed into billions of dollars’ worth of Research and Development that can now be acquired for nominal cost.

U.S. Companies invested vast sums in developing intellectual property and, as such, creating valuable intangible assets which can now be obtained for little or even zero consideration.  Substantial funding, with heavy contributions from the government in the form of loan guarantees, tax credits and political capital, have aided in the advancement of alternative energy assets and companies of all types.

Overlooked and Undervalued IP
These government subsidized commitments often reside on the balance sheet as undervalued tangible and/or intangible assets. This raises the question as to where the dollars from federal assistance programs have gone. The alternative energy industry now is struggling for financial stability, as exemplified by the proliferation of alternative energy company bankruptcies.

The future of alternative fuel technologies in theU.S.is bleak. The vulnerable financial status of manyU.S.alternative energy companies has provided a forum for non-U.S. companies to gain inexpensive access to federally funded proprietary technologies and developments often protected byU.S.patent laws.

The most glaring example of this poaching is in the area of solar power.  The high-profile bankruptcy of Solyndra, in which the government loaned $535 million prior to the company’s filing for a Chapter 7 liquidation brings to light a disturbing new trend – opening the door for other entities to gain intellectual energy advances at discounted prices (see Solyndra Debacle).  Solyndra has parceled up its assets in such a fashion that foreign buyers, notably the Chinese, can forgo the purchase of hard assets and instead focus on intellectual assets, arguably creating more wealth, on face value, for the bankruptcy estate.

A Win-Win for Foreign Bidders 

The U.S.Department of Energy has moved to block the sale of solar panel manufacturing patents to Chinese companies. Yet, Solyndra is a “win-win” for any foreigner seeking specific assets instead of the burden of having to take the traditional bundle of bankruptcy estate assets.  This approach only serves to give away the billions of federal investment in new technologies (see Solyndra Patents).

There is a growing failure rate of alternative energy companies, another example being Evergreen Solar (see Evergreen Patents) a manufacturer of solar panels. Evergreen is also in the process of liquidating (rather than reorganizing), raising again the question of who gets the patent rights and ultimately the patent protection.  Evergreen’s patents as well as other intangible assets have effectively been underwritten by the U.S. Government. Evergreen embarked on a reshuffling of its assets and cost cutting pending its demise. This has only served to reinforce the new “norm”.  Evergreen has already shifted some of its production to China and is expected to remain an ongoing business pending talks with Chinese investors.  Evergreen received a $58 million financial aid package from theU.S. government.

Exporting Innovation – Unintentionally

A clear trend appears to be developing here. It appears that domestic alternative producers cannot find viable domestic markets. Accordingly, the intangible benefits, more specifically patents and other intellectual property developed with the financial aid of Federal and State grants, are being exported to foreign (often unfriendly) countries at a deep discount, as the market for American alternative projects proves to be too costly.

A further example of an alternative energy supplier facing financial distress is Beacon Power Corp., a flywheel-based energy storage solution which has been forced into bankruptcy. On November 18^th a Bankruptcy Judge considered limiting the company’s use of $43 million in backing used as part of the Department of Energy’s Aide Program. The value of the patents in a sale is one of the points being argued by Beacon on behalf of the DOE (see Beacon Power Corp).

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Daniel Scotto is the founder and Chief Executive Officer of Whitehall Financial Advisors, which specializes in the economics of the energy and transportation industries.  Mr. Scotto has over 30 years of experience analyzing and advising energy companies, and has been an active participant in the forensic valuation of assets, rate case testimony and as a strategic advisor to both public utilities and alternative energy companies.

Mr. Scotto was ranked the #1 energy and utility analyst by Institutional Investor for an unprecedented 10 years. He has served as Director of Research for BNP Paribas, Bear Stearns, DLJ, L.F. Rothschild and Standard & Poor’s. scotto@whitehallfinancial.com.

Image Source: 123rf.com, dclcorp.com

Recent record prices for patent sales and shares of selected technology businesses (e.g. Nortel, Motorola, InterDigital) have turned up the volume on angry anti-patent rhetoric.

Patent owners of all shapes and sizes, including some operating companies, continue to be described in a variety of unfavorable terms, some of them unprintable.

On balance patents do much more good than harm, and the U.S. patent system, far from perfect, works well. It is responsible in part for spawning the most innovative companies in the world.

Many software developers, academic economists, CEOs and others, clinging to half-truths nurtured by myths and self-interest, believe that patents are anti-competitive, impede progress, tax consumers and line the pockets of lawyers.

“A Bull Market in Tech Patents,“ an article by Steve Lohr, veteran New York Times technology reporter, served to perpetuate the anti-IP myth. In it Lohr suggests that the patent gold rush has a darker side. “It is diverting money from innovation from industries crucial to the economic future of the United States.”

This is utter nonsense. Conclusions drawn in the article are likely based in part on what companies Lohr covers and analysts like Harvard professor Josh Lerner are telling him. Lerner is co-author of Innovation and Its Discontents, a strangely myopic book which I reviewed (skeptically) for Nature Biotechnology. It suggests that patents have become too strong and are destroying businesses, innovation and endangering lives.

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What is it with patents that raises the ire of otherwise intelligent people?

One reason is that patents are highly abstract, “exclusive” rights that on occasion can stop speeding products cold. 

Patents are complex to understand, difficult to validate, dangerous to monetize, frustrating to value, and expensive to acquire and enforce. 

Their performance is almost impossible to measure. Infringing a patent often is easier and much cheaper than licensing it or conducting costly R&D to design around. And then the infringer has to get caught and prosecuted. For some businesses patent infringement settlements are like a speeding ticket. They pay it if they have to and go on their merry way. They may still be ahead billions of dollars had they done the the right  thing.

I am not a particular fan of Intellectual Ventures, a NPE which has acquired more than 35,000 patents. A recent NPR broadcast, “When Patents Attack,” is dramatic radio entertainment but shoddy journalism. It was aimed at exposing the evil patent system as embodied by I.V. I am a big fan of This American Life, so their feeble expose hit home. What were they thinking?

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Often when a company believes it has the patents it needs to do business it does not. This can be painfully frustrating, and costly. It is the nature of business innovation, predating Alexander Graham Bell and Edison. Smart companies do their best prevent infringement by searching prior art and planning for the inevitable disputes. They also build a patent portfolio that can provide some leverage against operating companies. Frustration of this kind does not mean that invention rights are evil or counter to most Americans’ economic interests. The Founding Fathers thought IP rights served an important purpose, writing them into the U.S. Constitution before the right to raise and support a standing army and the right to declare war.

The fact that some companies are finally respecting patents is not only good for shareholder value, it can provide a boost to innovation. Now that the patent playing field is actually starting to level, some businesses are having trouble adapting.  A number of companies with abundant numbers of patents would still like to see them weakened, in general, and threats to their franchise diminished.

The pricing of the Nortel and Motorola patent portfolios got out of hand because some companies thought they could provide next generation mobile or 4G products and services without the necessary IP rights. They were wrong. Brand power is mighty, but it still is no match for the right patents. When businesses need to catch up quickly, the market extracts a pricing premium. Research in Motion paid for its IP mistakes in 2006 when it wrote a check for $612.5 million to settle an infringement suit. (Reportedly it could have settled for some $40m several years earlier.) Microsoft paid dearly in the 1990s for its mistakes, but had the luxury of time to catch up.

Google did not. Facebook, LinkedIn and Groupon with a dozen or fewer patents each, will not be far behind.

Costly as it may appear, IT companies are learning that it is often more efficient to pay a premium for proven rights that they must have than spend billions, plus years of time, on hundreds of speculative inventions and their questionable rights that may some day have value. The pharmaceutical industry is well acquainted with the need to conduct M&A along with its R&D.

Maybe there is a lesson here: A buyer really doesn’t know if it has overpaid until all of the accounting is in. For some cash-rich and credit-worthy companies, buying patents at a premium that will shape a market, slow competition or deflect litigation or a possible injunction is less lazy a decision than a prudent investment.

Those who encourage disdain for innovation rights because of some businesses’ lack planning or scruples (or both), or because independent patent holders today are better equipped to confront infringers, are doing innovation and commerce both a disservice.

Image source: businesstm.com, engadget.com

By Roya Ghafele and Benjamin Gibert

The publication of Patent Failure: How Judges, Bureaucrats and Lawyers Put Innovators at Risk (Princeton University Press, 2008) by James Bessen and Michael Meurer challenged the conventional wisdom on the relationship between patents and innovation.

The authors basically posit that the poor boundary definitions of patents result in over-litigation. Arguing that the costs of litigation create disincentives for innovators, Bessen and Meurer suggest that the IP system has fundamentally failed as a system of property rights for public firms in the USA. Industry analysts and public commentators have jumped on the findings to justify various positions in patent reform debates. Patrick Anderson and Joff Wild have already responded to some of the shortcomings in the Patent Failure study, particularly with regard to the interplay between infringement suits, stock prices and NPEs.

Assessing the Damage

Bessen and Meurer have clearly taken a leaf from their own book. The conclusion that badly defined patent scope results in costly litigation is based on narrow definitions of patent trolls, public firms, high-technology industries and litigation costs. While this narrow scope is necessary to make their analysis feasible, the accompanying qualifications to their conclusions seem to have been lost in the ensuing storm. Patents do still provide incentives to individual inventors and to the chemical and pharmaceutical industries. They are also likely to provide positive incentives for private firms operating in multiple sectors. Yet, round after round of Chinese whispers has morphed the study into a declaration that the patent system is fundamentally broken, rather than an exploration of where it is challenged, why it faces problems and how we can solve them.

That major high-technology firms supported the study, which concluded that patents on software are too abstract and ill-defined, naturally raises some questions. It is not surprising that major software patent infringers would welcome a declaration of a broken patent system. However, regardless of funding, these types of studies still fulfill important roles: 1) they encourage debate on the efficacy of the current IP system; 2) they identify avenues for possible reform. Perhaps it is here that Bessen and Meurer have the most to offer.

Specialized courts such as the Federal Circuit have expanded their influence over patent law in the past twenty years. Whether or not this means patents no longer work, it is important to recognize this development and understand its impact in the USA. Identifying detailed mechanisms to render patent claims more transparent and improve patent search is another welcome contribution. Yet the suggestion that increased patent fees can reduce the number of patent applications may come at the cost of locking out smaller innovators and gearing the patent system towards large corporate actors.

No Easy Solutions

While the economic and philosophic underpinnings of Patent Failure are easy to follow and coherent, there seems to be less reflection about the possible consequences of their recommendations. Other suggestions, such as exemptions from infringement repayments when technology is invented independently from the patent owner, seem useful on the surface but may prove extremely difficult to implement in practice.

Perhaps Bessen and Meurer’s most important contribution is simply the idea that the patent system must recognize the limits of its grasp, regardless of whether we currently know how to set those limits. By recognizing these limits we can start to understand how national institutions can support patent law to fuel innovation in an era of new challenges and opportunities.

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Dr. Roya Ghafele is the Director of Oxfirst Limited, a boutique consulting firm focusing on the economics of innovation and IP. Within the University of Oxford, she holds Fellowships at the Said Business School, the Oxford Intellectual Property Research Centre and St. Cross College. Dr. Ghafele worked as an Economist with the U.N.’s World Intellectual Property Organization (WIPO) and the Organization for Economic Cooperation and Development (OECD).  After having toured for five years as a ballet dancer she began her career in 2000 with McKinsey & Company. Dr. Ghafele is a consultant to Brody Berman Associates. roya.ghafele@oxfirst.com

Benjamin Gibert is a Research Associate with Oxfirst Ltd. Prior to joining the firm he was a research Associate in the University of Oxford where he graduated with distinction from Oxford and from Warwick University.
benjamin.gibert@oxfirst.com

Often overshadowed in technology and finance by the likes of San Francisco-Silicon Valley, Boston and New York, Philadelphia is right up there with the very best when it comes to intellectual property rights. The City of Brotherly Love is rich with leading IP advisers, holders and service providers.

IP players located in and around Philadelphia include (in no particular order):

InterDigital (NASDAQ:IDCC), with 8,800 issued patents and 9,700 applications is one of he leading wireless invention developers and patent holders, and of late a much pursed acquisition target. The company is headquartered in King of Prussia.

Allied Security Trust, the defensive patent aggregator is composed of 21 technology giants, including IBM, HP, Oracle and Intel. AST is located in Lambertville, NJ, just over the border from New Hope, PA, where its CEO Dan McCurdy is based. Nearby are the two offices of TPL (Technology, Patents and Licensing), the patent analysis and advisory firm established in 1998 by Charles Eldering, a successful inventor himself. TPL has locations in Doylestown and Philadelphia.

Rembrandt IP Management, the NPE, is in Bala Cynwyd and Bramson & Pressman, the patent law and advisory firm, is in Conshohocken.  Bob Bramson, former Unisys patent chief and InterDigital Patents Corporation  founder and former President, is a director of WiLAN, which has made a hostile bid for fellow Canadian licensing business Mosaid.

The University of Pennsylvania, home to one of the most successful patent licensing programs, is headed by Mike Cleare (formerly of Columbia University). Lou Berneman, who preceded Mike at Penn, is with Texelerate on Delancey Street, a public-private patent advisory and trading group. 1790 Analytics, a spinout from CHI Research and a pioneer in the field of patent analytics, especially in citation analysis, is located in Haddonfield, NJ, a stones throw from Philly.

Royalty rate publication Licensing Economics Review, which monitors patent royalty rates, is published by AUS Consultants of Mount Laurel, NJ. In nearby Warren, there is ThinkFire, the patent advisory firm that is now a decade old. Also, linked to Philadelphia are pharmaceutical and healthcare leaders, Johnson & Johnson, Roche, GlaxoSmithKline, AstraZeneca, Wyeth, Merck, GE and Siemens Medical Solutions. Rohm and Haas, Sunoco, and Boeing’s helicopter division also are in the Philadelphia area. Tyco Electronics, now TE Connectivity, has more than 10,000 patents and is based in nearby Berwyn, PA.

Don Boreman, a key player at ICAP Patent Brokerage and Lucent, lives in the Allentown area, as does Jim Finnegan, head of IP business at Comcast (NASDAQ: CMCSA) is located on JFK Boulevard in Philly. Cable and internet provider Comcast owns NBC-TV.

If I’m overlooking any Philly-area IP businesses or individuals, please let me know.

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Philadelphia Father Ben Franklin did not “invent” electricity as many believe.

He is, however, credited for coming up with the lightning rod, bifocals, the urinary catheter, the water tight ship compartment, a safer and more heat-efficient furnace and the odometer.

Ironically, Franklin chose not to contest infringements of his inventions, “having no desire of profiting by patents myself, and hating disputes.”

Image source: benfranklinmainstreet.com; frontdoor.com