Thursday, December 27, 2012

The Non-Practicing Entity Conundrum University Edition

When is an NPE not a patent troll?

On December 26th, the verdict in a patent infringement lawsuit was announced.  A nine member federal jury ordered Marvell Technology and its US operating subsidiary Marvell Semiconductor Inc. to pay $1.17 billion in damages to Carnegie Mellon University.   The patent infringement lawsuit was brought by Carnegie Mellon University.  The verdict came after a month-long trial in the U.S. District Court for the Western District of Pennsylvania in Pittsburgh, the home of Carnegie Mellon.  The jury decided that the infringement was willful which means that the judge can award triple damages potentially raising the verdict to over $3.6 billion.

Carnegie Mellon University sued Marvell (MRVL: NASDAQ) for infringement of two patents, 6,201,839 issued in 2001 and 6,438,180 granted in 2002.  The patents cover ways to filter out noise and unwanted electrical signals when detecting data stored on a computer hard-disk drive.

Marvell is based in Hamilton, Bermuda. Its U.S. operating unit Marvell Semiconductor Inc is based in Santa Clara, California.  According to Marvell's inventor relations page, Marvell ships over one billion chips a year. Marvell’s expertise in microprocessor architecture and digital signal processing, drives multiple platforms including high volume storage solutions, mobile and wireless, networking, consumer and green products (LED lighting). The firm has 5,700 employees with design centers and research and development operations around the world.  The firm's research and development expenses were $1,014 million, $898 million, and $828 million in fiscal years 2012, 2011, and 2010 respectively.  Marvell Technology is a practicing entity. The firm owns patents and uses patents to protect the product it makes.  Its most recent patent, 8,341,503, "Methods and systems for storing data in memory using zoning" , was granted December 25, 2012.

Marvell Technologies may need to issue shares to cover the judgement according to several financial news reports.

Carnegie Mellon University (CMU) does not manufacture disk drives or semi-conductors (chips.)  It's primary product is education and research.  It doesn't produce products based the technology it invents.  This makes CMU a non-practicing entity,  or, using the pejorative, a patent troll.

The patents involved in the case were granted in 2001 and 2002 respectively, both were based on a provisional patent application filed in May of 1997. Published articles on the invention from the inventors began appearing in 1998. The patents cover technology that is almost 16 years old. Older than most of the patents enforced by non-practicing entities according to the now urban legend patent troll study written by Boston University Law School professors Mike Meurer and Jim Bessen.

K&L Gates, the law firm representing Carnegie Mellon University, claimed that Marvell copied the University’s technology for allowing hard disk drives to read information from high speed magnetic discs.  The expert witnesses in the case claimed that the CMU invention was a foundational piece of technology and that the university had been deprived of the revenue stream from its invention.

The inventors, Aleksandar Kavcic, and Jose M. F. Moura do not own a business that produces the inventions disclosed in the patents. Both are academics and researchers.  The inventors and the resulting patents in the suit benefited from a National Science Foundation under Grant No. ECD-8907068. The inventors and the university had the benefit of taxpayer funded research.

So here we have a patent troll case in which the non-practicing entity is a major research university.  The home town jury in Pittsburgh determined that willful infringement of the home town university's patents took place. The media reports on the case make no mention of the fact that CMU is a non-practicing entity despite the significant drop in the value of the publicly traded company's stock upon announcement of the verdict.  As of this writing there is no, "patent trolls are stifling innovation" rhetoric.  None of the usual suspects are circling the wagons screaming that there are over a gazillion patents that you need to look at when you make a smartphone even though technology made by Marvell Technology is essential to the smartphone, mobile, data storage ecosystem.  No one is preaching the end of an industry because of those pesky patents.

So where does this leave us?

It leaves us with a reality that sometimes someone who owns patents but doesn't make stuff but enforces their patents is doing what is good and right and sometimes someone who owns patents but doesn't make stuff and enforces their patents is an evil doer stifling innovation.  The line is very hazy.  It depends on your vantage point and what side you are on.

The discussion of the monetization of patents and who can legitimately enforce patents without public outrage continues.

About the Reporting on the Verdict:

As of December 27, 2012 only included the patent numbers in their article along with a brief description of the invention.

None of the media reports on the case discussed the age of the patents or the technology being enforced.  None of the reporters or bloggers asked why it took so long for CMU to seek to enforce its patents.

The announcement caused a significant drop in the price of Marvell's shares did not cause much in the way of explanation of the patents, or the invention covered by the patents.