So the folks who bought equipment from Cisco so their customers can read email while drinking a Latte are being asked to cough up some money because they are infringing Innovatio's patents. If the folks who bought the WiFi equipment from Cisco are infringing the patents then the next group of infringers are the users of the WiFi equipment including the denizens of Laptopisan and those surfing the net while in their PJs at home. (According to Matthew McAndrews the lead counsel for Innovatio, “Innovatio has made a strategic and business judgment at this stage that it doesn’t intend to pursue [lawsuits on the basis of] residential use of WiFi,”
Cisco claimed Innovatio's practices were extortion but the Innovatio crew came back and said it was their right to aggressively pursue infringers of their legally issued patents. Cisco wanted to make the whole thing go away because of the bad behavior on the part of Innovatio. The Judge in the case said, "not so fast."
Judge Holderman ruled that Innovatio had the right to petition any department of the government including the court system and that protection extends to licensing demands made before a lawsuit. So Innovatio wasn't engaging in racketeering by demanding licenses from these companies as a lead up to filing lawsuits. It was close but not quite there...yet. That first amendment Constitution thing came first.
The Patentista recalled that Niro, Haller & Niro, the law firm representing Innovatio, and Cisco have a long history recalling the earlier Troll Tracker blog matter where Niro put out a bounty looking for the identity of the blogger responsible for Troll Tracker only to find out that he was the head of IP for Cisco. That was back in the early days of the troll business when things seemed a lot simpler.
The Patentista noted how easy it is with a little customer relationship management software, a good solid database of addresses, and several reams of high quality paper from Staples to crank out the demand letters pretty quickly and get the ball rolling. Then consider that the settlement price of between $2,300 and $5,000 per defendant is about the price of the starter retainer and a couple of phone calls to your attorney when you get the letter so why not just pay up and move on. It's a business model with very low start up costs and big rewards. It may really be targeted at getting Cisco to pay up but when you go after the little guys first it looks like extortion. (Going after the end customers first to get the attention of a product provider is a tactic straight from the Patent Troll 101 play book.)
It's also about those agreements that people sign. They usually say that if you get hit with a patent lawsuit on the products you buy that you need to let the manufacturer of the product know and take the lead in the matter and assist in the defense. This is a seemingly innocuous paragraph when you sign (click these days) that nobody pays much attention to until the package with the demand letter on nice stationary arrives. Assisting in the defense could be costly however righteous it might be. Paying up and being indemnified against future action for a $2,300 might be a better deal.
Either way, if you figure Innovatio sent 8,000 demand letters at $5,000 a piece to settle, Innovatio can pull in about $40,000,000 at the high end (zeros are for effect.) Even if you only get half, that's $20M. And who cares if the firms paying the money are being abused or are disgruntled and unhappy. You have the money and can move on to your next victim. Who cares if more people hate the patent system. It's a nice pay day.
The Patentista suspects that this might be a privateering deal. Most of the patents were transferred from Broadcom to Innovatio. Maybe they commissioned Innovatio as their privateer to wring the last bit of revenue from these assets.
What you ask is a patent privateer? It's a new species of patent monetizer. The term patent privateer is used to describe special purpose business entities set up by large practicing entities, usually surreptitiously, for the sole purpose of monetizing the patent assets. There are of lots of reasons why the patent privateer business model is attractive. Here are a few.
It's easier to have someone else litigate your patents then to do it yourself.
It keeps the funds allocated for patent monetization separate from traditional operating expenses.
It creates plausible deniability in a marketplace where patent litigation seems to violate the marketplace's sense of fair play or when moving against a competitor directly is unsavory.
It creates an uncorrelated asset - an asset not directly tied to the price of a firm's stock - sometimes when the risk associated with the likelihood of success is low or unknown an uncorrelated asset is good. It becomes a correlated asset if thing go well and there are nice revenue flows back into the practicing entity (especially when such a flow of cash is beneficial for quarterly results reporting.)
It separates corporate assets of the practicing entity and the annoying cross-licensing discussion separate from the monetization piece by eliminating counter suits and all that nasty patent licensing stuff that goes on when one practicing entity has to deal with another. It can also be helpful by annoying licensing agreements in the first place when you are no longer a big player in the marketplace where the patents apply.
It lets the monetizing entity hide in plain sight during the cease and desist early action phase of the program until they hit a serious adversary who knows to ask the court to determine the material ownership of the entity - basically who owns the LLC and where the funds to support the operation are coming from. It gives cover until someone gets a patent attorney smart enough to figure out who is behind the PAE.
And it provides better visuals. The privateer pirate model with its skull and crossbones has such better optics than the drooling patent troll. Or as Mr McAndrews, the lead counsel for Innovatio pointed out, theirs is a systematic campaign. "This is not a seat of the pants, fly-by-night shakedown." (It's a more sophisticated shakedown.)
Maybe Broadcom Corporation wanted to squeeze the last bit of revenue out of the patents and decided to let Innovatio take a shot at it. Either way the decision in favor of Innovatio means that the bulk mailing of demand letters and the patent troll business model is alive and well and will live to fight another day.
