Boston University Goes Big Game Hunting

All of the non-practicing entities who have been taking a beating over their business models lately must be enjoying this week's patent litigation developments.

Boston University filed a patent infringement lawsuit against Apple asserting an 18 year old invention. The same Boston University whose legal scholars published the oft cited and passionately embraced finding that NPE patent assertions are substantial, totaling about $29 billion accrued in 2011 alone. We are having a hard time keeping a straight face.

This latest development adds a new level of complexity for public policy people trying to figure out how to balance the impact of patent assertion and infringement law suits on operating companies by non-pracicing entities and the rights of patent owners to monetize their patent assets.  Universities are joining the leagues of organizations that don't manufacture anything but sue for patent infringement.   The potential paydays may be too big for university patent owners to ignore.

Read the latest post here.

An New Indicia of Extortion

Here is the latest from our Indicia of Extortion collection, brought to you via Ars Technica.

Newegg, Inc. won its patent suit against non-practicing entity, Soverain on appeal.  Soverain claimed it owned the patent for the electronic shopping cart.  The Ars Technica article includes the details on the defendants, just about every major e-commerce player who sells products on the internet.

Newegg's Chief Legal Counsel, Lee Cheng's interview in the Ars Technica article offered insight into Newegg's commitment to follow the case through all the way to the end based on their well-founded belief that their products didn't infringe Soverain's patents and that Newegg didn't owe royalties on prior and future sales.  Mr. Cheng note that, "It's part of our duty as a good corporate citizen to try to accelerate the rationalization of patent law."  He is to be commended.  It's easy to say the patent system is broke.  It's much harder to do something about it especially when it would have been cheaper to just pay up, pass the 1% royalty fee to your customers and move on.

And when commenting on the submarine patent nature of patent trolls, where patent holders lie beneath the surface for long periods of time, usually while entrepreneurs create markets for products using patented technology and then do the pop-up and pay-up by suing the now profitable company for royalties, Mr. Cheng added,

"It's actually surprising how quickly people forget what Lemelson did. [referring to Jerome Lemelson, an infamous patent troll who used so-called "submarine patents" to make billions in licensing fees.] This activity is very similar. Trolls right now "submarine" as well. They use timing, like he used timing... Then they pop up and say, "Hello, surprise! Give us your money or we will shut you down!" Screw them. Seriously, screw them. You can quote me on that."

The Court's decision on Soverain Software v. Newegg, Inc. is an interesting read because it provides an accessible example of a patent infringement decision based on obviousness and the scope of prior art.  It is easier to understand than many other more technical obviousness claims because the technology is understandable to anyone who has shopped over the internet and used an e-commerce shopping cart.  If you are trying to wrap you head around how obviousness works, read the decision.

The folks at a long list of America's top retailers and e-commerce giants are sleeping easier night.  Tomorrow they should be calling their IT folks and telling them to check out Newegg the next time they need laptops, keyboards, software or a host of any other products and to have fun clicking Add to Cart.

Update - February 11, 2012:  Mr. Cheng provided comments to the Federal Trade Commission on the impact of patent trolls on Newegg's business.  The comments, available here, provide insight into the complex and nuanced impact that patent assertion entities have on Newegg's business.  The comments are thoughtful and highlight the complexity of the issues.

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 Bloomberg.com 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.

An Wang - Patent Troll - The Reading List

Next on the Inventions, Inventors, Innovation and IP Reading List reading list is the story of one of the great American inventors, a savvy businessman who sold the rights to one of the seminal inventions in core memory to fund his new research and development and then went on to build one of the top R&D and product organizations.  Sometimes he was an NPE and most of the time he was a practicing entity.

An Wang was received the Medal of Liberty awarded to distinguished naturalized citizens, Wang started the electronics laboratories that bear his name as a one-man shop six years after his arrival in 1945 from China at age 25 and built it into a multinational company.

With the "patent system is broken" being the tag line of lots of commentary on patents, patent litigation, and calls for making it illegal for non-practicing entities, the pejorative patent trolls, to enforce their patents, Lessons: An Autobiography give the reader insight into how patents, a brilliant leader, and a great team can change the way we work.

Lessons: An Autobiography by An Wang — Dr. Wang sold his patent for core memory to IBM to fund WANG Laboratories and set off an inventive juggernaut. Like other great inventors he started as a non-practicing entity and went on to build one of the largest "practicing entities" of the 1980s.

(We added the link to buy the books at Amazon for two reasons - the pictures of the covers look good and if you buy one of the books from the link on, Amazon pays us a little change.  This helps us keep our product cost low. )