TGIF for Patent Terrorism Foolishness

In their zeal to educate, amuse, enrich, and tell you the truth about investing, those happy fellows at www.fool.com want you to know about a new problem in our profession -- "patent terrorism." According to their article on April 26, 2005, the patent "T-word" refers to a legal entity that owns a patent or patents but neither develops products based on them or retains the original inventor:

Often, these organizations purchased the patents or swallowed companies that were going under to acquire the ideas, which is called patent trolling. These companies then scour the marketplace for other companies that may be doing business in areas related to the owned patents, and follow through with litigation to demand payment of license fees or royalties, or both.

These patent terrorists have no interest in cross-licensing because they produce no products themselves. They also often don't help the licensee with product development, because they usually don't hire the original inventor of the patents -- only lawyers. The typical legal action is more akin to a shakedown, with them often swooping in after a company has developed and sold so-called infringing products and trying to collect retroactive license fees.

There are a few practices in licensing patents that are considered legitimate in
the business of technology. First, innovative ideas are recognized and paid for by companies if there is some form of return in kind. It is very common, for instance, for companies to execute cross-license agreements, where each company gets access to selective innovations of the other. Microsoft, for instance, has stepped up its efforts in the past year and is pushing for cross-license agreements.

Companies also tend to be willing to pay license fees to a patent owner if the ideas can give the company a significant boost in either time to market, profitability, or competitive advantage. Obviously, if there is a clear advantage to incorporating an outsider's invention into your own product or service, it's worth paying for.

But at least the Patent Baristas aren't buying into this bit of Foolishness. "From the article, patent licensing apparently means licensing if done by a large company (the article mentions IBM and TI), which for some reason is OK even though it is described as generating huge revenue streams for companies, revenue that must come from someone," they write. "It's funny that the Fools often recommended tobacco stocks in the past because of the massive return on investment and have now come out against licensors for asserting their rights."

The Baristas aren't sure what the Fools might have been smoking, but they couldn't help but notice that the article came out just as Intel’s patent attorney was "on a road show campaigning against those pesky patent trolls." And while the chief patent counsel of the Business Software Alliance doesn't use the T-word, he too is voicing concern over what the industry sees as unfounded patent litigation. "Too many of these (patent litigation lawsuits) are filed in search of a quick buck through settlement negotiations, rather than a party legitimately asserting a right, because the infringer is interfering with commercial objectives," David Simon reportedly said.

However, Robert Merges, professor of law at the Center for Law and Technology at the University of California, Berkeley, offers a bit less tomfoolery in his analysis of this issue. He beleives that relatively few companies are actually out gaming the patent system:

"Sometimes people will become pretty good at playing the patent game.
They'll get a patent and not really contribute anything significant in terms of
technology, but just be a little ahead of the curve and be pretty clever about
working the patent system. It's kind of a tricky policy issue. How do you
slap down and try to stop the illegitimate guys while not wrecking any of the
beneficial uses people have found for patents?"

In other words, "reform is in the eye of the patent holder," writes Jonathan Krim in the May 5, 2005 Washington Post. As any Fool will tell you, no one ever likes to pay for what they can otherwise get for free. That's why potential infringers see every patent owner as a terrorist, and every patent as a weapon of mass destruction. On the other hand, when you're a patent owner, it can seem like every manufacturer is just one more point on the axis of evil, so that every enforcement action will inevitably lead to the Mother of All Lawsuits.

But there is still no reason to be terrified by the folly of this titular patent arms race. You can protect your business against these tommyrotten tiffs with a touch of "Proactive I/P Lawyering" and a trace of "Stategic I/P Legal Sourcing" trumpeted earlier in the "I/P Updates" news service. And, if that's still not enough to tranqulize your trepidations, then here's another "T-word" to think about,

Thank-Goodness-It's-Friday,

--Bill Heinze

p.s. - For more "patent Foolishness," check out TiVo Tunes In Patents, A Passage to India?, and Sony Immerses Itself in Haptics.