Patent Reform - Update to 9/2/14 Blog

Tue, 3/3/2015 - 2:45PM — VALUATION

In a September 2014 blog, I wrote that all traction on patent reform stalled on May 21, 2014 when Senator Patrick Leahy (D-VT), chairman of the U.S. Senate Judiciary Committee, officially removed the patent reform bill from the committee’s agenda. The inability to reach an “agreement on how to combat the scourge of patent trolls on our economy without burdening the companies and universities who rely on the patent system every day to protect their inventions” continues to be a challenge today.

However, patent reform remains a priority as a new session of congress convenes in early 2015. New U.S. Senator Shelley Moore Capito (R-WV) said that with GOP majority in both chambers she is hopeful a patent reform bill will make it to the President’s desk this year. However, Capito has emphasized the need to approach the issue cautiously, stating that “a balanced process that provides fairness to both the legitimate holders of patents and companies is crucial to allowing for American innovation.

There are many opponents of non-practicing entities (NPEs) and patent assertion entities (PAEs) who claim that their companies are being held hostage by frivolous lawsuits and overly broad claims. One of the most vocal of these opponents is a group called United for Patent Reform. The organization, made up of companies like Adobe, Amazon, Cisco, Dell, Google, and Oracle, hopes to accomplish the following goals: reform abusive demand letters, protect customers, make patent litigation more efficient, stop discovery abuses, and more.

While many support legislative changes that would harm or eliminate the NPE/PAE business model, there are others who believe that such changes must be made prudently, so as not to damage the rights of legitimate inventors. Earlier this year, Michael LoCascio, a director of global IP strategy at BASF, issued a statement in IAM magazine in which he defended the current patent system and emphasized the importance of inventors’ rights. He cites the amount of resources deployed toward R&D and associated innovation as staples of the U.S. economy and justification for maintaining a strong system for protecting these economic interests.

“… Well what about those nasty NPEs whose sole business model is to sue if they can’t extract a licence? It is doubtful that anyone would pay for a licence if there was no threat of a suit. Many smaller firms have few resources to enforce patents particularly against large corporations. Leveraging the finances and legal experience of NPEs facilitates the assertion of those rights. Likewise, many firms, even well-established ones like Nortel, go bankrupt. The patented inventions developed at those companies are assets owned by shareholders that should not simply be given to competitors without compensation. Here, too, NPEs play a role in monetising those stranded assets.

In short, IP is vitally important to US innovation, economic growth and prosperity. US intellectual property law was radically altered under the AIA and should be allowed time to settle. At the same time, improvements to the skill level and tools available at the USPTO should continue apace. Despite, the bad press, some of it deserved, NPEs play a vital role in enforcing and monetising IP assets. Lastly, and most importantly, lawmakers should exercise restraint and should carefully consider the wider ramifications to incentivising innovation prior to initiating any further modification of the law.”

One group that agrees with LoCascio’s call for caution is Innovation Alliance. The organization, whose members include Digimarc, Dolby Laboratories, InterDigital, Qualcomm, Tessera, and others, is a coalition of research and development-based technology companies representing innovators, patent owners, and stakeholders from a diverse range of industries that believe in the critical importance of maintaining a strong patent system that supports innovative enterprises of all sizes. Not unlike United for Patent Reform, Innovation Alliance is committed to improving the patent system, and even addresses similar issues such as demand letters, fee shifting, and disclosures. However, the group places an emphasis on improving patent quality and curbing excessive litigation costs for all users of the patent system.

While the merits of NPEs and PAEs continues to be in dispute, it is clear that changes in the patent system are imminent. According to a panel hosted by LES U.S.A. and Canada on February 11, 2015, we should expect new patent legislation by the end of the year or sooner. In that same panel, Judge Paul R. Michel, Chief Federal Circuit Judge (Retired), U.S. Court of Appeals, warned that this legislation is likely to hurt start-ups, universities, and other research institutions the most, hinting at the potential for unintended consequences for the innovation economy and society as a whole.



Ocean Tomo’s Valuation professionals are recognized as experts in IP and intangible asset valuation, having performed hundreds of strategic valuations for Fortune 500 companies, and small-to-mid-sized businesses, across a variety of industry segments. Managing Director Greg Campanella leads the Management Services Group and the Valuation Practice for Ocean Tomo.

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