By Michael Kanellos
Staff Writer, CNET News.com
July 20, 2005 4:00AM PDT
Citing Thomas Jefferson, Paul Ryan talks about helping the little guy stand up to big corporations and protecting kids from unsavory TV programming. So it may come as a surprise that, to many people in the tech industry, he's public enemy No. 1.
Ryan is the CEO of Acacia Research, a technology development company that has made waves in the past two years with its controversial practice of acquiring patents from other companies, then seeking royalties and licensing fees from those that may be violating them.
"If you look at the great inventions of the 1920s, none of those were invented by large companies," Ryan said, noting that his company often helps small inventors who don't have big corporations behind them. "Patent protection is a fundamental right. It is why some people left Europe."
Others see a less noble side to the patent business, arguing that intellectual-property companies and other litigants unfairly exploit the loopholes of an overworked patent system in a form of legalized extortion. U.S. law gives a patent holder a 20-year monopoly for an invention from the date the application is filed.
Still, Acacia and other patent companies say their work helps protect the pioneering spirit that has historically defined the American way. Inventors and patent holders say they must constantly fight an uphill battle against wealthy multinationals that deploy legions of lawyers and invariably want to exploit their ideas for little or no cost. Common tactics include persuading small companies to submit their ideas to standards organizations, which subsequently license them cheaply or for free, and filing counterclaims against small companies in an effort to force them into cross-licensing arrangements.
Regardless of which side is right, the intellectual-property business is thriving. Companies such as Forgent Networks and Intellectual Ventures, an incubator company co-founded by former Microsoft Chief Technology Officer Nathan Myhrvold, are rapidly expanding their patent portfolios, both by buying patents and coming up with ideas that can be broadly licensed. One of the latest entrants in the intellectual-property field is Applied Minds, a company funded by the Silicon Valley venture capital firm Kleiner, Perkins, Caufield & Byers. Applied Minds comes up with product ideas and then works with established companies to bring them to market.
"Patent work is no longer just a defensive insurance policy," said Kent Richardson, vice president of intellectual property at Rambus, an intellectual-property company. "It is part of your product offering."
Acacia alone has collected more than 120 patents, signed hundreds of technology-licensing agreements and filed several lawsuits on patents relating to, among other ideas, electronic bar codes, credit card fraud, video-on-demand services and chips for setting parental controls on TV use. The company's list of licensees includes National Instruments, Nokia, Playboy, Petco, Sunglass Hut and Walt Disney. Texas Instruments and Intel are defendants in a pending Acacia lawsuit.
Depending on the circumstances and the clout of the players involved, the stakes can be astronomically high.
That was made abundantly clear in 2002, when Forgent reviewed its portfolio and came across U.S. Patent No. 4,698,672, which it obtained when it acquired Compression Labs in 1997. The patent purportedly gave Austin, Texas-based Forgent the rights to the JPEG method for compressing digital video images.
In the last three years, the company has received more than $100 million in fees from Adobe Systems, Macromedia and others. A pending lawsuit against dozens of defendants, including Dell, and pending licensing deals could boost total royalties from the patent to $1 billion. Last week, Forgent filed a lawsuit against 15 more companies, saying it has the right to collect royalties on digital video recorders, or DVRs.
"The patent, in some respects, is a lottery ticket," said Jay Peterson, chief financial officer of Forgent, which didn't realize at first that it could claim the rights to JPEG, which isn't actually called by that name in the patent. "If you told me five years ago that 'You have the patent for JPEG,' I wouldn't have believed it."
Another company that could benefit from lucrative license fees is Picture Marketing Inc., which says it holds a patent for embedding photos in electronic messages sent for marketing purposes. The company, which has retained a former Microsoft attorney to represent it, will seek to collect royalties from companies that send (or have been sending) advertising e-mails that contain pictures. The patent was obtained in the late 1990s.
"Up to 1998, the patent office didn't grant many Web patents," said Mable Yee, chief executive of PMI, which has already signed some licensees. "They opened up from 1998 to 2000, but then they shut the window down."
Established companies such as IBM are also expanding patent licensing operations. One of the unintended consequences of the Sarbanes-Oxley Act is that companies must now comb through their patent files to make sure they're not wasting any valuable, unexploited assets. Some are also picking for gold among the bones of dead dot-coms.
As Acacia's Ryan puts it, "There's a lot of IP floating around out there without a home."
He and other supporters of the patent system say it provides necessary protections for companies and individuals that might otherwise stand little chance of getting paid for their ideas.
Going to the mattresses
Intergraph was a flailing workstation manufacturer when it filed an antitrust suit against Intel. After that failed, the company pursued claims that Intel chips infringed on Intergraph's Clipper processor patents, resulting in settlements and verdicts that have thus far totaled $675 million and royalties that will continue to 2009.
The goal of patent companies does not always involve litigation. Sometimes they consult with licensees to help them develop products; other times, they just provide an idea. But if voluntary licensing fails, legal action could result in monetary damages or an injunction that prevents the defendant from selling the disputed product.
Still, as Intergraph's case shows, asserting a patent takes more than reciting a magic incantation.
"Some people have tried the Rumplestiltskin process, but it generally doesn't work," said Ron Epstein, a principal at IPotential, which advises companies on how to handle their intellectual property. For smaller inventors, the cost of seeking protections can be prohibitive.
Years ago, filing a patent might cost about $800 in legal and processing fees, said Elwood "Woody" Norris, who has invented various types of speakers and
24 commentsJoin the conversation! Add your comment