Patent Strategy in the Modern Economy

Presented by Bruce Abramson, Ph.D., J.D.

bdabramson@gmail.com

www.bdabramson.com

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Introduction:Why Patents?

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POLICY OBJECTIVE

…. to promote the progress of

science and useful arts, by

securing for limited times to

authors and inventors the

exclusive right to their respective

writings and discoveries.U.S. Constitution, Art. I, Cl. 8

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THE CAREFUL BALANCE

Patent law protects exclusivity;

Exclusivity is a societal cost and a private benefit;

Knowledge is private contribution and a societal benefit:

Innovation economics explains the tradeoff;

All elements of patent theory are debated.

Exclusivity ”promotes” knowledge by motivating disclosure;

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The Basics:Patentin

g Today

cc image courtesy of flickr.com/julianbleecker

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SELECTED LEGAL TIDBITS

First to file since March 2013

20 year patent life “Patentability” controversies

surround software, business methods, &

genetics

Invention must be novel and

nonobvious

"Prosecution" is a dance between inventor & PTOPatents, once issued,

are presumed valid

Specifications & file wrapper

explain/constrain the claims

Claims explain what the patentee

owns

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PATENT LITIGATION

A patent is the right to file a lawsuit;

Standards for filing a “nonfrivolous” lawsuit are rising, but still modest;

Patent litigation is a strategic endeavor;

Large companies often complain about “Non-practicing entities” (NPEs, a.k.a Trolls);

There are many different types of NPEs;

Lobbyists are actively trying to change the rules of patent litigation.

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EXCLUSIVITY ECONOMICS

cc image courtesy of flickr.com/robnguyen01

Free markets hate exclusivity;

Antitrust law polices exclusive behavior;

Patents enable exclusivity

Economic views of both antitrust and patents change over time;

Legal views may lag, but eventually follow economic views;

Current view is that competition and innovation are both pro-growth.

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History:Roots of Patent Power

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ANCIENT HISTORY

1790 1890Mid 20th Century

U.S. patent

law dates

back to 1790;

U.S. antitrust

law dates

back to 1890;

Mid-20th

century view:

"Big is bad;"

Strong antitrust enforcement;

Unfavorable view of patents

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THE PROBLEM

The 1970’s, an era of economic malaise;

OBSERVATION #1

Japan & Germany

surpass U.S. in

commercialization

OBSERVATION #2

U.S. leads in

innovation

JAPAN GERMANY U.S.A

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THE SOLUTION

Revitalize the American patent

system;

Turn patents into useful tools of business strategy.

HOW?

Strengthen patents and add coherence to patent law.

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DAWN OF THE MODERN ERA

1980 1984

Between 1980 and 1984

Bayh-Dole Act

motivate universities to commercialize

FCIA

centralize patent appeals

Hatch-Waxman Act

alter pharma relationships

Diamond v. Chakrabarty

synthetic organisms are patentable

Diamond v. Diehr

algorithms are patentable

End of the Nine No-Nos

loosen antitrust scrutiny over patentees.

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THE GOOD NEWS

U.S. retained its lead in innovation;

IT WORKED!

U.S. regained its lead in commercialization;

U.S. economy boomed for more than two decades.

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THE BAD NEWS

The patent

system is

stuck in

“strengthen”

mode.

Thirty years

is long

enough for

people to

find

loopholes.

You have to

deal with the

consequences

.

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Upshot:What's it to you?

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THE QUESTION

How can today’s inventors, entrepreneurs,

innovators, entrants, and incumbents navigate the

contemporary “strong patent” terrain?

How should lawyers and strategists counsel such clients?

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THE TERRAIN

Uniformity independent of industry structure, capital needs, R&D patterns, or the relationship

between innovation and commercialization;

Variance in tools and training leads to highly variable patent

quality;

Presumption of validity authorizes patentees to reduce, restrain, and contest all products in or near its claimed sphere of

exclusivity;

All recent and current legislative proposals represent tinkering at

the edges.

cc image courtesy of flickr.com/banjaxx

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THE MESSAGE

Get used to it!

Make it work for you!

You must understand this terrain and how it applies to your industry!

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Strategy:The Players

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BIG INCUMBENTS

Build big portfolios;

Shape relationship with direct competitors:

Police entrants:

CROSS-LICENSING; LITIGATION; NEGOTIATION;

STANDARD-SETTING;

TRADE ORGANIZATIONS.

ESTABLISH BARRIERS TO ENTRY;

LEVERAGE INTO

ADJACENT MARKETS;

PRACTICE DEFENSIVE LITIGATION.

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SMALL COMPANIES

Choose between practice and enforcement;

Leverage critical patents to punch above their weight;

License in ways that constrain larger companies;

Litigate;

Attract investment capital;

Grow quickly.

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NON-PRACTICING ENTITIES

Source: Patent Troll by Bob MacNeil

Inventors, aggregators, investment funds, trial

lawyers, universities, and others qualify as

NPEs.

NPEs possessing patents but no products can file—or simply threaten—strategic lawsuits of varying quality against anyone even plausibly

encroaching their claims;

Numerous strategic opportunities;

Untapped investment potential.

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Strategy:Considerations

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PATENT ECONOMIC GROWTH

Someone must deploy the patent's teachings in a product or service.

Three candidate sets:

THE PATENTEE

(PRACTICE)AN AUTHORIZED

USER

(LICENSE)

AN INFRINGER

(LITIGATE)

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PATENT DISTRIBUTION

Sales

Why buy a patent?

One step closer to practice;

Improved defensive position;

Improved negotiating leverage;

Greater fool theory.

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DUE DILIGENCE

When building a portfolio or divesting patents

Verify ownership; Explore prior art;Check for liens and

encumbrances;

Review prosecution

history.

Inquire about

enforceability issues;

Shenanigans at the PTO?Maintenance fees?

ALSO...Assess backward, forward, and internal citations;

Consider market potential and ease of workaround;

Study prior litigation/proceedings.

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FREEDOM TO OPERATE

Can you work around existing patents?

Often formal in Pharma, but critical everywhere;

Specific to a jurisdiction;

Requires inquiries into validation and claim construction;

Notoriously difficult;

Impossible to guarantee;

Can be quite expensive;

Is it right for you?

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VALUATION

An "Art and Science;"

Makes sense only in context;

Must posit a growth scenario;

Many unknowns, many theories;

ACCOUNTING; BOOK VALUE;

GEORGIA PACIFIC

FACTORS;

LICENSING RULES OF THUMB;

REAL OPTIONS; COST BASIS;

etc.

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VALUATION?

Do you really want to know the value? Or are you just trying to satisfy:

IRS; SEC; COURTS;

Due diligence requirement;

Done deal.

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DEFENSES

No magic, but;

Understand the terrain;

Preempt;

Invest in analysis;

Negotiate;

Conduct FTO;

Be smart.

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SPOTTING OPPORTUNITIES

No magic, but;

Understand the terrain;

Preempt;

Invest in analysis;

Negotiate;

Conduct FTO;

Be smart.

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Closing QuestionHow Many Grains

of Salt?

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ABOUT BRUCE ABRAMSON Partner, Rimon, P.C., www.rimonlaw.com;

Ph.D. in Computer Science (Columbia), J.D. (Georgetown) & Registered Patent Attorney;

Former Law Clerk (CAFC), CS Professor (USC), & Economic Consultant (CRA);

Strategic practice leverages client ideas into business plans;

Transactional practice provides IP valuation & licensing services;

Litigation practice offers expert testimony on damages, technology, and industry practice;

Research focuses on the IP/Antitrust interface.

Firm tailors corporate, transactional, IP, and litigation services to tech companies.

Client-sensitive value-based pricing;

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QUESTIONS????

bdabramson@gmail.com

www.bdabramson.comwww.rimonlaw.com/professionals/bruce-abramson

Bruce Abramson, Ph.D., J.D.

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Thank Youfor Your Time.