Editorial: Uphill battle to shrug off patent-trolling reputation

Mona Locke, a former TV reporter in the Seattle area and the better half of former Seattle governor and the current US ambassador to China Gary Locke, has been named senior vice-president of communications and marketing at Intellectual Ventures. But what exactly will Locke be walking into as she opens the door on her first day at Intellectual Ventures?

Locke, who will oversee internal and external communications, public relations and marketing efforts, is taking on what is considered to be one of the hardest jobs in innovation. On the surface, Intellectual Ventures is one of the largest holders of US patents, and publicly states its mission is to act as a licence-broker and company creator, in a fashion similar to independent tech transfer offices and commercialisation firms. However, the company’s practices have put it at the centre of a national debate over patent reform due to allegations of so-called patent trolling.

Patent trolling is the process whereby one organisation aims to build up a large portfolio of patents, either tying patents together to bundle to other companies under license with the threat of litigation, or filing lawsuits for infringements of patents. This creates a pool of patents that is broad and vague, allowing the troll to cover commonly-used technologies and therefore cast its net wide, and is usually backed up by an expensive litigation process that can dwarf a small firm’s finances. The game is also a lucrative one. According to law firm Goodwin Procter, between 2010 and 2013, the average settlement in court was $8.5m for patent trolls, whereas the median damage award for technology firms actually using the intellectual property and successfully defending it was $2.5m.

The practice is seen as extremely detrimental in the US, where small startups and university spin-outs can be targeted by patent trolls early in the development of the company, causing huge financial pains for the young firm. The cost of defending a patent infringement suit can be up to $1m prior to trial, and can cost a firm $2.5m for a complete defence, even if the firm turns out to be wrongly accused by the patent troll. In 2011, it was estimated that US businesses had incurred $29bn in direct costs thanks to the activities of patent trolls. Patent trolling is much more prevalent in the US than in Europe due to the English rule, followed by nearly every western country apart from the US, which demands that the party losing in a court battle pays the winning party’s legal fees.

A 2014 study by Harvard University and Texas University showed that patent trolls stifle innovation on a wide scale, concluding that firms targeted by patent trolls tend to reduce research and development spending, averaging $211m less than firms that win against the trolls. It also found that the predators tend to target firms with fewer legal representatives on staff, forcing companies to spend more on lawyers and less on innovation. Patent trolls also generally target cash-rich companies, even if the money held does not stem from the patent in question, creating a disincentive for innovation.

Intellectual Ventures’ activities in this area have been repeatedly questioned by tech professionals and investigative journalists alike. Shane Robinson, chief technology officer of Hewlett Packard, has accused the company of being a patent troll, claiming the company acquired patents for the purpose of pressuring companies into paying licensing fees, while Chris Sacca, former Google employee  turned venture capitalist and backer of Twitter, has described Intellectual Ventures’ alleged practice of offering protection from lawsuits a “mafia-style shakedown”.

The tide is beginning to turn, however. The US Supreme Court stepped in during April last year with  two rulings making it easier for a tech firm to recover costs if a judge dismisses a troll’s claim as frivolous. And in June the court ruled in the tech firm’s favour, making it easier for victims to underline the vagueness of a troll’s claim to a patent. The same month, it also banned patent claims simply for running a business method already in use through a computer. This last ruling has resulted in a sharp fall in business method patents issued, from just over 7,000 in June 2014 to under 3,000 by October. The number of lawsuits has also dropped, from around 1,500 in the second quarter of 2014 to under 1,200 by the fourth quarter.

Combined with mounting pressure from the tech industry for patent reform, the shift is beginning to hit Intellectual Ventures’ bottom line. The company reportedly raised $5.5bn from investors, including Microsoft, Intel, Apple, Google, Yahoo, SAP, Nvidia, eBay, Stanford University and Mayo Clinic. However, according to Reuters, its investors are now abandoning them, with Intel and Apple dropping out of the latest round. In addition, the company laid off 20% of its workforce, and its latest legal victory over antivirus Symantec netted it $17m – far short of the $298m originally sought.

So perhaps Locke’s job will not be so hard after all. Instead of defending a controversial business model under constant assault from the tech industry, she may soon find herself trying to prove that Intellectual Ventures has any business model left at all.