Apple Vs Samsung Lawsuit Will Spawn More Patent Trials; Patents Are New Currency In Knowledge-Based Economy: Expert (Exclusive Interview)

In an exclusive interview to the International Business Times, Poltorak touches upon how ITC and Federal District Court can complement each other in patent trials, the need for having specialized patent arbitration forums, patent licensing and patent trolling and how more patent suits are going to be the norm than exception in days to come.

Excerpts

The ongoing Apple/ Samsung trial proves that there is going to be no dearth of patent cases in future. What do you recommend as amendments to current law to expedite resolution of such disputes, especially in telecommunication industry? In the Apple/ Samsung tussle, testimonies alone were furnished over a span of three weeks. What do you think is an ideal time frame to close such cases, especially since some patent battles have been waged over decades?

Setting up of specialized patent courts and patent arbitration forum wherein patent disputes can be effectively arbitrated outside the court system will facilitate speedy resolution of the trial.  The advantages include (i) it will be much faster (ii) it will be much cheaper and (iii) it will be done before a panel of patent attorneys trained in the technology at issue, thereby acting as a specialized patent court before one can be legislated). This apart, introducing multi-tier patent system (at least a two-tier system with senior and junior patents like in many countries outside the U.S.) will facilitate patents to be issued faster and adjudicated faster.

The first issue can only be addressed with the multi-tier patent system. The second can be addressed with specialized patent courts and patent arbitration forum.

In the ongoing Apple/ Motorola Mobility patent battle, in the first case, Motorola sought the intervention of International Trade Commission (ITC) to impose ban on patent infringing products that employed industry standard technology while Apple stated that federal district court and not ITC had to intervene on issues of fair usage. In such instances, who is more equipped to address the issue, ITC or the federal district court?

It is not uncommon to file parallel cases at the Federal Court and the ITC.  ITC has certain advantages: (a) it is fast - one year or, in exceptional cases, maximum of 18 months; and (b) it can issue an exclusion order banning the import of infringing products. On the other hand, ITC cannot award damages, only Federal Court can. That's why the optimal strategy is often to file parallel cases. Moreover, Federal Courts would be very hesitant to issue a permanent injunction on standard-essential patents, but ITC by law has to issue an exclusion order (which is analogous to permanent injunction) in case of infringement.

In the second case pertaining to Apple/ Motorola Mobility patent battle, Motorola has appealed against Apple for seven patent infringements that are not standards-essential. As they are not licensed under FRAND, the disputing parties are not able to arrive at a consensus on license terms. How should organizations deal with licensing for non standards-essential patents and secure royalty?

Standard-essential patents can only be licensed under FRAND and should not be used to obtain permanent injunction. However, non-essential patents can be asserted much more aggressively in court and the reasonable royalty rate is determined not based on FRAND but according to 15 Georgia Pacific Factors.

While acquiring Motorola Mobility along with its assets, people and patents, Google paid $12.5 billion to Motorola for 17,000 patents. Do you think $12.5 billion is an adequate compensation for such a large number of patents, especially as Google plans to employ them against competitors?

Actually, less than $12.5 billion went for the patents. Motorola had some cash on the balance sheet and a profitable product line (set-top boxes), which was estimated to be worth about $4 billion.  Large patent portfolios are typically sold for $100,000 to $250,000 per patent. That would put the following value on the Motorola patent portfolio at $1.7 billion to $2.5 billion. They got roughly $9 billion. So it was a very good deal for Motorola.

While building a patent portfolio, is it better for organizations to proceed in the organic route or in an inorganic route through M&A? This is being asked in the view of Google's patent acquisition spree, which seems to facilitate leadership position in patent portfolio, while also getting the search giant involved in one too many battles.

It takes many years and a lot of money spent on Research & Development (R&D) to generate an organic patent portfolio. It is much faster and much cheaper to grow a patent portfolio by acquisition. Patent-poor companies should buy patents from patent-rich companies, such as in transactions between Google and IBM.

As of June 2, 2012, end of RIM's first quarter, the organization's 3,357 patents carried a net book value of $3.37 billion or nearly 85 percent of value of the entire company, states a SEC filing July 6. Is it a healthy practice to attach 85 percent of company value for patents alone? What in your opinion is a healthy patent constitution in an organization's overall asset portfolio?

It is not atypical. Today, over 80 percent of the value of the U.S. public companies comes from the intangible assets. It is particularly true for the technology companies. Patents have emerged as the new currency in the knowledge-based economy.

Kodak is planning to auction its patents and earn income through royalties from patent licensing. Do you think this will work, especially when companies find it difficult to arrive at consensus on licensing terms? What are the options for Kodak if it is faced with defaults in royalty payment from patent licensing?

Kodak auction is not going very well. Kodak overestimated the value of their portfolio by a wide margin. The $2.4 billion number they floated in the media is probably ten times more than these patents are worth. The problem is further exacerbated by the many encumbrances on Kodak patents. This auction failed to generate excitement and resulted in a kind of bidding war we saw at the Nortel patent auction. I think, it is fair to say, Kodak auction has failed. It may generate up to half a billion dollars but not much more than that.

 As far as future licensing efforts, Kodak's licensing is mostly of the stick licensing kind (rather than a carrot licensing). If a prospective licensee does not want to accept the royalty rate and other terms offered by the licensor, the next step is to bring a patent infringement lawsuit. Similarly, if a licensee stops paying royalty, Kodak can bring a breach of contract suit, which is easier to litigate than a patent infringement suit.

How effective is the Allied Security Trust (AST) against patent trolling?

Not effective. Unlike RPX, AST does not have its own money or a decision-making authority. Every time they want to acquire a patent, they have to go to all of their members asking for authorization and money - it's like trying to herd cats. They've been not an effective player so far.

What are your recommendations to curb patent trolling in telecommunication sector, especially smartphone market where companies are aggressively pursuing patents to gain an edge over competition?

I don't see anything wrong with it.  Patent is an exclusionary right. By definition, patent is the right to exclude others from making, using, selling, offering to sell or importing patented invention in to the U.S. Right to exclude is a negative right. Patent does not confer any positive rights at all, not even the right to practice one's own invention. Patent is nothing but a license to sue for patent infringement. In financial terms, patent is a call option on future litigation. No wonder, there is so much litigation - what else can you do with a patent?