Tracey Thomas, chief IP strategist at American Express
Intellectual property—especially patents—has exploded onto the consciousness of the media and businesspeople alike in recent years. The patent wars between high-tech companies have dominated headlines, while business decision makers in the C-suite have realized just how valuable intellectual property assets can be. But with the rise in prominence of IP comes a rise in challenges and concerns.
Innovation and value
While much of the press about patents is negative, involving trolls and debates over patent reform, IP attorneys know that patents are valuable assets that drive innovation and business decisions.
“One of the things we found is that patents can provide incentives for companies and investors to commercialize IP,” explains Tracey Thomas, chief IP strategist at American Express. “I spend a lot of time talking to buyers interested in IP and IP commercialization, and IP and patents are very important to the thinking process that these individuals and companies go through when making decisions.”
These investors realize that intellectual property may be the best way to measure a company’s innovation. “There are incentives to companies if you innovate and protect that innovation,” says Glenn Edwards, president, corporate intellectual property at Dräger. “If you are innovating, the evidence may not be seen right away, but IP is a way to measure that innovation.”
This connection between IP and innovation is not just about creating value. It’s also a self-iterative process. “Innovation creates patents, for sure, but the promise of a patent permits capital to gather and spur on innovation,” explains Mike Jaro, vice president and chief patent counsel at Medtronic. “Both exist together and mutually reinforce each other.”
If you talk to a cross-section of IP officers and ask them what is on their minds, odds are that they won’t get too far down their list before they mention litigation. Even for IP counsel that work for companies that are not R&D driven or as patent heavy as, say, the mobile device space, the topic is unavoidable.
“With respect to financial services, one of the issues is that litigation will not stay contained to certain industries or types of technology,” says Thomas. “As an IP strategist charged with protecting my company, I can’t help but be concerned when I see frivolous suits that amount to shakedowns.”
These frivolous suits are often brought by non-practicing entities (NPEs), companies that collect patents to use in litigation—or the threat of litigation—rather than the manufacturing of products. This problem has increased in scope in recent years.
“Since the financial crisis of the last five years, many patents have become available on the market,” says Edwards. “They are obtained by many organizations whose whole business model is leveraging these portfolios.”
Some companies are hit harder than others by intellectual property lawsuits. Google, for example, has had more than 400 such suits filed against it in the company’s history and is currently dealing with more than 200 cases, both in the U.S. and abroad.
“Abusive patent litigation is a plague,” says Catherine Lacavera, director, IP and litigation at Google Inc. “Over 70 percent of these suits come from NPEs. They are expensive and wasteful, taking a lot of resources and hindering rather than promoting innovation.”
No matter where a patent lawsuit comes from, it will likely be a costly endeavor. “We are not just focused on nefarious trolls; it is frivolous litigation that has a cost to it. It hurts bottom line earnings,” explains Thomas. “Patent litigation is more expensive than other commercial litigation, with both hidden and soft costs. There’s the disruption and uncertainty it creates. You can’t measure that impact.”
Patent litigation siphons resources away from other areas of the business like research and development. The costs pile up, due in large part to the strain of the discovery process, which is often exacerbated in the case of NPE suits. “Litigation is far too expensive due to discovery costs,” Jaro says. “Such high discovery costs, moreover, encourage nuisance suits, and altogether are unnecessary for true justice to be meted out.” Because NPEs are often shell companies with minimal documentation, the burden of discovery falls disproportionately on the alleged infringers, who must turn over enormous volumes of data in the course of the suit.
While the issue of patent litigation is top of mind for all IP officers, there are certain industry-specific matters that tend to crop up. For example, when dealing with high-tech products like mobile devices, major headaches can occur.
“In the high-tech space, each product is covered by a thicket of patents, as many as 250,000 patents on a cell phone,” Lacavera explains. “There are unique challenges to launching a product, fighting back patent challenges to launches in the space, royalty stacking if the patents are disparately held.” These challenges can be exacerbated if any of the patent holders are NPEs, she explains, as they can often hold up the process by asking for “unreasonable rent.”
In the medical device industry, compliance is a top concern. “Medical device inventions are often discovered by doctors. Because such inventive doctors are healthcare providers, they are often paid by the government,” Jaro says. This raises questions for a company like Medtronic that might be looking to acquire the patents to a medical device. “Who do you pay? Can you pay the doctor? Are you paying too much?” There are concerns about paying doctors, since, under the False Claims Act and other sanctions, some payments could be construed as inducement for unnecessary medical services, so companies in this space must be careful to document their acquisitions.
Recently, all branches of the federal government have taken an interest in the topic of patent reform. President Obama has released executive actions on the topic, the Supreme Court has heard several cases relating to patents and Congress is in the midst of debating new patent reform legislation. Almost universally, chief IP officers recommend cautious optimism as the government looks to change the patent landscape.
“Legislation being proposed is good, but it’s not going to stop sophisticated NPEs,” says Thomas. “Plus, if NPEs are ultimately eliminated by legislation and court cases, there is going to be a vacuum, and who will fill it?”
Lacavera remains optimistic about the proposed reform. “We are strong supporters of patent reform,” she says. “But there is no one silver bullet to address patent abuse.”
While recent Supreme Court rulings have had an impact on potential fee shifting, it remains to be seen what effect they will have when put into practice. And, with numerous proposed changes to patent law kicking around Congress, only time will tell whether this wave of reform will amount to anything.
In the meantime, intellectual property continues to grow in prominence and impact, both as a business asset and as a matter of concern for legal departments. With that in mind, Jaro points out that having an IP specialist as part of a comprehensive legal team remains essential. “IP principles are often quite nuanced, and competent advice is best provided by people who have deep experience on such matters.” In other words, IP attorneys themselves are more valuable than ever.