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There's Gold in Them Thar Patents
By Mark Evans | March 17, 2005
NTP Inc.'s success in extracting US$450-million from Research in Motion has several interesting angles — highlighted perhaps by how the three-year legal dispute fits into a larger trend involving the pro-active exploitation of patents and intellectual property.
While the focus on NTP has obviously been its wireless technology patents, there has been little attention paid to the company's ownership structure, which consists of 23 investors. This group, created in 1992 to license technology invented by Thomas Campana Jr., has been supporting/financing NTP's legal fight against RIM in the hope NTP would eventually prevail.
The big question is what NTP will do with the settlement proceeds? Since NTP is a holding company for the now-deceased Mr. Campana's patents, it is likely only a matter of time before it starts to explore ways to generate revenue from other patent infringement lawsuits.
“Don't forget, these lawsuits are all NTP does,” said a lawyer, who asked not be identified. “So in this case, they'll probably pay their legal bills, make nice payouts to all of the investors, and use the remaining cash to create a war chest to go after other companies. It is like a shakedown — just perfectly legal.”
NTP's ability to squeeze licensing deals from other parties could make Mr. Campana the new Jerome Lemelson. For people unfamiliar with Mr. Lemelson, he held more than 550 patents. Before he died in 1997, Mr. Lemelson made more than US$1.4-billion from deals struck with IBM Corp., Ford Motor Co. and Sony Corp.
The licensing of patents has become a multi-million-dollar business as companies realize they can leverage and finance their R&D spending. Some of the leading players include Texas Instruments Inc. and IBM, which make billions of dollars a year from licensing deals.
The business of exploiting patents and intellectual property is becoming more sophisticated as people realize there is tremendous untapped value. This is highlighted by the creation of venture capital firms looking to buy technology patents for the express purpose of asserting their legal rights for financial gain.
Among these new entities, which have been described as “trolls” and “IP terrorists”, is Intellectual Ventures LLC. The Seattle-based company is led by Nathan Myhrvold, who was chief technology officer with Microsoft Corp. Last year, Intellectual Ventures raised US$400-million from Microsoft, Nokia Oyj, Sony and Charles Rivers Ventures so it could snap up companies with interesting patent portfolios.
The emergence of well- financed companies looking to aggressively assert and protect patents should be a major concern for any business using technology to create new products. For companies that are sued for patent infringement, the options are fighting back, which can be costly and time-consuming, or reaching a settlement, which can be expensive. It's just a matter of picking your poison.
In hindsight, RIM clearly underestimated NTP's ability to defend its patents and wage an effective legal campaign. After all, NTP was a relatively unknown entity and, at first blush, seemed to be just another legal nuisance for a fast-growing company that had started to become a target.
It was probably late in the game before RIM realized if it didn't pursue a settlement, NTP could end with more than US$1-billion if its patents were upheld by a U.S. court.
“The court really stuck to the merits of the case, and didn't get distracted by size and economic clout,” said Lance Johnson, a lawyer with Roylance, Abrams, Berdo and Goodman LLP in Washington, D.C. “It should send the message patents become the great leveller between large and small companies. It says you can't ignore patents owned by small guys; you have to give them as much attention as patents owned by one of your competitors.”
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March 17th, 2005 at 10:35 am
Great column, good complement to RIM story.
Tyler