Patent Conference Announcement, SCU, Oct. 14 (July-Aug. 2011 Quick Links, Part 3)

By Eric Goldman

Over the past few months, we’ve seen some dramatic–and expensive–evidence that the patent system is out-of-control. Feeling outgunned in the smartphone space by big players with larger patent portfolios, Google has been on the prowl for bulk patent portfolios to supplement its own. First, Google bid for the Nortel patent portfolio but got aced out after a consortium of competitors bid a breathtaking $4.5B for the portfolio. Then, Google bought a patent portfolio for IBM.

But I think the message really hit home when Google sought to buy Motorola Mobility for $12.5B, in which the prize asset is a portfolio of 17k patents. See the merger agreement.

Investors in Motorola Mobility might be cheered, but there’s no good news in this acquisition. The Nortel auction showed that a company can be worth more dead than alive because its death unlocks its patent portfolio without putting at risk a company’s ongoing revenue stream. Once the patent portfolio is on the open market, potential buyers include NPEs looking to unleash a wealth-draining litigation frenzy (where the NPEs get rich by pulling cash out of companies actually engaged in productive activities) or operating companies buy the portfolios as a way of deterring competitors from initiating a patent armaggedon. In the latter case, the acquirer pays a steep premium to improve its freedom to operate–it has higher costs to do the same level of innovation, and we as end consumers ultimately pay for this. As a a result, the winners from this developing market for bulk patent portfolios are the high-volume patent prosecutors, the deceased company’s creditors (and perhaps stockholders), the plaintiff-side patent litigators, the NPE investors, and any brokers in the system. Everyone else–including consumers–is a big loser from these transactions, which demonstrates that the patent system isn’t motivating the kind of social welfare improvements it putatively was designed to facilitate.

Meanwhile, a growing number of persuasive voices are expressing skepticism about the state of the patent industry. Laura Sydell of NPR kicked off the trend with “When Patents Attack,” a great investigative story on Intellectual Ventures and its potentially detrimental effect on our economy. This was followed up with a number of stories in leading publications like the Wall Street Journal, the New York Times and the Economist, all questioning the patent industry. Some of the articles that caught my attention:

* NYT: A Bull Market in Tech Patents

* Forbes: my colleague Colleen Chien wrote how to “Turn the Tables on Patent Trolls.”

* NY Observer: Anatomy of a Patent Troll

* PC World: It’s Clear Why Software Patents Need to Disappear

* Reuters: Apple uses courts to buy time to secure iPad’s market share

Unfortunately, the patent reform legislation does not help with this situation. The tweaks aren’t terrible, but they leave most NPE-related issues untouched.

Until Congress or the courts fix the problems doctrinally, what are operating companies supposed to do to prevent being undeservedly subverted by third party patents? Get into a bidding war with Google or other incumbents to buy up the remaining bulk patent portfolios? Tell their patent prosecutors to get busy with large numbers of new applications? Cross their fingers and hope they don’t get noticed by plaintiffs?

In a stroke of propitious timing, for the past several months the High Tech Law Institute, working with the Berkeley Center for Law & Technology, has been cooking up a major conference entitled “Defense 2.0: New Strategies for Reducing Patent Risk.” The event will be on October 14 at SCU, and we have a terrific lineup of experts. The conference will explore cutting-edge and cost-effective strategies for companies to improve their freedom to operate–without fear of innovation-destroying patent litigation. Although there will be an opportunity to hear from the other side, this conference is all about patent defense, a topic of vital importance to the Silicon Valley. The registration fees are a bargain (and free for many categories of attendees). I hope you will consider joining us.

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