Big Game Hunting in Boston
All of the non-practicing entities who have been taking a beating over their business models lately must be enjoying this week's patent litigation developments. Boston University filed a patent infringement lawsuit against Apple. Boston University, non-practicing entity that doesn't make anything, is suing over a 1997 patent, US 5,686,738. According to Eric Lane, attorney and green technology blogger commenting on an earlier BU infringement case against Bridgelux, an LED manufacturer, "the '738 patent relates to a method of preparing highly insulating gallium nitride (GaN) monocrystalline films in a molecular beam epitaxial growth chamber using a process called epitaxy (depositing a monocrystalline film on a monocrystalline substrate). GaN is important because it can emit light that is on the edge of the UV-visible region.'
BU's attorneys are joined by Texas-based law firm Shore Chan Bragalone DePumpo LLP, Texas remains the epicenter of patent litigation brought by non-practicing entities. The firm has many university patent holding organizations as clients and just added the former Vice Chancellor and General Counsel of the University of Texas system. It also has a very strange website with lots of pictures of their furniture but patent lawyers aren't the best website developers. We're shocked, shocked, that there are Texas-based IP attorneys on their team especially in a suit against Apple.
Boston University is also the home base of Law Professor Michael J. Meurer and Law Lecturer James Bessen who authored the much touted and relentlessly quoted study, "The Direct Costs from NPE Disputes," on the economic impact of Non-Practicing Entities (NPEs), more commonly known as 'patent trolls.' The study is part of our Thought Leadership Series of academic research on patents and intellectual property.
The Meurer-Bessen findings note,
NPEs appear to be highly heterogeneous. Much of the litigation appears to consist of nuisance suits that settle for a few hundred thousand dollars. But some NPEs are "big game hunters" who seek and get settlements in the tens or hundreds of million dollar. ...The direct costs of NPE patent assertions are substantial, totaling about $29 billion accrued in 2011. This figure does not include indirect costs to the defendant's business such as diversion of resources, delays in new products, and loss of market share. Even so, the direct costs are large relative to total business spending on R&D, which totaled $247 billion in 2009 (NSF 2012), implying that NPE patent assertions effectively impose a significant tax on investment in innovation.
In 2009, Boston University spent $371M in research dollars but only generated $1.7M in licensing revenue. This must have led to some interesting conversations on how to get a better return on the university's research investment and ways to get more aggressive about bringing in more dough. Fast forward to July 2, 2013, time to make some money.
BU decided it didn't share their law school scholars' dim view on patent trolls and their impact on innovation. The University is asserting an 18 year old patent, 22 years if you use the 1991 priority date. They are going after Apple's most popular products — the iPhone 5, iPad, and MacBook Air, product that have been on the market for a while. BU and its attorneys probably engaged in the same type of analysis and evidence of use development practiced by Acacia Research and other patent assertion entities. Acacia is one of the organizations cited by Mr. Meurer and Mr. James Bessen in their study which was based on a data set provided by RPX, an entity that directly benefits from scary NPE activity by selling subscriptions to its defensive patent portfolio potential victims of NPE litigation to hedge their litigation risk.
The patent assertion universe must be amused. After all you can't make this stuff up.
We've heard Messrs. Meurer and Bessen passionately presenting their findings at half a dozen conferences in the last couple of years. Mr. Meurer was a presenter at the DOJ/FTC Patent Assertion Entities Workshop. They are both frequent speakers on The Patent System is Broken circuit. We suspect they can look forward to some new questions from the patent haters who passionately embraced their findings as proof of troll evilness. How the organizations that cite their study as evidence of a need to reform the patent system react to the BU lawsuit? Imagine the conversations with the folks at DOJ and the FTC who had them over to talk about the evils of patent assertion entities now that they are part of a patent assertion entity. No more free drinks from the Silicon Valley anti-patents crowd for these guys.
The patent prognosticators are estimating that the Boston University patent infringement law suit could generate $75M in revenue to the university. There is lots of speculation that Apple will need to release lots of details about how they make money to support the damages phase of the law suit. Another feeding frenzy. $75M would be quite a haul for BU. It's an amount right up there with what they guys at Acacia generated last quarter using the same tactics and business model.
Regardless of the outcome of this lawsuit, it is clear that emerging patent asset-based business models are not just for lawyers with a fuzzy business methods patent, a mailing list, and letterhead. As universities and other academic research organizations begin to aggressively assert their patents, the wall many, including the FTC, have tried to build around universities as NPEs and for profit groups that aggressively assert patents is crumbling. Universities, like their corporate privateering and publicly traded patent assertion entity collegues, have valuable assets that they want to exploit. They are no longer willing to sit on the sidelines while all the other patent trolls collect all that money. Big game hunting is on at Boston University and the BU Law School's influential NPE scholars will have to address it while explaining that they work for an NPE. It will be hard to listen to Messrs. Meurer and Bessen in the future and keep a straight face.