Don't Get Caught With Your Patents Down

Part One of this series discussed the history of licensing and the need to prove infringement. This month's installment addresses patent trolls and the rise of the Asian IP powerhouse.

Weeding Out the Patent Trolls

The dramatic rise in the number of companies interested in stick licensing campaigns has led to a significant increase in the amount of patent assertions that appear on the desks of corporate IP counsel. Estimates by industry professionals are that the number is three- to four-times higher than five years ago. Many more assertions are also coming from pure licensing companies, that is, companies that do not actually create IP, or manufacture or sell products. These companies are not asserting patents so as to protect their own market space and research and development ' they are merely looking for revenue. These kinds of companies were famously referred to by Intel's IP counsel as 'patent trolls,' a name that has become popular among professionals in the field. Generally, only the patent assertions with the most compelling forms of evidence are even looked at by large corporations. Furthermore, many companies may not even respond to a patent assertion until such time as a lawsuit is filed. Large market share targets such as Intel, IBM, and STMicroelectronics make a conscious decision not to even respond to patent assertions until litigation is close to commencing. These companies like to create the impression that they play hardball in patent negotiations and would rather take their chances in a lawsuit than settle prematurely.

The increasing number of patent lawsuits that are filed annually in the United States supports the fact that fewer settlements are being reached out of court. Companies planning to assert patents must be prepared with the strong evidence required to make it through the litigation process. While a data sheet analysis may have worked in patent negotiations in the past, there are few lawyers who will base a patent lawsuit on data sheets alone. Quality reverse engineering evidence remains the mainstay of most successful patent lawsuits.

Rise of the Asian IP Powerhouse

Another important trend driving increased demand for reverse engineering services is the growing awareness of the importance of IP rights in Asian countries such as Japan, Korea, Taiwan, and China.

Japanese companies were hard hit a decade ago by the American licensing aggressors and are preparing to defend themselves more strongly as several important patent licenses near their expiry period. These Japanese companies have been ramping up their portfolios for some time in order to strengthen their negotiating positions in both offensive and defensive licensing initiatives. According to the U.S. Patent and Trademark Office, six out of the top 10 patent winners in 2006 were Japanese or Korean electronics companies.

As these companies ramp up their portfolios, they are also engaging in reverse engineering services, both to defend themselves as well as to actively go out and start licensing others.

Conclusion

Patent licensing has historically generated enormous earnings for companies that were proactive in enforcing their patent rights. However, the evolution of the patent troll company and contingency licensing firms has meant that it is much more difficult to get onto the radar screen of the IP counsels of the big licensing targets.

More patent licensing negotiations are ending up in litigation than ever before. This is driving the need for a higher standard of evidence in order to successfully litigate and eventually settle patent licensing agreements.

Terry Ludlow is founder and CEO of Chipworks. Since its start in 1992, the company has performed reverse engineering and analysis of semiconductor and microelectronic systems for law firms and intellectual property groups as well as engineering and product development groups. Chipworks can be reached at 613-829-0414 or [email protected], or online at www.chipworks.com.

Part One of this series discussed the history of licensing and the need to prove infringement. This month's installment addresses patent trolls and the rise of the Asian IP powerhouse.

Weeding Out the Patent Trolls

The dramatic rise in the number of companies interested in stick licensing campaigns has led to a significant increase in the amount of patent assertions that appear on the desks of corporate IP counsel. Estimates by industry professionals are that the number is three- to four-times higher than five years ago. Many more assertions are also coming from pure licensing companies, that is, companies that do not actually create IP, or manufacture or sell products. These companies are not asserting patents so as to protect their own market space and research and development ' they are merely looking for revenue. These kinds of companies were famously referred to by Intel's IP counsel as 'patent trolls,' a name that has become popular among professionals in the field. Generally, only the patent assertions with the most compelling forms of evidence are even looked at by large corporations. Furthermore, many companies may not even respond to a patent assertion until such time as a lawsuit is filed. Large market share targets such as Intel, IBM, and STMicroelectronics make a conscious decision not to even respond to patent assertions until litigation is close to commencing. These companies like to create the impression that they play hardball in patent negotiations and would rather take their chances in a lawsuit than settle prematurely.

The increasing number of patent lawsuits that are filed annually in the United States supports the fact that fewer settlements are being reached out of court. Companies planning to assert patents must be prepared with the strong evidence required to make it through the litigation process. While a data sheet analysis may have worked in patent negotiations in the past, there are few lawyers who will base a patent lawsuit on data sheets alone. Quality reverse engineering evidence remains the mainstay of most successful patent lawsuits.

Rise of the Asian IP Powerhouse

Another important trend driving increased demand for reverse engineering services is the growing awareness of the importance of IP rights in Asian countries such as Japan, Korea, Taiwan, and China.

Japanese companies were hard hit a decade ago by the American licensing aggressors and are preparing to defend themselves more strongly as several important patent licenses near their expiry period. These Japanese companies have been ramping up their portfolios for some time in order to strengthen their negotiating positions in both offensive and defensive licensing initiatives. According to the U.S. Patent and Trademark Office, six out of the top 10 patent winners in 2006 were Japanese or Korean electronics companies.

As these companies ramp up their portfolios, they are also engaging in reverse engineering services, both to defend themselves as well as to actively go out and start licensing others.

Conclusion

Patent licensing has historically generated enormous earnings for companies that were proactive in enforcing their patent rights. However, the evolution of the patent troll company and contingency licensing firms has meant that it is much more difficult to get onto the radar screen of the IP counsels of the big licensing targets.

More patent licensing negotiations are ending up in litigation than ever before. This is driving the need for a higher standard of evidence in order to successfully litigate and eventually settle patent licensing agreements.

Terry Ludlow is founder and CEO of Chipworks. Since its start in 1992, the company has performed reverse engineering and analysis of semiconductor and microelectronic systems for law firms and intellectual property groups as well as engineering and product development groups. Chipworks can be reached at 613-829-0414 or [email protected], or online at www.chipworks.com.