F.T.C. Head Seeks End to Misuse of Patents

At a patent and antitrust seminar here, Ms. Ramirez laid out her recommendation for the F.T.C. to use its subpoena power and begin a sweeping inquiry into so-called patent trolls, a derogatory term for patent-assertion entities, or P.A.E.’s, as they are called by the F.T.C. The companies buy bundles of patents and make money by threatening infringement lawsuits.

Despite the rapid growth in the number of lawsuits filed by those patent-focused companies, regulators have little more than anecdotal evidence of how patent trolls affect business innovation, Ms. Ramirez said, and whether the patent-enforcement companies help to produce benefits that small companies could not enjoy on their own.

“We have a role to play in advancing a greater understanding of the impact of P.A.E. activity and using our enforcement authority where appropriate to curb anticompetitive and deceptive conduct,” she said.

However, she added, the activity of patent-assertion entities “raises tough competition policy and enforcement issues that defy a one-dimensional answer.”

Antitrust experts and patent litigators said the inquiry could provide clarity in what has become a muddied field.

“For the F.T.C. to roll up its sleeves and study what the real problems are in a rational way is going to be helpful,” said William C. Rooklidge, a patent litigator at Jones Day in Irvine, Calif.

The F.T.C., Ms. Ramirez said, is particularly interested in the methods employed by what she referred to as hybrid P.A.E.’s, which may have incentives that are secretly aligned with those of the company from which it acquires patents.

Those arrangements are part of a practice known as privateering, Ms. Ramirez said, where an operating company takes patents that it owns that might be applicable to a rival’s products and transfers them to a patent-assertion entity.

The sale might be structured to encourage the buyer of the patents to single out the seller’s rivals, which would benefit the original patent owner to the degree that it raises its rival’s costs.

Often, Ms. Ramirez explained, the practice is aided by a level of secrecy, with the patent-assertion entity filing its claims of infringement through a shell company, so that the subject of a lawsuit does not know that its industry rival is behind the harassment.

Bits: Court Ruling Takes a Stand on Essential High-Tech Patents

Joe Kohen/Invision for Xbox, via Associated Press Online game consoles like the Xbox use patented technology that is essential to its function.

The high-tech patents wars are fed by the value of patents as weapons for extracting rich sums from companies and competitors.

But courts are blunting the patent weapon, at least for the kinds of patents deemed vital for communications and data-handling in devices like smartphones, tablets and online game consoles. That trend took another step with an opinion issued last Thursday by a judge for the United States District Court in Seattle.

In his 207-page ruling, Judge James L. Robart took on the issue of pricing for so-called standard-essential patents. These are patents that their corporate owners have pledged to license to others on terms that are “reasonable and nondiscriminatory,” often known as RAND. All well and good, but what is reasonable to the owner might seem like extortion to the licensee, depending on the price. That kind of standoff becomes more likely if the two companies negotiating are rivals in the marketplace.

With clear prose and some clever math, Judge Robart concluded that when a company has made a RAND commitment to an industry standards organization, the price should be low. That is especially important, he said, for the intellectual property in complex digital devices that are bundles of many hardware and software technologies.

The ruling, according to Arti K. Rai, a professor at the Duke University School of Law, “fits into a long line of recent cases in which courts are squarely rejecting attempts by patentees to claim high reasonable royalty figures when the patent in question is a just a small piece of the product.”

The case in federal court in Seattle is a breach-of-contract dispute between Microsoft and Motorola, whose mobile phone unit, Motorola Mobility, Google bought in 2011 for $12.5 billion. Google picked up 17,000 patents in the deal, which closed last year.

In essence, Microsoft argued that Motorola bargained in bad faith by initially offering outlandish terms to license its patents on a wireless communication standard, 802.11, and another standard for video compression, H264.

Microsoft contends that Motorola’s first offer, if applied to a wide range of Microsoft products, might result in royalty payments of more than $4 billion a year. Motorola has replied in court that opening offers are nearly always negotiated down substantially, and that Motorola was mainly seeking a license deal on Microsoft’s Xbox video console rather than Microsoft’s wider product portfolio.

Still, Judge Robart determined that a reasonable rate for licensing the Motorola patents would be just under $1.8 million a year. That is not far from what Microsoft was offering as reasonable, about $1.2 million a year.

In his ruling, the judge set out some basic principles. An important one, he said, is that “a RAND royalty should be set at a level consistent with the S.S.O.s’ (standard setting organizations) goal of promoting widespread adoption of their standards.”

Later, Judge Robart explained the problem with relatively high royalties on standard-essential patents. He noted that at least 92 companies and organizations hold patents involved in the 802.11 standard for wireless communication. If they all sought the same terms as Motorola, he wrote, “the aggregate royalty to implement the 802.11 standard, which is only one feature of the Xbox product, would exceed the total product price.”

Judge Robart’s ruling covers only one part of one patent case — a price for reasonable licensing terms on Motorola’s patents. And the case is continuing. But his opinion, said Jorge L. Contreras, an associate professor of law at American University, detailed “some overarching principles that apply in cases like this. He emphasized that there was a social good that should be taken into account, and what is good for the whole market, not just for the two parties involved in the litigation.”

The ruling, Mr. Contreras added, “makes the big picture a lot clearer.”

Kodak to Sell Patents for $525 Million

Sorry, I could not read the content fromt this page.Sorry, I could not read the content fromt this page.

Europe Reaches Agreement on System for Patents

BRUSSELS — It only took four decades of wrangling.

On Tuesday, the European Parliament adopted a uniform patent system for Europe. If it goes into affect as expected by early 2014, it would try to remedy the country-by-country approach whose time and costs have long been an impediment to innovation across the European Union.

Achieving the new, unified system could conceivably provide encouragement for another, far more ambitious project that European leaders will be grappling with at their summit meeting this week: a uniform system of banking regulation and supervision for the euro area. But the long, tortuous route to the patent agreement might also serve as a cautionary tale.

The banking union already has bogged down in national battles that some experts warn could drag the process out for years — particularly if changes to the Union’s treaties are needed to endow the central bank with new and wide-ranging supervisory powers, or to set up a joint financial backstop to ensure the orderly winding up of failing banks.

“What’s clear is that the E.U. continues to operate on a hopelessly optimistic time scale,” wrote Mats Persson, the director of Open Europe, a research group, in a briefing note on Tuesday. Mr. Persson was referring to the time it would take to set up a “proper safety net” for Europe’s banks, including a bank resolution fund.

In the case of the patent, decades of discussions resulted in an unsatisfactory compromise, according to Bruno van Pottelsberghe, the dean of the Solvay Brussels School of Economics & Management. The new system will “still be a mess” and “we should not expect any of a change in Europe’s innovative performance,” Mr. van Pottelsberghe said.

Meeting in Strasbourg on Tuesday, the European Parliament voted 484 to 164 to pass the key plank of the new patent system. Nation-by-nation vetting of the new system will formally start in February, when governments are expected to sign a treaty creating special patent courts.

The system would supplement the current patchwork of patent rules in the Union; under the current system, a ruling in one of 27 countries has no automatic bearing on another. The patchwork approach has made protecting inventions and innovations in Europe 15 times more expensive than in the United States, harming competitiveness, according to the European Commission, the executive arm of the European Union.

The cost of patent protection should initially drop to around €6,500, or $8,450, from around €36,000, or $46,790, the commission says. That is largely because the new so-called unitary patents granted by the European Patent Office in Munich would no longer need to be validated in all of the countries where protection is sought. Nor would it need to be translated into all local languages. Instead, English, German or French would suffice.

Benoît Battistelli, the president of the European Patent Office office, said the decision on Tuesday would “equip the European economy with a truly supranational patent system.”

Yet the long, tangled history of working toward a common patent — repeatedly shelved after bumping up against national interests and amid squabbling over languages — is a timely reminder of how much easier it is to make commitments to a unified Europe than to put unity into practice.

In the case of the banking rules, also known as banking union, E.U. governments still must overcome differences over its most fundamental element: a single banking supervisor operating under the aegis of the European Central Bank.

European finance ministers are expected to work through the night on Wednesday in Brussels debating whether a new supervisor would oversee all 6,000 lenders in the euro area. France, Germany, Sweden, Hungary and Britain are among countries with concerns about the plan. The timing for an agreement “is likely to slip, as member states remain far apart on a number of key substantive issues,” Mujtaba Rahman, an analyst for the Eurasia Group, wrote in a briefing note Tuesday.

On Thursday, the finance ministers will give way to the European Union’s 27 leaders, gathering for their year-end summit meeting. When the leaders met in June, their joint decisions were cast as the starting point for tighter economic and monetary union in Europe. A central pillar of that agreement was a banking union, which would end the so-called doom loop in which frail banks endanger national finances and cause countries to need bailouts.

Samsung Is Faulted in Breach of Patents

WASHINGTON (Reuters) — Samsung Electronics of South Korea, the world’s top maker of smartphones, infringed on Apple’s patents to make its smartphones and tablets, a federal trade panel judge ruled on Wednesday.

Apple filed a complaint with the United States International Trade Commission in mid-2011, accusing Samsung of infringing on its patents in making the Captivate, Transform and Fascinate smartphones, and the Galaxy Tablet.

In a preliminary decision from the commission, Judge Thomas Pender said Samsung had infringed on four Apple patents but had not violated two others listed in the complaint. One of the seven listed initially was dropped.

The full International Trade Commission will decide in February whether to uphold or reject the judge’s decision.

Samsung was found to have infringed on an Apple patent that helps the touch screen interpret whether the user wants, for example, to scroll up and down or switch between applications. Samsung was also found to have infringed on a patent that allows the device to show an image on a screen with a second, translucent image over it.

Apple is waging war on several fronts against Google, whose Android software powers many of Samsung’s devices. The battles between Apple and Samsung have occurred in about 10 countries as the companies for market share in the booming mobile industry.

Apple won a sweeping legal victory over Samsung in August when a jury in a federal court in California found that Samsung had copied critical features of the popular iPhone and iPad and awarded Apple $1.05 billion in damages. Samsung has appealed.

Apple has asked the federal court and the trade commission to permanently ban Samsung products that infringe on Apple patents. Neither the judge nor the commission has ruled.

A Dutch court ruled Wednesday that Samsung had not infringed on Apple patents by using certain multitouch techniques on some Samsung Galaxy smartphones and tablet computers.

Widening Scrutiny of Google’s Smartphone Patents

This time, the focus is on phones — specifically, on patents that apply to lucrative smartphone technology, and the conduct of Google’s Motorola Mobility subsidiary.

The F.T.C. issued subpoenas in June seeking information from Google and smartphone rivals including Apple and Microsoft, and it questioned representatives of the companies as recently as a few weeks ago, said people briefed on the investigation.

Google owns patents covering communications and data-handling technologies that are crucial for the basic operation of smartphones and tablets — what are known as standard-essential patents. The investigators are scrutinizing the company’s policies for licensing these patents and suing other companies that it claims are infringing on them, said these people, who spoke on the condition that they not be identified.

Google’s Motorola unit pledged to technology standards organizations that it would license the patents to others on “fair and reasonable” terms to stimulate the growth of the industry, benefiting all companies.

Bloomberg reported in June that the F.T.C. had opened an investigation in this area. Since then, the agency inquiry has progressed, and the use of standard-essential patents has been an issue in several court cases and before Congress.

Google said in a statement on Tuesday: “We take our commitments to license on fair, reasonable and nondiscriminatory terms very seriously, and we are happy to answer any questions.”

Standard-essential patents, antitrust experts say, are the modern, high-tech equivalent of certain vital railway lines in the 19th century, like the Eads rail terminal and bridge across the Mississippi in St. Louis, the subject of a historic antitrust decision in 1912. Essential patents, like rail bridges, can become anticompetitive bottlenecks if the corporate owner withholds access to the technology or demands unreasonably high payment.

In Senate testimony in July, Edith Ramirez, an F.T.C. commissioner, speaking of the potential abuse of standard-essential patents, said, “Holdup and the threat of holdup can deter innovation by increasing costs and uncertainty for other industry participants, including other patent holders.”

Google is by no means the only smartphone company with standard-essential patents. But when it agreed to buy Motorola Mobility for $12.5 billion, Google picked up 17,000 patents, including a large trove of important patents relating to wireless devices that Motorola had committed to license.

The Google move was partly to defend itself and the smartphone makers that use its Android software, after rivals had already loaded up on patents.

A few months earlier, Apple and Microsoft led a six-company consortium that outbid Google and paid $4.5 billion for 6,000 patents sold by Nortel Networks, a bankrupt telecommunications company.

In the smartphone patent wars, Apple has relied on its patents on design and the way a person interacts with a mobile device, which are not standard-essential patents.

The F.T.C. investigation indicates that it is keeping an eye on the patent buildup by major high-tech companies. “It’s part of the larger concern that the amalgamation of these giant patent arsenals harms competition,” said William E. Kovacic, the former chairman of the F.T.C. who is now a professor at George Washington University.

“The worry,” said Mr. Kovacic, “is that the new Googles and new Apples will bump into too many patent tollbooths.”

The F.T.C. is not the only agency that has raised concerns about Google’s stewardship of standard-essential patents. The Justice Department, when it approved Google’s acquisition of Motorola and the consortium’s purchase of Nortel’s patents earlier this year, issued a statement praising the “clear commitments” by Apple and Microsoft to license standard patents on fair terms. It also noted their pledge not to try to use such patents to seek court injunctions to stop shipments of rivals’ products.

“Google’s commitments,” the Justice Department statement said, “were more ambiguous and do not provide the same direct confirmation of its standard-essential patent licensing policies.”

In June, Judge Richard A. Posner, a prominent federal appeals court judge in Chicago, dismissed a case between Apple and Motorola, finding the patent claims on both sides lacking. Judge Posner said Google’s Motorola unit could not try to calculate a royalty rate on a standard-essential patent based on “the holdup value — conferred by the patent’s being designated as standard-essential.”

“Motorola,” Judge Posner wrote, “has provided no evidence for calculating a reasonable royalty.”

The greatest potential abuse of a standard-essential patent is to get a court injunction to block a product from a market, said Carl Shapiro, a former chief economist in the Justice Department’s antitrust division.

Conventional patents can be used to stop shipment of an infringing product. But in the case of standard-essential patents, “you have made promises to license and that changes the game,” he said. “You’ve agreed to attenuate your property rights to expand the industry as a whole.”

Companies should not be allowed to use standard-essential patents as weapons, said Mr. Shapiro, a professor at the University of California at Berkeley. They should be barred from using such patents to seek market-blocking injunctions, and then pricing disputes should be left to the courts to decide what is fair, he said.

DealBook: With Smartphone Deals, Patents Become a New Asset Class

Daniel Borris for The New York TimesTRADING IDEAS Steven Steger, left, and David Berten, co-founders of Global IP Law Group, a firm specializing in patent legal and advisory work. It can be hard to keep up with the pace of change in the industry: “In patent law, you’re at the cutting edge of everything, and that’s shifting all the time,” Mr. Berten said.

David Berten has spent his legal career as a mercenary student of technological change. He has educated himself in one field after another: chemical coatings, genetics, navigation systems, semiconductors and digital communications software.

Keeping up is a constant challenge. This month, the 48-year-old lawyer was in his Chicago office, discussing past cases while scanning news Web sites and technology blogs for details on Apple’s iPhone 5, which was being introduced in San Francisco that day.

“We have to know what’s in it,” Mr. Berten said. “In patent law, you’re at the cutting edge of everything, and that’s shifting all the time.”

His firm, the Global IP Law Group, is a sign of the fast-emerging patent marketplace. Global IP, founded in 2009, is one of several boutique firms specializing in patent legal and advisory work that have cropped up recently. Silicon Valley is home to a cluster of them, including Inflexion Point Strategy, Epicenter IP Group and 3LP Advisors.

Though created by lawyers, these companies are hybrids: more merchant banks than law firms. They have legal expertise, but focus on valuing and selling patents and giving strategic advice.

Global IP made its name as an adviser to Nortel Networks, a bankrupt Canadian telecommunications maker that sold its 6,000 patents for $4.5 billion to a group of six companies led by Apple.

The high price paid for the Nortel portfolio set off a bull market in patents that can claim some snippet of smartphone technology. By one estimate, as many as 250,000 patents may touch a modern smartphone. So patents have become defensive and offensive weapons in the smartphone wars, with the major companies suing one another in courtrooms around the world.

A few months after the sale, the big loser in the Nortel auction made its move. Google agreed to buy Motorola Mobility for $12.5 billion, and about $5.5 billion of that was the value of Motorola’s patents, Google said in a government filing this year. Smartphones made by Samsung and other companies are powered by Google’s Android software, making Google and Apple archrivals in smartphone technology.

The smartphone patent megadeals may be over now that the two main adversaries have armed themselves. An attempt by the bankrupt Eastman Kodak to sell 1,000 digital imaging patents stumbled recently, as bids from potential buyers like Apple and Google came in far below the $2.2 billion to $2.6 billion Kodak had said the patents were worth.

But the huge deals, while exceptional, were made possible by a broader trend: patents have become a new asset class.

Traditionally, patents sat on corporate shelves and were occasionally used as bargaining chips in cross-licensing deals with competitors. But that began to change in the 1990s, when technology companies like Texas Instruments and I.B.M. started to regard their patent portfolios as sources of revenue, licensing their intellectual property for fees.

Today, companies routinely buy and sell patents, mostly in deals that draw little attention, for millions of dollars instead of billions. The question, experts say, is how big the market will become.

“Patents are a tricky asset to trade,” said Josh Lerner, an economist at the Harvard Business School. “But there is clearly a huge amount of value in intellectual property. And I think what we’re seeing is the beginning of a lot more monetization and trading of intellectual property rights.”

A sizable specialist industry has developed to build the marketplace for trading ideas. The players include patent aggregators like Intellectual Ventures and RPX, patent brokers like Ocean Tomo and ICAP, hedge funds, investment banks and law firms.

Yet boutique firms like Global IP play an important role, offering specialized expertise and an entrepreneurial approach. “We take patents and try to make money from them in all ways known to man — sales, licensing and litigating, if necessary,” Mr. Berten said.

Global IP opened in 2009 with two lawyers, Mr. Berten and Steven Steger. The firm now has 10 lawyers. About two-thirds of its business is selling patents, and it is working on more than two dozen portfolios. Most work is done on a contingency basis, with a sliding scale of fees that can reach 40 percent on projects that involve litigation, Mr. Steger said.

In the Nortel project, Mr. Berten and his team built a vast database of the Nortel patents, tracking the history of each through the government patent office, citations in other patent applications, uses in license agreements and filings in other countries. “It was a boatload of work,” said George Riedel, former chief strategy officer at Nortel.

Mr. Berten and Mr. Riedel, along with Nortel’s bankers from Lazard, made presentations to companies in Silicon Valley and Europe. Mr. Riedel said Mr. Berten showed an impressive grasp of detail, down to individual patents and claims, when challenged by lawyers at the major technology companies.

His job, Mr. Berten said, was to “identify the value of patents and then demonstrate that value to potential buyers.”

The auction was run by Nortel’s bankruptcy lawyers at Cleary Gottlieb Steen & Hamilton. The winning bid of $4.5 billion was well above the $2 billion to $3 billion projected. “Sure, I was surprised,” Mr. Riedel said. “We were fortunate to be in the midst of an ecosystem battle in smartphones.”

In the Kodak bankruptcy, Global IP was brought on in a very different role: as an outside adviser to the unsecured creditors, including Wal-Mart Stores and Sony Pictures Entertainment. Its job was to determine if the proposed auction was undervaluing the patents, and to advise the creditors if they might be better off taking another approach, like licensing the patents.

The very different experiences of Nortel and Kodak point to the many factors that go into pricing patents. Timing, competitive forces, regulation and court rulings all have an effect, said Ronald S. Laurie, managing director of Inflexion Point Strategy.

“Patents are a volatile, spot market,” he said. “This is a market, but a market that is more like art than stocks or oil.”

Ron Epstein, chief executive of Epicenter IP Group, agreed that pricing patents, especially large portfolios, was difficult. But he said he thought corporate trading in patents would become more commonplace, and pricing more routine. Someday, he predicted, patent acquisition costs may be a standard line item in corporate earnings statements.

“By fits and starts, we are moving to a more efficient marketplace for innovation,” Mr. Epstein said.

Calling patents an asset class is shortsighted, said Kevin Rivette, a founder of 3LP Advisors. The larger value of a portfolio, he said, can be as a strategic tool to negotiate lower costs from a supplier or to alter a rival’s product plans.

“You can use patents to change the competitive landscape,” he said.

RIM Told to Pay $147 Million for Violation of Patents

Research in Motion, the BlackBerry device maker seeking a comeback after falling behind Apple and Google in the smartphone market, has been found liable for $147.2 million in damages for infringing patents held by Mformation Technologies.

Jurors determined that the closely held Mformation proved in federal court in San Francisco that RIM software that lets companies manage workers’ BlackBerry devices remotely infringed Mformation’s patents. The software is called BlackBerry Enterprise Server.

Mformation, a maker of mobile-device management software, sued RIM in 2008, accusing it of infringement of two patents. The company claimed it had disclosed details of the technology to RIM during licensing discussions. After declining to take a license, the BlackBerry maker modified its software to include the patented systems, Mformation said in its complaint.

RIM denied wrongdoing and said the patents were invalid, according to court filings.

The jury found that Mformation proved that RIM should pay a royalty of $8 for each of the 18.4 million units, accounting for a total payment of $147.2 million. The verdict came late Friday after a trial that lasted three weeks.

Amar Thakur, a lawyer for Mformation, said the jury’s damage award is for royalties on past sales of devices to American customers excluding those in the government. Damages for future sales outside the United States and for government customers could increase the amount RIM must pay by two to three times, Mr. Thakur said in an interview after the verdict.

Crystal Roberts, a spokeswoman for RIM, has a request before the federal court to reverse the verdict.

“While the verdict is in favor of Mformation on some claims of the single patent remaining in suit, five of eight claims were found to be invalid,” Ms. Roberts said in an e-mail statement. “The court still has to decide the question of ‘obviousness’ with respect to the validity of the only patent in suit.”

RIM’s chairwoman, Barbara Stymiest, said last Tuesday that the company was considering all strategic options even as it pushes for a January release of the BlackBerry 10. The release of the BlackBerry 10 operating system, the linchpin of its comeback plan, has been delayed twice.

RIM’s share of the global smartphone industry fell by more than half to 6.4 percent in the first quarter, according to the research firm IDC. Google’s Android increased to 59 percent, while Apple accounted for 23 percent.