[Ecommerce] NYT" payday for patents

[Manon Ress]

QUOTE:
Josh Lerner, a Harvard Business School professor and an author of
"Innovation and Its Discontents," [SNIP]

"Any start-up company is a long shot," he said. "But now, even if you
are successful in the market, there's a high probability that someone
will show up with a patent. Many of these patent holding companies have
been quite successful even when their patents have been problematic."

There have long been companies organized solely around pressing patent
rights. Henry Ford required a prolonged legal battle to successfully
fight a holding company that claimed patent rights over all automobiles
with internal combustion engines in 1911.

END OF QUOTE

http://www.nytimes.com/2005/05/02/technology/02patent.html?oref=loginNYT
Technology nytimes.com/tech

A Payday for Patents 'R' Us
By IAN AUSTEN and LISA GUERNSEY

Published: May 2, 2005

The express elevator that whisks visitors to Donald E. Stout's office on
the top floor of a black glass building across the Potomac from
Washington suggests success. But nothing up there indicates that Mr.
Stout is a major player in the software business. There are no cubicles
for software engineers or humming server farms capturing their keystrokes.

There are, however, plenty of lawyers. Mr. Stout, who has practiced
patent law for 33 years, is a founder of NTP, whose only assets are a
series of wireless e-mail patents granted to Thomas J. Campana Jr., the
other founder, and whose only business is extracting licensing fees from
companies.

Started 13 years ago, NTP has used the staff at Mr. Stout's law firm to
exploit those patents. In March, their persistence paid off. Research In
Motion, the Canadian maker of the popular BlackBerry wireless e-mail
devices, agreed to pay NTP $450 million to settle a long-running and
sometimes bitter patent dispute between the companies.

Mr. Campana, a Chicago-area resident, died of cancer last year. Mr.
Stout said the settlement was a vindication of individuals over large
corporations. And the settlement has emboldened NTP, which is pursuing
additional licenses. Other companies, including Nokia, a rival of
Research In Motion, have already signed licensing agreements with NTP.

"Most people would like to see that a small inventor can succeed in this
country," Mr. Stout said. "This is proof that it can happen."

But others find the growth of patent holding companies troublesome
rather than heartwarming. Critics of the patent system maintain that
these companies - called "patent trolls" by their detractors - rely on
excessively broad patents, particularly for software, that should never
have been granted in the first place.

And the costs of litigation and licensing fees to settle patent disputes
have become facts of life for technology companies. In March, an appeals
court upheld a $29.5 million penalty against eBay in a patent
infringement suit brought by MercExchange, a failed online travel
service that holds patents related to eBay's "Buy Now" feature. (The
case remains in litigation, in part because of a preliminary Patent
Office ruling against MercExchange in April.)

In 2003, Eolas Technologies, a Web browser patent-licensing spinoff of
the University of California, was awarded $565 million in damages in a
patent infringement lawsuit against Microsoft. In March, an appeals
court ordered a retrial.

Other than legal respite, these companies get very little for their
settlement money. For example, Research In Motion's BlackBerry e-mail
software is far more sophisticated than anything outlined in Mr.
Campana's patents, and there has never been any suggestion that R.I.M.
relied on those patents while developing its own software.

Josh Lerner, a Harvard Business School professor and an author of
"Innovation and Its Discontents," argues that the potential costs of
patent litigation are higher for small technology companies.

"Any start-up company is a long shot," he said. "But now, even if you
are successful in the market, there's a high probability that someone
will show up with a patent. Many of these patent holding companies have
been quite successful even when their patents have been problematic."

There have long been companies organized solely around pressing patent
rights. Henry Ford required a prolonged legal battle to successfully
fight a holding company that claimed patent rights over all automobiles
with internal combustion engines in 1911.

It was not until 1982 that appeals of patent cases were moved to the
Court of Appeals for the Federal Circuit in Washington, producing more
consistent rulings. Before that, appeals were handled in circuit courts
around the country, depending on the trial court where the case was
first heard. Several of those appellate courts, specialists said, had
reputations of siding against patent owners seeking to press their claims.

"Before the Federal Circuit, patents weren't worth much," said Thomas L.
Creel, a lawyer with the firm of Goodwin Procter in New York. "Patents
have now become a piece of property that is very valuable."

Mr. Stout, who is 58, and Mr. Campana first met at Telefind, a company
that in 1987 introduced a primitive form of wireless e-mail that could
send relatively short messages to pager-like devices. (The devices could
only receive messages, not transmit them.) While Mr. Campana has been
described as the inventor of the software that Research In Motion will
now license, Mr. Stout acknowledged that was not the case. Instead it
was developed by two employees of E.S.A., a separate company Mr. Campana
owned.

"Tom was basically an overall developer of networks," Mr. Stout said.
"The two co-workers at E.S.A. were software guys."

When Telefind went under in 1991, Mr. Stout said he and Mr. Campana
decided to start NTP as "a kind of virtual company" to make money from
the e-mail patents. Company headquarters were in Mr. Stout's home but
NTP did attract 22 investors, most of them former Telefind shareholders
who had just seen that investment vanish. (All the investors will
receive money from the R.I.M. settlement, once the legal bills are paid.)

--
Manon Anne Ress
manon.ress@cptech.org,
www.cptech.org

Consumer Project on Technology in Washington, DC PO Box 19367,
Washington, DC 20036, USA Tel.:  +1.202.387.8030, fax: +1.202.234.5176

Consumer Project on Technology in Geneva, 1 Route des  Morillons, CP
2100, 1211 Geneva 2, Switzerland. Tel: +41 22 791 6727

Consumer Project on Technology in London, 24 Highbury Crescent, London,
N5 1RX, UK. Tel:+44(0)207 226 6663 ex 252. Mob:+44(0)790 386 4642. Fax:
+44(0)207 354 0607