Bratislav Stankovic, PhD, JD

1. PATENTS FOR
ECONOMIC ADVANTAGE:
ECONOMIC ADVANTAGE
“SHOW ME THE MONEY!”
SHOW ME THE MONEY!
Bratislav Stankovic, PhD, JD

3. PATENT

5. INVENTION OF THE TOASTER
During World War I, Charles Strite, a master mechanic in a plant in
Stillwater, Minnesota, decided to do something about the burnt toast
served in the company cafeteria. To circumvent the need for continual
served in the company cafeteria To circumvent the need for continual
human attention, he incorporated springs and a variable timer, and
filed the patent application for his pop‐up toaster in 1919.
U.S. Patent No. 1,394,450 for Bread Toaster issued in 1921
U S Patent No 1 394 450 for “Bread Toaster” issued in 1921.

6. TOASTER ROYALTIES FOR MAY 1930
Charles Strite
royalties notes:
li
[royalty rate = 3%]

9. PCT PATENT APPLICATIONS

10. NUMBER OF USPTO PATENT GRANTS
In 2009: 485,000 patent applications were filed with the USPTO (3x in 20 years)

11. NUMBER OF PATENT APPLICATIONS IN MK
Патентни пријави по години, ДЗИС, годишник 2009
Година Домашни
од а До а С ра с
Странски, национална
ац о ал а Вкупно
у о Назначувања
аз а у а а Издадени
здаде
фаза пред решенија
ДЗИС
ДСОП ЕПЗ Пред ДСОП ЕПЗ
(PCT) (EPO) ДЗИС (PCT) (EPO)
2003 48 23 363 386 434 87469 3883 105
2004 44 9 399 408 452 38076 4545 102
2005 53 15 368 383 436 3381 4639 373
2006 55 4 403 407 462 3 4879 463
2007 150 13 365 378 528 0 5415 524
2008 34 5 401 406 440 0 5555 328
2009 39 11 371 383 422 0 3785 334
Вкупно 423 80 2671 2751 3174 128929 32701 2229
ДСОП = Договор за Соработка во Областа на Патентите [PCT = Patent Cooperation Treaty]
ЕПЗ = Европски Патентен Завод [EPO = European Patent Organization]

12. NATIONAL (MK) PATENT APPLICATIONS IN
MACEDONIA
100
90
80
70
60
50
40
30
20
10
0
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

13. NATIONALIZED (PCT) PATENT
APPLICATIONS IN MACEDONIA
APPLICATIONS IN MACEDONIA
100
90
80
70
60
50
40
30
20
10
0
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

14. US PATENT RECIPIENTS, TOP 10 IN
PRIVATE SECTOR, 2009
PRIVATE SECTOR 2009
COMPANY Number of granted
patents, 2009
1. International Business Machines Corporation 4,887
2. Samsung Electronics Co. Ltd. 3,592
3. Microsoft Corporation 2,901
4. Canon Kabushiki Kaisha 2,200
5. Panasonic Corporation 1,759
6. Toshiba Corporation 1,669
7. Sony Corporation
y p 1,656
,
8. Intel Corporation 1,534
9. Seiko Epson Corporation 1,328
10. H l P k d D
Hewlett-Packard Development C
l Corporation
i 1,269

15. US TOP PATENT RECIPIENTS,
UNIVERSITIES, IN 2009
UNIVERSITIES IN 2009
RANKING, UNIVERSITY Number of granted
patents, 2009
83. University of California System (10-campus) 251
153. Massachusetts Institute of Technology 134
173. WARF
173 WARF, UW-Madison 115
178. Stanford University 110
191. University of Texas 98
198. California Institute of Technology 93
266. University of Illinois 65

16. TECHNOLOGY TRANSFER
Moving innovations to the marketplace
University tech transfer centers [Bayh‐Dole Act = University and Small Business
University tech transfer centers [Bayh Dole Act University and Small Business
Patent Procedures Act, 1980]
Case study: the WARF (Wisconsin Alumni Research Foundation) story:
Founded in 1925 to manage a University of Wisconsin Madison vitamin D
Founded in 1925 to manage a University of Wisconsin‐Madison vitamin D
discovery
The foundation has developed a model of technology transfer based upon true
partnership with the UW‐Madison and industry
To date, > $300 million revenue from vitamin D royalties
WARF has contributed more than $1 billion to UW‐Madison

17. NUMBER OF US PATENTS, BY STATE

18. NUMBER OF US PATENTS, BY COUNTRY

21. PATENTS CAN MEAN SERIOUS BUSINESS

22. THE SELDEN ROAD‐ENGINE
Patent attorney George Selden, despite never having produced a
working model of an automobile, had a credible claim to have patented
k d l f bl h d d bl l h d
an automobile in 1895 [U.S. Pat. No. 549,160].
Application filed in 1879. Amendments filed to delay issuance of the
patent until 1895, by which time the automobile industry was growing.
t t til 1895 b hi h ti th t bil i d t i
No interest in manufacturing his invention.
Under threat of suit, almost all of the manufacturers took out licenses
from Selden, or from the Association of Licensed Automobile
f S ld f h A i i f Li dA bil
Manufacturers (ALAM), to whom he sold the patent [0.75% royalty on all
cars sold].
The Selden patent was declared invalid 1 year before it was set to end.
Th S ld t t d l d i lid 1 b f it tt d

27. PATENT LITIGATION IS COMPLICATED AND
EXPENSIVE
Pleadings
Initial disclosures
Discovery (increased exposures & risks)
Pretrial
Trial
“American lawyers…have never been accused of asking for too little. Like the
y g
Rolling Stones, they hope that if they ask for what they want, they will get
what they need.” McPeak v. Aschroft, 202 F.R.D. 31, 34 (D.D.C. 2001).
Percentage of patent cases that settle:
2005: 85.9%
2006: 86.5%
‐P f P lJ i k U i
Prof. Paul Janicke, University of Houston Law Center, Patent Litigation
i fH L C P Li i i
Remedies: Some Statistical Observations

28. WHY PATENT?
A grant to the patentee of the right to exclude others from:
making the invention
ki h i i
using the invention
offering for sale
selling the invention [throughout the United States]
importing the invention [into the United States]
Patents are a method of publication
Patenting translates an inventor’s work into a product that will benefit
society
Patent holders can prevent abuse or misuse of their inventions and
research
Inventors, their labs and departments benefit from licensed inventions

29. THE UTILIZATION OF A PATENT’S
ECONOMIC POWER
ECONOMIC POWER
Out-license
for revenue IP Value
V l Injunctions
against infringers
X-license Damages awards
leverage against infringers
Force competitors
Market exclusivity to design around
Image/marketing

30. PATENT ROYALTY RATES
Importance of the patent and its value to the products
Scope of claims; type of patent (e.g., research tools; up or down stream;
Scope of claims; type of patent (e.g., research tools; up‐ or down‐stream;
fundamental or improvement patent ); whether other patents need to be
licensed in order to practice it
Often computed as a percentage of the value of the finished product
made by using the patent
d b i th t t
Typical rates for gross sales within the U.S. pharmaceutical industry:
a pending patent on a strong business plan, royalties ca. 1%
issued patent, 1% 2%
issued patent, 1% –2%
the pharmaceutical with pre‐clinical testing, 2–3%
with clinical trials, 3–4%
proven drug with US FDA approval, 5–7%
drug with market share, 8–10%
Rates of royalty payments in the industry: over a 16‐year period, for 458
license agreements, an average royalty rate of 7.0% (range 0% ‐ 50%).
license agreements an average royalty rate of 7 0% (range 0% ‐ 50%)
Licensing Economics Review, 2002.

31. A MATTER OF PERSPECTIVE
Increasing phenomenon of large companies “monetizing” their
portfolios in market segments where they are no longer active.
portfolios in market segments where they are no longer active.
“In America alone, technology licensing revenue accounts for an
estimated $45 billion annually; worldwide, the figure is around $100
billion and growing fast.”
‐ The Economist, A Survey of Patents and Technology, October 22, 2005
IBM: For 17 years running, Big Blue has been granted more U.S.
patents than any other applicant, raking in an ‐unprecedented 4,914
t t th th li t ki i d t d 4 914
in 2009. press release about the patent figures of 2002 – 3,288 US
patents in 2002; company collected $10 billion IP royalties in 10 years.
Qualcomm collects almost all its revenue—$10.4 billion in 2009—
collects almost all its revenue $10.4 billion in 2009
from selling licenses for and making the chips containing its patented
3G mobile‐phone technology, known as CDMA.
Pfizer relies on a single set of patents covering cholesterol drug Lipitor
for a fourth of its total sales, an estimated $11 billion last year.
$

32. PATENT TROLLS
What is a “patent troll” ?
Troll: to fish by trailing a line or net…………………
Troll: a Scandinavian folkloric creature, hostile to men, lives under
bridges and seizes those who try to cross without paying………………
g y p y g
“Patent Troll:” a neologism:
– “A patent troll is somebody who tries to make a lot of money from
a patent that they are not practicing and have no intention of
practicing and in most cases have never practiced.”
‐ The Recorder, Trolling for Dollars, July 30, 2001
Patent trolls buy patents cheaply from entities not actively seeking to
enforce them. A company may purchase hundreds of patents from a
technology company forced by bankruptcy to auction its patents.
technology company forced by bankruptcy to auction its patents.

33. THE SUCCESS OF PATENT TROLLS
Patent law provides the patent owner with the “right to exclude others
g, g, g , g
from making, using, or selling an invention,” regardless of whether or not the
owner manufactures it.
Patents that trolls obtain are relatively inexpensive, making it easier and
more enticing to acquire them in masses.
Nathan Myhrvold's (former Microsoft technology chief) Intellectual
Ventures posted $700 million in licensing revenue in 2010
Licensing revenue of Intellectual Ventures is $2 billion to date
Polaris IP has sued Google, Yahoo, Amazon, Borders, AOL, and IAC over a
patent on automated e‐mail responders [patent titled "Automatic message
interpretation and routing system ] Filed in 1998 the patent was awarded
interpretation and routing system" ]. Filed in 1998, the patent was awarded
in 2002 to a company called Brightware.

34. PATENT AUCTIONS
E.g., Chicago‐based Ocean Tomo’s model of business:
$500‐per‐ person cocktail reception and awards dinner at the Palace of
Fine Arts in San Francisco.
Then put on the auction block approximately 400 patents applicable to
semiconductors, RFID (radio frequency identification), wireless
communications, automotive technology, food, energy, and the Internet.
i ti t ti t h l f d d th I t t
Patents grouped in 68 blocks ranging in estimated value from $100,000
to more than $5 million.

35. PATENT INFRINGEMENT
Making, using, selling or offering to sell the claimed invention.
Four flavors:
Direct = you do it yourself; § 271(a); strict liability ‐ knowledge and
intent are irrelevant
l
Contributory = you supply a key component that has no substantial
noninfringing use; § 271(c); knowledge requirement
Inducement = you actively cause someone to infringe; § 271(b);
knowledge requirement
Willful = with knowledge; possible treble damages

36. PATENT INFRINGEMENT ‐ ASSESSMENT
Know and understand the market
K d d d h k
Protect the competitive advantages of the invention
Suing your competitor rather than your customer
High‐tech does not necessarily mean big dollars
High volume‐high profit translates to big dollars
Customer acceptance issues
Regulatory issues

37. REMEDIES FOR PATENT INFRINGEMENT
Injunctive Relief
Preliminary injunction
Permanent injunction
Permanent injunction
Monetary Damages
Lost profits, including profits on lost sales and profits from price erosion
Lost profits including profits on lost sales and profits from price erosion
Reasonable royalty
Goal: to place patent owner in same position as before infringement
p p p g
“damages adequate to compensate for the infringement, but in no event less
than a reasonable royalty”; 35 U.S.C. § 284
Current theories of recovery
Lost profits
Price erosion
Reasonable royalty
Entire market value rule/ conveyed sales

38. WHO ARE THE INFRINGERS AND
WHERE IS THE MONEY?
WHERE IS THE MONEY?
Michelson v. Medtronic ‐ $1,350,000,000 award
medical device; spinal fusion implant technology
medical device; spinal fusion implant technology
Polaroid v. Kodak – $925,000,000 award
> 50 patents relating to instant photography
Medinol v. Boston Scientific $750,000,000 settlement
Medinol v Boston Scientific ‐ $750 000 000 settlement
RIM v. NTP, Inc. – $612,500,000 settlement
wireless e‐mail technology; BlackBerry settled –
y
to avoid effects of uncertainty or service shutdown
Novell v. Microsoft ‐ $536,000,000
EMC Corp. v. Hewlett Packard ‐ $325,000,000 settlement
Hoffman‐La Roche. v. Cetus Corp. ‐ $300,000,000
patent rights to PCR process
Many patents and hundreds of claims
Only need one claim to win
Risk assessment – odds are always in patentee’s favor

39. SMALL GUYS CAN WIN, TOO
Entrepreneur wins $625 million payout from Apple
E i $625 illi f A l
Oct 2010: Yale University computer science professor David Gelernter,
founder of Mirror Worlds, won his patent infringement case against
Apple
A l
The lawsuit, filed in 2008, claimed three Apple software features –
the Cover Flow flip function, the Spotlight hard drive search tool, and
Time Machine, which backs up data – violate three Mirror Worlds
Time Machine which backs up data violate three Mirror Worlds
patents.
The jury agreed, awarding $208.5 million for each of the three
infringements.
infringements
Federal jury in Tyler, Texas [forum shopping]

40. PATENT RIGHTS AND ECONOMIC VALUES
No piece of intellectual property is inherently valuable, nor does it
give anyone a ticket to print money.
give anyone a ticket to print money.
A patent right is only valuable if it fits into the context of a good
business plan that enables it to create value.
Patents that are being drafted today will have effect for the next 20
years; diversity in claiming: a patent should contain claims of many
different types, styles and scope as is practical
diff tt t l d i ti l
A patent right is a means to an end, not an end in itself
Need for development of a corporate patent strategy that provides
the maximum economic power to the company

41. ASSESSING WHO ARE THE INFRINGERS
AND WHERE IS THE MONEY
AND WHERE IS THE MONEY
Know and understand the market
K d d d h k
High‐tech does not mean big dollars
High volume‐high profit translates to big dollars
Protect the basis for consumer demand
Literal Infringement & Doctrine of equivalents
Direct Infringement
y g
Contributory Infringement
Inducement
Need all claim elements or their equivalent

42. PATENT UNENFORCEABILITY
Due to inequitable conduct
The law places a high duty of candor on those seeking patents
Th l l hi h d f d h ki
Failure to disclose relevant information can lead to
unenforceability of the patent and antitrust liability
Most often results from failure to cite known references
f l f f l k f
Due to patent misuse
Patents obtained by fraud
Patents wrongfully asserted
Patent agreements that unlawfully extend the monopoly, e.g.
“tying”

43. KNOW YOUR CLIENT
Know your company’s businesses/ know the competition
Protect the novel aspects of the invention
P h l f h i i
Protect the competitive advantages of the invention
Two questions to ask:
Why is this invention new?
What is the client’s business interest?
Commercial processes restrictions
Customer acceptance issues
Regulatory issues
pp
Supplier issues

44. REALITY OF PATENT DAMAGES
“damages adequate to compensate for the infringement, but in no
event less than a reasonable royalty”. 35 U.S.C. § 284
Current theories of recovery:
Lost profits
Price erosion
Pi i
Reasonable royalty
Entire market value rule/ conveyed sales
Not so miscellaneous factors to consider:
Patent maintenance fees
Failure to mark a patented article 35 U.S.C. §287(a)
Failure to mark a patented article ‐‐ 35 U S C §287(a)
Six year limitation on damages ‐‐ 35 U.S.C. §286
Prejudgment & post judgment interest
Laches & estoppel
Costs
Attorney fees
Increased damages ‐‐ up to three times if willful infringement