A different perspective on patent risk

Cisco was among the early companies to bear the brunt of NPE assertions

Almost all in-house counsel for technology companies and companies that use technology in their business have grappled with patent risk—non-practicing entities (NPE)-based patent risk, in particular—over the past 10 or so years. I’m no exception. I spent eight years at Cisco Systems where I was the VP of worldwide IP and, being a technology bellwether, Cisco was among the early companies to bear the brunt of NPE assertions. In 2012, more than 2,400 different companies were defendants in at least one NPE suit (and 270 were defendants in three or more suits), but a dozen years ago, NPEs were a fairly new phenomenon and assertion letters were relatively rare.

Even back then, for some of us in Silicon Valley, these suits were becoming frequent enough to qualify as a trend, and the associated legal battles were becoming costly enough to qualify as a real operational risk. However, many of us in corporate legal departments did not have access to operational ways to solve the problem, nor did we come from such a background. So we turned to what we did know and what we thought we could influence—laws and legislation.

We thought the time was ripe for Congress to step in and level the playing field of NPE litigation. So the first concerted industry effort to deal with the emerging NPE threat was a campaign for legislative patent reform. Technology- focused in-house counsel, including myself, spent a great deal of time working with Congress to craft legislation.

But it wasn’t that simple. Other strong interest groups including pharma, manufacturers and universities liked the law the way it was. As a result, nearly all of our efforts to curtail litigation abuse failed. The significant effort at patent reform that did come to fruition—the America Invents Act (AIA) of 2011—ended up including almost no items from our wish list and did little to reduce the economic impact of NPEs (which reached nearly $11 billion a year in 2012; I’ll discuss this cost dynamic in future columns). In fact, NPE cases reached an all-time annual high of 3,054 in 2012.

Following a lull post-AIA, calls for patent reform gained new energy, spurred by calls to action by President Obama and the White House Task Force on High-Tech. While some might think this is more of the same, it's not. The discourse is different now. First, companies are more realistic and are focusing more specifically on technical and procedural fixes by Congress, rather than looking to have them overhaul the entire patent system. The other major difference today is a widespread recognition that patents are assets with intrinsic economic value (even reform-oriented companies have made large investments in fortifying their patent assets). The current system for exchanging that economic value—litigation—is extremely inefficient and costly, but this kind of operating risk is actually less of a legal problem than a market problem, and, as a result, it can be solved by market participants if we work together to shift the financial dynamics. This is why I decided that Cisco should be one of the three charter members of the RPX network when it was born in 2008—and why I decided to join the company in 2011. For technology-based companies, NPE patent risk was becoming a multi-billion dollar “tax on innovation” that was siphoning dollars away from R&D, market development and job creation. If Congress couldn’t eliminate the “tax” by fiat, maybe operating companies could band together, share information and resources, and act in a mutually beneficial way to reduce the costs of NPE litigation.

That collective approach is gaining traction. Just as companies are working together to intercede in the patent market to reduce the impact of NPEs, they are also collaborating on the next wave of legislative efforts. The key has been our ability to take a different perspective on the problem and recognize how legal and market forces can be complementary forms of risk mitigation. That said, patent risk is by no means eliminated. There is still a great deal of work to be done and there are many strategies to be considered. I look forward to exploring many of them in future columns.

Mallun Yen

Mallun Yen is executive vice president of RPX Corporation. She can be reached at infor@rpxcorp.com.

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