Peter Detkin Op-Ed on Law360: “A Tale of Two HPs”

Peter contrasts Mr. Roeder’s article, which criticizes Intellectual Ventures and calls into question the value of the market for invention, with another recent article written by HP executives which extolls the value of a functional patent licensing program. Peter goes on to describe how HP’s wavering position on patents is commonplace among powerful technology companies which at times both criticize the patent system and then wield it as a weapon against competitors large and small.
 

The full text of the article is below and also available on Law 360 (subscription only).

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Rebuttal: A Tale of Two HPs

Law360, New York (March 15, 2012, 3:25 PM ET) -- This article is in response to the article submitted by Paul Roeder, associate general counsel of Hewlett Packard Co., titled "How To Fix Our Broken Tech Patent System," which ran on March 9, 2012.

I happened upon a strange coincidence earlier this week. I read two articles in two different legal journals, published almost simultaneously, both of which passionately discussed the merits of the liquid market for patents. The first ran in this month’s issue of Intellectual Asset Management Magazine and extols the financial and strategic value that a functional patent licensing program can provide a technology company (Chapman and Kerstein, “An Ever-Evolving Corporate HP Licensing Practice,” Intellectual Asset Management, March/April 2012). The second ran here on Law360 and derides that same practice for suffocating innovation and taxing consumers.

What I found most curious, however, is that both articles were written by executives at Hewlett Packard. It’s an example of the convenient outrage we’ve seen from HP and many of the world’s largest and most powerful technology companies over the evolution of the market for patents.

In his Law360 article, Paul Roeder, HP's head of IP and litigation, criticizes my company, Intellectual Ventures, and anyone else who “invests in patent litigation” (a misnomer, to be sure) as predatory and opportunistic. He generalizes that the patents we and other so-called "patent assertion entities" license are of poor quality and often appropriated from the ideas of others. Further, he claims, PAEs “are handed the power to destroy technology companies” through frivolous litigation.

These are bold claims, and since he chose not to provide any data to support these claims, I’d like to offer a profile of a PAE to provide some context for Roeder’s argument — primarily drawn from the IAM article written by his HP colleagues Charlie Chapman, vice president of IP licensing, and Denise Kerstein, managing director of patent sales and acquisitions.

• After acquiring a trove of patents from DEC, 3Com Corp., Tandem and Compaq, in 2002 Hewlett Packard created its own PAE, dubbed the Intellectual Property Licensing (IPL) business, with the sole charter of generating competitive and fiscal value from its IP portfolio (now exceeding 37,000 patents).

• In the years since then, the IPL has grown its revenue eight-fold, filed dozens of infringement suits and generated hundreds of millions annually from patent licensing and settlements against companies that range from small printer ink manufacturers to multi-billion dollar technology titans.

• In my brief research I found multiple instances of the IPL asserting patents it had acquired from Compaq (which had in turn acquired them from a smaller company) against products from companies like Acer Inc. and EMC Corp. to gain competitive advantage. In fact, one of these suits was filed less than five months after the HP-Compaq merger cleared.

So by his own standards, and as described by Roeder's colleagues in their IAM article, Roeder’s company has acquired patents and invested in patent litigation through its own prolific PAE. I personally don’t think that’s a bad thing. Patents are valuable, alienable assets that can be bought, sold and enforced in the manner which best benefits a company.

In fact, the HP team brags of its success licensing patents in that same IAM story: “In an oft-recited example of a patent licensing opportunity, a large company approached HP regarding a pending product launch. Within a matter of hours, the IPL team had identified a significant cohort of HP patents relating to the new product. A licensing arrangement was subsequently agreed. HP received significant revenue while the licensee received the freedom of operation it needed.”

I find it particularly ironic that Roeder specifically criticizes IV for suggesting that people “need” its patents, when almost simultaneously his colleagues brag about how they made a lot of money offering a licensee the “freedom of operation it needed.”  

Moreover, Roeder argues at length that independent developers of a technology should not need to pay a “tax” to PAEs. When the shoe is on the other foot, however, HP apparently has no problem deriving “significant revenue” from the independent developer of a licensed product. In fact, over the years we at IV have had to bite our tongues during meetings with HP in which their licensing executives bragged that they were better at licensing than we were and were not afraid to sue people.

But that’s not all. HP’s most profitable business by most accounts is its ink and toner cartridges. In 2006 the Wall Street Journal ran a story profiling an HP unit based in Oregon whose only purpose is to identify and sue companies who may be infringing on its ink cartridge IP (with their own cartridges or by refilling old HP cartridges). Several defendant companies interviewed in the press, meanwhile, claimed they were not copying HP but had independently developed their inventions. Did that mean that HP let them off the hook? Of course not.

As Roeder knows full well, patent law is based on the idea that patents are public documents. You are supposed to look before you leap, and pleading ignorance or independent invention isn’t a defense against infringement. HP has maintained an enormously lucrative business using patent litigation as a primary strategy to strangle its would-be competitors, most of which are small companies. 

Maybe Roeder has a problem with patents that are bought and sold. There’s no logic to this of course; a huge amount of HP’s own portfolio has been acquired from outside, be it from Compaq, Palm or one of the company’s 116 other acquisitions in the last quarter-century. In fact, HP, like many companies, also sells patents — something Roeder's colleagues proudly trumpet in the IAM article. You can submit an offer to purchase an HP patent right online!

If the patent marketplace is acceptable enough to profit from, as HP has done, what is so bad about it? If it is such a terrible idea to buy patents, then how can you ethically sell them? The fact is that HP plays hardball with patents, which is perfectly fine. But it’s deeply disingenuous to criticize IV for the practices that HP not only engages in, but even brags about in the press. 

HP is not alone in its hypocrisy, however. Many other powerful companies, once garage entrepreneurs themselves, were founded on the strength of their patented inventions. Like HP, they will fight tooth and nail to protect their IP portfolios and wield them as arms against competitors to gain market share and show a return to their investors. But these same companies will, as a matter of convenience, willfully ignore the IP rights of others and then cry foul when those rights are asserted against them (a paper I authored in 2007 delves into more detail on this practice).

To suggest the patent system is fundamentally broken is at best an audacious claim. But to do so while using that system to one-up your competitors and generating hundreds of millions in revenue in the process is comically hypocritical. How else to explain when two articles appear at the same time from the same department arguing very opposite sides of the coin? Does the left hand know what the right hand is doing? If there is something fundamentally broken, it’s not the patent system, it's HP. 

--By Peter N. Detkin, Intellectual Ventures

Peter Detkin (peterd@intven.com) is a founder and vice chairman of Intellectual Ventures, headquartered in Bellevue, Wash. Before joining Intellectual Ventures, he was vice president and assistant general counsel for Intel Corp. and was a partner at Wilson Sonsini Goodrich & Rosati.