Monthly Archives: March 2013

Of Trolls and Leeches

Silicon Valley. It’s a place emulated around the world as a continuous source of innovative thought spawning new products, companies and industries. More importantly, this innovation is a powerful economic and job-creation engine for the Digital Age.

Unfortunately, there are a group of individuals and entities that are constantly siphoning fuel from this engine. They go by a variety of names. Some people describe them with polite terms like “non-practicing entities” or “NPEs”; others refer to them with more subtly negative names like “patent trolls”. I prefer to be more blunt: they are leeches; leeches that divert capital investment and innovative energy away from job creation and, instead, to litigation.


Much has been written on this subject, but in general this is what is happening. An individual or small group of investors purchases a patent on the open market. Often it is a weak patent that shouldn’t have been issued by an overworked examiner at the U.S. Patent Office or it could be a strong patent that may have been interpreted incorrectly in the judicial process. The owners of these patents then file lawsuits against any company where they can even remotely make a claim of patent infringement. In years past, the focus of these suits was primarily technology companies, but that is no longer the case. Recently, on a single day, more than twenty retail companies, including J.C. Penny, Dick’s Sporting Goods, Men’s Wearhouse, Walgreens and Pier 1 Imports were all sued for patent infringement in this type of case.

Every company that I have worked for has been on the receiving end of these lawsuits.  Most of these cases begin with a demand letter in which the plaintiff doesn’t even bother to specify the allegedly infringing feature of the product, or the precise part of the patent that is claimed to infringed. The letters just list one of many patents, refer nebulously to a company’s products, and say “pay up.” And, when you don’t, your company finds itself receiving a visit from a process server, delivering a similarly vaguely worded complaint and lawsuit.

Recently, for example, one of these entities filed suit against comedian Adam Carolla, alleging infringement of a patent that appears to describe a way of disseminating episodes of content in a serialized fashion. First question: Really? You can patent that? Second question: Why are they suing Carolla, a comedian who is best known for his free podcast?

The answer is that it’s all about economics.  In the U.S. we have a judicial system in which each party pays its own legal costs and attorney fees.  The plaintiffs in this type of case uses this to their advantage. They know that when faced with even a specious patent infringement lawsuit, a company will be inclined to settle because if it wins the case, it loses from a financial standpoint. On average it can cost between $3 – $5 million to defend a patent infringement lawsuit. So, if a company wins at trial, it gets nothing other than a large legal bill and a verdict of non-infringement. Thus, it’s a financially rational decision to raise the white flag as long as the settlement amount is less than the anticipated legal cost of going to trial. Knowing this many companies elect to settle as soon as they face one of these lawsuits and incur significant costs in defending it.

Now, you may ask, why don’t companies use their own patents and sue these entities as a form of deterence? Good question. This intellectual property equivalent of “mutually assured destruction” is the reason that patent litigation between competitors across all industries is relatively rare. If you intend to sue a competitor over a patent, you had better be prepared that your company will face the downside risk of being sued for infringement in response. What’s different in these cases is that the entities that file them don’t actually make anything. They are instead, just litigation shell companies. Because of this, their tactics can’t be used against them – i.e. they have no products that a company can claim are infringing.

This all plays to the plaintiff’s benefit because if they file enough cases, some percentage of companies will settle. The proceeds from these settlements are then used to fund litigation against other companies and the purchase of additional patents to be used in future lawsuits. In order to obtain an ROI, plaintiffs only have to cast a broad net and manage their legal costs efficiently.

Often the plaintiffs defend their actions by saying that they are “standing up for the sole inventor.” Well, we like sole inventors. Adobe was founded by two guys in a garage. (The name of the company originated from a creek near where they lived.) But the plaintiffs in these cases are not standing up for quality patents, and getting meaningful value for these patents. They are, instead,  just holding companies up for the cost of litigation. It doesn’t even matter what the patent is about. The only people getting wealthy from this system are the lawyers (and that’s coming from one).

At Adobe the vast majority of the litigation against our company are patent infringement cases of this type. We fight all of them because, quite frankly, they’re bullshit.

But this doesn’t mean it’s an easy decision because we don’t measure our defense costs in dollars; we measure them in jobs. When we fight a case through trial it is the equivalent of 15 to 20 forgone engineering positions. Positions that could be creating additional innovation and job growth.

Now, what if in this area of litigation only, we changed the economics? What if instead of each side paying their own fees and costs, we changed to a “loser pays” system as it is in much of the rest of the world? This wouldn’t prevent anyone from bringing a patent infringement suit, they would just have to be very confident that they would prevail at trial.

Last year, Congressmen Peter Defazio and Jason Chaffetz introduced a piece of bipartisan legislation called the SHIELD Act (Saving High-tech Innovators from Egregious Legal Disputes Act). Although various business, legal and government constituencies are still negotiating the details, in concept it is as I have described above – a shifting of economic incentives so that in this type of patent litigation, the losing party would be required to pay the prevailing party’s fees and costs. Under this system, the true “garage” inventors would still be able to use the courts to enforce their patents,  but plaintiffs would face more risk when they bring a poorly founded lawsuit.

While not a perfect solution, the SHIELD Act would go a long way to helping companies spend more on creating jobs, rather than fighting litigation. It’s legislation that matters to employers, shareholders and consumers.  For more information and to show your support contact Congressman Defazio here.


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The people you work with (part I)

This is Lisa.  She’s a senior attorney at Adobe who, from the looks of it, is involved in some serious negotiations.

Those are hummingbird chicks that she is nursing to health in her office. In between calls she feeds them with an eye dropper.


Forget all those stereotypes about attorneys.


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Personalized Marketing (& Oven Mitts)

I know it’s been a few weeks since the Super Bowl. But, as a follower of the 49ers, it’s taken me that long to recover. Despite the pain of the loss, it was one hell of a game. However, that’s not always the case. Like many Super Bowl viewers, with some games I find the commercials are more engaging than the action on the field. But for every 60 second spot that causes a reaction, someone sitting around the chips and dip inevitably says: “Yeah, it gets your attention, but does it really make you want to buy anything?”

The answer in many cases is “no” or, worse yet, “we don’t know”. And that is one of the most significant challenges of traditional media advertising. With television and print ads, it’s difficult to accurately measure the correlation between the cost of creating awareness of a company’s products and any increased sales resulting from those forms of marketing.

But as the world continues to digitize, marketing is as well. In 2012, global digital advertising spend topped $100B; by 2016 it’s expected to amount to more than 25% of overall advertising expenditures. This will benefit both companies and consumers. Companies because they will increasingly have better insights into their customers. And, consumers, because, well… let me use a real life example.

My youngest teenage son, like many his age, has grown up as part of a generation in which the free exchange of personal information is not just accepted – it’s expected. He switches between his online social communities (Facebook, Instagram, Flikr, Snapchat) with the confident dexterity of a 1920s New York socialite.  Recently, I thought it would be interesting to ask him for his perspective on the sharing of personal information online.

(A special note for parents: FDR famously had his “Fireside Chats”. I have “Oven Mitt Talks”. I’ve found that if I require my children to wear oven mitts while we are speaking it impedes their ability to use touch pads and keyboards. Ski gloves and baseball mitts are useful alternatives.)

My son explained that privacy is important to him and his friends, but that they also hate to have their time wasted when they are online. “Dad, I get bombarded by ads trying to sell me this, but what I really want to see are ads for this.”

And, that’s the real value of the shift to digital marketing. In the Digital Age, consumers increasingly have greater control and awareness over how their personal information is used. Many of them will choose to share this information with businesses they trust in return for getting more relevant, and relatable information about products and services that they actually care about.

To that future, here’s a Super Bowl commercial you may have missed.


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Five things from: February

1. It is humanly impossible to listen to Brittany Howard sing “Always Alright” without moving.

2. My stomach definitely is not going to like this.

3. Finally, something to make golf interesting.

4. What if Shel Silverstein and Banksy were one person?

5. Kiva for medical care.

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