A Look Behind The Curtain: How A Patent Hoarder Makes Money

from the revealed! dept

A few months back, someone sent over some details about a legal battle involving Peter Boesen, who is both a convicted felon in jail and a patent hoarder who licensed his patents to a "patent troll" firm to assert against tons of tech companies, and Niro Scavone, the law firm representing the patent company (and the law firm famous for, among other things, having been the inspiration for the term "patent troll"). There wasn't much to write about directly, but it looks like Joe Mullin has been keeping on top of things (as always) and has found that via this lawsuit Boesen has exposed some of the underlying details of how much money patent trolls get:
Most intriguing is the sum paid by Apple to settle an SPT suit brought over the iPhone in the Eastern District of Texas in 2008: $865,000. Without any motions being filed after the intial complaint or any substantive discovery, a bit more than 30 percent of that amount, $271,817, went to Niro Scavone, which also billed $46,568 in expenses. Nearly $40,000 went to someone identified as "Ward"--most likely Johnny Ward Jr., who served as local counsel to SPT in the case. Of what was left, almost $109,000 went to SP Technologies, then owned by investor Courtney Sherrer, and $311,400 went to Boesen.

Also noteworthy: a full 10 percent of Apple's payout, $86,500, is marked as going to "LG"--an apparent reference to LG Electronics, which, according to the Boesen receipt, paid $834,964.01 to settle a separate SPT suit in 2006. Why would LG be getting a cut of the settlement in a suit to which it was not a party? And was Apple aware that a piece of that settlement might wind up with one of its competitors? Representatives from Apple and LG did not immediately respond to requests for comment.
There's a lot more in Mullin's post. Not sure how much is worth commenting on, but given that such patent holders and patent hoarding companies tend to be incredibly secretive about all of this stuff, it's still an interesting peek behind the curtain.

Oh yeah, as for Mullin's question about LG receiving 10% of the payout from Apple, that might not be all that surprising really. Last year, we covered how it was becoming increasingly common for patent hoarders to play this neat trick where they sue a bunch of companies and promise the ones who settle quickly a cut of what they can get from the others. This sets up a little an interesting game theory situation, whereby companies have extra incentive to settle quickly, which makes the patent holder very happy, and which they use to tout how "legitimate" their patents must be (yeah, right). It sounds like, perhaps, that's what happened here. Since LG settled earlier, perhaps part of the settlement was the right to 10% of a cut against others.


Reader Comments (rss)

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    Matt Tate (profile), Oct 26th, 2009 @ 4:44am

    "...promise the ones who settle quickly a cut of what they can get from the others."

    It's like a Macon's Bill #2 from Hell...

     

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    Dark Helmet (profile), Oct 26th, 2009 @ 6:35am

    I thought...

    ...that pyramid schemes were illegal?

    "they sue a bunch of companies and promise the ones who settle quickly a cut of what they can get from the others."

    Uh, doesn't part of the reason it's of benefit to settle earlier because you get a 10% cut of MORE companies that way? As if you're higher up on the pyramid? And wouldn't pay schemas like that be illegal?

    Or am I reading this incorrectly?

     

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      Almost Anonymous (profile), Oct 26th, 2009 @ 9:55am

      Re: I thought...

      Came to the Comments to point this out as well, sounds like the definition of a pyramid scheme, also sounds a lot like racketeering...

       

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        Vincent Clement, Oct 26th, 2009 @ 11:04am

        Re: Re: I thought...

        It sounds like a lot of things, but since patents and copyrights are government-granted monopolies, it's unlikely anything will change.

         

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      faceless (profile), Oct 26th, 2009 @ 2:11pm

      Immersion did the same thing with Microsoft and Sony

      Immersion did a deal like that with Microsoft over their rumble patents, and then they didn't want to pay MS after they won against Sony later.

       

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    Andrew (profile), Oct 26th, 2009 @ 7:18am

    According to the link, Boesen's most profitable patent is this one, which covers an on screen keyboard. But the claimed innovation is not the on screen keyboard itself, for which patent admits prior art exists, it's for an on-screen keyboard *that cannot be moved, resized or closed*.

    Just like the little on screen keyboard in Windows CE 2 (released 1997) that predates the patent (filed Aug 2000), except that the Windows CE one can be hidden to give more screen space when not required.

    Oh, wait.

    Computer programs may require input only randomly. Many ask for user input and then present the results. As it would clearly hamper the presentation of results, data or other information to have an on-screen keyboard present at all times, it is desirable to provide an on-screen keyboard which may be selectively called up as a subroutine or subprogram by a variety of programming.

    So just like the Windows CE one, then. Stunning.

     

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    Dale B. Halling, Oct 26th, 2009 @ 8:27am

    In Defense of Trolls

    The term patent trolls is usually applied to companies that enforce patents that they are not practicing. These Non-Practicing Entities (NPEs) include companies specifically organized for this purpose such as Intellectual Ventures. However, it also includes Universities and divisions of most large corporations such as IBM. Many of these corporations complain about NPEs. However, any consistent definition of a NPE (troll) would include these hypocrites.

    The moral argument against NPEs is that they are not practicing their patents, so they are not entitled to enforce them. The U.S. has consistently rejected a working requirement for patents. The only time the U.S. had a working requirement for patents, was in early 1800s and only for English inventors. We do not argue that a landowner has to work his land in order to keep his property rights in the land.

    From an economic point of view patent trolls are the beginning of a secondary market in patents. Most of these companies got their start in the failed companies of the dot.com bust. These patent investing companies bought the patents of failed dot.com companies. This reduces the cost and the risk associated with R&D. The VC’s I knew were going to let these patents expire, resulting in zero return to the investors. Patent investing companies should not be vilified, but appreciated for the valuable secondary market they are creating. Like all new markets, the pioneers took enormous risks but also paid very little for the assets they acquired. Their success will encourage other entrepreneurs driving up the prices for patents (excess R&D). This will reduce the cost and risk associated with R&D, which will result in more investment in high technology start-up companies.

    Vilifying patent investment companies is like vilifying investors in the physical assets of failed enterprises. These investors recycle assets and make them part of the productive economy again. While it is sad to see a business fail, failure is part of the innovation process. Putting the assets of a failed enterprise back to work as soon as possible would be considered a humanitarian effort if performed by a non-profit. However it is just as valuable or more valuable to the economy when done by a for-profit enterprise.

     

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      Free Capitalist (profile), Oct 26th, 2009 @ 9:31am

      Re: In Defense of Trolls

      Dale, that is a fairly well thought out ideal you've illustrated for patent trolls.

      While I do appreciate the concept of attempting to generate profit off the the assets from failed enterprises, the *practice of profiting from hoarded, unused patents does not equate to a healthy economy or a healthy environment for R&D.

      To over-simplify, patent trolls are effectively using litigation and the judicial system to create profits. The people "paying" in this business model are innovators attempting to deploy technology in the market, and, of course the taxpayers.

      By permitting overly general patents to be hoarded by NPEs and broadly applied in civil court, we in effect stifle innovation from those who actually create new economies or improve existing markets. In creating an environment where all innovators need a requisite army of lawyers, we are closing the doors to the common man from participating in the advancement of the economy and of science.

      Had the environment in the 1800s been similar to today, we might very well still be left in the dark.

       

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      taoareyou (profile), Oct 26th, 2009 @ 9:54am

      Re: In Defense of Trolls

      "Vilifying patent investment companies is like vilifying investors in the physical assets of failed enterprises. These investors recycle assets and make them part of the productive economy again."

      Perhaps I am just a casual observer, but I don't see how holding onto a patent, doing absolutely nothing with it, and waiting on someone else to do anything remotely similar to the general patent you have then filing suit against them for it, is recycling assets back into the economy.

      If THEY were doing something with the patents they would be recycling them. What these people do is nothing more than buying a lotto ticket and waiting for their number to come up.

       

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      Mike Masnick (profile), Oct 26th, 2009 @ 9:55am

      Re: In Defense of Trolls

      The term patent trolls is usually applied to companies that enforce patents that they are not practicing. These Non-Practicing Entities (NPEs) include companies specifically organized for this purpose such as Intellectual Ventures. However, it also includes Universities and divisions of most large corporations such as IBM. Many of these corporations complain about NPEs. However, any consistent definition of a NPE (troll) would include these hypocrites.

      Yes, and we call out big comapnies -- such as IBM and Universities -- when they abuse patents as well. Why do you suggest otherwise?

      We are entirely consistent in our views.

      The moral argument against NPEs is that they are not practicing their patents

      I don't make a moral argument against NPEs. I make an economic argument against the abuse of the patent system.

      Again, you seem to want to build a strawman. Why?

      The U.S. has consistently rejected a working requirement for patents. The only time the U.S. had a working requirement for patents, was in early 1800s and only for English inventors. We do not argue that a landowner has to work his land in order to keep his property rights in the land.

      Yes, but patents are not property. They are a restriction on an idea.

      From an economic point of view patent trolls are the beginning of a secondary market in patents.

      A secondary market only makes sense for limited resources. A market is what you need for the allocation of scarce resources. An idea is not scarce.

      These patent investing companies bought the patents of failed dot.com companies.

      The operative word being *FAILED*. Execution is everything and if you fail, you deserve to go under. Not to extract a toll on those who did it BETTER than you and figured out how to PROPERLY take something to market.

      This reduces the cost and the risk associated with R&D.

      No. It does not. The fact that so many patents are being asserted these days has massively INCREASED the risk and cost of any sort of innovation.

      Patent investing companies should not be vilified, but appreciated for the valuable secondary market they are creating. Like all new markets, the pioneers took enormous risks but also paid very little for the assets they acquired. Their success will encourage other entrepreneurs driving up the prices for patents (excess R&D). This will reduce the cost and risk associated with R&D, which will result in more investment in high technology start-up companies.

      Right. Have you looked at the cost of innovation these days? The litigation cost associated with patents FAR outweighs the economic value of the innovations. I mean, it's not even close.

      Your theory that this decreases costs and risk has been proven wrong.


      Vilifying patent investment companies is like vilifying investors in the physical assets of failed enterprises.


      Again, I merely point out the problems with ANYONE who abuses the system. Not just "investors" (a misnomer if there ever were one).

      Putting the assets of a failed enterprise back to work as soon as possible would be considered a humanitarian effort if performed by a non-profit.

      This assumes -- almost ENTIRELY incorrectly -- that it's the "patent" that's the investment, and it needs to be "put back to work" to allow actual innovation to occur. But that's almost NEVER the case. Most of the NPEs are holding on to patents and suing companies that came up with the concepts entirely independently. In other words, the patent itself has NOTHING to do with the "asset" "being put back to work."

      Take a look around. What you're stating has nothing to do with reality.

       

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    John Fenderson (profile), Oct 26th, 2009 @ 8:39am

    "This reduces the cost and the risk associated with R&D. The VC’s I knew were going to let these patents expire, resulting in zero return to the investors. Patent investing companies should not be vilified, but appreciated for the valuable secondary market they are creating."

    Patent trolls increase the cost and risk associated with R&D, not reduce it. It is essentially impossible to develop a new product without violating some patent or another, so any new business is taking an enhanced risk of loss.

    Admittedly, this is because the patent office allows patents that are insane, but it's the patent trolls who are taking advantage of the broken system to break it even further for their own profit. They are creating a secondary market, but it is a secondary market that should not exist, as it accomplishes the opposite of what the patent system intends.

     

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    Chuck Norris' Enemy (deceased) (profile), Oct 26th, 2009 @ 8:50am

    Sp?

    it's still an interesting peak behind the curtain

    peek

     

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    Anonymous Coward, Oct 26th, 2009 @ 11:33am

    Canada... Go north young web startup!

     

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    senshikaze (profile), Oct 26th, 2009 @ 11:56am

    destroy the patent system

    just do it. Destroy it. All of it. Software patents are bad, but i think we should destroy the whole system to remove the disease from our legal system.

    I like how canada seems to be taking a stance, eh?

     

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    nicholas, Dec 18th, 2010 @ 12:41pm

    peter boesen

    Peter Boesen was my ear noes and throat doctor when i was i kid i am now 16. he made me go threw multiple surgeries on my ears when i didn't need them, i had a permanent hole in my ear a couple years ago and i had to go threw two surgeries to fix that and i am still having ear problems because of him. he needs to stay in prison! i just hope i meet him some day what he did is not funny it is serious. and he will burn in the deepest part of hell. if anyone can tell me if he is still in prison or not, or where he is today that would be greatly appreciated. thanks. nickphipps72@yahoo.com

     

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      Bill, May 17th, 2011 @ 8:16am

      Re: peter boesen

      He's out of prison now nicholas.

      He is on a beach in Hawaii enjoying all the money he made of you.

      You sound like a bitter chump.

       

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