Patent investments overseas are more attractive than striking deals in the U.S, where court rulings and patent validity challenges have undercut patent values, investors said.
Investing in patents in Europe, China, and Canada is a good strategy amid a volatile climate for patent valuations in the U.S., according to intellectual property investors speaking at the IAM 2017 Patent Law and Policy conference in Washington Nov. 14 .
“The uncertainty is killer, we cannot deal with every week we wake up and the case law changes,” Ami Patel Shah, managing director and head of IP analysis at hedge fund Fortress Investment Group, said.
“There’s no consistency and that is something as an investor you do not want to see, so what we’ve done is to say, ‘It’s better just to invest in people who have European patents or Canadian patents.’”
Fortress’s intellectual property fund, which examines companies’ portfolios and lends them money with their patents as a collateral, is not currently focusing on U.S. investments, Shah said. But when it does work with U.S. companies, it hopes those companies have foreign patents, Shah said.
Determining a U.S. patent’s value has gotten much harder given uncertainty around patent eligibility and damages for infringement—and especially the Patent and Trademark Office’s patent validity review proceedings, patent attorneys and investors said.
The administrative validity reviews conducted by the PTO’s Patent Trial and Appeal Board were created by Congress as an alternative to more costly litigation in federal district court.
The reviews give defendants in infringement cases an opportunity to challenge patents asserted against them. The PTAB has less stringent standards than district court that make it easier to invalidate patents. The U.S. Supreme Court is hearing arguments Nov. 27 in Oil States Energy Servs., LLC v. Greene’s Energy Grp. on whether PTO patent challenges are constitutional.
However, barring intervention from courts, congressional action would be needed to change the current environment for U.S. patent values. A bill that would limit patent validity challenges at the PTO and strengthen patent owner rights in court was introduced in the Senate June 21 by Sen. Christopher Coons (D-Del.) but has yet to move forward.
“I hear more and more frequently anecdotes about investors asking if a patent portfolio includes patents in China and Europe because they are viewed as essential for getting effective enforcement against possible or likely infringement,” Coons said in a speech at the conference.
Struggling Public Intellectual Property Companies
Stocks prices of publicly-traded intellectual property companies, which rely on money from licensing patents and asserting patents in infringement litigation, have taken a hit from the PTAB process, Matthew Stack, founder and managing director of technology investment fund XLP Corp, said.
“If we just lost the entire PTAB that would do wonders for IP just across the board,” Stack said. “It has caused irreparable damage to an entire sector of the U.S. publicly traded market.”
His fund has shifted all its venture capital activity to China, he said. “Move your capital to the system that cares about intellectual property.”
Dealmaking in the licensing business has also been hurt by the patent review process, panelists said.
Patent law must be changed to ensure federal courts and the PTAB have same standards, Christopher Dunstan, Ericsson Inc.’s director of licensing for North America, said. The PTAB process is a reason why potential licensees are less inclined to engage in “good faith” negotiations when it comes to the licensing business, he said.
“It’s taking a lot longer to get a deal in place, and the only way you can get any type of clarity whether they are going to take a license is by having to suggest that litigation is imminent,” he said, adding that it now takes three-to-five years to reach licensing agreements, as opposed to one-to-two years previously.
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