New Tips And Triks For You

Going to trial wasn't in Wi-Lan 's playbook when the Canadian "technology innovation and licensing firm" sued Taiwanese cellphone manufacturer HTC in October, 2010.

If things had gone they way they usually go, HTC would have paid Wi-Lan a few million dollars in patent royalties to drop its suit. But HTC decided to fight, along with co-defendants Alcatel-Lucent and Ericsson . And on July 15 a Texas jury not only rejected Wi-Lan's claims, but invalidated three of its patents. Wi-Lan shares plunged 33% to a record low of $3.15 and haven't recovered much since.

Flash Player 9 or higher is required to view the chartClick here to download Flash Player now

Investor disappointment probably has a lot to do with the fact that Wi-Lan's business strategy depends upon presenting a credible threat of winning in court if companies refuse to pay it royalties on its patent portfolio. Yet the first time Wi-Lan actually put that threat to the test in front of a jury, it lost.

In the past, defendants "always settled before trial," said ­­ Steve Korniczky, the San Diego-based partner with Sheppard Mullin who spent weeks in Texas securing the HTC victory. "HTC will take these cases to trial if necessary."

Patent lawsuits are notoriously tricky to win, the equivalent of proving who owns a piece of land when there are multiple titles, each with blurry boundary lines and uncertain landmarks. Adding to the difficulty was the "rocket docket" of the Eastern District of Texas, where judges who specialize in patent cases give each side only 15 hours for arguments.

Winning was a matter of distilling the case down to a few simple points the jury could grasp. Wi-Lan claimed its patents covered the technology embedded in the 3GPP HSDA standard for high-speed wireless data used in 3G cellphone networks. That was a surprising claim, given that Wi-Lan hadn't developed a new product in years and didn't participate in the 3GPP consortium that developed the technology. Wi-Lan got its patents, dating from 1997 to 2001, in a settlement with another company called Airspan Communications and they covered algorithms for transmitting data to fixed receivers in homes, Korniczky said. The company had argued the same patents also covered the algorithms embedded in 3GPP, which is for transmitting data to mobile devices.

"The argument was one does not equal two," he told me. "One code cannot be divided into two codes."

Wi-Lan didn't immediately respond to a request for comment. HTC's trial strategy exposed the company to a trap, however: If it argued, as it did, that its patents covered not only Airspan's home-data technology but also 3GPP, then it was forced to acknowledge the patents were invalid. Much of the technology in 3GPP, including the TDMA and CDMA wireless data protocols, predated the patents.

Wi-Lan probably didn't present the most sympathetic plaintiff when defense lawyers revealed the company's true business strategy, as outlined in an internal document. It approaches companies like HTC with a proposal: They can spend $5 million to $8 million defending themselves against a patent suit, or they can pay Wi-Lan $5 million in royalties to go away. To increase the risk of going to trial, Wi-Lan also threatens to pile on more suits if companies refuse to pay, increasing the cost of defense to $14 million or more. It has sued HTC five times so far, with lawyers at Texas firm Vinson & Elkins lobbing the last suit on June 28 as the jury was being selected.

"Up until the last minute, they were trying to apply pressure on us to settle," Korniczky said.

This is why companies like Wi-Lan are called "patent trolls." They assemble portfolios of patents and lay in wait, like the troll beneath the bridge, and collect a toll by threatening to sue if manufacturers don't pay them. They have been criticized by none other than President Obama for stifling innovation and their targets complain they have no effective means of fighting back since unlike rival manufacturers, trolls don't produce anything that could be the subject of a countervailing patent suit.

Against this, companies accused of being trolls argue they are ensuring that the boundaries of patent law are being patrolled, and inventors are receiving the money they are due. Universities, after all, collect millions of dollars in royalties on inventions they never intended to produce themselves.

Sometimes the strategies of the trolls stray into the deceptive, however. The White House proposal for reforming patent law includes a provision requiring patent owners to reveal the ultimate owner of their claims, to prevent trolls from using shell companies to hit the same targets over and over again with similar claims. (When manufacturers in an industry have multiple overlapping patents, they can solve this by forming pools to share their technology.)

Then there's the tactic Intellect Wireless used when it sued AT&T and HTC over a supposed patent on sending pictures over wireless networks. The Virginia company negotiated a $5 million royalty agreement with Motorola and then used that to convince other companies they should pay up, too.

What IW didn't tell its targets - and only revealed long after the close of document discovery in the HTC lawsuit - was that it had simultaneously exercised an agreement to pay Motorola the $5 million back if it got a certain level of royalties from others. The maneuver may have been legal, Kornikczy said, but it was highly misleading.