Breakingviews: Patent litigation becoming a vicious circle

By: Thomson Reuters

NEW YORK, Oct 11 (Reuters Breakingviews) - Patentlitigation has become a vicious circle. Motorola Mobility, which Google is buying, is being targeted by Intellectual Ventures, a patent-holding firm backed by the very same Internet search giant. For investors that acquire the rights to inventions primarily to sue for financial gain, such cannibalism is a bad sign.

By one account, trolling hasn't been so lucrative anyway. A recent Boston University study of 14 publicly listed trolls found they barely broke even from 2000 to 2010, based on cumulative net income. With licensing fees lagging, the firms have sought revenue from infringement suits. But litigation wins became scarce after 2006, when the U.S. Supreme Court made it harder to block infringers from using patents.

Now, the industry's worst element has afflicted its biggest member. Created to finance inventors and inventions through licensing fees on some 35,000 patents, Intellectual Ventures for years staunchly opposed litigation. In the last year, it has filed four infringement lawsuits against Symantec, Dell, Hewlett-Packard and others. And last week, it sued Motorola.

It might have been just one more in the litany of patent lawsuits if it weren't for the fact Google, which bankrolled one of Intellectual Ventures' first funds, agreed to buy Motorola for $12.5 billion earlier this year.

Intellectual Ventures says it has earned more than $2 billion in licensing fees, but its recent wave of litigation suggests investors are pressing for more. The claims against Motorola seem a stretch. Two of the patents are almost 20 years old, overbroad and possibly invalid, legal experts say. The suit appears designed to put the squeeze on Motorola more than to vindicate Intellectual Ventures' rights.

That's the troubling tactic behind most troll litigation. In this case, it also undermines Intellectual Ventures' stated goal of encouraging invention. The high cost of lawsuits can discourage tech firms in particular from creating new products that might elicit claims of infringing overbroad patents. Statistics show the biggest R&D spenders attract the most lawsuits.

Some patent suits have merit and profit pressures are real. But Intellectual Ventures and others of its ilk tout successful licensing businesses and partnerships with inventors. Sticking to that nobler pursuit probably would be better for all concerned.