Have patent, will sue

Paul Ryan runs what is by most definitions a patent powerhouse--and a controversial one, at that. As CEO of Acacia Technologies, Ryan is in the business of acquiring and enforcing patents. With the increasing proliferation of Internet technologies, Acacia has rung up the register. Over the years Acacia has patented proprietary its digital media transmission technology to a veritable Who's Who of blue-chip tech companies in the streaming media business. It also has patented a technology that lets parents filter television broadcasts according to ratings criteria.

The company's profit potential has helped propel Acacia shares close to their 52-week high, this in an otherwise ragged stock market.

But Acacia's activities have inevitably raised hackles in some quarters of the technology business. The Electronic Frontier Foundation, for instance, has lampooned Acacia on its Web site for "crimes against the public domain" because of what the Internet rights organization terms "laughably broad patents."

No doubt the company has acquired a reputation for hardball tactics, ultimately settling lawsuits against more than 200 companies to protect patents that it says it owns. Ryan, who dismisses suggestions that Acacia is simply in business to extort fees from other companies, recently spoke with CNET News.com.

We ran a profile on your company about a year ago and the lead paragraph was something to the effect that in the streaming media business, a letter from Acacia usually means one thing: the threat of a patent lawsuit. Does it bother you that Acacia has earned that sort of reputation?
Ryan: Well, that's not our reputation among large companies. We recently did three licenses with IBM, three with Sony, we announced one with Intel, and with Lenovo. So, we are licensing the major companies in the world. Patented technologies that we have partnered with the small companies that have developed these patented technologies but simply don't have the scale or the expertise or experience to go out and license the patents themselves. So, we're an outsource patent licensing company. We have the same people in place that IBM's licensing department would--except we're available on an outsource basis, and we're serving a large need for those companies.

I think the patent system has worked pretty well for 200 years.

Would it fair to say that Acacia builds portfolios in order to later extract settlements from others?
Ryan: No. Actually companies come to us who have patented technologies but who simply do not have the scale or the experience to license themselves, and they engage us basically on a partnership basis. We go out and perform that function and split the revenues with them. So, we're not targeting any particular areas, it's the companies that come to us with their patented technologies and if we feel that there's significant opportunity for licensing for that company to generate revenues for them, then we will become their partner.

Pardon me, but there are those who believe that there are entities--they call them patent trolls. This is used as a derogatory adjective, but I'm sure you're familiar with the term.
Ryan: Sure, absolutely.

Do you think those entities exist?
Ryan: Well, there are various definitions. I think it's a little bit disingenuous for companies that, in effect, steal other people's property by not licensing it to then call the party that developed the technology, "the bad guy." It kind of turns the world upside down...The term has been widely disseminated and used against companies generically that own patented technologies, which I think is a little unfair.

You guys are a patent licensing company. I've lost count, you've got currently how many patents now?
Ryan: It's over 150. There's a total of 47 different patent portfolios, and we've begun generating revenues from 17 of those so far.

And how did you acquire them? These aren't things that you've furnished seed money to develop, are they?
Ryan: Some of the original ones were. The television V-Chip--we provided the entrepreneurs, we funded the company that developed that technology. But the vast majority of the new partnerships that we're entering into are purely on the basis that we're an outsource licensing company and the developer of that technology then comes to us for us to fulfill that function. So, we are not developing any of the newer technologies that we are licensing.

Let's talk about patent reform. Your thoughts on where things stand and where they should be going?
Ryan: I think the patent system has worked pretty well for 200 years and the court system works very effectively...I think what's really occurred is then whenever companies want to lobby for reforms that would advantage them, first they create a crisis or supposed crisis. I don't think these companies that are proposing these changes all woke up one morning and said, 'Jeez, how can we make the world a better place and make the US patent system better.' I don't think that was their motivation.

What's your suspicion? Is there a particular group behind the scenes that's trying to foster that impression?
Ryan: The lines have been clearly well distinguished. If you look at the eBay amicus briefs, companies like GE and Procter & Gamble, and 3M, and the pharmaceutical industry and those people who've relied on patents that normally respect other peoples' intellectual property are on one side of the equation. There's a small number of tech companies who have formed some coalitions and ironically they're the same group that has time and time again been convicted in court of willful patent infringement.

Most small companies are intimidated to even attempt to go out and license and assert their patents because they can get tied up in very lengthy, very expensive litigation.

But to play devil's advocate and since they're not here to defend themselves, they might say, "Look, the concept of a licensing-focused business such as yours, whose purpose is to extract fees from other growing concerns, that's not good for the technology business and simply stamps out innovation." Your response?
Ryan: Precisely the opposite. It's the patent system that enabled people like Thomas Edison who actually developed the new technologies, which these companies then want to use to make money without paying for. The invention process is critical to the growth of the US economy and it's the smaller companies that usually come up with the new innovations and disruptive technologies that then the larger companies want to adopt. There's no one forcing them to add these features to their products. Obviously, they're doing it because they can make more money using the new features that were patented by someone else.

But the cost of the average court challenge gets up there. I've seen figures quoted at around a million bucks on average. Presumably that would make it pretty tough on small companies that don't have that amount of pocket change. They'd just as soon pay somebody the fee to avoid a nasty court fight, wouldn't they?
Ryan: Most of the issues, again, are quite the opposite. It's usually the small company that's developed the technology and the large company knows that they have far more money and the litigation cost can run far in excess of your estimate. They can run $5 million, $10 million, $15 million. So, most small companies are intimidated to even attempt to go out and license and assert their patents because they can get tied up in very lengthy, very expensive litigation. Many large companies know that and therefore don't take licenses feeling that those companies will not have the financial wherewithal or the staying power to try to assert their intellectual property.

It looks as if patent reform up on Capitol Hill is a dead deal this year. Proponents couldn't get enough votes to get the thing going and it's an election year of course. Do you expect this to become a Washington issue in '07.
Ryan: Absolutely. This debate will continue and both sides will be actively involved in potential Congressional legislation. It will definitely not go away.