Transcript

496:

When Patents Attack... Part Two!
Transcript

Originally aired 05.31.2013

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Full audio: http://tal.fm/496

Prologue.

Ira Glass

OK. I listen to a lot of podcasts. I host a radio show that is distributed as a podcast. So I had a special interest in some interviews that one of my colleagues, Zoe Chace, did recently. She's one of the reporters for Planet Money, which itself is a podcast.

Zoe was interviewing these two guys, Jim Logan and Richard Baker, who say that their company, Personal Audio, holds the patent on podcasts. And basically, anybody who makes a podcast owes them money. Zoe pointed out to them that their interview was going to be used on a podcast that has not paid them.

Zoe Chace

So are we doing something illegal right now, though?

Richard Baker

I wouldn't comment on that.

Man

I wouldn't comment on it.

Jim Logan

We don't-- I don't comment on the legalities.

Ira Glass

Jim Logan says that he is one of the inventors of podcasting, even though he has never made a podcast himself. Here's how he figures. His company Personal Audio, back at the dawn of the internet age in 1996-- this is before the iPod existed-- it's before most homes were on the internet-- they decided to manufacture an MP3 player that would do all kinds of stuff that nobody seemed to be doing just yet, like downloading sound from the internet. And Jim says they filed for a patent.

Jim Logan

We didn't use these words back then. But buried within that patent description were ideas such as playlist and podcasting.

Ira Glass

They tried to design and manufacture their newfangled MP3 player for about a year, he says. And they failed. They gave up.

So they never actually succeeded in making a device that could download audio off the internet and play it. They never made a podcast. Instead, they switched to a different technology-- an earlier technology. They decided to distribute magazine articles on cassette tapes.

Jim Logan

--which was kind of a crude form of podcasting, you might say.

Ira Glass

In this version of the history of podcasting, this right here would be one of the very first podcasts. And there is nothing digital about it at all. This is one of those old cassette tapes. These guys brought a stack of them to the interview.

Man

Welcome to "Amazing-- the Best of Popular Science," brought to you by Magazines on Tape. Coming up, answers to some questions you have probably wondered about. What happens in your head when you have a headache? How does quicksand work? Why does your car--

Ira Glass

This business also failed. But the way our patent system works, even though these guys never successfully created a system that took podcasts from the internet and put them into a portable audio player, they patented the idea that such a thing could happen. And now that other people have figured out how to do it, they want to get paid. It's only fair, Jim Logan told Zoe.

Jim Logan

I put my dollars and my time and my energy on the line. I took the market risk. And I went to market 10 years before people say that podcasting was invented in 2005. We were out there in-- well, not 10 years. We were out there in 1998, probably, with an offering.

Zoe Chace

But I mean, these are cassette tapes. Like, this is not the iPhone.

Man

Well, remember, the patent talks to having it very similar to an iPhone-- a computerized device that would do this. What was happening there is they couldn't get the product done.

Ira Glass

These guys say that for now, they're not asking nonprofit podcasters, like our program, to pay them licensing fees-- just for-profit podcast businesses, like Adam Carolla and The Stuff You Should Know podcast, which is owned by Discovery Communications, and Marc Maron's comedy podcast, WTF, which Maron produces literally in his garage.

Marc Maron

There's no way I can afford to fight a court battle. And they know that.

Ira Glass

--which means he probably has to pay, though the letter he got doesn't specify a price.

Marc Maron

Why wouldn't they have a number? Why don't they have a percentage in mind or a number that they think is justified? Why don't they have that? Why aren't they willing to say that?

Like, yeah, you all owe us $10. Why are they being cagey about that? Because it's a shakedown.

Richard Baker

We have a price. We just don't want to make it public.

Ira Glass

I found Richard Baker of Personal Audio to ask the price myself. He wouldn't tell me, either.

Ira Glass

The reason why I'm asking this is because this podcaster said, if this is a fair price-- if you have a fair claim to make-- why wouldn't you name the price publicly if it's a fair price?

Richard Baker

For one, most of our licensees don't want people to know how much they've paid or how many times they're downloading. If we were to give a public price of what it is-- say we settled with someone, and say they paid us $200,000-- someone could easily do the math and figure out exactly what their downloads are.

Ira Glass

Can you see why I'm asking this? One of the podcasters said, you are not naming a price because it's a shakedown. It's the secrecy that this podcaster found alarming.

Richard Baker

Honestly, we believe this is a very, very fair price. Our goal is to make sure these podcasters succeed so that everybody makes money.

Ira Glass

Settlements that Personal Audio has made in the past with Apple Computer and with some cellphone companies are also not public information. And the fact is most patent settlements are not public. And you might think, OK, well, so what? But these patent lawsuits are huge. And they're on the rise.

The number of patent lawsuits climbed 50% in one year from 2011 to 2012. Entrepreneurs and engineers say these suits hurt and sometimes destroy young companies. They have an effect on the economy, on what we can and cannot do. But it is very hard to find out exactly what is going on.

A good example-- two years ago, we devoted an episode of our program to the patent system. And we tried to explain what was going on by focusing on the company that some people say is the biggest patent troll out there. A patent troll is a company that uses patents mostly to sue other companies and ask for licensing fees.

And in that show, we investigated this one patent that the company was involved with. The inventor whose name was on that patent was Chris Crawford. And we learned all kinds of things in that investigation.

But the world of these lawsuits is so secretive there were basic questions we could not answer, like how much money was involved. What did Chris Crawford think of what was being done with his patent? There were 18 companies being sued for infringement on the patent. What was their opinion? How were they handling it?

Well, two years have passed since then. And I am pleased to say that today-- today-- we can bring you a show where we actually answer the questions that usually in these kinds of cases go unanswered. It is a rare look inside this world.

That litigation from two years ago has finished. The silence has been broken. Many, many facts have emerged that, frankly, kind of stunned us.

And so today on our show, what we're going to do-- in the first half of the program, we're going to return to that old episode from 2011 explaining the patent and the lawsuit. And then in the second half, we're going to have the answers to many of the mysteries that were still unsolved two years ago.

From WBEZ Chicago, it's This American Life, distributed by Public Radio International. I'm Ira Glass. Stick around.

Act One. 2011.

Ira Glass

And with that, I'm going to turn things over to This American Life producer and Planet Money co-host Alex Blumberg and NPR Digital Culture Correspondent Laura Sydell, who report the story.

Alex Blumberg

Intellectual Ventures, that firm that people in Silicon Valley point to as a quintessential patent troll, was founded by a guy named Nathan Myhrvold.

Laura Sydell

Nathan Myhrvold used to be the chief technology officer at Microsoft, where he made a lot of money-- hundreds of millions of dollars. Even if you haven't heard of Intellectual Ventures, you might have heard of Nathan Myhrvold.

Stephen Colbert

My guest tonight has written a six-volume book on cutting-edge food made with modern science. Please welcome Nathan Myhrvold.

Alex Blumberg

This is Myhrvold on the television show The Colbert Report, talking about another one of his ventures-- an opus on the science of cooking, which teaches you how to do things like make ice cream with liquid nitrogen. Myhrvold is the kind of guy the press loves to profile.

Stephen Colbert

You're a world barbecue champion now?

Nathan Myhrvold

Yep.

Stephen Colbert

You've discovered T. rex fossils. You've studied quantum physics with Stephen Hawking. And you have a new six-volume, 40-pound, $625 book--

Nathan Myhrvold

Yep.

Stephen Colbert

--called--

Laura Sydell

But this image of Nathan Myhrvold, who gives TED Talks and generally plays the role of an avuncular elder statesman for the tech industry, is at odds with the image of his company, Intellectual Ventures.

Alex Blumberg

--because Intellectual Ventures has amassed one of the largest patent portfolios in existence. There's an influential blog in Silicon Valley called Techdirt, which regularly refers to Intellectual Ventures as a patent troll. Another blog, IPWatchdog, called Intellectual Ventures "patent troll public enemy number one." And The Wall Street Journal's Law Blog had an article about Intellectual Ventures titled "Innovative Invention Company or Giant Patent Troll?"

Laura Sydell

I put the question to Nathan Myhrvold.

Laura Sydell

Are you a patent troll?

Nathan Myhrvold

[CHUCKLING] Well, that's a term that has been used by people to mean someone they don't like who has patents. I think you would find almost anyone who stands up for their patent rights has been called a patent troll.

Alex Blumberg

Intellectual Ventures says Myhrvold is anything but a patent troll. They're on the side of inventors. They pay inventors for patents. They gather these patents together into this huge warehouse of invention that companies can use if they want. Sort of like a department store for patents. Whatever technology you're looking for, Intellectual Ventures has it.

Laura Sydell

And when reporters come to visit Myhrvold to underline this idea that IV is all about invention, he takes them to see this.

[MACHINERY NOISE]

GEOFF DEANE: So out here, we're standing [INAUDIBLE] the brink of our machine shop.

Laura Sydell

I'm on a tour with Geoff Deane, who runs the Intellectual Ventures Invention Lab. About 100 people work here. The lab is massive.

There are people walking around in white lab coats mixing chemicals in beakers and looking at stuff under microscopes. There's a machine shop, a nanotechnology section. It's like a playground for scientists and engineers.

Alex Blumberg

And if you ask them what they've invented so far, there's a couple things they point to. A nuclear technology, they say, is safer and greener than existing technologies, a cooler that can keep vaccines cold for months without electricity, and the world's most high-tech mosquito zapper, which senses mosquitoes hundreds of feet away by detecting the speed of their wings.

Laura Sydell

But the fact is this lab is a tiny fraction of what the company does. Intellectual Ventures has received a little over 1,000 patents on stuff they've come up with here, which pales in comparison to the more than 30,000 patents they've bought from other people. In fact, nothing that's come out of this lab-- not the mosquito zapper, not the nuclear technology-- nothing has made it into commercial use.

Alex Blumberg

That doesn't matter, executives here say. That's not the biggest part of our business, anyway. The main thing we do is help inventors-- make sure inventors are probably paid for their work.

They say there are inventors out there doing brilliant work, holding patents, but not making money off of those patents. Companies are stealing their ideas. And these inventors don't have the legal savvy or deep pockets to stop them. And that is where Intellectual Ventures steps in to protect the little guy.

Laura Sydell

A lot of people I met at IV told me some version of this story. I heard it over and over. And so finally, I asked for an example. If Intellectual Ventures isn't just a patent troll, give me an example-- someone with a breakthrough who wasn't being paid for it-- who Intellectual Ventures helped out and got paid. Two separate people pointed me to the same guy.

JOE CHERNESKY: There's one story I can think of-- a gentleman named Chris Crawford.

Laura Sydell

This is one of the people who mentioned Chris Crawford-- Joe Chernesky, a vice president at Intellectual Ventures.

JOE CHERNESKY: The neat thing about Chris is he had no idea how to get money for his patents. He had this great idea. These patents were immensely valuable because every technology company was adopting the technology.

Yet he didn't know how to get paid. He eventually found Intellectual Ventures. So we bought those patents.

Laura Sydell

So I figured, I want to talk to this guy-- not so simple. It turned out trying to talk to Chris Crawford took us on a five-month odyssey where things didn't exactly fit the story that Intellectual Ventures was telling us.

It started when I called Intellectual Ventures to get Chris Crawford's contact info. I got a strange email back in response. I was told they no longer own Chris Crawford's patent. And I was told he probably wouldn't want to talk to me right now because he was in the middle of litigation.

Alex Blumberg

So we started digging around. We found Chris Crawford in Clearwater, Florida. But as predicted, he never responded to our many emails and phone calls. We were able, though, to locate his patents. There were four of them, all pretty similar. And we focused on one.

Laura Sydell

--patent number 5,771,354. He got it in 1998, back in the relatively early days of the internet. And the way IV explained the patent to us, Chris Crawford invented something that we all do all the time now. He figured out a way to upgrade the software on your home computer over the internet. So in other words, when you turn on your computer, and a little box pops up and says, click here to upgrade to the newest version of iTunes, that was Chris Crawford's idea.

Alex Blumberg

But when we looked at the patent, it seemed to claim a lot more than that. The patent says this invention makes it possible to connect to an online service provider to do a bunch of stuff-- software purchases, online rentals, data backups, information storage. The patent makes it seem like this one guy, Chris Crawford, invented a lot of what we do on the internet every day. We weren't sure what to make of this. So we turned to an expert.

David Martin

--Laura, is you're going to start by looking at the left and right-hand screen.

Laura Sydell

This is David Martin, who runs a company called M-CAM. They're hired by governments, banks, businesses, to assess patent quality, which they do with this fancy software program.

David Martin

The patent's on the left.

Laura Sydell

We asked him to assess Chris Crawford's patent.

David Martin

Now, if you would please, just click on the patent number itself, Laura. And that--

Alex Blumberg

The software program actually scans through millions of patents and analyzes them to see if any of them overlap.

David Martin

That's a bad number.

Laura Sydell

An idea being patented is supposed to be non-obvious to a person of ordinary skill in the art. What that means is that you shouldn't be able to get a patent for just a common-sense good idea. It has to be a breakthrough.

David Martin

That's correct.

Laura Sydell

And what we're seeing on David Martin's computer screen does not look like a breakthrough.

David Martin

5,303 patents that were issued while his was being prosecuted, which covered the same material-- 5,303.

Alex Blumberg

And so that means that at the same time that Chris Crawford's patent was getting issued--

David Martin

Only 5,303 other people were pursuing the same thing.

Alex Blumberg

And when you say, "the same thing--"

David Martin

I mean the same thing.

Laura Sydell

David Martin may be exaggerating a little here for effect. But as we look through some of the patents that are on the screen, the resemblances are pretty clear. Remember, Chris Crawford's patent is for, quote, "an online backup system."

Alex Blumberg

We asked a second patent expert to evaluate Chris Crawford's patent. And he told us that everything in it was already being done on computers in the 1980s, long before Chris Crawford even filed the patent. He thought the patent never should have been granted in the first place.

Laura Sydell

Patents are so fundamental to the American way of life that they're in the Constitution. Their purpose is, quote, "to promote the useful arts and sciences." If there were no such thing as a patent, Eli Whitney, the inventor of the cotton gin, would have had to keep his invention hidden in a dark room with no windows so nobody would steal the idea.

But with a patent, he could publish the blueprints. People would have to pay him if they wanted to manufacture their own cotton gins. And we would have thousands of cotton gins everywhere. Patents make it safe to share and to innovate.

Alex Blumberg

But people in Silicon Valley will tell you the problem with software patents today is that all kinds of things are getting patented that aren't breakthroughs and don't deserve a patent. They're too broad or too obvious. And a lot of the people that tell you that are the people that software patents are supposed to protect-- software engineers.

Stephan Brunner

I have to say I actually worked on a whole bunch of patents in my career over the years. And I have to say that every single patent is nothing but crap.

Laura Sydell

This is Stephan Brunner, a programmer. He said something we heard from a lot of software engineers. His software patents don't even make sense to him.

Stephan Brunner

I can't tell you for the hell of it what they're actually supposed to do. Because I did not-- the company said we have to do a patent on this. And then they send in a lawyer. And you basically say, yeah, that's probably right. That's probably wrong.

And they just write something. And it makes no sense. And personally, when I look at them, I'm not proud at all. Because most of them, again, it's just like mumbo jungo, which nobody understands and which makes no sense from an engineering standpoint whatsoever.

Alex Blumberg

Stephan Brunner, patent 7,650,296-- quote, "a configurator using structure and rules to provide a user interface." One sample section interests me. The whole thing is like this.

"According to one embodiment of the invention, a customizable product class is created. A component product class is added to the customizable product class where the component product class is a subclass of the customizable product."

Laura Sydell

The patent system, the way it works now, can actually hinder innovation because patents can be used as weapons against new businesses. Engineers say patents don't help them create new products. Often, they get in the way.

Chris Sacca

We're at a point in the state of intellectual property where existing patents probably cover every single behavior that's happening on the internet and our mobile phones today.

Laura Sydell

This is Chris Sacca, a Silicon Valley venture capitalist who's helped lots of companies, including Twitter and Uber, get off the ground.

Chris Sacca

So I have no doubt that the average Silicon Valley startup or even medium-sized company-- no matter how truly innovative they are, I have no doubt that aspects of whatever they're doing violate patents that are out there right now. And that's what's fundamentally broken about the system right now.

Alex Blumberg

Which brings us back to that patent that Intellectual Ventures pointed us to as an example of the system fundamentally working well-- not being broken-- patent 5,771,354, Chris Crawford's patent. As we've said, this patent seems to cover a remarkable chunk of what's happening on the internet-- upgrading software, buying stuff online, cloud storage, storing data on the internet. If you have a patent on all that, you could sue a lot of people, make a lot of money.

Laura Sydell

And in fact, that's what's happening with Chris Crawford's patent. Intellectual Ventures sold it to another company, a company called Oasis Research, in June of 2010. Less than a month later, Oasis Research used the patent to sue 16 different tech companies-- companies like Rackspace, GoDaddy, and AT&T-- companies that do cloud storage.

Man

You have reached Oasis Research. At the tone, please leave your name--

Laura Sydell

I called the number on Oasis's website numerous times. But an actual human being never picked up. For a while, the message directed all questions to a lawyer in New York named John Desmarais. He also didn't return our phone calls.

Alex Blumberg

There is hardly any public information about Oasis Research-- minimal corporate filings, no way to know who owned it, how many employees it had, if it even had employees at all. One of the few details that was available-- an address in Marshall, Texas-- 104 East Houston Street, Suite 190.

Laura Sydell

What are you opening the door to?

Michael Smith

Right now we're going into the first floor of the Baxter Building, which is 104 East Houston.

Laura Sydell

This is Michael Smith. He's an attorney in Marshall, Texas, who does mostly patent cases. He agreed to show us the offices of Oasis Research. They're in a nondescript, two-story building on the town's main square, two doors down from the federal courthouse. He led us into a narrow corridor lined with doors with gold and black office name plates.

Michael Smith

And here we go, Suite 190, Oasis Research, LLC.

Alex Blumberg

It was late morning on a weekday, not a holiday. But the door was locked. Through the crack underneath, you could see there were no lights on inside.

Marshall is a very small town-- 24,000 people. Michael was born and raised here. So we started quizzing him about Oasis.

Laura Sydell

Does it have any employees that you know about?

Michael Smith

Not that I know of.

Laura Sydell

Have you ever seen any people coming in and out of that office?

Michael Smith

No, I haven't.

Laura Sydell

If you don't mind, I'm going to knock on the door and just see if there's anyone here today.

[KNOCKING ON DOOR]

Alex Blumberg

I know this is kind of a cliche at this point-- knocking on the door of the suspected fake office.

Laura Sydell

Nothing.

Alex Blumberg

But we'd flown a long way.

Laura Sydell

But I will say, standing in that corridor was eerie. All the other doors looked exactly the same-- locked, name plates over the door, no light coming out. It was a corridor of silent, empty offices.

Michael Smith

Right next door to Software Rights Archive, Bullet Proof Technology of Texas, Jellyfish Technology of Texas, and a couple others that I recognize as plaintiffs in cases that we're involved in here.

Laura Sydell

Are there are a lot of companies like this here in East Texas?

Michael Smith

Yes.

Alex Blumberg

And we're standing in a whole corridor of them, it seems like.

Michael Smith

Yes. This would be ground zero, yes.

Laura Sydell

So what's going on here? It turns out a lot of those companies in that corridor-- maybe every single one of them-- are doing exactly what Oasis Research is doing. They appear to have no employees.

They're not making new inventions here. They're filing lawsuits for patent infringement. Patent lawsuits, says Michael Smith, are big business in Marshall, part of the Eastern District of Texas.

Alex Blumberg

Smith told us there are about 2,000 patent cases in the courthouse in Marshall. And we got lots of explanations for why-- why all these New York and San Francisco-based companies come to tiny Marshall. One theory-- the juries are friendly to people doing the suing. Another-- medical malpractice attorneys switched careers after Texas passed malpractice tort reform.

My favorite theory, though-- all these patent cases are in Marshall because of the drug war. The flood of drug cases made it impossible for patent suits to get in front of a judge in big cities like Dallas or Houston. So the patent cases moved to sleepy little Marshall.

Laura Sydell

We'd come to Marshall to figure out which story about Intellectual Ventures was true. Are they a patent troll? Or are they out there protecting the rights of struggling inventors everywhere? So we went back to Intellectual Ventures for answers and talked to the company's vice chairman, a guy named Peter Detkin.

Alex Blumberg

One interesting footnote about Peter Detkin-- he's actually the person who coined the phrase "patent troll." This was years ago. He was one of the top lawyers at the computer chip maker Intel.

They got sued by a company claiming patent infringement. And Detkin called the lawyer who filed the claim a, quote, "patent extortionist." The lawyer turned around and sued Peter Detkin for libel. So Detkin says he held a contest at Intel to come up with a better name.

Peter Detkin

And we got a lot of suggestions. But none really fit. But at the time, my daughter was, I think, four or five. And she liked playing with those little troll dolls. The original one, in fact, is still in my office.

And so I turned to her. And I said, oh, well, the story of a troll kind of fits because of the whole Billy Goats Gruff thing. It's someone lying under a bridge they didn't build, demanding payment from anybody who passed. I said, how about a patent troll?

Laura Sydell

Of course, the name stuck. After leaving Intel, Detkin teamed up with Nathan Myhrvold to start Intellectual Ventures, the company that many people call the biggest patent troll out there. Peter Detkin obviously disagrees with this characterization.

Alex Blumberg

So anyway, we went to Peter Detkin to ask our questions. But even the most basic question about the story Intellectual Ventures had told us, he couldn't answer. Like, for example, when did they buy Chris Crawford's patent?

Laura Sydell

There's a document that's publicly available on the US Patent Office website. It traces a patent's ownership history. In the case of Chris Crawford's patent, though, the ownership history was really hard to understand.

Alex Blumberg

The first owner is clear. It's Chris Crawford, who was granted the patent in 1998. And then it's clear that a company named Intellectual Ventures Computing Platforce Assets, LLC-- no one can actually tell us what a platforce is-- bought the patent in July of 2010.

But in between those two dates, there are two other owners, a company called Kwon Holdings and another one named Enhanced Software, LLC. And what was odd-- Kwon Holdings, Enhanced Software, and Intellectual Ventures all have the same address.

Laura Sydell

We showed this document to Peter Detkin for explanation. But this simple question-- when did you buy the patent-- completely threw him off and led the PR woman, who was in the room with us, to jump in and try to shut down the interview. You'll hear her voice in the background.

Alex Blumberg

This is just the patent history of Chris's patent. And honestly, we just don't understand this. So if you could explain what we're looking at here. So he invented it in 1998.

Peter Detkin

[? I haven't ?] [? put ?] my reading glasses on. So I'm struggling a little bit here.

Alex Blumberg

So it says--

Peter Detkin

OK, so here--

Laura Sydell

So he invented this first--

Pr Woman

I don't know that getting into the history of this patent is necessary.

Peter Detkin

Well, I know where you're going with this.

Alex Blumberg

Well--

Laura Sydell

We don't under--

Peter Detkin

What's the question? What are you trying to find out?

Alex Blumberg

We would like-- if you could explain. The story you're telling is that you bought this patent from this inventor, Chris Crawford. And then you sold it a little bit later.

But then if you actually look at the history, it's a very different story. It seems very different. So I'm trying to figure out-- if you could explain it to us. That's what I'm trying--

Peter Detkin

I won't be able to tell you by looking at this. I mean, I'm not an expert in-- I don't even know what-- you're on the USPTO website? I haven't looked at this particular website in a while. I don't know how it's organized.

I'm trying to be helpful. But the fact is, I know we bought it from some entity of his. And apparently, we then sold it. And again, I have some vague recollection of us doing that deal.

Alex Blumberg

But are you telling me that you run a patent company and you were the head counsel for Intel in the patent department. You don't know what the patent office website-- you don't know how to read this?

Peter Detkin

Look, I mean, I could look at this if you want. But I haven't looked at this particular website. And I don't know how it's organized.

And I'm not exactly sure what it is you're trying to get at. So I'm happy to answer questions. But if you're going to cross-examine me on the record about a patent website, I don't think that's quite fair.

Alex Blumberg

So for example, one question is when was it sold to Intellectual Ventures. Because it's sold a number of times. But it's sold a number of times to different companies with the same address as Intellectual Ventures. Does that mean that it was sold to Intellectual Ventures but not--

Pr Woman

It's a little different. And we're not going to talk [? about this-- ?]

Peter Detkin

Yeah, I have no idea. There's no way without knowing the details of this particular deal I could ever possibly answer that question.

Alex Blumberg

We were honestly surprised at this response. It wasn't like this was a secret document or something. What was the big deal about answering the seemingly simple question?

Laura Sydell

Part of it certainly was that we took him a little bit by surprise. I take him at his word that they do a lot of deals. And he doesn't know the details of every one.

Alex Blumberg

But part of it is that Intellectual Ventures does a lot of its patent deals through shell companies-- hundreds of them-- shell companies owned by Intellectual Ventures but registered under different names, where it's very difficult to tell that Intellectual Ventures is the actual owner. So what was their relationship with Oasis and Chris Crawford?

Laura Sydell

Well, we uncovered a document. It's called a Certification of Interested Parties. The court in Texas required that Oasis list all the entities who have a financial stake in the outcome of the case.

This is a standard form that pretty much all parties in civil cases have to file. Oasis listed the parties that most people list-- the plaintiff, the defendants, the attorneys involved. But it added one other name-- Intellectual Ventures.

So we went back to Intellectual Ventures one more time to talk to Peter Detkin. We picked up where we left off the last time. When did Intellectual Ventures actually buy Chris Crawford's patent? And this time, he had no hesitation about explaining it.

Peter Detkin

This is when we bought it-- October of 2007 from CMC Software to Kwon Holdings. And Kwon is a company that we created to purchase these assets. Then when we actually struck a deal and prepared to sell it, in the name of transparency, we changed it to the Intellectual Ventures Computing Platforce Assets.

Please don't ask me what a platforce is. I don't know what it is. And then in August of 2010, we sold it to Oasis research.

Alex Blumberg

We showed Detkin that court document from the Oasis case listing Intellectual Ventures as an interested party.

Peter Detkin

OK. And it does list the Intellectual Ventures Computing Platforce Assets as an interested party. I see that.

Alex Blumberg

And you don't know why in this instance you're listed?

Peter Detkin

I believe it's because we likely have a back end arrangement here.

Alex Blumberg

What does a back end deal mean?

Peter Detkin

We sell for some amount of money up front. And we get some percentage of the royalty stream down the road that is generated from the monetization of these assets.

Alex Blumberg

So just to spell this out, Peter Detkin is saying it's likely that Intellectual Ventures is taking a cut of whatever money Oasis gets from its lawsuits. Oasis, a company with no operations, no products, and as far as we can tell, no employees, whose only activity seems to be taking a very broad patent from 1998 and using it to sue over a dozen internet companies today.

Laura Sydell

And so we asked him, how does it feel making money from an entity which is behaving a lot like the patent trolls that he once condemned?

Peter Detkin

These are patents we used to hold. We no longer hold. And we ensure that we have no control over the actions of these third parties.

They are independent actors. They're not Intellectual Ventures. They may be monetizing in ways that we disagree with. But it's not our call. It's theirs.

Alex Blumberg

But you're also still getting paid.

Laura Sydell

Yeah. I mean, I sort of feel like, yeah, well, but what do you expect? You must have some knowledge that it's highly likely these people are going to go and bring lawsuits, especially since they're companies that only have these largely run by attorneys.

Peter Detkin

Sure. No, I understand. And I'm not just disputing any of that. What I'm trying to say, and I apologize if I'm not being clear, is that we do believe-- we believe in our heart that litigation is a highly inefficient way to do licensing. But let's not lose sight that litigation is just licensing by other means.

Alex Blumberg

In other words, we try to license these patents in a friendly way. But sometimes you have to sue.

Laura Sydell

Peter Detkin then repeated the company line that we'd heard from a lot of people at IV-- that the mission of Intellectual Ventures is to help inventors bring great ideas into the world, that lots of inventors, they're like great artists-- brilliant, but not brilliant at business. So their patents languish. IV gets their ideas into the hands of companies who will actually build what they've invented.

Ira Glass

Coming up, Chris Crawford speaks, and more secrets of Oasis Research revealed. That's in a minute from WBEZ Chicago and Public Radio International when our program continues.

Act Two. 2013.

Ira Glass

It's This American Life. I'm Ira Glass. Today on our program, "When Patents Attack, Part Two"-- the sequel-- the squeekquel. Today we return to a story we first reported on two years ago about our patent system-- how it sometimes seems to be discouraging rather than encouraging innovation.

A quick review of where we are so far-- OK, there's this company called Intellectual Ventures. Its executives told our reporters that if they wanted to understand what the company was all about-- if they wanted proof that their company is not a patent troll but out there helping the little guy inventor just get fair payment, then they should talk to this inventor that Intellectual Ventures helped out, a patent holder named Chris Crawford.

But when our reporters tried, Chris Crawford would not talk to them. His patents were now in the hands of a company called Oasis Research. And they were being used to sue over a dozen different tech businesses.

And back in 2011, we didn't learn much more than that. We didn't know who was behind Oasis Research. We had no idea how much money was at stake in the case. We suspected that some companies had settled with Oasis. But we had no idea how many or for how much.

And most significantly, we had no idea how the guy at the center of the whole mystery, Chris Crawford, felt about it all. We had no idea if he knew what was being done with this patent-- if he approved, or if he was like some of the software engineers we talked to who didn't like that their patents got sold to companies that only used them to threaten lawsuits. Well, I'm please to say now we have answers to all of those questions-- every one of those questions. Here again is Alex Blumberg and Laura Sydell.

Laura Sydell

There ended up being 18 defendants in the Oasis case-- 18 tech companies it claimed were infringing on Chris Crawford's patents. Many of those 18 companies in the beginning pooled legal forces to figure out what to do.

Alex Blumberg

But that pool got smaller and smaller as companies decided to just cut a deal with Oasis-- pay them a licensing fee in exchange for being dropped from the suit. At a certain point, an online backup company called Carbonite was one of two companies remaining in the case. In full disclosure here, Carbonite is an underwriter of National Public Radio news programs. Carbonite CEO David Friend says it was tough to be one of the last men standing, especially with the advice that they were getting from the lawyers they'd hired.

David Friend

You know, what our lawyers were saying is it's going to cost us millions of dollars more to take this to trial. And if we lose, we're really screwed. If we could settle this thing and just have it go away, why don't we do that? And I was sort of like, well, because we're not in violation of their patents. Why should we pay them anything, even a nickel?

Laura Sydell

Friend says he'd done a patent search when he started his company and never came across Chris Crawford's patents.

David Friend

I mean, the reason was that they were way too old. And we figured, how could there be a patent relevant to backing up over the internet before the internet was even invented?

Laura Sydell

What they hadn't counted on was a patent that was so broad, it covered anyone backing up any data over the internet using any system at all.

David Friend

As a businessman, you know, I'm put in this situation where my board is saying, you should settle. And my lawyers are saying, you should settle. And everybody else is settling. I felt like we were being extorted.

Alex Blumberg

The problem is, defending a patent case is really hard. Patents are complicated. So is technology. Trying to explain which part of a patent should or should not apply to which part of a computer program-- it's a trick just to get the jury to understand, let alone go along with your point of view.

Laura Sydell

But there is an easier way to win a patent case, a way where you don't have to force a jury to second guess the experts at the patent office. If you can demonstrate that the inventor wasn't telling the truth when he filled out the application-- if, for example, he wasn't the only inventor. So lawyers for Carbonite and the other company that had chosen not to settle-- EMC-- started to dig into Chris Crawford's history, looking for clues that might invalidate his patent.

Alex Blumberg

Carbonite's Chief Counsel Danielle Sheer says one of the first places they went looking was the company where Chris Crawford was working at the time he claimed to have come up with his idea.

Danielle Sheer

We located some individuals who had worked with Chris Crawford in the early 1990s. And I'll call him the person who connected all the dots-- was this man named Chuck Campos, who was Chris Crawford's boss in 1991 for a company called ACS.

Laura Sydell

Lawyers described Chris Crawford's patents to Chuck Campos and asked if he knew anything about the circumstances where he developed those ideas. And he told them, yes. I was with him when those ideas were developed. And they weren't only Chris Crawford's ideas.

Alex Blumberg

Chuck Campos told the lawyers that the ideas mainly came from two other guys, Jack Byrd and Don Atwood.

Danielle Sheer

This was in 1990. Don Atwood and Jack Byrd are business partners. They have a company called WBT, LLC. Jack Byrd loved acronyms. WBT stands for We've Been There.

And the two of them were working on a technology consulting company. And they lived about 30 miles apart. And I think they were developing software.

Two idea guys had a lot of technical experience. And they wanted to save their work. And at the time, the only way to do that was to download it to floppy disk drives.

Alex Blumberg

But then, the disk drives are just sitting at your house, so not safe from a fire or some other natural disaster.

Danielle Sheer

So they decided, well, we need to keep this data safe. So let's download a copy of what we're working on on floppy disk drives. And I'll meet you halfway in between our homes-- 15 miles each. And let's exchange the floppy disk drives. That way, we've got a little bit of disaster recovery contingency.

David Friend

Yeah. You put your data on my computer. And I'll put my data on your computer. And then they'll both be relatively safe.

Alex Blumberg

That was their backup system-- driving 15 miles each way, meeting in the middle, getting out of their cars, and exchanging a pair of floppy disks.

Danielle Sheer

Mm-hm.

David Friend

Yeah, exactly.

Laura Sydell

Naturally, being idea guys, they thought, there has to be a better way. Phone modems were just becoming ubiquitous around this time. And they thought, how about a business backing up data remotely over the phone line using a modem?

A little bit later, Jack Byrd meets Chuck Campos, tells him about the idea. And he joins the group. They decide they need a specific type of computer to back up all the data-- something called an AS/400.

Danielle Sheer

That is finally where Chris Crawford comes into the situation. Chris Crawford was hired by Chuck Campos at ACS. He had expertise with the AS/400.

He was a junior guy at this point. And Chuck asks him if he wants to be part of their group. Because they want to get an online backup business going.

Alex Blumberg

The group met regularly Saturdays at Jack Byrd's apartment over the course of a couple months. And during these meetings, they discussed all sorts of things, from the technical details of how this backup system would work to details about the company itself-- how they'd split ownership four ways-- 25% each. And also what the new company they were forming way back in the early '90s would be called. The name they chose-- PC Oasis.

Laura Sydell

That's right. The name of the company that Chris Crawford was invited to join in the early 1990s had the same name as the shell company in East Texas that was suing people two decades later.

Alex Blumberg

And apparently, the name had also been Jack Byrd's idea. Remember, he was the acronym guy.

Danielle Sheer

It stands for Offsite Automatic-- I don't know. [CHUCKLING]

Alex Blumberg

For the record, Offsite Archival Software and Information Server-- Oasis.

David Friend

They had actually sketched a sort of a logo-- an idea for a logo for their company.

Danielle Sheer

Oh, right.

David Friend

I think it was in Jack Byrd's hand. It was done on pencil and paper. And it was kind of a world-- a globe-- with four palm trees.

Danielle Sheer

It was an island.

David Friend

--an island-- that's right.

Danielle Sheer

--an oasis island.

David Friend

--with four palm trees growing on it, representing the four partners in this business.

Laura Sydell

So how did this same name come to be given two decades later to a shell company in East Texas? Well, back in the '90s, the first Oasis never got off the ground. The problem was they couldn't figure out a way to get consumer online backup working using the technology that most people had available in their homes in the early '90s-- phone lines and modems. So they disbanded the company and went on their way.

Alex Blumberg

But all those meetings where they'd been sketching everything out, figuring out the technology, solving the problems-- Chris Crawford had been the main note-taker at those meetings.

Danielle Sheer

A couple years later, Chris Crawford-- he ends up filing some patents. And he uses the documents that he's created in these meetings to prove that he has this idea and here's how the idea works and to draw the figures for the patent and to come up with the claims. So Jack Byrd, Don Atwood, and Chuck Campos know nothing about what Chris Crawford is doing-- nothing at all.

He doesn't start a business. Instead, he sells those patents to a company named Kwon Holdings. It has some kind of affiliation with Intellectual Ventures. And he sells them for millions of dollars.

Alex Blumberg

Do you know exactly how much he sold them for?

Danielle Sheer

$12 million and an ongoing percentage of royalties for anything that the next owner collects.

Alex Blumberg

Wow.

Laura Sydell

Wow.

Alex Blumberg

Do you know what the percentage was?

Danielle Sheer

I think it's something as high as 18 and 1/2%.

Laura Sydell

The problem was Chris Crawford had sold something for $12 million that wasn't his to sell. If Chris Crawford's three former business partners had also developed the idea, they should have at the very least been listed as co-inventors on Crawford's original patent applications.

Alex Blumberg

So the lawyers for EMC and Carbonite now had something like a smoking gun to use at trial-- these three men with a very compelling story about how the patent had been mostly their idea, not Chris Crawford's. But at trial, it would still be just their word against Crawford's. The lawyers wanted proof-- something in the documents that Crawford filed with the patent office that mentioned the other inventors.

There were lots of these documents from those Saturday meetings that mentioned the three partners. Chuck Campos had a box in his attic full of them. But none of those documents mentioning the others made their way into Chris Crawford's patent application. Well, almost none.

Danielle Sheer

In the thousands of pages that Chris Crawford submitted to the patent office in order to obtain his patents, one of the documents had a sentence that said that this is in response to Jack Byrd's idea to provide online backup. And of course, one of the excellent attorneys that worked on this for EMC and Carbonite located that document and questioned Chris about it.

Attorney

The May 23, 1992, proposal, which is marked as Exhibit 10.

Chris Crawford

Yes. I'm looking at it.

Laura Sydell

And here he is, the man we've been looking for, Chris Crawford, the man who was granted patent number 5,771,354, one of the patents used to sue 18 companies. This is sound from a videotaped deposition he gave as part of the Oasis trial. He's polished-- crisp white shirt, paisley tie, tortoise-shell reading glasses. He's got sandy brown hair, a tan. The lawyer continues to question him.

Attorney

So the first paragraph of this document reads, quote, "This proposal, it is in response to Jack Byrd's idea to provide automated offsite backup services for PC users." And aren't you in the second sentence saying that Jack Byrd had an idea to provide automated offsite backup services for PC users?

Chris Crawford

No. What I'm saying is that Jack Byrd had an idea of me pursuing the automated offsite backup services that I had--

Alex Blumberg

Chris Crawford then launches into a rather surprising explanation for how the sentencing that this business was, quote, "Jack Byrd's idea," doesn't actually mean that the business was Jack Byrd's idea. His explanation? He was using the apostrophe S incorrectly.

Chris Crawford

As far as the apostrophe S-- and I'm still not clear if you're trying to derive a specific meaning with respect to the apostrophe S--

Alex Blumberg

Of course, what would a sentence reading, "in response to Jack Byrds idea" even mean if the S was plural?

Attorney

I'm asking you, though-- you certainly know what the use of an apostrophe S means, do you not?

Chris Crawford

[SNIFFING] As I've written documents over the years, there are times when I use an apostrophe S, and it seems like I'm supposed to use an apostrophe S. But I have to say that my grammar is not strong enough to tell you right now with clarity when an apostrophe S is used.

Alex Blumberg

This explanation, apparently, did not convince the jury, and Oasis lost the case. The jury concluded that the patents were indeed invalid for failing to name the correct co-inventors. Yet this victory just shows how difficult it is to defend yourself against a patent infringement claim. The lawyers for Carbonite believe that without that one document-- that one apostrophe S-- they might have lost.

Laura Sydell

Because here's how tough the jury was. The jury verdict said that the patents were improperly filed because Jack Byrd's name should have been listed as a co-inventor. Just Jack Byrd-- not Chuck Campos and Don Atwood, the other men who testified under oath that they too had been involved in developing the ideas. Only Jack Byrd's name had been on that document. And only Jack Byrd got credit from the jury as a co-inventor.

Alex Blumberg

And for the 16 companies that did settle, the verdict may not change anything. In most cases, these licensing agreements have language that makes them nearly impossible to get out of, no matter what happens with the patent later on. This week, we heard back from a spokesman from one of the companies that chose to settle.

The spokesman wrote in an email, quote, "We were hit hard by this lawsuit. Infringement on our part seemed completely bogus, but we could not afford to fight it. Even with the settlement, we were forced to lay off employees. We are still--" and "still" is in all caps-- "still paying out on the settlement agreement. We were unaware that the patent had been invalidated. We will be contacting our attorney to see what recourse we may have."

Laura Sydell

Like we've been saying, because so many of these cases settle with nondisclosure agreements, we almost never find out how much money changed hands.

Alex Blumberg

But because of the Oasis case, we now have a sense of how much money that can be. Because Carbonite won their case and didn't settle, they weren't bound by a nondisclosure agreement. And they were happy to reveal how much money Oasis wanted from them.

Danielle Sheer

Well, the original number that was thrown out-- I don't think it was official-- was they wanted $20 million.

David Friend

Plus a share of our revenues--

Danielle Sheer

--going forward.

David Friend

--ongoing.

Alex Blumberg

What?

Laura Sydell

[CHUCKLING]

Danielle Sheer

Which what David was at was at a little under half of the cash we had in the bank at that time.

David Friend

Plus a percentage of our ongoing business forever.

Laura Sydell

And remember, Carbonite was one of the smaller companies being sued. We don't know what they were asking from the other guys. But a lawyer named Tom Ewing says you can make an educated guess.

Ewing runs a small side business tracking and identifying Intellectual Ventures' shell companies. And he says, assuming Oasis was asking for settlements in rough proportion to the size of the company being targeted, you can put together a pretty good estimate of their total take from this lawsuit.

Tom Ewing

I'm guessing it would be in excess of $100 million.

Alex Blumberg

$100 million. And who would have gotten that $100 million? Some of the money went to the lawyers who prepped the case and negotiated the settlements for Oasis. Some of it went to the owner of Oasis Research, a mysterious figure named Gordon Jumonville, who showed up in court every day but never testified and never returned our phone calls. But most of the profit went to Intellectual Ventures.

Laura Sydell

Remember Peter Detkin? When we spoke with him, he explained the financial arrangement with Oasis this way.

Peter Detkin

We get some percentage of the royalty stream down the road that is generated from the monetization of these assets.

Laura Sydell

And because of documents filed with the court, we now know what the percentage was-- 90. Intellectual Ventures sold Chris Crawford's patents to Oasis Research on the condition that it get 90% of the net profit. That's 90% of tens of millions of dollars.

Alex Blumberg

Chris Crawford didn't make out too badly, either. Documents also say that Chris Crawford gets 17 and 1/2% of the money that Intellectual Ventures makes. Now, let's just pause to consider that $100 million for a second. That's $100 million off of one guy's patents. That is a lot of money.

And other people see that money. And they want in on that action. They think that's a good business-- getting a hold of patents-- using them to sue people.

Laura Sydell

Tom Ewing, the lawyer who tracks Intellectual Ventures, says that's getting easier because every year more patents are issued than the year before. According to a Yale study, it's 100 software patents a day.

Tom Ewing

It took 121 years for us to get the first 1 million patents. Now it takes more or less six years to get another million patents.

Laura Sydell

And the more patents are issued, the less careful the patent office seems to be. According to a study by the Organization of Economic Cooperation and Development, quote, "The rush to protect even minor improvements in products or services is overburdening patent offices. This slows the time to market for true innovations and reduces the potential for breakthrough inventions."

Alex Blumberg

Case in point--

Nick Desaulniers

About three years ago this time of the year, my father passed away from a heart attack.

Laura Sydell

Not long ago, I was at a meeting in San Francisco put on by the Electronic Frontier Foundation, an advocacy group that's been critical of the patent system. It was an open meeting. And this guy you hear talking, Nick Desaulniers, had decided on the spur of the moment to drop in. And after hearing a couple of other people tell their stories, he got up to tell his.

He's an engineer. And his father's death had spurred him to invent a low-cost heart monitor, which he believed might have saved his dad's life. He developed a prototype in a graduate school class. And he'd started dreaming a bit.

Nick Desaulniers

You know, I got really excited about it. And I was thinking, maybe I can make a business out of this. My grandfather started his own business.

My father made his own business. I need to make my own business someday. So this was something I was really thinking, like, hey, I can make a business out of this.

Laura Sydell

But then he started a patent search to see if anyone else had come up with something resembling his idea already.

Nick Desaulniers

I was horrified at how generic some of the patents were-- "a system for remotely monitoring physiological signals." What the hell does that mean? There are so many ways, so many variables.

How are you getting the data from point A to point B? There are so many ways to do that. And this patent, it covers-- I guess it covers them all.

And seeing some of the numbers that these companies are going back and forth suing each other for, I'm terrified to create a business because of the patent system. I'm horrified. And I'm scared.

And I'm not going to create a business because of it. So however many jobs I could have created or however many lives I could have saved, that's it.

Man

Thanks.

Alex Blumberg

And that is the current state of things. Something as dry as the US patent system can move somebody to tears.

Laura Sydell

Since our last broadcast, we've gotten used to front-page stories about huge tech companies in multimillion dollar battles over patents. But what hasn't been making the front page as often-- patent cases spreading to the rest of us. Over the last couple of years, there have been numerous stories about small businesses-- individuals even-- getting hit with patent infringement lawsuits.

Alex Blumberg

A group called Innovatio has been going around suing coffee shops and grocery stores for violating its patent on providing Wi-Fi in a public space. They say they own that idea. And if your coffee shop is providing Wi-Fi, you owe them money. They say they've made a strategic and business judgment not go after people using Wi-Fi in their own homes, quote, "at this stage." Another company called Boadin Technologies, LLC, has sued a bunch of media organizations, saying that one of its patents is infringed every time a word or phrase on your computer autocompletes.

Laura Sydell

And a company in Vermont called MPHJ Technology has sent licensing letters to hundreds of businesses in Vermont, saying, any time an employee scans something to be emailed, that employee is infringing on MPHJ's patent. They say they own the idea of scanning a document and then emailing it. They're asking for around $1,000 per employee in damages. One of the companies they've approached is a nonprofit serving disabled people.

Alex Blumberg

There are five bills in Congress co-sponsored by Republicans and Democrats aimed at overhauling the patent system. This is still in the very early stages. And of course, it's hard to get any bill passed ever. But this issue has attracted one thing you need to get action in Washington, DC-- powerful people in business interests who want change-- the tech industry, the supermarket industry, the Consumer Electronics Association, Google, and of course, the mighty podcast lobby.

Laura Sydell

That's one difference between now and when we first reported on this story two years ago. Now when we talk to people who are trying to reform the system, they seem hopeful.

Credits.

Ira Glass

Laura Sydell and Alex Blumberg. This story was a co-production with NPR News. Planet Money, which Alex co-founded, is also a co-production of our program and NPR News. Its website and free podcast is at npr.org/money.

[MUSIC - "NO IDEA'S ORIGINAL" BY NAS]

Well, our program was produced today by our senior producer, Julie Snyder, Alex Blumberg, and me with Ben Calhoun, Sarah Koenig, Miki Meek, Jonathan Menjivar, Brian Reed, Robyn Semien, Alissa Shipp, and Nancy Updike. Production help from [? Phia Bennin; ?] Seth Lind, our operations director; Emily Condon, our production manager; Elise Bergerson, our administrative assistant. Music help from Damien Graef and Rob [? Geddes. ?] Research by Michelle Harris and Julie Beer. Special thanks today to Leslie Ogrodnick, Krish Gupta, and Uri Berliner.

Our website, thisamericanlife.org. This American Life is distributed by Public Radio International. WBEZ management oversight for our show by our boss, Mr. Torey Malatia, who I just caught eating food I had in the fridge, even though I had written clearly on the bag, "Ira's lunch."

Chris Crawford

As far as the apostrophe S, I'm still not clear if you're trying to derive a specific meaning with respect to the apostrophe S.

Ira Glass

I'm Ira Glass. Back next week with more stories of This American Life.

Announcer

PRI-- Public Radio International.