Patent trolls are about to invade the cloud

Last year was particularly eventful in the realm of intellectual property, with headline news right through the very last days of December.

Of note, just before the end of the year the U.S. Patent and Trademark Office temporarily invalidated Apple’s vaunted “pinch-to-zoom” patent, one of several found to be infringed by Samsung in August – generating a $1.05 billion damages award for Apple. On the same day, Kodak sold its imaging patent portfolio for $525 million to a consortium of 12 buyers (including none other than Apple and Samsung, along with HTC, Faceboook, Amazon, Fujifilm, RIM, Huawei, Adobe and Shutterfly).

In the coming year it’s a safe bet that global patent litigation and multi-billion dollar transactions will continue unabated, but here are a few other key trends we can expect to influence and shape the global IP marketplace.

The rush to the patent office begins

March 16, 2013, will mark the first day that the U.S. switches from a “First to Invent” to a “First (inventor) to File” system, under the America Invents Act (better known as U.S. patent reform). Whereas U.S. patent laws previously attributed priority rights to the first documented inventor, it is now largely the case that the first party to file a patent application will get the patent. Thus we can expect a rush to the patent office by companies large and small – adding to the already huge backlog at the USPTO of some 600,000 patent applications. Small businesses with limited legal budgets likely will be negatively impacted by the change, as it puts them at a pronounced disadvantage to their larger, better funded competitors.

Trolls will invade the cloud

With the number of patent lawsuits increasing every year – more than 3,000 were filed in the U.S. last year – there’s no reason to expect the pace to slow. Much of this litigation is fueled by so-called non-practicing entities, more popularly known as “patent trolls,” that base their entire business model on the use of patent enforcement, typically against multiple defendants.

Patent litigation in general, and troll litigation in particular, thrives in markets where the patent landscape is ambiguous, where there are complex products with multiple features, and where markets experience periods of explosive economic growth. The mobile market has seen its share of litigation frenzy over the last several years, and while the cloud computing market is clearly fertile ground, it will be at least five years before we see the type of  full-blown war mobile is now enduring. That said, the first signs of troll litigation are already emerging, such as CloudingIP, an NPE that filed patent lawsuits against RackSpace and several other defendants last year.

Copyright will take center stage

While patents have been all the rage in the IP marketplace over the last decade, content-related IP such as trademarks and copyrights are moving front and center with the proliferation of digital media and online content. Organizations such as Creative Commons have taken the lead in creating an infrastructure for the sharing of creative content online, giving the creator broad control over terms for sharing it.

The still-brewing debate over the ownership of Instagram photos, though, highlights another alternative to the creator-ownership approach – one that gives control over content to the platform that hosts it. The question moving forward is whether the copyright ownership of digital content will remain with creators or will be transferred to the platforms that host them

IP strategy is moving to the early phase

The Yahoo patent lawsuit against Facebook, filed on the eve of the Facebook IPO, highlights the need for startups to have a strategy around building a strong IP portfolio. While Facebook is no typical startup, it solved the problem in a non-typical way, by spending hundreds of millions of dollars buying patents from Microsoft to quickly increase its arsenal and defend against future litigation.

Obviously, few startups can afford a quick and expensive rebound like that, and therefore one lesson learned in today’s highly litigious marketplace is that any IP strategy needs to start from day one, even for cash-starved startups. Patent litigation against successful startups is picking up, and it is against this backdrop that IP strategy in the early phase is expected to become an absolute necessity for startups that wish to “cross the chasm” successfully.

Competition will go global

A recently published report by the World IP Organization (WIPO) revealed that in 2011, the number of patent applications filed in China exceeded those filed in the U.S. for the first time. That should come as no surprise to anyone following the pace of patent filing in China, an activity that has been prioritized by the Chinese government with the ambitious goal of reaching 2 million patent applications a year by 2015. Another noteworthy trend:  Of the list of the top-50 companies that received U.S. patents in 2011, the vast majority are foreign.

Both trends suggest the continued and increased involvement of foreign companies in U.S. patent litigation (as the mobile patent wars demonstrated), as well as the increased enforcement of IP rights overseas, and, in particular, in Asia.

Efrat Kasznik is president of Foresight Valuation Group, a Silicon-Valley based IP consulting firm, and is also a lecturer on IP strategy at the Stanford Graduate School of Business. You can find her on LinkedIn.

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