Some clarity on the Paul Allen/Interval Licensing lawsuit

I had a chance to speak this morning to Alexander Poltorak, chairman, chief executive officer and founder of the oldest patent licensing and enforcement firm in the country, General Patent. He was able to provide some interesting perspectives and clarity on Paul Allen's suit against Google, Apple, and several other big tech players. While I still believe that something is in this for the company that Allen helped found, Mr. Poltorak was adamant that Paul Allen is certainly not a patent troll.

I asked Mr. Poltorak to help me understand the processes, motivations, and context for Allen's suit against such big companies, as well as his prospects for successful litigation. First and foremost, he explained that the recent filing, dismissal, and refiling of the patent infringement suit is nothing terribly exciting. It's how patent litigation works. One party claims infringement, the defendant denies it, a judge moves it to trial or asks for more information, and the plaintiff refiles as needed. As much as us pundits would love to read into every legal maneuver and apparent setback, the preliminary filings and actions we've seen are nothing more (yet) than posturing and process. The Google News headlines (including mine) are "much ado about nothing" according to Mr. Poltorak.

Allen's original complaint was cited both by the judge and tech press as exceptionally vague. However, this is more indicative of a "testing the waters" approach, where plaintiffs attempt to avoid revealing too much of their strategy, judges establish their own standards with the litigants, and defendants try to force plaintiffs to reveal as much of their strategy as possible. What Mr. Poltorak didn't note, but I believe is probably more important than posturing in court, is posturing with Wall Street. Even small perceived wins (like a dismissal of Allen's initial suit) on Wall Street help the likes of Google and Apple keep their stock prices stable in the face of potentially serious threats to their business.

So right now we have what Mr. Poltorak calls fairly uninteresting patent litigation (at least from a legal perspective). Paul Allen and Interval Licensing came up with some powerful ideas in the very early days of the web and, as Ed Bott puts it, "[Allen] wants not just credit, but cash." Poltorak echoes that sentiment, explaining that "it's always about money."

Next: All about the money? Maybe...but how much? And when? »

While I do believe that there is more to this than the money (Microsoft's conspicuous absence from the list of defendants being a red flag), Poltorak explained that only 3-4% of patent cases actually go to trial. The rest all settle and usually involve two lump sum payments. The first lump sum is for past damages to the patent holder, i.e., money they have lost as a result of the infringement. The second is often some sort of licensing deal, providing a discounted payment towards future value of the intellectual property (most large companies simply pay out a lump sum rather than pay ongoing royalties to avoid disclosing sales and financial data in the future). This scenario puts Paul Allen in a position to potentially collect quite a bit of money, a number that experts have put in the ballpark of $500 million.

Speaking to the absence of Microsoft from the list of infringers (and, for example, to complaints about infringements from Android but not iOS, even though both Apple and Google are named defendants), Poltorak explained that not all instances of infringement or even all infringers need to be included in the complaint at this stage of litigation. Others, even Microsoft, could be added at a later time or addressed separately. I don't think too many of us expect the company he helped found and in which he still owns a share or two to make its way into the who's who of Silicon Valley that comprise the list of defendants in this case. It is even possible that Microsoft and other potential infringers were already in talks over licensing Allen's patents and were therefore not named.

Poltorak did, however, bring up a very interesting point about all of the analysts calling out Allen for patent trolling and the potentially disruptive force of this litigation. As he put it, patents are a form of "quid pro quo for the disclosure of advancements in science and technology." The limited monopoly granted by patents come in exchange for the ability of researchers, scientists, and inventors to build upon the advancements of others and are a serious incentive for conducting original research.

Exercising the protection afforded by these patents doesn't make Allen or any other IP rights holders patent trolls, even if they (like Allen and the defunct Interval Licensing) are neither practicing with nor actively using the technologies they invented. Poltorak likened calling Allen a patent troll to criticizing a songwriter for not singing the songs he wrote, an analogy with which I completely identify, given that I can't carry a tune in a bucket, but can write till the cows come home.

As we wrapped up our conversation, Mr. Poltorak felt that a settlement in this case was very likely with Allen walking away with some money. Just how much would be the subject of serious wrangling behind the scenes. While large sums of money would most likely be changing hands, he noted that these cases (while rarely this high profile) are relatively common. He also explained that they often work on extended time frames with considerable legal back-and-forth, so this will certainly not be the last we hear of Interval Licensing over the months (and possibly years) to come.