Seems like Christopher Mims from Quartz agrees with my sentiments (couldn’t resist)! I did not cover the legislative items because as you may infer from my post below, I don’t have high hopes for them passing. Check out Chris’ interpretation here (6/5/13-update)
It was pretty evident today that a collective shiver went up the spine of investors who are invested in companies suing for patent infringement. Judging from the share depreciation of stocks that could in any way be considered “patent assertion entities” (PAE) it seems that many of these same investors must not have read what exactly the five executive actions intend to cover. A great breakdown on those (5) actions is contained in an article by Julie Samuels from the Electronic Frontier Foundation here. The point of this post is not to discuss the merits of reform (yes there are many and it could spur greater innovation in the future, everyone gets that) but to analyze any clear and present danger investors may be exposed to.
What I want to point out is how this will affect the cases already in process. It may be necessary for you to read Julie’s article above (or have familiarized yourself with the President’s proposed executive actions through another source) in order to understand the points I’m making (or not and you can just read to read):
1) This action pertains to “new” applications. Presumably this action would not cover any continuation patents. So while a “specific” method may be “cornered” in new applications, I think we will see very little slowdown in infringement cases based on this action since we have about 2 million patents in force (valid) which is more than enough to fuel lawsuits for a decade.
2) Update patents to reflect the real owner. Ok, for the super sneaky patent troll I guess this is a problem but not for the likes of Vringo, or Worlds, or VirnetX or most any legitimate entity bringing suit that I have seen. Yawn…
3) No targeting end users of a product. Great. Most of those users are used as a pawn anyway since it is leverage for Company A to tell allegedly infringing Company B that we will come after all your customers if you don’t settle. To think that Worlds Inc. for example is going to launch millions of actions (or wants to) against all WOW or COD game players is absurd. It is a threat, plain and simple, and beyond that most end users are indemnified against claims arising out of common, everyday use.
4) Address flaws in the system with third party stakeholders and members of the community…what?! This sounds like ordering people to have a group study session. There is no teeth to this action plain and simple. Good idea but no teeth.
5) The last action relates to imports which are often kept out of the U.S. because patents keep them out. This often creates higher prices for consumers which of course can be disadvantageous (can anyone say drugs from Canada?).
So what to make of all this? In many ways patent enforcement cases that we will see in the future are likely to be of higher merit across the board, particularly if they are culled by the threat of the loser paying. As for investors in the patent litigation space, we wish they would read more than a headline to try to ascertain which way the wind is blowing before getting panicky. For those who did read in full (and early), today was a decent day to buy a few quality names in this sector. As for new legislation (which of course would need to pass both houses of Congress in an environment about as cooperative as say the Iranian government with respect to IAEA weapons inspectors) remember there is often an 18-month to two-year lag until implementation.
I don’t mean to sound cavalier on this subject but it is time to get back to the merits of these individual cases which are highly, highly unlikely to be affected by any coming legislation or executive action. It never ceases to amaze me how distracted investors can get.
On a separate note I made a comment in another post the other day about Worlds Inc. (WDDD) requesting authority to enact a r/s in coordination with an up-listing in the future should that be advisable. Similar to the patent reform issue (which of course is considerably more broad) people have failed to realize that Mr. Kidrin has had the authority to enact a r/s and is simply (in the interest of time and expense given that Worlds does not always hold an “annual” meeting of shareholders) asking shareholders to continue to grant said authority. One other critical statement from Mr. Kidrin was the implication that any r/s would happen only “after” the ATVI litigation had run its course. Once again, this issue rises to a bit of a red herring and I applaud savvy investors who have taken advantage of it.
Finally, in a side but related note, NetEase’s original contract for World of Warcraft in China was reputed to pay a 55% minimum royalty to Activision for three years beginning in 2009. This according to Wedbush Securities analyst Michael Pachter.