German Courts Provide Alternative Paths For US Based IP Companies To Monetize Patent Portfolios.
Jun. 6, 2016 2:04 PM ET|1 comment | About: Marathon Patent Group, Inc. (MARA)
Mobile Guru Mobile Guru?Follow(580 followers)
Long/short equity, deep value, special situations, growth
Send Message
Summary
German courts are proving a viable path towards IP monetization.
Acacia Research and Marathon Patent have both had recent success in Germany.
An injunction in Germany against Yahoo's Flickr application has shut down all use of its mobile application in Germany.
Yahoo's potential sale could be affected by ongoing litigation.
A year ago I wrote an article called Do The German Courts Unlock Hidden Value In 2 Patent Plays? which detailed how two of the most successful patent monetization companies, Acacia Research(Nasdaq:ACTG) and Marathon Patent Group (NASDAQ:MARA), are able to achieve a high level of success in the German courts. The German patent courts are often considered some of the most technical savvy courts. This article and quote from China IP magazine gives some of the reasons:
The first instance hearing will be heard by one of the twelve District Courts ("Landgerichte"). Each District Court has at least one specialized patent dispute chamber ("Kammer für Patentstreitsachen"). Each chamber is composed of three judges especially trained to handle patent infringement cases.
The main advantage the German courts provide is upon hearing the initial case if the judges believe there is a high likelihood of validity of the patent and infringement then the judges can allow for an injunction to be applied for. While the infringing company still has the ability to appeal the appeal date will be set months into the future and a decision on the appeal could take a year or more to reach. In the meantime if an injunction is put in place all use of the intellectual property in Germany must cease. Later in this article I will outline this exact process with a recent example of an injunction being put in place against Yahoo's Flickr application in Germany and what the impact is to Yahoo(Nasdaq:YHOO).
First we will review some recent activities in the German courts by both companies, give a detailed example of how an injunction is a powerful tool to help motivate settlements and finally discuss what impact, if any, this could have on Yahoo's ability to sell itself to the multitude of potential acquirers.
In the Acacia Research recent 1 st quarter conference call CEO Marvin Key made this comment about a current case in the German Courts:
Recently on March 31st, Acacia was pleased to receive a positive rule and our Saint Lawrence Vodafone Litigation from the court in Dusseldorf Germany. The court rule that Vodafone has infringed our Saint Lawrence patents and granted Acacia's request before injunction against Vodafone. Vodafone immediately appeal this ruling, it has requested that the court of appeal stay the enforcement of the judgment. We plan to respond to Vodafone's motion by April 22nd and our German Counsel expects the court of appeals to render a decision soon thereafter.
If Vodafone's request to say the enforcement of the injunction is denied. Acacia plans to quickly post to required bond, after which the injunction, we'll go into effect in Germany. Acacia is helpful, the German court's strong validation of patent rights we'll lead to reasonable settlement discussions with Vodafone and other infringing companies.
As seen in the above comment if Acacia can file an injunction then they can shut down all Vodafone's operation in Germany which impacts current Vodafone's revenue stream but also has a tendency to anger current users who are basically left with no service. In today's day and age consumers have no issue switching to another companies service if faced with a prolonged interruption such as an injunction will cause. While the appeal process is still ongoing it seems like a high likelihood an injunction will be allowed given the court has already stated they believe there is a high likelihood of infringement by giving Acacia the ability to start the injunction proceedings. While Vodaphone may have some additional information to try and hold off an injunction if it was compelling they certainly would have provided this information during the original proceedings. There is little doubt an injunction being put in place here could lead to a quick settlement.
Marathon Patent has also been very active in the German Courts. On April 21 st of this year Marathon announced a successful ruling against both Yahoo and Pinterest:
The rulings apply in the matter of TLI Communications GmbH versus:
Yahoo! Inc. and Yahoo! EMEA Limited, concerning the Internet service "Flickr" operated by Yahoo! Inc. and Yahoo! EMEA Limited, as well as the associated application software for smartphones and tablet computers; Pinterest Germany GmbH, concerning the Internet service "Pinterest" operated by the Pinterest Germany GmbH and Pinterest Inc., as well as the associated application software for smartphones and tablet computers.
What this ruling allowed is for Marathon to file for injunctive relief in Germany and shut down Yahoo's Flickr application and also Pinterest's operation on mobile devices. Approximately 6 weeks later both of these companies are now having this injunction enforced in Germany and have blocked users from using their applications from mobile devices. As many people are now aware mobile devices are the primary means of using many web based applications and many people no longer even utilize desk top setups in their homes.
So what does this really look like in Yahoo's case with Flickr? If you try to access Flickr through Germany on a mobile device you will get a message saying you can't use Flickr from a mobile device. Here is a few of the highlights of that message that can be found here.
Due to a court ruling, anyone located or traveling in Germany will not be able to upload photos or videos to Flickr using the Flickr mobile app or the mobile web interface. You'll still be able to sign in to Flickr from a computer and upload using the desktop web interface.
TLI Comms has accused Yahoo of infringing its European patent (EP 0814611 B1) by providing users the ability to upload photos and videos to our servers via the Flickr mobile web page or the Flickr mobile apps. TLI has asserted similar claims against a number of other major US tech companies. As of today, a German court has enjoined Yahoo from providing the upload feature of the Flickr mobile web page and mobile apps to our users in Germany.
Although we believe this patent is invalid, invalidity proceedings are separate from infringement proceedings in the German court system, and lag months behind. We also believe the infringement ruling itself is incorrect. We will appeal it but a decision will not be issued for at least a year.
While these words are interesting there are a few additional facts that could be mentioned. The original patent was filed by Siemens in Germany and has a validity date going back to 1997. Flickr was formed in 2004 and bought by Yahoo in 2005. If there is any doubt to why the German courts thought there was a strong likelihood of infringement take a look at the field of the invention of US patent 6,038,295:
The present invention relates generally to an apparatus for recording of a digital image, communicating the digital image from the recording device to a storage device, and to administering the digital image in the storage device. The present invention also relates to a method for recording, communicating and administering the digital image.
If you look through all 26 claims you can easily see how Flickr, who was formed 7 years after this patent filing, could very easily being violating this patent and has been for over 12 years. While many may say that this is obvious in today's day and age of mobile devices this was almost 20 years ago when it certainly was not obvious. Who is to say that the people who formed Flickr and cashed out did not see this issued patent and came up with how to monetize the exact idea? You can also be pretty sure that Flickr or Yahoo will not have any prior art to bring forward to help prove they are not infringing. I guess it will be up to the judges in a year or so to sort it out but in the meantime users in Germany will be without Flickr and Pinterest on their mobile devices and it is likely more companies will have the same fate.
Does any of this have any impact on Yahoo's attempt to basically sell themselves to the highest bidder? Much depends on the level and potential infringement amounts. If the amount was trivial then Yahoo would have already paid as it certainly is not worth upsetting customers of their services. So while some numbers have been thrown out there as was mentioned in John Ford's instablog a month back it really is hard to come up with an exact number but 12 years and counting of damages will add up and continue to add up. For a company like Marathon Patent that only has a market cap of $41 million just a settlement with Yahoo could have a significant impact on its valuation going forward.
All three companies mentioned in this article have keen interest in what is happening in the German courts. Yahoo, who has basically put itself up for sale on Craigslist, has the most to lose. With so many companies kicking its tires having a potentially large liability hanging out there is not a positive aspect towards its sale. Plus anyone traveling or living in Germany are without a very important tool for loading pictures. Marathon Patent Group has the most to gain from ongoing litigation given its current market cap but Acacia will certainly receive a very positive response if it can put an injunction in place. IP stocks have seen a resurgence in investor interest over the last few months and litigation in the German courts may continue that trend.
Disclosure: I am/we are long MARA.
