Patent troll: 'I'm ethical and moral'

July 2, 2013: 10:54 AM ET
robert berman
Self-described patent troll Robert Berman, CEO of CopyTele, says he is defending small inventors.
NEW YORK (CNNMoney)

Robert Berman is a self-described patent troll -- well, he prefers "patent assertion entity" -- and he isn't afraid to advertise it.

"I'm a moral and ethical person, and I have no problem engaging in what I do," he proclaims.

His firm, CopyTele (COPY), buys up patents from mostly small inventors and uses them to sue businesses that CopyTele believes are infringing on those patents. CopyTele holds a growing portfolio of patents, but it doesn't actually make anything -- a practice that patent reform advocates and the Obama administration are trying to curb.

Patent assertion companies are the target of a recent series of executive actions by the Obama administration aimed at stymieing abuse of the patent system. The Federal Trade Commission is conducting an investigation into the firms' practices.

Critics say that patent assertion entities hinder innovation and clog up the patent system. Lawsuits brought by such firms made up 61% of all patent cases last year, according to the Santa Clara University School of Law.

Related story: Obama cracks down on patent trolls

"They don't actually produce anything themselves," President Obama said during a Google (GOOG) Hangout discussion in February. "They're just trying to essentially leverage and hijack somebody else's idea and see if they can extort some money out of them."

Berman acknowledges that there are bad actors engaging in extortion and scare tactics, and he agrees that the government should crack down on companies that "give a black eye to the industry." But he also believes the Obama administration and the media are painting firms that bring patent lawsuits with an overly broad brush.

"This whole patent troll thing is as mythical as trolls themselves," he told CNNMoney. "You should not have to make products in order to benefit from the patent system, and not every company that brings lawsuits is doing something frivolous."

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Berman insists that his business actually works for the greater good. Without a company like CopyTele, he says, small inventors would have no ability to defend their intellectual property against big companies looking to copy or steal their inventions. Berman sees his company as protecting the little Davids against Goliaths.

CopyTele's model is to give inventors a share of the proceeds from the successful lawsuits it brings against companies found to have violated their patents. That way, Berman says, CopyTele can't be accused of bilking inventors. His company doesn't, for example, give inventors a low-ball upfront offer for their patents and then proceed to make millions from lawsuits without cutting them in on the rewards.

Related story: Vermont fights back against 'patent trolls'

That's the opposite of what big tech companies do, Berman believes.

"The first thing they do is help themselves to your intellectual property," he said. "When you go to try to sell your patent to a big company, they will steal it from you. And they buy companies that they infringe on all the time."

That's a belief often repeated by entrepreneurs -- with little proof other than some anecdotal evidence. Big tech companies generally counter that they constantly cook up new ideas, and that inventors often overestimate how unique their inventions are.

Yet Berman said he's seen it firsthand. When he first joined CopyTele in October, the company was engaged in a joint venture with display technology giant AUO to compete with E-Ink, the largest provider of e-reader screen technology. A month later, AUO entered a cross-licensing patent deal with E-Ink -- including the patents it obtained rights to in the CopyTele venture. CopyTele has since sued AUO for breach of contract and fraud.

AUO, based in Taiwan, did not respond to a request for comment.

Patent assertion is a relatively new line of business for CopyTele. The company switched gears last year, abandoning its technology development efforts to focus on licensing and litigating. Berman, who came in to revamp the business, was formerly an executive at Acacia Research Corp. (ACTG), one of the tech industry's most feared patent foes.

Among CopyTele's first targets was Microsoft's (MSFT) Skype, which CopyTele claims infringed on one of its peer-to-peer networking patents. The lawsuit is ongoing.

Fighting the patent wars can be lucrative. Acacia turned a profit of nearly $60 million last year on revenue of more than $250 million. Intellectual-property funds typically generate annualized returns of between 10% and 20%, according to industry estimates cited recently by the Wall Street Journal.

Patent battles can become an unavoidable business cost -- almost like a toll -- for tech companies. Big companies are sometimes willing to settle such suits simply to make them go away. For startups and small businesses, the cost of litigation can put them out of business.

That's why Berman says he likes to talk through the issues with the other party before going to court. Usually, he says, the two parties can come to a mutually satisfactory agreement.

"I hate litigation, and we always make sure the money we ask for is in relation to the damage we believe their infringement caused," Berman said. "But no one writes a check these days if the case has no merits."


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