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The New York Times
The world can be a rough place for independent inventors. They can often find themselves in court, battling big corporations, spending piles of money on lawyers and leaving it up to judges and juries to determine the value of their hard-won patents.
That could be changing. Wrangling over patents is beginning to move out of the courtroom and into the marketplace. A flurry of new companies and investment groups has sprung up to buy, sell, broker, license and auction patents. And venture capital and private equity is starting to pour into the field.
The arrival of these new business-minded players, according to patent experts and economists, could lead to a robust marketplace for patents, where value is determined not so much by court judgments but by buyers and sellers, perhaps, someday, like eBay [EBAY
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And patents, after all, are ideas. Any market mechanisms that speed up the process of figuring out what a patent is worth should hasten the flow of ideas into the economy, accelerating the pace of innovation, policy experts say.
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“What you want is a market that can promote innovation and reduce the huge costs of litigation,” said Robert P. Merges, a professor at the University of California, Berkeley and a director of the Berkeley Center for Law and Technology. “And that market is starting to take shape.”
A classic small-inventor firm, Zoltar Satellite Alarm Systems, is planning to sample that market by auctioning off its patents next month. Professor Merges and other patent experts point to it as an intriguing case to watch.
To date, the Zoltar story has been one of innovation, persistence and litigation. One founder of the company, Dr. Daniel Schlager, got his inspiration nearly two decades ago, crouched in medevac helicopters flying over Northern California. Locating people in distress was often difficult and costly, in time and lives. What was needed, he figured, was some sort of personal alarm device that transmitted a person’s location.
He sought out an old high-school classmate, William Baringer, a computer scientist and telecommunications expert. Using global positioning technology seemed promising, even though it was clunky and expensive at the time. They came up with a solution, and filed their first patent application in 1994 for a “personal alarm” device that used GPS technology. A year later, Zoltar was founded, and it filed for a patent on personal alarms with navigational receivers in cellphones that was granted in 1997.
Zoltar’s prospects got a lift after the Federal Communications Commission in 1996 required most wireless phones to be able to identify their location during 911 calls by 2001. The move opened a large potential market for Zoltar.
The two men designed and built prototypes, hired a patent licensing expert and showed their technology to cellphone equipment makers in the late 1990s in the hopes of licensing it. “It’s an industry with huge companies who crosslicense patents with each other and tell little guys to take a hike,” said Robert Megantz, a former general manager of licensing for Dolby and the consultant who worked with Zoltar in the late 1990s.
Eventually, Zoltar’s founders say, their ideas and designs started to turn up in big companies’ products. They raised money, mostly from friends and family, hired lawyers and went to court.
In 2001, Zoltar sued Qualcomm [QCOM
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], the cellphone chip-set maker. After three years, a jury found that Zoltar’s patents were valid, but that Qualcomm was not infringing on them. The two sides settled in 2006.
In 2005, Zoltar sued several handset makers including Motorola [MOT
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], LG [LG
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] and Samsung, and settlements were reached with all of them by 2007.
By now, Zoltar has spent millions in legal fees, and collected millions in settlements. The company is ahead financially, Dr. Schlager said, but some of its 60 investors have not been paid back. Mr. Baringer remains a full-time consultant engineer, and Dr. Schlager is still an emergency-room physician, though he does not practice full time.
Today, the fast-growing makers of smartphones like Research in Motion [RIMM
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], Apple [AAPL
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], HTC and Nokia [NOK
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] have no agreements with Zoltar. Dr. Schlager said he did not plan to sue them. Instead Zoltar will sell its patents in an auction, hoping for a faster, simpler and less risky payoff.
“We felt this was the way to go,” Dr. Schlager said. “It’s an option that wasn’t available a few years ago.”
The auction will be run by Pluritas, a patent broker based in San Francisco. Robert Aronoff, its managing director, says Zoltar has strong, court-tested patents that apply to a huge industry, at a time when there is an increasingly brisk market for intellectual property. “They are entering into this vastly changed marketplace with a hot property,” he said.
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