In June of 2013, Personal Audio was featured on Slashdot and readers submitted questions to the company. James Logan, the Founder of Personal Audio answered these questions on the site. They are reproduced here (with the permission of Slashdot) a way for Personal Audio to express its views on its activities and the patent system in general.
A few weeks ago you had the chance to ask James Logan, the founder of Personal Audio, about the business, the patents the company holds, and the lawsuits it has filed. James answered most of the questions in great detail. Read below to see what he has to say and what question he passed on and why.
Why are you doing this Slashdot interview?
I am curious why you would volunteer to step into the lion’s den.
Logan: There is an active debate going on now about whether the patent system should be changed again while we are still adapting to the American Invents Act of 2011, the largest patent reform since the 1950’s. We have strong views on this and want to weigh in on the debate.
Yes, we understand the leanings of Slashdot readers but sometimes going into the “lion’s den” is the best way to get your point across. That’s probably why you see James Carville on Fox News from time to time.
There are some legal risks to us wading into the den, however. Lawyers may try to take things we say and use them against us. You know how that goes. So, we apologize in advance if some of our answers have to be circumspect.
What do you do?
What exactly is Personal Audio? Your website is slashdotted, so I can’t find what you make or what your business model is. But you claim not to be a patent troll. You’re even willing to come to a hive of kneejerking anti-patent-trolls and answer our questions to try and convince us of this. So, if you’re not one, why not? What do you make? What do you sell? What do you do?
Logan: Personal Audio, LLC is a holding company. That is, we own property and our main activities relate to earning a return on that property. Now, it just so happens that our property consists of patents—not real estate, artwork, or copyrights—and that has apparently put us on the wrong side of the patent debate in the eyes of some people (see Lion’s Den above).
The term “patent troll” has emerged in recent years, and to the extent that words matter, this phrase has served as an effective piece of negative branding for those who want to reduce the rights of patent holders. But the debate should go beyond catchy name-calling. Whether we are, or aren’t patent trolls, whatever that term means, isn’t the issue. The issues are what purpose do patents serve and how do we best foster innovation? Which brings us to the next question…
To promote the Progress of Science and useful Arts
The intent of patent and copyright laws is “to promote the Progress of Science and useful Arts”. Certainly back in the 18th century when the Constitution was written access to information, resources, and research specialists was limited and costly. Now in the 21st century, with global economics focused on knowledge and service sectors, these assets are extremely abundant. Would the progress of Science and the Arts be better served by eliminating legal barriers to innovation, such as patents, and letting the market decide which unencumbered producers survive? If not, why not?
Logan: Nick, thanks for this question. Yes, patent rights are laid out in the Constitution and perhaps a few words about history here would be of interest. The U.S. patent system was derived from the earlier, successful English system. According to a recent book by Willliam Rosen,
“It was England’s development of the patent system that was the decisive factor (in giving England the dominate role in the Industrial Revolution). By aligning the incentives of private individuals with those of society, it transformed invention from a hobby pursued by the idle rich into an opportunity for spectacular commercial gain open to anyone with a bit of skill and a good idea. That allowed England to harness the creative potential of its artisan classes in a way that no other country had managed before.”
But the English patent system was a rich man’s game and it was expensive to get a patent. It did lead to the successful development of many “heavy industry” inventions (think steam engines and railroads) but not a lot of “micro-inventing”. When Nikola Tesla (the greatest geek who ever lived) came to America later in the 1800’s, he marveled at the innumerable ways that inventive Americans had improved, and patented, everything they could lay their hands on.
You suggest that today, with globalization and an economy focused on knowledge and services, we might be better off without patents. That a world without patents would foster innovation. This really is the most fundamental question of the whole debate.
I think the suggestion is wrong. Patents are even more important in today’s information economy then they were in past centuries. To see why, let’s broaden the debate to include all intellectual property (“IP”).
If there were no copyright laws, do you think AMC would spend $3 million on each episode of Breaking Bad? If anybody could just copy it and give the content away on the Internet why would they? Without copyright laws there would be no Mad Men, New York Times, or Call of Duty.
(Of course, the irony of comparing patent rights to copyrights isn’t lost on us. We’ve come under blistering attack from the media, including NPR, for asserting our patents against some rather large media businesses—companies that wouldn’t blanch at suing teenagers who copy their songs, websites that offer free movie downloads, or even Google who might offer too-detailed of an article summary. And of course, we all have to sit through their FBI warnings at the beginning of a DVD.)
These same copyright arguments apply to hard goods, and by extension to patents. Would Cisco be able to afford its R&D if factories in China could copy its products and sell them here for a fraction of Cisco’s price? Would Microsoft be spending millions on Windows 8 if each update could be freely copied and distributed? Would GE spend money designing wind turbines if others could copy the designs at will?
Would innovation happen without patents? Of course, just not as much. The risk involved in R&D would increase, investors would be less interested, and researchers tired of being “ripped off” would do other things. The pace of progress would slow. As the economy shifts more and more to knowledge-based work, it seems clear to me, that we need even stronger IP protections.
Do you deserve a patent without doing the work?
Why do you believe you deserve any money in licensing fees at all, when you haven’t apparently done any of the work required to produce a product?
Logan: Well, I could answer this question by arguing that I did try to build a product. That I spent $1.6 million of my own money trying to realize our vision of a custom listening experience that ended up, at the end of the day, being implemented in the form of a cassette tape product, and not the digital player system we envisioned and patented.
But I think that story is beside the point. The question is whether we should have a patent system that requires the inventor to build a product in order to receive a patent. I think that’s exactly what we don’t want and by way of example let me explain why.
I started my first company in the 80’s, when I was working with a young MIT engineer, Blair Evans, to develop the first analog capacitive touch screen. Were we struggling to make it work when we got a letter in the mail from an inventor in Maryland, Bill Pepper, who was literally working out of his garage. He had been working with Bob Moog, inventor of the world’s first electronic synthesizer, on a touch sensitive piano and from that research had gotten several patents on a touch tablets.
Bill had tried unsuccessfully to license these patents to several large companies (“Call me back when there’s a market”, they said) when he heard about our attempts to make a capacitive touch screen. We realized Bill had the solution we were looking for and we promptly signed an exclusive license for his patents. MicroTouch went on to become the world’s largest touch screen company, selling the precursor to today’s projected capacitive touch screen found on all smart phones. When I left MicroTouch to start Personal Audio in 1996, we employed 500 people making touch screens in Massachusetts. Without those patents, we would never have gotten the company off the ground.
The point of the story, besides the fact that patents can play a leading role in driving innovation, is that often the inventor and the implementer are, and should be, two different people or companies. Bill had no desire to build or run a company. He retired off our royalties and went on to invent other things. Blair and I went on to build a company and an industry.
Why would you want a system that mandated such “vertical integration”, where the inventor has to be the producer? A recent paper (pdf) published by Yale looks at the history of patent monetization over the last 200 years. It describes how “the ability to quickly find buyers for patents was an important driver of inventive activity during the late nineteenth and early twentieth centuries, when patenting rates in the United States were at historic highs.” In fact, both Edison and Tesla sold off most of their patent rights. The paper goes on to say that 24% of hi-tech patents were sold off in the twenty-year period leading to 2000.
The whole history of tech over recent decades has been an ever-increasing specialization of labor. In 1980 IBM made everything from chips to software to mainframes. We all know how that evolved—Intel, Microsoft, Adobe, and others came in and took a slice out of that stack, each becoming a master specialist in one function.
The horizontal slicing of technology food chain has continued and has worked its way to intellectual property to an extent. Today you have Cisco, Yahoo, Google and others buying small companies, for their engineers, products, customer bases, and sometimes intellectual property.
There is still work to do, however, in developing more of an actual “IP market”—one where ideas and inventions are sold outright and not necessarily encapsulated in products or services. It’s a hard market to develop because each patent is, by definition, different and speaks to something new and unknown. If commodities are the easiest things to buy and sell, patents and intellectual property are the hardest. In addition, many companies have strong “not invented here cultures” that build barriers to buying-in technology.
But do you think the large tech companies that rail against “patent trolls” would really want rules that required a product to be produced before a patent was granted? After all, these companies get patents all the time for things they only invent on paper.
Even if you had such a requirement, how would you manage it? Would you have to just “produce” a product or would you have to sell it, too? Google dabbles in lots of areas and works on lots of long-range projects. Are you going to tell Larry Paige that if he doesn’t sell a driver-less car within five years those patents expire? Or if he doesn’t ship or offer for sale at least one, 10, or 100 such cars a year his patents expire? Does each car have to use every claimed feature? Does it have to work (well)? Can it be sold at any price? Who would decide all that?
If there were a requirement that only producers could own patents, then Personal Audio would probably start a podcast just to meet the requirement. But then you’d say, “That doesn’t count. You need to have 1% of the market to qualify.” Or maybe it’s 5% (so one doesn’t get patent protection until one succeeds?) Or do you want us to sell ourselves to CBS thus ensuring a system where only large companies have valuable patents?
Even if you don’t agree with my view that the world would be better off if inventors and implementers were sometimes different people, you can see that setting up a system to mandate otherwise would be a nightmare of micro-management with no obvious benefit. Except, I suppose, that there would never be a case where somebody would say, “He or she doesn’t deserve a reward just for inventing something”.
The debate of whether it was necessary to produce a product to get a patent has been thrashed out in the past. The U.S. patent office used to require inventors to send models to Washington DC before a patent would be issued. But inventions were getting more complicated, took longer to implement, and were getting more abstract. So in 1880 the U.S. patent office dropped the “implementation” requirement.
Comment Please, Mr. Logan
by Anonymous Coward
Here’s a “comment” from the Computer World story linked above: “‘The company was able to hang on to several patents, however, and put them “in a drawer for 10 years,” Baker added. “Is that a troll?”‘
Yes it is. That is exactly the definition of a troll. They weren’t able to make it work, had no impact on the industry, failed and no one has ever heard of them. But when someone more enterprising independently comes up with a similar idea, solves all the problems that Personal Audio couldn’t solve, popularizes the concept, and makes it work, they somehow feel they are entitled to a piece of the action. Your thoughts?
Logan: AC, you summarize well points we have heard from others. Let me start off by saying that over 1,300 patents have cited the Personal Audio patent set (meaning these later patent applications referenced the Personal Audio patents as “prior art” to their applications). A lot of folks read our embodiment and probably some of what we taught in the patent did end up in other people’s products and implementation. That still doesn’t answer your question, however, as to whether we are “entitled to a piece of the action”, as you put it.
But our patents, like others, fall under a two-part incentive system. The first incentive gives the hope of a temporary monopoly to the entrepreneur. That hope fosters innovation by getting people to push the envelope and try new ideas, not just copy old ideas. The hope of creating a business protected by patents, like the one I had at MicroTouch, motivated me to create and move forward with Personal Audio.
The second incentive offered by patents, however, is to investors. During the life of Personal Audio, I invested $1.6 million, and lost it all. Personal Audio, LLC, the patent holding company, is the attempt by the investor, me, to get a return on that investment. When investors like me get our money back, plus some if we’re lucky, it means that startups are not as risky as they might otherwise be. To that extent, patents lower the “cost of capital” to startups, that is, make it easier in the long run for them to raise money. If you’ve shopped plans around to VCs, you will see that often they are very interested in the IP potential of the ideas being pursued. They are interested in both the monopoly power it might offer a startup as well as the safety net it provides in case things don’t go well.
So to answer your question, we are small players in a larger system, one set up to foster innovation by turning inventions into property. We are merely using our property as the system was designed. You may not like every outcome of this system, but in general it has served its purpose well over many years.
Pursuing the end users of a product which infringes upon one’s patent is practically unheard-of. Why have you done so?
Logan: We appreciate the gist of your question, Sockatune. Let me clarify by saying that we have not done anything to approach “end-users”, who technically would be listeners of podcasts or viewers of other episodic content. But you’re probably referring to podcasters or video producers themselves who are on the smaller side of things.
With that in mind, it is worth noting that the cost of negotiating and setting up a patent license is not trivial. As such, it does not make sense for us to deal with hobbyists, non-commercial ventures, and small entities. The economics of it would be prohibitive. As such, we will be focusing on the largest users of our technology and those that collect significant revenues from ads placed on their podcasts or episodic video content, or who gain commercial value from that content in other ways. Finding good information on this score can be challenging, however, so we can’t be certain that our efforts are always perfectly aligned with our strategy.
When did you first hear of podcasting?
When did you first hear of podcasting and why didn’t you file your infringement suit immediately instead of waiting until many people were already using the technology?
Logan: We filed the ‘504 patent (U.S. Patent 8,112,504) in 2009, a short time after we filed suit against several infringers of the ‘076 patent (U.S. Patent 6,199,076). The patent then issued in early 2012. We have had a lot of questions concerning how we could have filed for a patent covering podcasting in 2009, years after the first podcasts started coming out, so let me briefly explain that.
Under certain circumstances, specifically when the patent office has not finished prosecuting a family of patents, the inventor is allowed to apply for additional claims that derive from the original invention by filing a “Continuation Patent”. The priority date, or date of invention, that is given by the patent office to this Continuation is the filing date given to the original patent application in the family. In our case, then, the priority date of the ‘504 patent is October of 1996—the date we filed our first patent application in which the material that describes podcasting was included.
Another misconception is that we “waited all those years” while podcasting evolved and then sprung the ‘504 patent on the industry. The fact of the matter is that Charlie Call, my co-inventor and patent attorney, and I were busy working on other things when podcasting as an industry was emerging. We didn’t get focused on the Personal Audio patents until 2008. That delay is unfortunate for Personal Audio because as a result the ‘504 Continuation Patent did not issue until 2012. As a result, we are only able to collect license fees from that date forward. All the activity that happened before the ‘504 issued is not covered
Can you explain?
Can you explain, in terms I could tell the average person, how your patent is novel enough that anyone who wants to distribute audio over the internet should license it from you? I’d appreciate it if you could address how the distributions of podcasts today widely differs from downloading audio files in 1995 and how your patent help change this.
Logan: Trcooper, this is one of those of questions that could get me in a boatload of trouble—with my lawyer, that is. Any comments I make regarding the claims and how they are different from previous systems, can and will be used against me in court. So I’ll have to take a pass on this one.
The only business you made with these patents was sending cassette tapes with some recorded articles that were chosen by the customer through the mail. How does this transfer to creating playlists and podcasting? Picking the listening order of sound files I got from the internet doesn’t really seem like it should be protected intellectual property. How do you justify what you’ve done (a failed business in 1995) to justify payment (much much later) from people who had never heard of you or your patents when they made their services/products, and who apparently never tried to patent that process as it seemed too obvious to them?
Logan: CaseCrash, you touch on a few different areas with your questions, so let me tackle them one at a time.
First, the cassette tapes that Personal Audio sold in 1997 have nothing to do with the validity of the patents that were filed in 1996. Are you suggesting that if a company changes its business strategy, it has to abandon any claims to things it might have invented before the switch? Or if you go out of business you have to donate your patents to the public? If so, be sure to let the creditors of A123, the now-bankrupt pioneering battery company, know that their only remaining asset is now toast. Ditto for the Fisker car company. That all sounds a bit like the culture in Europe where entrepreneurs are severely punished for losing. I’m not sure that’s the startup culture we want to embrace here.
Secondly, you seem to be implying that Personal Audio’s patents should be invalidated for obviousness. Well, I’m not at liberty to discuss specifics around this issue in our case, but one of the main functions of the patent office is to screen for obviousness. Some large companies expended significant resources to prove Personal Audio’s patents were obvious but they were unsuccessful. In general, though, things often seem obvious in hindsight, particularly when the idea has been around a while. So we’re not surprised when people say that about our patents.
In addition to a jury trial, some of our patents have also been through more than one re-exam, an extensive process where the patent office prosecutes the patent all over again. While some consider these do-overs to be a quality control step, it can also be thought of as a form of double jeopardy, retrying a case over and over again. Re-exams create an aura of uncertainty over a patent, making it harder to license a technology and get it to market. Think how hard it would be to put up a building if mortgage holders kept coming out of the woodwork.
Ironically, there are now new laws before Congress to institute even more re-exam procedures. I think that is unfortunate. One of the better features of the America Invents Act of 2011 was to allow for an expedited patent process whereby you can get a patent in less than 12 months—a new speedway that is working as advertised. Now you can come up with an idea, get it patented in a matter of months, raise money on the IP, and be off to the races.
Other changes to the patent system are also being considered, including the SHIELD Act, which would force an NPE (a Non-Practicing Entity) to pay the other side’s legal bills if the NPE loses in court. It would be unfortunate (if not unconstitutional) if this passed. As this article in Forbes recently pointed out, NPEs serve a real purpose in offering inventors, investors in failed companies, universities, and even smaller operating companies a way to participate in the market for intellectual property.
While NPEs have been ceaselessly disparaged, one of the most common criticisms has been that they have been responsible for doubling the number of annual patent lawsuits. In their defense it should be said that two factors outside their control have accounted for most of that increase. First is that the America Invents Act mandated that any patent lawsuit can only have one defendant whereas previously a case might have had multiple. This has dramatically increased the nominal number of cases and skewed the data being hurled against NPEs.
Second, is that over recent years many companies have started using a tactic of preemptively suing a prospective licensor the minute they receive an offer to license a patent. This has led to a counter-strategy where many licensing companies decide to sue first then enter into licensing discussions later. This again, has greatly skewed the numbers.
In any case, the IP market today is dominated not by NPEs but by companies like Google, Apple, and other large firms who own tens of thousands of patents. They buy patents by the thousands, cross-license each other, and then go on to hoard their patents effectively shutting out others from the market. Talk about stifling innovation—try to go license a patent from Microsoft or Google.
And these same U.S. tech companies that rail against patent trolls have few qualms about taking ideas from others. They will buy competitors’ products, conduct teardowns to analyze components and features, and incorporate the best of what they find. Yet it rare that these companies check to see if the “borrowed” ideas are patented. If fact, ask anybody in Silicon Valley and they’ll tell you that engineers in many, if not most, R&D labs are specifically requested to refrain from looking at the patent database when designing products.
Finally, many of these firms are themselves now engaged in so-called trolling. They are spinning off unused patents and either selling them to NPEs (often hiding their ownership) or setting up their own patent assertion companies. In effect, they lobby for one thing, while doing that which they lobby against. And the hypocrisy doesn’t stop there. Look here, in fact, and you’ll see that Mark Cuban sponsored the EFF’s “Chair To Eliminate Stupid Patents” in the same year he went for a quick buck by buying 7% of VRingo, a public NPE that has famously sued Google.
But despite all the consternation about NPEs, and who is one and who isn’t, in general I feel the patent system is not broken. The ever-rising number of U.S. patents being filed, the explosion of incubators, and continued flow of venture capital into new enterprises points to vibrant culture of innovation in the country.
How can I license your podcasting patent?
by David Quaid
Hi Jim, I am about to start a podcast of my own, and I want to make sure I do this in the right way. I looked on your website, but there is no information for how to license your podcasting patent. No online shopping option. No form to mail in. No price. In fact, in the This American Life episode, Richard Baker says “We have a price. We just don’t want to make it public.”
It seems that the only way to license with you, is to first launch my podcast and then settle with you once you threaten to sue me.
You argue that you are really just a legitimate business man and not a patent troll. But despite the ongoing growth of new podcasts, you have not made it possible for an aspiring podcaster to realize what their financial liability to you might be. This makes it very risky to decide to invest in a new podcast and growing the number of subscribers, since I could be sued out of existence if I succeed.
My question: If you are not a troll, why have you chosen only to sue and threaten, and never directly license to interested customers who are joining the growing podcasting industry?
Logan: David, we have no intention of making podcasting a risky endeavor for anybody. Our license is a modest one and reflects, we feel, the relative values of our intellectual property, the podcasters’ copyrights, and the marketing and other efforts that make a podcast succeed. Our licensees are our customers and we want them to succeed just like any business wants its customers to succeed.
We hope to publish our ‘504 license schedule in the coming weeks. If we do, that will give you a sense of the affordability of a license. In any case, if you think you will need a license please contact us and we would be glad to discuss the details.
Claiming that the EFF is some sort of enforcer working for large companies to beat up small ones is an idea that can only have come from heavy use of hallucinogenic drugs. Which ones does your team take?
Logan:None of our team-members is on drugs as you suggest, and one of us has even sworn off caffeine. (Not sure how that works.)
Regarding the EFF, I think our point was just that with our limited resources, our primary focus is addressing the larger entities that are podcasting. To that extent, the EFF can be seen to be weighing in on the side of large media conglomerates such as CBS and NBC.
More generally, I think it’s a bit anomalous that patents often get such a bad rap by individuals, such as some engineers in Silicon Valley, or groups like the EFF, which purport to stand for David (vs Goliath). Patents are a great tool for the little guy. If you want to start a company, build it around some patented technology (like Google did). The patents, or even pending applications, will help you raise money, ward off competition, and give you a fighting chance. They’re the ultimate equalizer.
You don’t seem to have any presence outside the US, despite apparently having invented podcasting. Why?
Logan: We don’t have any international patents and as such, don’t have any activities outside of the U.S., although we have licensees that are foreign companies.
Why don’t we have any international patents? The answer is that it is very expensive to apply for, and “prosecute” such applications, and the benefits can be scant. One of the beauties of the American patent system is that it provides reasonable protection to inventors, has modest costs associated with it, and the resulting patents cover a critical part of the international market. If a company can get coverage in the U.S. for its products, as we hoped to do when we filed in 1996, it gets a measure of worldwide protection. That is because it’s hard to compete in today’s global economy if you can’t sell in the U.S. This is one of the reasons that many European companies come to the U.S. first to file patents on their inventions—and often bring over their R&D work, too.
Today, patent rights are rapidly being eroded in the U.S. through recent court decisions, legislation, and new patent office regulations. Meanwhile, the Chinese are rapidly strengthening their patent system. Hopefully, we don’t find that in 10 years the tables are turned—that China has the biggest economy and has created an IP fortress, where they incubate and protect products that are then shipped to the U.S.
While we’re on the topic of protecting American intellectual property, let me also point you to a recent report stating that overseas intellectual property theft is a problem that costs the U.S. economy $300 billion a year, a number about 10 times larger than the damages recently ascribed to “trolls” by President Obama.
Well, I hope this has been helpful and thanks for your time!