Of note, just before the end of the year the U.S. Patent and Trademark Office temporarily invalidated Apple’s vaunted “pinch-to-zoom” patent, one of several found to be infringed by Samsung in August – generating a $1.05 billion damages award for Apple. On the same day, Kodak sold its imaging patent portfolio for $525 million to a consortium of 12 buyers (including none other than Apple and Samsung, along with HTC, Faceboook, Amazon, Fujifilm, RIM, Huawei, Adobe and Shutterfly).

In the coming year it’s a safe bet that global patent litigation and multi-billion dollar transactions will continue unabated, but here are a few other key trends we can expect to influence and shape the global IP marketplace.

The rush to the patent office begins

March 16, 2013, will mark the first day that the U.S. switches from a “First to Invent” to a “First (inventor) to File” system, under the America Invents Act (better known as U.S. patent reform). Whereas U.S. patent laws previously attributed priority rights to the first documented inventor, it is now largely the case that the first party to file a patent application will get the patent. Thus we can expect a rush to the patent office by companies large and small – adding to the already huge backlog at the USPTO of some 600,000 patent applications. Small businesses with limited legal budgets likely will be negatively impacted by the change, as it puts them at a pronounced disadvantage to their larger, better funded competitors.

Trolls will invade the cloud

With the number of patent lawsuits increasing every year – more than 3,000 were filed in the U.S. last year – there’s no reason to expect the pace to slow. Much of this litigation is fueled by so-called non-practicing entities, more popularly known as “patent trolls,” that base their entire business model on the use of patent enforcement, typically against multiple defendants.

Patent litigation in general, and troll litigation in particular, thrives in markets where the patent landscape is ambiguous, where there are complex products with multiple features, and where markets experience periods of explosive economic growth. The mobile market has seen its share of litigation frenzy over the last several years, and while the cloud computing market is clearly fertile ground, it will be at least five years before we see the type of  full-blown war mobile is now enduring. That said, the first signs of troll litigation are already emerging, such as CloudingIP, an NPE that filed patent lawsuits against RackSpace and several other defendants last year.

Copyright will take center stage

While patents have been all the rage in the IP marketplace over the last decade, content-related IP such as trademarks and copyrights are moving front and center with the proliferation of digital media and online content. Organizations such as Creative Commons have taken the lead in creating an infrastructure for the sharing of creative content online, giving the creator broad control over terms for sharing it.

The still-brewing debate over the ownership of Instagram photos, though, highlights another alternative to the creator-ownership approach – one that gives control over content to the platform that hosts it. The question moving forward is whether the copyright ownership of digital content will remain with creators or will be transferred to the platforms that host them

IP strategy is moving to the early phase

The Yahoo patent lawsuit against Facebook, filed on the eve of the Facebook IPO, highlights the need for startups to have a strategy around building a strong IP portfolio. While Facebook is no typical startup, it solved the problem in a non-typical way, by spending hundreds of millions of dollars buying patents from Microsoft to quickly increase its arsenal and defend against future litigation.

Obviously, few startups can afford a quick and expensive rebound like that, and therefore one lesson learned in today’s highly litigious marketplace is that any IP strategy needs to start from day one, even for cash-starved startups. Patent litigation against successful startups is picking up, and it is against this backdrop that IP strategy in the early phase is expected to become an absolute necessity for startups that wish to “cross the chasm” successfully.

Competition will go global

A recently published report by the World IP Organization (WIPO) revealed that in 2011, the number of patent applications filed in China exceeded those filed in the U.S. for the first time. That should come as no surprise to anyone following the pace of patent filing in China, an activity that has been prioritized by the Chinese government with the ambitious goal of reaching 2 million patent applications a year by 2015. Another noteworthy trend:  Of the list of the top-50 companies that received U.S. patents in 2011, the vast majority are foreign.

Both trends suggest the continued and increased involvement of foreign companies in U.S. patent litigation (as the mobile patent wars demonstrated), as well as the increased enforcement of IP rights overseas, and, in particular, in Asia.

Efrat Kasznik is president of Foresight Valuation Group, a Silicon-Valley based IP consulting firm, and is also a lecturer on IP strategy at the Stanford Graduate School of Business. You can find her on LinkedIn.

Photo courtesy of Shutterstock.com

“B.E. Technologies LLC” claims that Amazon’s Kindle devices violate its technology for serving ads “in a personalized manner.” It has filed similar lawsuits against Facebook and LinkedIn.

The patents in question date from 2000 and 2001 and describe the process of selecting interent ads based on what applications the viewer has been using on his or her computer. Here’s part of the abstract from US Patent 6,628,314 which B.E. Technologies claims Facebook is infringing:

A method and apparatus for providing an automatically upgradeable software application that includes targeted advertising based upon demographics and user interaction with the computer. The software application is a graphical user interface that includes a display region used for banner advertising that is downloaded from time to time over a network such as the Internet.  [..] when the user runs the program (such as a spreadsheet program), an advertisement will displayed that is relevant to the program (such as an advertisement for a stock brokerage).

The lawsuits raise the familiar question of whether the patent owner is an inventor who has been wronged by the giant companies or if this is just another instance of “patent trolling.” Under the trolling model, shell firms that don’t make anything acquire patents in order to demand money from companies that do. The prizes they collect then provide a war-chest to launch further lawsuits.

In this case, B.E. Technologies does not appear to conduct any other business besides litigation. Its patents also date from a period when the U.S. Patent Office issued a flood of notoriously flimsy patents. While many inventions appear obvious in hindsight, the idea described in BE Tcchnologies’ patent of serving internet ads based on user behavior may well have existed before the year 2000.

Facebook and Amazon are familiar with patent troll suits which can cost millions of dollars to defend. The troll suits, however, are also increasingly being aimed at start-up companies who have less cash to divert from developers to lawyers.

Here’s a copy of B.E. Technologies complaint against Facebook which requests damages and an order that the social network be barred from using the technology in question:

Banner Ad Troll

The man in question is Scott Moskowitz. His company, Blue Spike LLC, has been furiously filing patent suits in East Texas against companies that use common digital water-marking techniques to prevent copyright infringement. His other targets include Sound Hound, Viggle, TuneSat and Facebook.

The lawsuits raise the question of whether Moskowitz should be rewarded with patent monopolies or whether he’s simply exploiting America’s troubled patent system.

Blue Spike’s legal filings explain that Moskowitz is “a pioneer in this new field between cryptography and signal analysis” and say that the “signal abstracting” he invented is a novel way to detect unlicensed music, text and films on the internet. Here is a more detailed description:

The filing also notes that Moskowitz has worked with the federal government and various professional societies, that he has two degrees from UPenn, and that Forbes and New York Times once referred to his work.

So what to make of all of this? On one hand, Moskowitz is well-versed in the field of digital watermarking and has won patents from the US Patent Office. But should this give him the right to sue every company that employs anti-piracy software?

There are reasons to be skeptical. First, it’s not clear that “Blue Spike” does anything besides sue people. The company has a website but the site doesn’t list products, clients or prices. And Blue Spike’s “office” is in Tyler, Texas, whose plaintiff-friendly judges and juries have made it ground zero of America’s patent troll epidemic. As for Moskowitz, his degrees are from business school — which seems an unlikely training ground for a cryptography master.

Then there are the patents themselves. Moskowitz applied for the core one in 2000 at a time when the US Patent Office was issuing patents for methods of swinging on a swing and exercising a cat with a laser pointer. Moskowitz’s US Patent 7,346,472 is for a ”method and system for monitoring and analyzing at least one signal” and describes a technique for comparing signals against those in a database.

The patent may be valid and good (I’ll leave it to the engineers to decide) but there is still the question of whether Moskowitz should be allowed to brandish such a broad monopoly against so many companies. The targets now face an unpleasant choice between buying a license to make him go away or paying hundreds of thousands (or more) for a court fight.

Moskowitz’s lawyers say it’s about “going forward with what you believe in and not letting people walk all over your rights.” They say Blue Spike is not a patent troll. The targets of the patent mugging may disagree.

Ohter Blue Spike defendants include: Rovio; MySpace; Audible Magic; Specific Media; Photobucket; DailyMotion; Soundcloud; Myxer; Qlipso; Brightcove; MediaFire; Zedge; Harmonics; iMesh; Metacafe; iPharoah.

Here’s a sample complaint:

Blue Spike v Google

(Image by Realinemedia via Shutterstock)

In a complaint filed this week in Delaware, Mobile Transformation LLC says a “Romney vs Boris” video on Buzzfeed violates its technology by showing a static ad at the same time the video is streaming.

The shell company is relying on US Patent 6,351,736 which was issued in 2002 and covers a “system and method for displaying advertisements with played data.” The “method” described in the patent refers to the idea of showing a visual ad while music is playing:

A method and a system for playing a first type of data, such as audio stream data, for the user while simultaneously displaying an advertisement in the form of a second type of data, such as video data. The system and method enable advertisements to be displayed while music is being played from an audio file by the computer of the user, thereby providing an alternative revenue source for the owner of the rights to the audio data. Furthermore, since the advertisement is in a data format, preferably video data, which is different from that of the audio music file, the display of such an advertisement does not interfere with the enjoyment of the music or other audio data being played.

The Buzzfeed video, which shows London mayor Boris Johnson slamming Presidential candidate Mitt Romney, is not an audio clip. Mobile Transformation LCC claims, however, that it violates the patent because it uses an “embedded flash player to present a first data type of a video file of “Boris v Romney” along with the presentation of advertising data of a second type that includes a static image advertisement.”

Records show the patent has been assigned to a chain of shell companies before it became the basis of the current troll suit.

Patent trolling involves shell companies that don’t make anything acquire patents in order to demand money from companies that do make things. Since they have no tangible assets, the shell companies are not vulnerable to countersuits, meaning their victims frequently pay them to go away rather than endure expensive trial. Mobile Transformation LLC has already sued 21 companies and settled with a dozen of them.

Buzzfeed said it can’t comment as it is still reviewing the lawsuit. The website, which makes highly-sharable content like “The 25 Happiest Animals in the World,” is unlikely to roll over for the patent troll, however. Last year, after it was sued by infamous copyright troll Righthaven, Buzzfeed countered with an abuse of process lawsuit. (It will be interesting to see if Buzzfeed tries to go viral with “10 pieces of prior art that invalidate an advertising patent.”)

The shell company’s lawyer did not immediately return a request for comment. The lawsuit is below:

Troll v Buzzfeed

Just days after Hipmunk’s June funding announcement, a company called i2z Technology LLC told the travel start-up that it has to buy a license for a 1994 patent that covers a method for displaying data in multiple computer windows.

Despite its high-tech sounding name, i2z is simply a Texas shell company run by a California lawyer that is targeting internet and travel companies including Kayak, Google, Yelp and Microsoft. Under i2z’s business model, known as patent trolling, firms that don’t make anything collect patents in order to extract licensing settlements from companies that do.

In a new twist, trolls have begun laying in wait for start-ups to receive funding before pouncing. That is what happened to hand-crafted goods marketplace Etsy earlier this year.

In an attempt to fight the troll, Hipmunk has taken pre-emptive action by filing a lawsuit asking a federal judge in San Francisco to declare that it’s not infringing the patent and that the patent should be invalidated because it’s obvious.

Hipmunk’s complaint notes that this is the second time it has been threatened by a patent troll this year and that the patent has nothing to do with Hipmunk’s technology. It adds:

Though its funding is intended for innovation, Hipmunk elects to defend its technology rather than spend its hard-earned venture capital paying for a license it does not need.

The patent in question is US Patent 5,345,551, “method and system for synchronizing the presentation of data from different, but related, sources in different windows of a computer display”. Like many patents related to software, it covers seemingly common-place internet functions.

More details can be found in Hipmunk’s complaint here:

Hipmunk v Patent Troll

The complaint, which alleges the media conglomerate transgresses on its technology patents while streaming TV shows on such platforms as MTV.com and Nick.com, is only the latest in a long series of legal action put forth by Intertainer, which ceased operations as a digital programmer all the way back in 2002.

Also read: Defunct online VOD company Intertainer sues Apple, Google and Napster over patent

Last year, Intertainer sued Hulu for allegedly violating the same patent (No. 7,870,592) — a suit the streaming video company unsuccessfully tried to get tossed out of court in January.

In 2007, Intertainer sued AppleI, Google and Napster for patent infringement, with all three defendants also unable to get dismissals and and having to settle.

And in 2002, as it was shuttering operations, Intertainer filed an anti-trust complaint against what were then corporately known as AOL Time Warner and Vivendi Universal, along with Sony, alleging that the entertainment conglomerates conspired to fix prices for online movie distribution in order to drive Intertainer out of business and start their own online services.

Those cases were eventually settled, too.

Lawyers for Intertainer did not respond to paidContent’s request for comment. Viacom officials had no statement.

In three lawsuits filed this week, Unifi Scientific Batteries claims that Amazon (NSDQ: AMZN), Barnes & Noble (NYSE: BKS) and a group of phone and tablet makers violate US patent 6791298, “Monolithic battery charging device.”

The patent appears to relate to a process for recharging a battery:

A monolithically formed battery charger may be fabricated as an integral part of a multifunctional integrated circuit or as independent monolithically formed integrated circuit. The monolithically formed battery charger includes at least one step-down converter having a given duty ratio coupled to a battery-terminal interface that provides a stepped-down output voltage and current that may be used to charge a rechargeable battery.

The patent was issued in 2003 and has since passed through a series of shell companies until it was acquired by Unifi last October. Companies like Unifi, known as patent trolls, typically serve as alter-egos for lawyers and investors that make a business of collecting patents and suing companies that produce goods.

The other defendants and products named in the lawsuit are: Research In Motions’ Playbook and Storm 9530; Barnes & Noble’s Nook; Samsung; Texas Instruments; HTC; Nokia; (NYSE: NOK) Sony.

Apple (NSDQ: AAPL) and Microsoft (NSDQ: MSFT) were not named in the lawsuits.

The lawsuits were filed in the U.S. District Court for Eastern Texas which has long been a popular venue for patent trolls.

Here’s a copy of one of the complaints:

Unifi v RIM and Phone Industry

The University of Chicago, through its Nobel-prize winning economists, is a champion of property rights and free market policies. Now, in the field of technology, Chicago’s ideas are also being used to justify harmful and expensive lawsuits.

Patent lawsuits made headlines yet again this month after Yahoo (NSDQ: YHOO) used ten questionable patents to claim that it, not Facebook, invented the social network. There have also been a rash of new suits by patent trolls — shell companies that don’t make anything but use patents to sue companies that do.

Trolls (known more politely as “non-practicing entities”) have been around for years but stepped into high gear in 2012. In the last two months, for instance, troll shell companies have unleashed lawsuits that claim monopolies on everything from emoticons to virtual goods in video games.

The problem is becoming worse. Top patent lawyers are leaving their firms to partner with hedge funds on new trolling ventures and super-troll Intellectual Ventures (reported to own more than 60,000 patents) is now suing with a vengeance. Meanwhile, mystery troll Lodsys is still demanding small app developers hand over two percent of revenues or else be taken to court over a common ‘in-app purchase’ feature.

So where does Chicago fit into all this? The answer is that it’s behind the “liquid market” theory of patents that gives a gloss of legitimacy to what many people would call extortion.

Chicago firms like Ocean Tomo, which runs intellectual property auctions, have helped popularize the idea of treating patents like widgets to be bought and sold. Lodsys front man, Mark Small, is also from Chicago. In their view, the patent status quo is working well.

The liquid market theory has a more formidable defender in Richard Epstein, a renowned University of Chicago law professor and Financial Times contributor. In an email exchange, he described trolls as “an overrated issue” and added, “So long as there is quick closure, a patent is a wasting asset, and marketing beats lurking every time.”

This view — that treats patents as any other form property to be bought and sold — holds up in theory. But in practice, it’s dangerous because the property in question is not a widget but an idea that the owner can control and punish others for using. And since a patent is effectively a monopoly, the royalty demands seem less like a free market exchange than an old fashioned tax.

If Congress imposed a two percent tax “invention tax”, the politicians responsible would be voted out for a generation. But if a company like Lodsys does the same thing, it can claim to be promoting a free market.

The larger problem here is that a market for shaky patents is not a good idea in the first place. Do we think a complicated IRS tax is justified just because it creates a market for accounting services?

And if anyone doubts the patents are shaky, read what a former Yahoo engineer or a leading venture capitalist has to say about Yahoo’s so-called inventions. And these are just a small sample of the thousands of suspect patents fueling lawsuits and license demands.

The patent system is obviously dysfunctional and needs to be fixed but the role of patents in American mythology makes it hard to do so. To most people, the word “patent” still conjures images of Thomas Edison or Abraham Lincoln (US Patent 6469) — even though most of today’s patents are the product of lawyers and MBA’s using obtuse language to pressure a swamped and overworked patent office. The courts, meanwhile, are still in a state of confusion about what can and can’t be patented.

As for Silicon Valley developers, most know intuitively that innovation comes from sharing and collaboration and not from a single genius shrieking Eureka! For them and many academics, patent monopolies (especially those for software and “business methods”) are not a spur to research but a barrier.

These real inventors of Silicon Valley have champions of their own such as Mark Lemley, a Stanford professor and the country’s leading authority on patent law.

In a new paper called “The Myth of the Solo Inventor,” Lemley provides evidence that many famous inventions were produced by different people at the same time, and that patent owners typically sue independent inventors and not copycats. His work raises important questions about why patents are awarded in the first place.

Meanwhile, new economic research
suggests that free licensing is more efficient than patent monopolies to achieve technology breakthroughs and create large markets for new products.

For now, though, this research is going unheeded as Intellectual Ventures and others continue to spin Chicago-style theories to justify their troll taxes.

If Silicon Valley is to escape a circular firing squad of patent litigation, it must push back with its own homegrown patent theories. The recent SOPA victory taught engineers to flex their political muscles. Now, it’s time for them to flex their policy ones and restore sanity to the patent system.

(A final note: debates over innovation are, of course, taking place in many forms across the country. In this article, “Chicago” and “Silicon Valley” are simply used as shorthand for two very different visions of America’s patent system — one based on market theories and one based on how innovation actually works — and to point out that Chicago has gained the upper hand.)

Varia Holdings LLC filed a complaint in New York that accuses Samsung and BlackBerry maker RIM (NSDQ: RIMM) of infringing US Patent 7167731 titled “Emoticon input method and apparatus.”

According to Varia, the invention is:

“an input key that, when pressed by the user while in text mode, results in the display of a list of emoticons for selection by the user. By displaying a list of emoticons, a more user friendly environment is created through which users may employ emoticons in their communications.”

Varia claims that devices like the BlackBerry, the Galaxy Nexus and Droid all infringe the patent and asks the court to award damages and ban the companies from selling the devices.

The lawsuit comes days after Yahoo! (NSDQ: YHOO) sued Facebook for infringing ten patents that allegedly show that Yahoo was the real inventor of social networks.

The emoticon complaint also coincides with an uptick of patent trolls — shell companies that don’t make anything but sue companies that do — backed by venture capital.

Here’s the complaint:

Varia Emoticon

The patent in question is US Patent No. 7076445 which claims to invent a payment system that lets users buy things “without interrupting the game.” The patent’s new owner claims the maker of a new generation of games like FarmVille, Mafia Wars and Barn Buddy are infringing its technology.

The patent owner may have a problem, however, if game makers can show that the payment system existed before 2000 when the patent application was filed. And several games from the 1990′s may help them do just that.

Jim Gatto, who leads the Social Media, Entertainment and Technology team at Pillsbury law firm, says he is looking at QuizQuiz and other games made by Korean firm Nexon that may include a similar payment system. He also says multi-player role-playing games like Achaea are “of interest.”

Gatto adds that games involving multi-player engagements and transactions grew out of virtual worlds designed in the 1980′s by MMOG pioneer Richard Bartle.

If the earlier games contain the same payment technology as that described by US Patent No. 7076445, then Facebook and the game makers can ask a court or the US patent office to declare it invalid.

In legal terms, earlier work — including video games — is known as “prior art” which is used to determine if a patent is indeed new and non-obvious. As patent suits have engulfed the technology sector in recent years, firms like Article One Partners have emerged that reward people who can provide prior art to knock out suspect patents.

The owner of the virtual payment is a shell company called Gametek LLC but for now it’s not possible to determine who is behind the shell. The last year has seen the rise of leading patent attorneys going into business with hedge funds in order to sue companies that make products, a practice known as patent trolling.