Monday, April 11, 2005

BusinessWeek interview with Shulman about Ampex/Kodak

Interview with Ron E. Shulman at

Q: Do you think Eastman Kodak (EK ), which Ampex is suing on patent infringement grounds, will settle?
A: Kodak is going to fight fiercely. If it has a future, it is in digital photography. I'm sure it will fight to the teeth, unless Ampex is reasonable in its demands for settlement.

Q: How do you determine royalties for a judgment?
A: The law lists a bunch of criteria for determining royalties. It is based on a "hypothetical deal" standard. In the electronics area, it's rare that you get more than a 10% royalty. Typically, it's 1% or 2% of sales. You should assume they are going after a royalty of 1% to 5%.

But it depends on what you decide is the royalty base. Is it the whole price, or part of the price? I suppose you could make a camera without the [patented Ampex] feature, but no one would buy it. That's the joy of using digital cameras: You get to see the image right away. Royalties may also include what are known as "convoid" sales. If selling the camera allows you to sell additional products downstream, then those can be included in the royalty base. That will certainly be explored by the plaintiff.

Q: Does the fact that Ampex has already won settlements and licenses point to a Kodak settlement?
A: Ampex will try and rely on that. [The past settlement history] is pretty persuasive stuff. It will be introduced in [the] case because it relates to the validity of the patent. It is some evidence of commercial success. And commercial success would be evidence of nonobviousness. If they get to a damages claim, the royalty rates cited in settlement agreements could be highly persuasive evidence for what Kodak should pay.

[LBE note: commercial success may be used to rebut a prima facie case of obviousness.]

Q: In Silicon Valley, how is Ampex viewed these days?
A: Ampex is basically a research shop. Ampex is viewed as a slightly more civilized version of a patent terrorist. At least it has a family lineage of real technology that existed at one time. People respected Ampex. It did real stuff. [Now] what it is doing is no different from what other patent trolls do.

Q: Is so-called patent trolling on the rise?
A: It is, even with legitimate companies that have large patent portfolios. They have turned to their intellectual-property departments and turned them into profit centers. Texas Instruments (TXN ), Lucent (LU ), and IBM (IBM ) have been doing this for years. Plus, the damage awards are huge. [The practice] has grown more vigorously over the past 10 years. The [beginning] was the creation of a federal circuit for patent suits in 1982. Patents are a powerful economic weapon. People sue left and right. The outgrowth of that is patent holding companies. They're like venture funds. They go around holding people up for lots of money.

Q: What is the cost to society?
A: Most people suing didn't do any of the invention. Money isn't going to the inventors. There's no socially useful purpose. It's a waste of resources. Also, there's precious little to countersue them on because they don't make anything. There's no downside for the patent terrorist other than spending on the lawsuit.

[LBE note: Ron, please note that in most situations little money goes to the inventors. Check out the patent awards procedure in places like IBM, Kodak, Exxon. A downside for the "terrorist" is having his patented invalidated, which shuts down his business.]

Q: Is there any way to curtail the lawsuits?
A: Not without legislation. That would be very difficult to do. Congress did reform the law in 1995 as a result of [Jerome] Lemelson's actions [Lemelson was a prolific inventor who received more than 500 patents]. He did nothing but file patent applications. He has the largest number of issued patents. He acquired patents in key areas of technology such as bar codes. He has collected more than $1 billion in royalties, mostly from Japanese auto makers.

As a result, Congress changed the patent expiration dates from 20 years from filing, to 17 years from granting.

Q: Who else could Ampex sue?
A: The major digital photography companies will be targeted. Computer companies could be targeted. I can't say for sure since I haven't reviewed the patent. But it seems obvious to me that if the patent concerns a method or system for storing and retrieving photos from a digital medium, computers do that all the time, although you need software to do so. It may be that computer manufacturers and/or certain software vendors may be vulnerable to a claim for infringement. [Ampex] can go after Motorola (MOT ), Nokia (NOK ), Samsung and all those guys. It's hard to sell a phone that doesn't have a camera


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