Seeking Alpha

coolerheadsprevail's  Instablog

coolerheadsprevail
Send Message
View coolerheadsprevail's Instablogs on:
  • Will Congress Enter The Patent Fray?

    There is increasing attention that federal lawmakers are giving to patent law. This is certainly the pink elephant in the room that everyone ignores but is absolutely capable of ruining the party.

    This really is a much more complex matter than most people give it credit to be. In many ways, what lawmakers decide to do will be incredibly groundbreaking in the sense that they will be potentially legislating on matters directly related to the core principles that underlie property ownership -- which is the foundation of democratic capitalism.

    Both sides of this battle have extremely knowledgeable experts and attorneys ready to do battle, but the wild card that we can hope does not enter the fray is the unquantifiable influence of big company lobbying and back-door contributions, since we all know that this is one area where companies like VRNG, VHC, MGT, DSS, ACTG, etc simply have no chance compared to companies like GOOG, AAPL, MSFT, YHOO, CSCO etc who will certainly be on the other end of this legislative quagmire.

    What is fascinating about this potential legislative action is that patent law as we have all known it to be for generations will be called into question.

    If patents are issued with a shelf-life of 20 years, and most if not all of this time period passes without anyone being able to develop a comparably effective workaround, doesn't this by itself prove that this was an invention that was worthy of patenting?

    In addition, if the invention is deemed so critical to society, then is the 20-year shelf-life not the reason that patents are not given lifetime protection? In relation to an inventor's lifetime or even an individual's career which can span 40-50 years (from the time an individual reaches adulthood until retirement), 20 years of protection does not even span half of one's career. After 20 years, any person or business is free to use the patent.

    I see nothing wrong with the principles behind this system, which seems to balance the rights of a property owner with the greater good of society and competition.

    If an invention truly is critical to the greater good of society and society's ability to function, then that is what the principle of "eminent domain" is for -- however, this principle is reserved for governments and should not be disguised as legislation and wielded as a tool by private parties (whether individuals or businesses) to manipulate legislators into using for resolving private disputes. Yes, there are instances where arguments can be made that private businesses have already found ways to convince governmental bodies to exercise eminent domain for private benefit, and each time it happens should give us all great pause.

    Considering that companies like GOOG, AAPL, MSFT, et al have all engaged in less-publicized forms of patent trolling over recent years as they have all acquired patents that they did not invent for both defensive as well as offensive (i.e. monetization) purposes, it will be interesting to see how lobbyists and legislators craft and spin any proposed legislation to target only selected companies that acquire patents and sue for infringement, but not other companies who engage in the exact same behavior.

    As such, it will be interesting to see how slick legislators can be in what will inevitably be a drawing of battle lines along the grounds of splitting hairs and narrowing the definition of "patent troll" to reflect only those companies that are NPE's.

    I have no clue how this will turn out as both sides are more than capable of presenting compelling arguments. However, I would not be surprised one bit to see this issue go all the way up to the Supreme Court if Congress succumbs to the influence of big business and passes legislation that cripples NPE's and opens the backdoor for big companies to effectively take private property that has been fairly paid for by another party and benefit from it without agreeable consideration being paid to the property owner.

    This would really be going down a slippery slope. For example, there are many investors in the midwest who have speculated that because a neighboring parish/county had oil under its land that the land they purchased might have oil under it as well, and so they made speculative acquisitions of acres upon acres of land and did nothing to develop it and made no attempts to utilize it for agriculture/livestock -- they simply let it sit empty and waited until an oil company came knocking and offered either a rich price to purchase the land or offer a lush royalty based upon the number of barrels that get extracted. Case law already exists that punishes oil companies from engaging in horizontal or diagonal drilling to get to the oil that is under adjacent plots of land -- which would be this example's equivalent to infringement.

    This is just one of many examples that draw legitimate parallels to NPE's once you strip away the specific asset description and simply view it as "private property" that has otherwise been fairly purchased and paid for.

    If legislators do not care to realize it, we can only hope that the courts will realize the implications that issuing legislation that is not based solely on the "what" of an issue but instead at its core divides the population up and bases its applicability on "who" you are (i.e. are you an NPE or a non-NPE?), is a dangerous game indeed. To paraphrase an Orwellian reference from Animal Farm: "All animals [replace with "businesses"] are created equal, but some animals [replace with "businesses"] are more equal than others." Scary thought but very possible that potential legislation could bring about such a society.

    Cheers...

    Disclosure: I am long VRNG, AAPL, GOOG.

    Tags: VRNG, VHC, MGT, DSS, ACTG, GOOG, AAPL, MSFT, YHOO, CSCO
    Nov 27 12:54 AM | Link | Comment!
  • So What Is A Troll Anyways?

    For the majority of my investing life, I did not have even the slightest interest in patents or patent companies and couldn't have cared less about infringement lawsuits.

    But I must admit that I chuckled whenever I heard the phrase "patent troll". I couldn't help but envision an office full of de-humanized "Gollum-esque" creatures.

    And then I realized the power of words.

    There are two sides to every story, and it is quite evident that those on the side claiming infringement did not bestow the name "patent troll" upon themselves.

    Compartmentalizing demographic subsets into categories and then slapping labels on them has a long history -- most of it which society would not place on its list of proud moments.

    Take for example the "bum" label that has become common vernacular with respect to how many people refer to those who are homeless. Without knowing the individual circumstances as to why a particular person may be down on his/her luck and out on the streets, describing a homeless person as a "bum" immediately implies a negative connotation and the brain processes this connotation and slowly but surely begins to rationalize to its owner that this "bum" must have made a bunch of poor decisions and is the only one to blame for being homeless and doesn't deserve our help. Clearly, we know that this is a gross mis-characterization and unfairly paints everyone with a broad brush.

    But let's get back to the more entertaining subject of trolls, shall we?

    So why are patent trolls so despised? Well, from what I have gathered, the bulk of the disgust that I hear seems to revolve around two primary tenets:

    (1)

    "They buy up patents that they don't even use themselves for pennies on the dollar and extort legitimate businesses for what is tantamount to protection money!"

    Sounds like a noble protestation, and it is usually expressed with such passion and anger that even I get swept up in the emotion and want to immediately go buy my "Legolas-Bow-And-Never-Ending-Supply-Of-Arrows-In-A-Quiver-Kit" and go troll huntin'.

    However, riddle me this (and answer honestly): How likely is it that a company the size of GOOG or AAPL or MSFT, with the monetary resources at their disposal and legions of attorneys at their beck and call, could not invest a modest amount of effort to not only find out if patents exist related to technology they are deploying, and if so, to reach out to the patent owners to negotiate a license up-front?

    The fact that a patent company did not invent the patent, is not using the patent, and may have only paid a nominal sum for the patent is not truly relevant to the core issues here.

    If an original patent holder has limited resources and recognizes that he/she cannot fight an infringer who has deep pockets, what is wrong with this patent holder striking a deal with a patent company who has the resources to fight the fight?

    Similarly, if an original patent holder does not realize (or care) that his patent has significant future applications and value, but someone else does, what is wrong with the person who has the grand vision to legally purchase this asset at a price agreeable to the seller? Upon acquisition, why is the new patent holder viewed as having less of a right to generate a return off of his asset than anyone else with any other asset?

    But let's not let the cart lead the horse here. Let's think about what must logically have occurred FIRST before a "troll" even thinks about acquiring an asset: The "troll" most likely has become aware of another company using a patent that does not belong to them. Or, a "troll" is making a speculative bet that certain patents have significant future value and is willing to make the financial investment to acquire them with the hopes that some of them will become critical components of future inventions.

    In any event, it seems that an owner of a patent only morphs into a "troll" if he dares try to enforce his ownership rights.

    But what about the company that uses patents that don't belong to them to make money for themselves? How are they the innocent victims here? If patent owners are going to be called "patent trolls" then wouldn't the corollary be true then that companies like GOOG, AAPL (who recently got waxed poetic by VHC as you likely know already), and others of their ilk should be aptly categorized as "patent squatters"???

    Is this not what they are doing? If I have a vacation home in the Swiss Alps that is clearly not my primary residence (I suppose I could be referred to as an NRE -- a Non Residing Entity), and is one I don't use because I realized too late that I detest Switzerland, mountains, and snow, does this mean I have no rights if squatters come in and make themselves at home in a house that I paid value for and legally own? "Oh, I didn't know who owned this place" says the squatter. Well, it's clearly listed in the County records if you took the time to look. Name and contact info, it's all there. It is clear that squatters intentionally try to quietly sneak their way into a property and make little to no effort to try to negotiate a rental agreement. This happens all the time in nearly every city in every state in America. And we revile squatters.

    Now imagine that the squatter living it up in your house is not some poor family who moved into your house as a desperate attempt to survive, but is none other than Donald Trump. Any last drop of sympathy immediately evaporates, no? And why is this? Well, I know why. And you know why too. Here's a hint if you are still in denial: $$$.

    Now go back and read the parable of the squatter again but this time everywhere you see the word "house" replace it with "intellectual property", and replace "Donald Trump" with "GOOG" (or "AAPL" if you're so inclined).

    So why is it that house squatters are viewed as thieving perpetrators while patent squatters are deemed to be victims? I don't know. Really, I don't know.

    Perhaps it may have a bit to do with tenet #2:

    (2)

    "They stifle technological advancement and invention by making companies that actually want to use the patent to create something useful unable to do so!"

    Hmmm. Interesting. Completely laughable, but interesting nonetheless.

    Raw materials such as metals are necessary to create important and useful things such as automobiles, but does that mean that GM or Chrysler is justified to say that "hey, we shouldn't have to pay for this steel because we are trying to make something useful for society!" and then proceed to sneak into somebody's steel mill under cover of darkness and take their steel? Of course not.

    And should GM or Chrysler or any company be able to say, "Gosh, if we actually have to pay people to help us build this widget, we won't be profitable; let's try to find a way to get people to work for free." Uh, no thank you. We tried that before in our history -- it was called slavery, and the word out on the street is that this little experiment didn't end well.

    The bottom line is that paying a license to use something that you don't own is a standard everyday cost of doing business. There is nothing unusual or nefarious about it. It is categorically no different than any other cost of goods. There is no such thing as a free lunch. Sorry.

    Companies like GOOG and AAPL are simply reacting because now they are being asked to pay for technological raw materials that they used to get for free -- and they don't like the impact it will have on their margins. Well, I have news for you: It is no different than any other business whose costs increase -- such as labor costs when the minimum wage is increased, or to a food company when commodity prices for ingredients like flour or corn spike up due to drought... ...or to a company like AAPL when Samsung will inevitably raise their prices for critical parts that AAPL needs for their i-everything line of products (so when this happens, will Samsung be called a "supply troll"?).

    It's called evolution. Barnes & Noble evolved; Borders didn't. Canon evolved; Polaroid didn't. Best Buy evolved (so far anyways!); Circuit City didn't. If your business model can't survive a 3.5% increase in cost of goods (in GOOG's case, only 3-1/2 tenths of 1 percent, which is the 3.5% of the roughly 20% of the roughly 50% that we all know about) or if you can't figure out a way to re-tool your processes in order to offset this increase without becoming insolvent, well then you deserve to become extinct. If what you produce truly is critical to society, history has shown over and over again that there is always someone else who is willing and ready to fill your shoes. Like they say, there is always a better mousetrap -- but necessity is the mother of invention.

    Cheers.

    Disclosure: I am long VRNG, VHC, GOOG, AAPL.

    Tags: VRNG, GOOG, AAPL, VHC
    Nov 20 4:48 AM | Link | 2 Comments
  • The Calm Before The Next Vringo Storm...

    Considering the confusion and theories lighting up MB's everywhere as an unknown tomorrow draws near, it seemed like this may be a good opportunity to encourage everyone to (1) stay grounded, (2) minimize knee-jerk reactions, (3) objectively distinguish between what is POSSIBLE vs what is PROBABLE, (4) be willing to reconsider your position should the merits of new information arise, and most importantly, (5) have a plan in place for how you intend to react if the pps tomorrow goes up a lot vs going up just a little vs dropping a little vs dropping a lot.

    In hopping back and forth between several MB's, it is unfortunately apparent that many people are frozen in confusion as volatility swirls around them and are left at the end of the day with a "WTF" moment as they kick themselves with "I wish I did this..." or "I should have done that..." thoughts. From what I have gathered, most posters on most MB's seem to be genuinely good people and regardless of whether someone is short or long, my hope is simply that you arm yourself with as much knowledge as possible in order to arrive at a well-informed decision as to your next course of action.

    A big part of obtaining knowledge is to understand what it means to view everything you read and hear with "professional skepticism". What this means is to separate facts from assertions and opinions. Facts can be easily verified. Someone stating assertions or opinions is a murkier area.

    With so much $$$ on the line, it would behoove all of us to spend a bit of time trying to independently corroborate what others are saying. If I invest $$$ based solely or primarily upon the glowing recommendations of someone I don't know and win, then in all honesty I just got lucky; but if I lose, then that is a "me" problem and I need not look elsewhere to cast aspersions.

    Look, I appreciate the viewpoints of those we laymen view as "knowledgeable experts" such as Steve K, James A, Alan B, Dan R, and Modernist, and anyone else who is willing to share thoughts and experiences with me. I may not agree with the opinions, assessments, or conclusions drawn by any of these columnists for any particular article, but to paraphrase Voltaire: "I may not agree with what you say but I will defend to the death your right to say it."

    And let's face it - it is likely that 99.9999% of us retail investors don't know Steve, James, et al personally and, likewise, they don't know us from Adam and probably wouldn't care to outside of the pleasantries of these MB's. In addition, although some posters and columnists may have no agenda other then to try to inform others and disseminate information, the problem is that we don't know who they are and as such we would be naive to not recognize the potential existence of personal agendas with ANY poster/columnist. Keep in mind, "personal agendas" does not mean something nefarious is afoot -- it simply means that everyone's investment/trading objectives are different and as such their viewpoints may not necessarily be appropriate to take as gospel and to mimic. Take Modernist for example. I am long on VRNG and so I find that I do not share his views on several issues; however, his articles and comments are the ones that I most value for no reason other than that they are provocative and they make me think. Period. This mental exercise allows me to the opportunity to either adjust my views based on new info or it reinforces my views if I find that the info presented doesn't pass muster with other known facts. Same with Alan B -- he is brutally to the point and makes no qualm about not wasting time with fluff and window dressing to try to make his comments "nice and cuddly". Point being here is that information is knowledge and knowledge is power, and so if someone wants to share info, I'm all for absorbing all I can get like a sponge -- BUT it is on me to have the discipline to evaluate the info objectively, sift thru it, and find that 1% that may be valuable nuggets to store away for future use.

    Anyways, my intent here is not to sound "preachy" but I just sense a heightened sense of euphoria that has grown since Mikehd25 shared his findings on the potential miscalculation of damages (yes, it has spread like wildfire -- and I am certain that VRNG and their attorneys picked up on this immediately upon hearing the verdict being read but recognized that shouting bloody murder would accomplish nothing and that proper procedures must now be navigated in order to raise the issue with the court -- but from numerous MB's Mikehd25's was the first I observed to note this and so it important to give credit where credit is due) and this euphoria reminds me of the moments before the verdict was announced, and I just don't want to see the mass inconsolable desolation again IF this miscalculation issue ends up not resulting in what we all hope for. Remember, there is what we feel is "right" and "just" and "equitable"... ...and then there is the law. Like it or not, they are rarely in-sync with each other and so in spite of all logic and noble protestations, there is the very distinct possibility that any number of outcomes may result -- some of which we may not like.

    Remember, as sure of a thing that many longs thought this litigation would be, it is still a binary event and as such truly is nothing more than a coin flip where an "all or nothing" outcome is oftentimes the only two results. There is a reason the stocks of these types of companies are not "blue chip" -- if there was an equity equivalent to a "junk bond" from a risk/reward perspective, these types of stocks would be it, so recognize it for what it is and consider carefully if you really want to be investing in it (trading is a different matter, of course), and if so, how much you can really afford to potentially lose.

    So please, before tomorrow unfolds, make sure you have contingency plans in place so that you can react in a timely manner regardless of how the fickle winds of the market blows.

    Disclosure: I am long VRNG.

    Tags: VRNG
    Nov 07 11:15 PM | Link | 1 Comment
Full index of posts »
Latest Followers

Latest Comments


Most Commented
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.