Transcript of Paul Lerner's Interview with the Wall Street Reporter on December 8, 2000

Paul Lerner, Sr. VP and General Counsel of GPC, discusses patent enforcement, the increase in the number of patents being filed and litigated, and how GPC plans to handle the rapid growth of the IP industry.

Interviewer: Phillip Silverstein

Interviewee: Paul J. Lerner

Silverstein: From the studios of the Wall Street Reporter in New York City, this is Phillip Silverstein. Our guest today is Paul J. Lerner, Senior Vice President and General Counsel, General Patent Corporation. Paul, good morning.

Lerner: Good morning, Phil.

Silverstein: I would like to ask you a few questions today. First of all, what is the business of General Patent Corporation?

Lerner: General Patent Corporation is a full service intellectual property management company. Intellectual property is generally abbreviated "IP", and when people speak of IP they mean intellectual property, which is patents, trademarks, copyrights and trade secrets. It is the product of the human mind that is reduced to a form in which it is protectable, and which has value to the businesses that own it and use it. General Patent does portfolio analysis, meaning that we will look through a business' portfolio of intellectual property to identify those components which have value and which do not have value. Those that are being underutilized can be utilized in other places to bring in money, generally by licensing. We do valuation of intellectual property if, for example, it is about to be sold or the business is going through a reorganization or an acquisition, or if there is gong to be an IPO. We do licensing of intellectual property, representing both the property owner and companies looking for intellectual property as a means of solving a problem or extending a product line or simply introducing a new product. Most notably, we do patent enforcement.

Silverstein: Patent enforcement. What exactly is patent enforcement?

Lerner: In common usage, patent enforcement involves a patent owner going into a court to enforce his rights under the patent. In trade usage, it has a somewhat more complex meaning, and I think that in order to explain it you really have to understand what a patent is. In simple terms, a patent is a limited monopoly. It is the government-granted right to allow the patent owner to prevent others from practicing the patented invention. If this right is violated, the patent owner has the legal right to bring a lawsuit to force the infringer to cease its infringing activities. Unfortunately, there are no patent police, meaning that the patent owner is obligated to do this enforcement on his own. The cost of litigation - the cost to prepare and go into court to enforce your rights - is now typically between $1.5 and $2.0M per case. That is an amount of money that most individuals and small businesses simply cannot afford. Also, most patent attorneys do not do litigation. They do patent prosecution, meaning they will file the papers necessary to obtain a patent, but they will not litigate one if there is infringement. Those patent attorneys that do litigation will often not do it on a contingency basis. As a result, many inventors are unable to secure the counsel that they need to enforce their rights under the patent. So, when we talk about patent enforcement in the industry, what we are referring to is the group of services that are provided by firms such as General Patent Corporation in working with a patent owner to enforce the rights that were granted by the government. And when we speak of the services, what we are really talking about is studying the patent validity and verifying that there is infringement, assessing the damages that might be involved, and developing an enforcement strategy - because, in general, if you have an infringer identified, there is more than one. Our experience is that if a patent is being infringed by a company it is really being infringed by an industry. Most companies in an industry follow relatively similar practices, and if there is one infringer there probably are more. Moreover, if other companies in an industry have not joined in they probably would like to. Therefore, they may very well be amenable to taking a license. So, a strategy needs to be developed in terms of enforcing a patent.

Silverstein: Okay, can you talk a little bit about changes in the number of patents being filed and in patent litigation?

Lerner: The number of patent applications being filed in the United States Patent Office has increased dramatically over the last several years. For example, in 1996 a little over 206,000 patent applications were filed. By 1999, which is of course the last full year for which statistics are available, over 289,000 patent applications were filed, which is about a 40% increase in only four years. Correspondingly, the amount of patent litigations has increased. In 1996, there were a little over 1,800 patent infringement lawsuits filed. In 1999, there were over 2,300 patent lawsuits filed, which is an increase of about 34%. We can see that there is a very steady and significant growth in both the number of patents and the number of patent infringement litigations. In addition, we are now seeing the first of the so-called business method patents issuing from the patent office, and these are going to be a very significant source of litigation, simply because many of the business methods that are covered by these patents are probably being infringed by other businesses innocently. But innocence or intent is not really an element of patent infringement. If I infringe a patent because I don't know it exists, I am still guilty of infringement. The question of prior knowledge and intent goes to damages, but it is not a defense to say, "I didn't know that the patent existed" or, "I didn't know that it covered what I do". So, I think that we're going to see an even greater increase in the amount of patent litigations and especially in the field of business patents, many of which are owned by very small businesses or by individuals.

Silverstein: How do you plan to handle the rapid growth in the industry?

Lerner: One of the things that we are doing is expanding our network of affiliations and strategic alliances with various experts in damages, technology analysis, market research, the various sciences and engineering disciplines. It is really impossible to have an expert in every field of technology, for every issue in the patent lawsuit, available on staff. The only way to meet the needs of the various matters that we undertake is to maintain strong relations with the best people in the various fields that we are going to require, and then to be sure that they are available to work with us when the need arises. So, that is essentially what we are doing now. We maintain a core of expertise in-house, and a network of people who are expert in the various areas that we may require.

Silverstein: That's terrific. How can our audience find out more about your company?

Lerner: You can contact us at our website - www.generalpatent.com. You can send us an e-mail at plerner@generalpatent.com. Or you can contact us by mail or by telephone. We will be happy to review matters that anybody cares to discuss with us.

Silverstein: Paul, thank you very much.

Lerner: You're quite welcome.

Silverstein: This is Phillip Silverstein and our guest today was Paul J. Lerner.