Mavs Owner Should Focus on (Patent) Defense

Mark Cuban knows business and basketball (his defending NBA champion Dallas Mavericks earned a playoff spot despite a season marred by injuries and Lamar Odom).  It turns out he also knows patents – though not as much as maybe he should.

In a recent blog post The Greatest Business Risk You Don’t Know About – Your Business Will Be Sued Over Patents, Cuban sounds the alarm over NPE patent litigation and says the threat is widespread: “No matter what business you are in, you are susceptible to a patent infringement lawsuit….EVERY company in America is at risk of having 2, 3, 5, 100 patent lawsuits coming your way.”

Cuban faults the USPTO for issuing too many vague and unnecessary patents.  He also says the gravest danger from NPEs is faced by small- and medium-size companies that are only now starting to be sued in greater numbers and with increasing frequency.

While maybe slightly alarmist, Cuban has clearly grasped the enormity and wastefulness of NPE litigation.  He knows the trend for operating companies is very troubling.  He is apparently unaware, however, that a rational business-based solution exists – RPX’s defensive acquisition model.

Cuban’s prescription for affected companies is legislative: “contact your local Senator”.  But we suspect he knows that this is really no solution at all.  Legislative – and for that matter judicial — solutions can only go so far, especially in such a well-established market.  Regulation would most likely just distort an already irrational ecosystem even further.  Given his free-market track record, Cuban would probably rather see the threat of NPE litigation eliminated through the widespread adoption of a transparent market that can price, transact, and insure against risk without the high transaction costs of litigation.

This certainly seems to be his mindset.  In an earlier blog post titled My Suggestion on Patent Law, Cuban makes a compelling case that the persistent uncertainty caused by the fear of patent litigation makes it difficult for managers to plan for and invest in the future of their companies.  This, he believes, has been holding back job creation because “It’s impossible to quantify just how much and how often you will be sued and what the costs associated with those lawsuit(s) will be.”  Uncertainty about litigation, in other words, is almost as harmful as the litigation itself.

We agree, and in the past we have often cited Warren Buffet’s quip that “risk comes from not knowing what you are doing.”  In a rational market, unencumbered by unnecessary legal threats and costs, participants know what they are doing.  That is why RPX has spent the last four years bringing transparency to the patent market so that our 110+ clients can quantify and predict the frequency and cost of patent risk.  And as more and more of these companies have engaged directly in the process of making this market rational, we have been able to build a broad enough and deep enough database of market information to begin insuring against those risks, too.

Protecting against patent risk is never going to be free, but if the thousands of companies that face it participated in a scalable solution to mitigate the risk by buying patents (many of which are – as Cuban points out – frivolous) the cost of insurance over time will be quite manageable.  And unlike the legislative solution he advocates, such risk-mitigation costs would be entirely predictable and within their control.

Given his obvious understanding of the systemic dangers of NPE litigation, it is perplexing – and a bit dismaying – when Cuban ends his most recent patent post by disclosing his personal response to the NPE problem is … invest in an NPE.  “What can you do as a small business person to protect yourself ?  Honestly, nothing beyond complaining to your Congressperson.  The only option I have found is to buy into companies that aggressively sue over IP.  It is a hedge against patent law.  Put another way, if you can’t beat ‘em, join ‘em.  Sucks, but there aren’t any other options that I can see.”

Clearly, Cuban just needs to look a little harder.  RPX has proven that a broad enough coalition of companies can effectively reduce the threat of NPE litigation and we are regularly buying and clearing dangerous patents before they become high-cost/high-risk problems for the more than 110 companies in our network.  The RPX model is based on a strong, persistent, shared defense.  A proven entrepreneur – and NBA insider – like Mark Cuban has to appreciate the logic and power of that approach.  We’d be happy to explain it to him.  Maybe after the playoffs.