The Man Who Predicted the Yahoo/Facebook IP War on Why Patents Still Matter [TCTV]

When news broke this week that Yahoo is accusing Facebook of violating as many as 20 of its patents, it took quite a few people by surprise — but at least one patent expert saw it all coming from a mile away. Erin-Michael Gill first publicly predicted a Yahoo/Facebook patent battle in an article published by back in November. Gill is currently managing director and chief intellectual property officer at MDB Capital, an investment bank that specializes in IP issues; his earlier résumé includes an appointment by the Obama administration to be Special Adviser to the Under Secretary of Commerce for Intellectual Property and Director of the USPTO. In short, the guy knows his stuff.

So today we reached out to Gill to get his insights on the Yahoo/Facebook patent situation, now that things have finally started to come to a head. He was working at a conference in Washington DC, but we were able to catch him for a Skype interview from his hotel room there. You can watch our full interview above, but here are some key takeaways from what he said:

Facebook: Quick on new tech, slow on new patents

Gill said that when his firm began analyzing Facebook’s IP situation, it became clear that its patent collection was fairly small compared to other major tech companies — and the patents they did have seemed to rely on Yahoo’s technology quite a bit:

“One thing we noticed in our data was that Facebook had exponential, unbelievable growth, and was clearly innovating on the technology side, but their patent portfolio didn’t really map to what it was they were actually developing. And we were also doing some analysis on Yahoo, and it was pretty incredible: The Yahoo portfolio had about 1,000 patents that were granted and enforced today. Facebook had less than 100. And the amount of citations there, how often Facebook was citing Yahoo, was more than two to one, so they were building on the technology that Yahoo developed.”

An IPO filing brings patent accusers out of the woodwork

According to Gill, the Yahoo/Facebook relationship was a ticking time bomb just waiting to go off — and Facebook’s IPO filing was a perfect time for Yahoo to bring its patent complaints to the forefront. Gill pointed to Google and Pandora as just two examples of tech companies that have faced big patent infringement accusations as they were preparing to go public. The idea is, once an IPO is in the works, a company may find it more convenient to make an IP licensing settlement than to fight the claims in court:

“The risk is that when a company is most vulnerable — when it is about to have a public offering — all of a sudden, out of nowhere, a significant IP risk comes out of the woodwork… Yahoo did the same thing to Google when they went public, and there was an urgent cross license they had to do.”

The upside to Yahoo’s patent trolling

As a registered patent agent, Gill is obviously not someone who believes that tech patents need to be abolished completely. But he does say he understands the tech industry’s arguments against the problems within the system.

“I absolutely understand [complaints] if there’s an inefficiency in the system itself, if there’s a patent gets granted that’s ridiculous and should never have gotten granted in the first place. Fair enough. There is a system that exists to help invalidate those issues, and it’s far from perfect. But in terms of the nature of the [patent] system itself, it protects real innovation. And as long as patents can be granted in a timely fashion, then you’re looking at something that allows inventors to be rewarded for what they do. I understand [the argument that technology should] just keep building faster and faster, and that’s great — if you’re not the guy building it. But if you’re building something substantial and important, then there should be more people like me that can recognize that, who can look at A versus A prime, and say, ‘Hey, A is better because they’ve done the work, and they’e done something that’s going to matter in 15 to 20 years, and they deserve to be rewarded.'”

Essentially, Gill says, the patent system at its best is meant to protect upstart inventors — so in light of that larger aim, people shouldn’t shed too many tears for Facebook’s current position, regardless of how “dastardly opportunistic” Yahoo’s recent moves may be.

“I understand the perspective of the other side — information deserves to be free, patents get in the way of real developers — I definitely understand that, and it’s a nontrivial problem. But the answer can’t be that when you do develop something really important, that you just hope that you’re able to raise capital, and hope that larger companies don’t end up taking your technology. I mean, at the end of the day, Facebook is going to end up being ten times the size of Yahoo. If Facebook has to pay a drop in the bucket because Yahoo developed some pretty innovative stuff ten years ago, it is what it is.”

Facebook’s possible payout? $3 billion

Gill was quick to emphasize that it’s hard at this stage to know how much the patent claims could be worth, but the popular consensus is that in this case peace probably won’t come cheap:

“One analyst is saying that Yahoo shouldn’t take any less than $3 billion for this IP. Realistically, until you really know what the IP is and do a full analysis, it’s hard for me to give a number I can stand behind. But what I can say is that when you have a portfolio of patents, and they’re substantial and directly built on what someone else is doing, and it’s core to the essence of what that company is, it’s very different from the dynamic of having one to two patents that are perhaps of suspect validity.”

Who’s next? Amazon, IBM could be on deck

It’s very early to say, but there are other companies who are cited a lot in Facebook’s IP claims, according to Gill’s analysis:

“Amazon is cited at a ratio of 5.5 to 1 [in Facebook’s intellectual property], and IBM is at a little over three to one. The dynamics there could potentially be very different, and you have to look at a lot of different factors, but you look at citations to see who is building in the same technology space.”