Ronald A. Katz once predicted that he would someday become
the wealthiest patent holder ever. By most estimates, he has achieved that
goal – or will soon.
He has arrived there through an aggressive strategy of patent litigation that
has had him taking on many of the nation's largest corporations in virtually
every industry. His portfolio includes more than 50 patents and thousands of
claims, all dealing with telephonic interactive voice applications.
A search of federal district court filings shows that just since 2004, his company,
Ronald A. Katz Technology Licensing (RAKTL), has filed more than 100 lawsuits
against defendants as diverse as New York Life, General Motors and United Airlines.
One report said that RAKTL had initiated more than 3,000 claims for patent violations
over the last 15 years.
Twenty-five of those cases, from federal courts in Texas and Delaware, have been
consolidated under the Judicial Panel on Multidistrict Litigation. Others remain
pending in various federal districts, but most result in licensing agreements.
Just in the month of November, RAKTL settled litigation and entered into separate
licensing agreements with at least 30 major corporations in industries as diverse
as retail, health care, insurance, hospitality, energy and financial services.
That list of 30 companies included Avon Products, Countrywide Financial, DTE
Energy, Ford Motor, GMAC, Massachusetts Mutual, Morgan Stanley, Northeast Utilities,
Safeway, Target, United Airlines and Wal-Mart.
They join a who's who of more than 200 companies that have licensed rights under
the RAKTL portfolio. That list already included American Express, AT&T, Bank
of America, Delta Air Lines, IBM, Merck, Microsoft, Sears Roebuck and Wachovia.
So who is Ronald Katz and how has he come to be such a potent
force in the world of patenting?
Now in his early 70's, Katz was a cofounder in 1961 of Telecredit Inc.,
said to be the first company that enabled merchants to verify consumer checks
by phone without the assistance of a live operator. He was awarded a patent
as co-inventor of that technology.
In the 1980's, he was awarded a number of patents related to his work
involving interactive telephone services. His inventions relate to toll-free
numbers, automated attendants, automated call distribution, voice-response
units, computer telephone integration and speech recognition. In 1988, he
formed a partnership with American Express to provide call processing services
which later became First Data Corporation.
In the late 1990's, Katz set up RAKTL to license his portfolio to companies
using automated call centers. Unlike many patent holders who shy away from
litigation due to its high costs and uncertainty, RAKTL has been aggressive
in filing lawsuits against companies that refuse to take a license.
With several of his patents already expired and most due to end in
2009, Katz is keeping up the pace. A 2005 Forbes magazine article
estimated that he had already earned $750 million in licensing fees at
that time and would bring in $2 billion in fees by 2009. That would
put him above the man long known as the country's most aggressive patent
enforcer, Jerome Lemelson, who earned more than $1 billion in fees before
his death in 1997.
In 2005, some companies banded together to fight back against what
they saw as RAKTL's aggressive tactics. Both Forbes and American
Banker reported that several financial-services companies had formed
a lobbying coalition to get the U.S. Patent & Trademark Office to reexamine
Katz's portfolio.
In a rare move a year earlier in 2004, the director of the PTO, Jon
W. Dudas, ordered reexamination of four of the Katz patents on his own initiative.
At least six others are the subjects of reexamination requests.
Attempts were unsuccessful to reach the lawyer who was helping to organize
that 2005 coalition. Lawyers presently involved in representing RAKTL or
its defendants declined to be interviewed for this article.
Some lawyers who are not involved in any of the cases see
nothing improper in RAKTL's approach.
Dennis Crouch, associate professor of patent law at the University
of Missouri Law School in Columbia and author of the popular patent-law blog Patently-O,
said that he generally has no problem with a patent holder suing infringers.
"I suspect that most patent infringement goes undetected," he explained. "Then,
even if detected, most patent holders do not sue because of the large potential
costs of litigation." This situation results, Crouch suggested, in a kind
of de facto fair use for infringing activity, particularly when the
damages are under $1 million.
RAKTL has apparently found a way to reduce those transaction costs
enough to make litigation worthwhile, Crouch noted. "We might see a
problem of stifled innovation if every patent owner began to follow the Katz
model," he added. "In my mind, however, that is an unlikely eventuality,
and I do not believe we should change patent policy based on that threat."
Patent litigator Michael D. Bednarek, a partner with Paul, Hastings,
Janofsky & Walker in Washington, D.C., has followed the RAKTL litigation
and the USPTO's reexaminations of the patents. The perception that Katz has
abused the patent system, he said, stems largely from his having leveraged
two patent applications to obtain dozens of patents with thousands of claims.
But while these actions may cause angst for some, they are permitted by USPTO
rules, he explained.
"Whether continuation practice is good public policy depends on one's
viewpoint," Bednarek said, noting that proposed USPTO rules would change
the practice. "Some might argue that the continuing application practice
is needed to allow inventors the full reward for their invention. Others might
argue that the U.S. patent system is overly generous and that, as a matter
of public policy, we need not be that generous to fulfill the constitutional
mandate of promoting progress in science and the useful arts."
If there is a problem, it is not with the patent system but with the
infrastructure that supports it, Bednarek asserted. "The infrastructure
that supports intellectual property protection for innovation is not yet
well-suited for the knowledge/service based economy. However, improvements
can and will be made. The United States is now considering the most comprehensive
change to its patent laws in 50 years. As in the past, the patent system
will in time adjust to the changing times."
Given the impending 2009 expiration of most of Katz's patents, we are
likely seeing the tail end of RAKTL's aggressive litigation. "The many
suits filed this year seem to be targeting companies that held out and refused
to take licenses under the portfolio," Bednarek said. "I suspect
that most of the Katz-related suits that will be filed have already been
filed or will be filed very soon."
But the Katz cases can serve as lessons in future cases when patent
owners seek to enforce portfolios against broad groups of companies. "An
important lesson to be learned is the value of an early realistic assessment
of one's position followed by an objective strategy that is based on economics,
not emotion," counseled Bednarek.
Those companies that rationally assessed Katz's claims at the outset
realized that, distasteful as taking a license might be, investing millions
of dollars to fight would be throwing good money after bad, he said. "These
companies likely avoided millions of dollars in legal fees and probably obtained
better license terms than if they had waited."
If a company is sued by RAKTL, law professor Dennis Crouch
recommends finding a lawyer who is experienced in these cases. "Because
so many companies have been sued by Katz, there are now quite a few patent
litigators who understand the Katz licensing system as well as his patents," Crouch
said. "I would recommend that a newly sued defendant seek out an attorney
experienced in Katz patent litigation for a quick consultation."
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