For Ronald Katz, Patent Litigation Pays Billions

By Robert Ambrogi Esq
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.

Who is Ronald Katz?

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.

Playing By the Rules

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."

The End is Near

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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Robert Ambrogi Esq

We are proud to partner with an author of Bob’s caliber to provide exclusive articles for our legal clients and leading industry experts. Robert J. Ambrogi is a news media veteran and the only person ever to hold the top editorial positions at the two leading national U.S. legal newspapers, the National Law Journal and Lawyers Weekly USA. He is currently a Massachusetts lawyer who represents clients at the intersection of law, media and technology. He is also internationally known for his writing and blogging about the Internet and technology. Media and Technology Law Bob represents a range of businesses and individuals, concentrating in print and electronic media companies and the editorial, sales, marketing and technology professionals who work in them. He also counsels businesses and individuals in employment matters. Arbitration and Mediation An established professional in alternative dispute resolution, Bob has been an arbitrator since 1994, focusing on labor and employment and securities disputes. A mediator in a range of civil disputes, Bob completed the training required by Massachusetts law to protect confidentiality.

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