A Conversation with Priceline.com Founder Jay...

A CONVERSATION WITH PRICELINE.COM FOUNDER JAY WALKER 1

HistoryWalker has had a incredibly successful career, and withwell over 700 issued and pending U.S. and internationalpatents he is the world’s 11th most patented livinginventor. TIME magazine has twice named Walker asone of the “50 most influential business leaders in thedigital age,” and he was selected by Businessweek asone of its 25 Internet pioneers “most responsible forchanging the competitive landscape of almost everyindustry in the world.” Newsweek has cited Walker asone of three executives at the forefront of the Internetcommerce revolution. He is an icon within the patentworld and one of the visionary leaders of the Internetbusiness revolution.

Walker currently serves as executive chairman and leadinventor of Patent Properties, a successor in interest to

Simply stated, Jay Walker is one of America’s best-known businessinventors and entrepreneurs. Walkerhas founded multiple successfulstart-up companies across variousindustries, although he is bestknown to members of the public asthe founder of Priceline.com.

Walker Digital, Patent Properties has developed a newno-fault patent licensing system.

Recently I had the opportunity to interview Walker,along with the CEO of Patent Properties Jon Ellenthal.While nothing was ruled out of bounds for theinterview we spent much of our time discussing hisattempt to create a no-fault patent licensing systemthat will help innovators monetize patents through

A Conversation with Priceline.com

Founder Jay WalkerBy GENE QUINN

President & Founder of IPWatchdog, Inc.

JULY 13, 2014IP WATCHDOG, INC.

JAY WALKER Patent Properties Executive Chairman and Lead Inventor

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2 A CONVERSATION WITH PRICELINE.COM FOUNDER JAY WALKER

uniform licensing regime that offers a variety ofperipheral benefits to those who take licenses. In abroad sense there have been some who have tried tocommoditize the monetization of patent licensing in the past, but as yet have largely been unsuccessful.Initially I was skeptical but listened. Over the Winterand Spring as I learned more about Walker’s plan Ibecame intrigued by this effort and have come tobelieve that his plan has a real chance of succeeding. Of course, if anyone is going to be able to figure out themyriad issues involved, Walker can.

Without further ado, here is my interview with JayWalker and Jon Ellenthal, discussing this effort tomonetize patents, patent trolls, patent reform and theimportance of patents in general.

QUINN: Thanks for taking the time to chat with metoday. I know this is an exciting time for you. I seeyou’re in the press a lot so I thought it would be a goodopportunity for us to talk about what is PatentProperties, why you got involved in it, where you seeyourselves going from here. I know that’s really a broadopen-ended question to begin with, but I like to startthat way so you can go where you want and we’ll justfollow from there.

WALKER: That reminds me of the Marx Brothers movie,where they ask the great “aviators” how they came toAmerica? Harpo tells the story how first they flew andthey ran out of gas and had to go back. Then they flewagain and when they got about halfway across theAtlantic they ran out of gas, and had to go back. Andthen finally... we took a steamship... and that’s how thegreat aviators came to America. [Laughter]

QUINN: That’s funny. But you know I will say theseopen-ended questions do lead to really greatconversations and actually one that comes to mind is aninterview I did with Judge Rader. I interviewed himand I laid out this open-ended question about educationin general and how we can inspire the youths of todayto invent. And that led to this great conversation abouta formative moment that happened to him when hewas in elementary school. So I like to start big, but youcan take it anywhere you want.

WALKER: I think we’re very happy to start with the big picture. At the end of the day this project really is akind of a moonshot approach to repairing a very largeproblem.

In the simplest sense the U.S. Patent Utility is the new

innovation division of Patent Properties, the otherdivision being the enforcement of our own intellectualproperty and patents. The U.S. Patent Utility is all aboutdesigning and deploying a big solution to a bigproblem. To our way of thinking, Gene, we don’t seeanyone talking about the underlying problem in thepatent space and therefore nobody is talking about asolution to it. There is a great deal of focus, of course,on either improving and reforming the patent systemdepending on the word you want to use. And thattypically is a fancy code word for either improvingexamination, improving the quality of issued claimsthat come out of the office, improving prior art searchprocesses, or improving the litigation environment forwhich the concerns about a handful of abusers havemanaged to distort a national discussion of patentsunder a bunch of phrases such as trolls or NPEs.

Improving or reforming may be things that need to bedone. We’re not arguing that the patent system doesn’tneed to be improved. There isn’t a system that doesn’tneed to be improved. We’re not arguing that there isn’tabuse. There’s no system that serves our nation thatisn’t abused by some party or another. But at the end ofthe day there is a much bigger problem going on andthat is the licensing system in the United States isliterally frozen. If you are an inventor and you’veinvented a solution to a problem and that solution hasbeen embodied in a U.S. patent, you have a near zerochance of licensing it unless you have the kind of warchest and resources that would allow you to either goto court or threaten to go to court in a credible way.

Therefore, the vast majority of the solutions for whichtrillions of dollars of R&D has been spent in the last 20years is sitting on the sidelines not getting into thegame. They’re frozen out of the licensing system andwithout those solutions coming into the world you’renever going to improve products and servicesanywhere near the level you could. You’re not going to create profits and therefore jobs for companies thatcould apply those solutions. And you’re certainly notgoing to have a competitive economy in a globalmarketplace for which your differentiation more oftenthan not is intellectual property and the application ofintellectual property solutions to the larger economy.

So what’s needed here is a big new idea how to createan efficient way to administer a huge volume of low-price voluntary patent licenses where everyone isbetter off. And by a huge volume of low-price patentlicenses I mean eventually hundreds of thousands andthen millions of patent licenses that more millions of


inventions into the economy. Nobody is talking aboutthat; nobody is working on that. There is just nobodythinking about the unserved marketplace of the vastmajority of small and medium-sized U.S. companieswhich don’t license anything but would be better off ifthey did. And nobody is thinking either about the vastmajority of inventors who don’t license anything andcertainly as a result get no revenues from theirpatented inventions. The problem is so real for manyinventors that they abandon far too many patents earlyor mid-term because there’s just no hope of licensingrevenues.

So there is the big problem and there is our big idea fora big solution without getting into the nitty-grittywhich I’m happy to do as is Jon [Ellenthal]. But beforewe get into the how, unless people understand that ahuge volume of low-price patent licenses serves thenation, serves users of patented technology, and servesinventors then we’re never even having the rightdiscussion.

QUINN: I think that’s right. To pick up on one of thethings that you mentioned, I think it would be utterlyshocking to almost everyone that is not intimatelyinvolved in the industry, including members ofCongress, to know how many patents go abandoned forfailure to pay the first or second maintenance fee?

WALKER: Yeah. I spent all this money on R&D, right?So let’s just make up a number. I spent $250,000 in R&Dand that’s modest. Then I spent another $15 to $20,000minimum in legal fees to get title to the property. Andfor want of a couple of hundred dollars a year at somepoint I say, “You know what, I’m not spending a couplehundred dollars more to keep this alive. It’s not worthit. And I’m not gonna get any money. What did I do thisfor?” Maybe I did it so that I could claim I got a patentor get various ego benefits or sales and marketingpromotional benefits. But when it comes time to get itinto the economy, nobody wants to read patentsbecause they’re afraid of being held for treble damagesif they read them and somebody else persuades thejudge that that was an infringing activity. This reality, Ithink it’s shocking to inventors. I think it’s shocking tobusiness people. I think it’s shocking to everybodyexcept the people who actually are inside this circle ofhell, where they are getting either no revenues thatthey should be getting or no usage of solutions that,you know, somebody else somewhere has invented butyou’re afraid to go looking for and actually meeting thepurpose of your business .

QUINN:Well, that always irritates me to no end. WhenI hear people say, “Oh, our attorneys,” or “my frienddown the street told me I shouldn’t even look becausethen I may be guilty of patent infringement.” Well,you’re guilty of patent infringement anyway.

Somebody’s got the right and they have thewherewithal to come after you. I mean if you’re noteven looking, how could you build on the shoulders ofthe people who come before you, how do you makeprogress? That’s what innovation really, truly is in myopinion.

WALKER: It is. It’s an incremental process. Most peoplethink of innovation as a breakthrough moment: fromNewtonian physics to relativity, to take just oneexample. That’s not the vast majority of inventions. As Isaac Newton said, “If I’ve seen a little bit furtherthan others it’s only because I’ve stood on theshoulders of giants,” That would be the opinion of oneof history’s greatest geniuses. So if Isaac Newton isstanding on the shoulders of giants and we spend $1 trillion a year in various forms of intellectual propertydevelopment or trade secret development, it is nuts thatwe are not taking our best answers and putting theminto our economy. Instead we’re putting our inventionsinto folders and drawers and not using them. We keepthem as trade secrets and intentionally not filing patents.

ELLENTHAL: Yes. And, Gene, to your point aboutwillfulness I think there’s two flavors of it. There areabsolutely companies out there that haveinstitutionalized ignorance as a corporate strategybecause they see it as good business to protectthemselves from willfulness. But that may be at the

very high end of the market.But if you’re a smallcompany there’s no simpleand affordable way for youto figure out which needlesin the patent haystack areactually relevant to whatyou’re doing. And with fiveor six thousand newpatents published everyweek, how would a smallcompany with limitedresources stay on top ofwhat actually matters mostto their business?

QUINN: Right. That’s verydifficult to do for large

JONATHAN ELLENTHALPatent Properties Vice Chaimanand Chief Executive Officer


companies, especially small companies who really dowant to stay clear of legal problems and not infringe. I think most people don’t want to infringe theinventions of others.

WALKER: I agree; most people are good actors.Ourentire economy is done on the basis of trust. There arevery few times that most business people findthemselves in court in their entire careers. In thebusiness world, you shake hands and generally inAmerica that’s good enough. A company orderssomething, they pay for it. It’s just how it works. Andcertainly among big companies. That doesn’t meanpeople in companies don’t behave badly sometimes,but at the end of the day given a chance most are goingto do the right thing. They’re big companies.

QUINN: I think that’s right. I know probably more aboutyour system than most because I’ve looked at it; I’vetalked to you both previously; I’ve written about italready a little bit. Maybe now would be a good time totake a step back and talk about how you are going todeliver on the big idea, the big goal, which is low-costlicensing so that anybody can get access. Toaccomplish this you will need to attract the inventorsand innovators who have patents so that they willprovide the inventory, so to speak?

WALKER: Let’s talk about the easy side first. If you lookat ASCAP, created 100 years ago, what was the benefitto both parties? The need for ASCAP was based on thefact that if you’re a musician you’re not going to go toevery radio station in America and negotiate a royaltydeal for the use of your music. It’s just not possible todo. So you listed your music in the ASCAP andeventually the BMI or the SESAC music catalogs. Andmusicians basically said, “Look, why don’t you guys goout and secure reasonable licensing revenues for me ona non-exclusive basis and give me the vast majority ofwhat you collect?” And that model has worked for ahundred years for a lot of small musicians who wanted“better-than-nothing” revenues.

So when you look at the modern world a hundred yearslater and you talk to a million patent owners who aregetting nothing today and you say, “Look, instead oftrying to get a big payday from just a few people whichyou’re never going to get, how about we come up witha way to get a small amount of money from a lot ofpeople.... and I’ll give you 85% of what I collect; nevertake ownership of your property; and never preventyou from selling it or licensing it or withdrawing fromthe system on a going forward basis.” You’ve got all the

rights you always had; I’m not taking over your patent.I’m never going to sue anybody because I’m not eventhe owner of your patent. That’s not what I do. So if youown patents — and I own hundreds of patents so Iknow what the answer to this question is — is that agood idea? I’ve had the resources to bring litigationwhen it’s appropriate so I know the choices a patentowner has - and they are few. I know that getting

better than nothing is going to be a very attractiveproposition to a lot of patent holders. And I’m not justtalking about solo inventors here, I’m talking aboutsmall companies with ten or 15 patents and I’m talkingabout universities with hundreds of them.

QUINN:Well, that’s interesting. From the beginning asI was learning about the Utility the first thing I thoughtwas that the universities should be all over this.

WALKER: Yes, they should be.

QUINN: Because they have all these patents and mostuniversities really struggle to do technology transfercorrectly. And it’s not because they don’t have goodpeople; they have really good, highly dedicated people.In many cases they just don’t have enough resourcesgiven the portfolio that they’re trying to monetize.Another difficulty for universities is that they engage insuch cutting edge-research, which often means a longhorizon to market.

WALKER: And don’t forget that 99% of universitieswon’t sue. So the university has no stick. It only has anolive branch. It goes out and says, “Hi, you shouldlicense our inventions.” And people say, “Well, youknow, maybe I should, maybe not, it is not really clearto us, but, if I don’t license what are you going to do?”

There’s no system that serves ournation that isn’t abused by someparty or another. But at the end ofthe day there is a much biggerproblem going on and that is theliterally frozen licensing system in the United States.


ELLENTHAL: And that’s also true of the typical patentowner who lacks the resources, sophistication, line ofsight, and expertise to even identify potential licensees.And, universities certainly lack the resources andappetite to legally enforce their patents againstpotential infringers. So it’s a pretty difficult job to findpotential licensees.

WALKER: Yes. So the economic aspects of the supplyside of the story I think are a slam dunk. However,universities are going to be cautious as they’re bigentities with long legacies. We agree with you aboutuniversities, and have talked to quite a few who findthe Utility attractive, I don’t want to oversetexpectations here. Universities are big organizationsthat are cautious and conservative with their goodname and are often run by custodians. So I expect theuniversities are going to like the Utility and over time

participate. Initially I expect they’re going to try it for awhile for selected patents and expand theirparticipation over time. I don’t expect people to comerunning up to us and say, okay, I’m ready to list mywhole portfolio, go to it. That’s just not how universitiesor any big institutions work.

ELLENTHAL: Before we switch from the supply side tothe customer side, I just want to add one thing to whatyou said because it’s important. The goal of this systemis not to maximize revenue per license. The goal of thesystem is to maximize licenses per patent.

WALKER: Let’s switch to the customer or user sidebefore we go to the theory. The Utility also serves usersof patented technology, most of whom don’t knowwhich patents owned by others that they are using.They have no way to run the kind of sophisticated

Patent Properties’ JAY WALKER (left) and JON ELLENTHAL (right) in Walker’s Library of The Histiory of Human Imagination


review to say, well, if I’m using patented technologyhow do I know what it is? I can’t interpret what theclaims actually cover; that takes a federal judge in aMarkman Hearing to figure that out. On top of that,when I try to look through the patents that are alreadyissued as a way to learn if I might be infringing, they’renot written in a user-friendly language. What’s more,I’m often advised by counsels not to try and read them.

The other side of this equation says that if anyonecould somehow license the entire U.S. patent databasefor one dollar, is there any doubt that everybody wouldlicense it? No. Everybody would pay a dollar for a totalpatent license.

So the core question is not whether or not companieswant to use the teachings in the U.S. patent database;they do. It’s a question of price and tools. I need theright price. One that’s good enough that I’m willing topay but not too high a price.

And then you’ve got to give me tools to access 2.3million patents with 50 million claims. It’s probably wellnorth of another 50 million pages of spec. So it’s notgood enough to just give me a cheap license or licenses.I also need to have the tools to be able to understandhow the teachings in this database could improve myproduct, services, and competitiveness.

You have to do both and the Utility exists to do both.That’s our underlying business theory of why peoplewho today are not paying to license patents will. Peoplewho own patents and are prepared to license them for alarge amount of money will license them per unit for amuch smaller amount, of money so long as they getmany more licensees and can control who gets alicense. They also need to know they’re getting the vastmajority of the money being collected on their behalf.

QUINN: Now I think I understand your system. Youhave to voluntarily attract both the people who havethe patents to list them non-exclusively, and the peoplewho need to license the patents to pay a reasonableprice. It strikes me as what you are contemplating isdifferent than any of the other market-based licensingapproaches that we’ve seen over the last few years.

As you know, you’re not the first folks to have tried tocreate a two-sided market. At least as far as I amaware, it hasn’t been successful yet. So I rememberwhen we first started talking I was a little skeptical.And then as I started learning more and I was like, youknow, this seems to work. Because as I understand it

the patent owner still has the right to engage in otherlicenses with other people for other purposes while hispatent(s) are listed with you.

WALKER: Absolutely. But let me go backwards beforewe lose the train of thought. I believe we are the first totry this type of voluntary two-sided market. Let meexplain what I mean by that.

Let’s assume that the only form of air travel was by anexpensive private jet. Not everyone can own their ownjet. So the marketplace has been responding with allkinds of ways of making private jet travel moreaffordable. Netjets, charter companies, perhaps evenuber-jet! All kinds of private jet business models gettried. And there was a zillion people trying to come upwith ways that you could use a private jet in yourbusiness.

Then somebody comes along and says, “You knowwhat, private jet travel is a great idea. But almostnobody can afford private jets or even shares of privatejets. I’ve got a new idea called Southwest Airlines thatbuys big jets and sells seats real cheap but you don’tget private jet benefits. I’m gonna serve people whowould never even think about a private jet. We’re goingto literally serve a market that nobody else is trying toserve. The vast unserved market.”

We’re trying to serve the Southwest market of peoplewho aren’t flying at all, or who are driving or taking thebus. Nobody is down at the base of the pyramid here.Nobody is talking about how to create hundreds ofthousands, and eventually millions, of low-costvoluntary licenses a year. Nobody’s anywhere near that.

So the fact that there are all these other companies whoare trying to solve problems related to licensing andpatents is true and interesting. But none of them aretrying to do what we’re trying to do. Which is not tocriticize them in any way. They are simply serving acompletely different market. They’re serving a marketwith big players and big resources. Or they’re serving amarket where people who know exactly what patentthey want to buy or license.

If you go down the list of every one of the alternativepatent licensing or purchasing systems that haveappeared so far, you will find that none of them aredoing what we’re trying to do. It makes sense. They’veall gone where the money is today. And we’re choosingto go to an unserved market segment where we thinkthe money is going to be. They’re two different worlds.

QUINN: Yes. And they’re also different approaches. Inone of the cases that I’m familiar with, they’ve tried tocollect all of the patent rights for a particular technologyand then try and sell licenses and say, okay, we’ve gotall development rights you will need.

WALKER: Sure, that makes sense for a piece of themarket. Companies would need to know what theyneeded and the firm would need to buy up and own awhole slew of patents - a kind of private pool.

QUINN: So if you license this portfolio you could safelydo what you want to do.

WALKER: Yes, if you knew exactly what you wanted todo. You have to know precisely what patents you need.

QUINN:Well, that’s true; you have to know what youwant to do. And that’s not the way innovation oftenworks. You don’t know what you’re going come up withwhen you start down the path because innovationtakes many twists and turns as it unfolds, so it is reallyimpossible to know what you will wind up needing.

WALKER: Yes, I often have no idea what I need as abusiness. Lets say I run a tool and die manufacturer inIndianapolis, I don’t know what new things I mightneed or want. It all depends on what claims are issued.

QUINN: In my mind there is also a much larger,practical problem as well. I just don’t know how youcan collect all of the relevant rights to any innovation.There’s more than 5,000 new patents a week, andendless improvements and incremental advances occur.Gaps in technologies get filled. So how can anyone saythat they have collected all the rights that will benecessary?

WALKER: Yet, some of those new approaches may bewonderful businesses. Personally I’m not excited about


them as an investor, but I hope they all succeed. Wedon’t have to succeed at the expense of anybody else.Like private jets compared to Southwest, they’re not inour world in any way, shape, or form. Looking at themreally teaches you nothing about us. No matter howhard you look at them.

QUINN: From what I’ve seen about the various models Ibelieve that is certainly true. The only thing thatlooking at those other models would do is teach peoplethat you are different and that your model seems tohave a real possibility of succeeding in a large way.

WALKER: Honestly, it would teach you that we aretrying to solve a very different problem in a differentsegment of the market. Once you understand that, youcan then make a decision about whether or not we havea thoughtful and likely solution to our problem.

We have some real advantages in trying to solve theproblem on unfreezing the licensing system for themillions of patents that generate no revenue.

Number one, we are business system inventors andthis is the kind of problem we typically solve.

Number two, we’ve solved and deployed businessesthat address other very large problems.

Number three, this problem actually is one I have lived.I own hundreds of patented inventions that I’ve beenunable to generate the first dollar of licensing revenuefrom - many of which are being commercially used oreasily could be. So I am a case study of this exactproblem.

Also, I’ve had the luxury of being able to fund a world-class team of people to enforce my patents by usingtechnologies that have only just appeared on thehorizon -- specifically, semantic search and big dataanalysis tools. In the past, these tools wereextraordinarily expensive. The Utility can afford to buyor build these same tools and then each user can pay asmall portion to access the benefits.

With the availability of these new tools, our timing isright. And, I believe that we are the right company withthe right people, the right experience, and the rightcapital structure. You bring those things together andit’s credible that we could actually solve the problem ofhow to create an ASCAP for patents that is neutral,voluntary and balances the needs of inventors andusers without ever using the court system.

There is just nobody thinkingabout the unserved marketplace. The vast majority of small andmedium-sized U.S. companiesdon’t license any patents butwould be better off if they did.

you that you have uploaded or we have found andabstracts them into a conceptual framework much likethe famous Watson does when it plays Jeopardy.

Watson doesn’t do a keyword search it does a semanticsearch on puns and innuendo and obscure references,and double entendres because only a semantic searchcould decode a Jeopardy answer to deduce a question.Now Watson is the famous example of semantic searchbut there are many people doing exactly what Watson’sfamous capabilities are doing.

ELLENTHAL: It is effectively an advanced form ofsearch that goes deeper than keyword matching to getat both the underlying concept and larger context. Andsteady advances in both data science and computertechnology are allowing us to process giant data setsand tease out useful commercial relationships withinthe data. And that’s what our semantic search systemdoes.

WALKER: Then you go one step further which says weare not trying to use semantic search to determine oreven suggest infringement, which is a legal conclusion.

ELLENTHAL: Right. And to me this is really fundamentalto our approach, in contrast to what else is out there inthe marketplace. We are simply using statisticalrelevance of computer-processed comparisons.

WALKER: Right. We’re running semantic search butwe’re not running semantic search to find infringement,which, by the way, would require a human brain and aMarkman Hearing. We’re running semantic search toassign a probability score that a claim and a practicehave in common.

Once you assign a probability score you can say, “Lookit’s uncertain whether the ‘809 patent that describesyour method of coating a ball bearing is how I coat myball bearings, but there is enough statistical overlap thatit’s not worth arguing about. Let’s figure out how toprice that uncertainty within a package of licenseswhich is so efficient that we don’t ever have to argueabout infringement as a yes/no binary state. We cansimply look at an accumulation of probabilities across awide variety of relevant patents.” Once you see thelarger picture, you can set a simple fixed price for theentire group of relevant patents.

QUINN: Yes. You package a bundle of 100 licenses tothe patents that statistically relate to what turned upbased on the semantic search of 50 million claims?


QUINN: Right. That’s exactly right. That’s the only waythe model works.

WALKER: Yes. It’s the only way. It could be very big.Without voluntary low-priced licenses the vast majorityof potential licensees would rather infringe and taketheir chances they won’t get noticed or sued. With thecurrent system, the licensors are forced to go to court ina way that they simply can’t afford and isn’t justifiedeven if they can go to court.

QUINN: Right. So I’d like to go back to the semanticpiece of the puzzle. I understand why that’s important,but to educate people who are not familiar with howyour system works, why is the semantic analysis pieceso critical to the Utility?

WALKER: To understand the importance of semanticsearch you have to understand the different problemsinherent in taking one or more licenses to an issuedpatent. To begin, you don’t infringe a patent; you infringea specific claim within a patent. Let’s say there are 2.3million active U.S. patents, and let’s use an average oftwo dozen claims a patent. That’s 50 million patentclaims that you might infringe on.

So the question a businessperson has to ask himelf is --does any one subcomponent of my current productinfringe -- either theoretically or actually -- on any of the50 million active claims? That’s a very big problem.

One way to solve that problem is to try to take the exactwords in your product specifications and apply it to theexact words in 50 million claims. But you and I both knowthat’s a recipe for nothing too useful.

ELLENTHAL: Like the keyword search used by Google.

WALKER: Right. Claims are written by legal claimconstruction specialists who of course are trying toclaim the broadest possible conceptual space using thebroadest English words that the spec will support. So ifyou’re doing a keyword search, chances are you’re notgoing to match typically obtuse claim langauge. Or putanother way, with keyword matching you’re going toleave out 98+% of the possible infringement argumentsthat an attorney might make reading a claim prior to aMarkman Hearing, when looking at your product asbest as they understand it.

What semantic search does is it takes the key wordsand phrases that are typically used in your salesliterature, in your technical literature, in articles about


WALKER: Yes. And we do so for a flat fee of a thousandbucks a month for the hundred patents in the package.If I’m giving you the package for a thousand bucks amonth you’re paying $10 – $15 a month per patent for alicense. Are you better off taking a license or are youbetter off basically saying... I’m gonna gamble I’m notgonna be sued... I’m not even gonna read any of thesepatents that might improve my products and services...I’m gonna be an intentional bad actor in the systeminstead of paying a thousand bucks a month.

And if your answer is you’re gonna be that potentialbad actor in the system, that’s your choice, there’snothing we can do to you. But I think over time you willrealize that’s a foolish decision on your part. As abusiness you’re better off being able to look at thepatented solutions of the top 100 relevant inventionsout of 2.3 million total possibilities in a free and clearway. And, we give you all kinds of other benefits at thesame time. Of course, some companies will simply say,“You know what? For $1,000 a month I’ll take mychances and stay in the dark.”

QUINN: I agree. Now this also requires you to be abe togrant enough licenses so that it is attractive. So bothsides have to want to play. So what’s your pitch tothose people to whom you are saying, “Why don’t yougive us some of your patents or a piece of your portfolioand allow us to add them to the Utility?

WALKER:Well Gene, I wouldn’t use any of the wordsyou just used. I don’t say “give” us anything. I wouldsay, “Why don’t you make me your non-exclusive agentfor some of your patents that you would like to startearning revenue for at no out-of-pocket cost and nocommitment? Any patents you don’t want to getrevenue for -- or any patents you’d like to litigate --don’t list those. You give us no rights.” You’re justliterally entering into a non-exclusive arrangement withus that you can revoke on a moment’s notice.

ELLENTHAL: On top of that you can give us a list ofexclusions even when you list your patent in ourcatalog and say, listen, don’t license the followingpatent to these specific companies, or don’t license anycompanies to anyone in a particular industry or above aparticular size. As the patent owner, you remain incomplete control to whom your patent may end upbeing licensed to through the Utility.

WALKER: Let me give you a slightly exaggeratedexample that illustrates the point. I would like to be thenon-exclusive agent for your blog in South America.

I think I can get people in South America to pay to readyour blog. Because in South America they pay to readblogs. I don’t know how much money I’m going togenerate for you Gene, but you can revoke my authorityat any time. I won’t license to any of the major televisionnetworks, publishers, or law firms. I’ll only license tosmall companies who like to read pateht blogs. And, I’llpay you 85%of any money I collect in South America.Would you be willing to list your blog in my catalog so Ican try to generate revenue for you on those terms?

QUINN: Yeah, I mean that’s a no brainer.

WALKER: There you go. It’s no different. Exactly thesame. Listing with us is a no brainer. The only reasonyou wouldn’t list with us if you wanted only exclusivedeals or you thought you were to going to sue everyoneand you didn’t want to generate revenues from low-priced licensees from 2nd-tier players.

ELLENTHAL: Or if you felt that you could make moremoney for your patent by doing something else with itin this case.

WALKER: Yes.

ELLENTHAL:Whatever it is, you should go do that too,and let us pick up additional licensing revenues fromcompanies you never plan to reach.

WALKER: Or you might decide to sell off your patent fora lump sum. Many patent owners get discouraged andsay, “I’ve had it with this. I’m going to sell my inventionto some actor who’s going to pay me now and I won’tlist it with Jon and Jay’s wonderful Utility.”

ELLENTHAL: Bear in mind since the abandonment rateis thought to be about 50% before the expiration datethere is a lot of exasperation out there by patentowners who have clearly given up any belief that theycan bring in any money. It’s gotten to the point thatsome are not even prepared to pay another couplehundred bucks to keep their patent alive.

WALKER: That’s right. So, Gene, I’m the SouthAmerican agent for you. I’m now your best friend. The minute I write you a check from the inclusion ofyour patent in a few packages, what do you think isgoing to happen? You’re going say,, “”Oh, my god, Ifinally am getting paid something for my patent!”

QUINN: In most cases that’ll be the first money thatthey’ve seen.


WALKER: Exactly.

ELLENTHAL: Literally.

WALKER: And Gene, I haven’t charged you anythingin advance for my services. It’s not like I said, “Gene,you’re going to have to pay $1500 up front because I’mgoing to be opening an office in Bogotá and that costsreal money and I need some advertising money fromyou, because I’ll be advertising in Bogotá and otherColumbian newspapers.” No risk. No investment.

ELLENTHAL: And, you benefit from our national salesand marketing effort to generate licenses withoutgiving up any control, without giving up ownership andwhile always being able to do whatever you want withyour patent -- including delisting it from the system.

WALKER: So on one side of the ledger are patentowners who have given me permission to give themfree money. In America, I think I can get permissionfrom a lot of people to give them free money.

ELLENTHAL: It’ll take time to build the patent listingside of the business but it’ll get bigger and bigger astime goes by.

QUINN:Well, the other interesting thing, as Iunderstand about your model, is that the people whoare taking licenses also get a certain kind of insuranceif they were to get sued — maybe not insuranceexactly, but a payment if they were to get sued on apatent that wasn’t in the package that they licensed.So that in and of itself makes each package much moreattractive. I mean I, for the life of me, don’t understandwhy more businesses don’t have at least some kind ofpatent insurance.

WALKER: Let me make sure you understand exactlywhat we’re offerring, because there’s a word you saidthere that may not reflect exactly what we do.

QUINN: Okay.

WALKER:We come to you with a first tier of a hundredstatistically relevant patents. We say here’s thehundred most relevant patents chosen by smartsemantic software. Within that 100 we might be ableto give you license for 46 of them and a what we call akind of legal fee warranty for 54 of them. The warrantymakes us your 50% co-pay partner if you get into a legaldispute involving any of those 54 patents. The warrantyisn’t for any patent lawsuit, only for those within the

hundred that are in the package. So if someone fromleft field who isn’t in that hundred sends you a demandletter, we don’t reduce your potential legal costs.

QUINN: Okay.

ELLENTHAL: The software will identify the onehundred patents that have the most in common withyour product line. That doesn’t mean that all of yourcompany’s risks and opportunities are reflected in those100 patents, but they’re a smart, first step for companieswithout a patent plan to understand the environmentand take steps to strengthen their position.

QUINN: Right.

WALKER: There are two kinds of ways you findyourself in court. One is a genuine disagreement. Youknow, you’re practicing something and it’s clearlyrelated to claims in an issued, well-examined patent.We can have a Markman argument, but the court caseis an unfortunate venue in which we try to resolvewhat the fair price of a license might be.

QUINN: Right.

WALKER: And number two is if you get snared by abad actor. By somebody’s who’s an abuser. In numberone we are more likely than not to have those patents, theones that relate in at least the top several hundred, if notthe top one hundred. And we will make it a veryaffordable, especially after the first one hundred. If it’sabout $1,000 a month for the first hundred, the secondhundred’s going to be much lower cost. And the thirdhundred will be even less than that. Because you know,

Let’s figure out how to price thatuncertainty within a package oflicenses which is efficient. Wedon’t ever have to argue aboutinfringement as a binary yes/nostate. We can simply look at anaccumulation of probabilitiesacross a wide variety of your 100most relevant patents.


there’s a sharply reduced curve on pricing and value thefurther out one goes.

ELLENTHAL: They’re less statistically relevant.

WALKER: They’re less relevant and they’re lessexpensive. It is as simple as that.

QUINN: Right.

WALKER: So if you’re worrying about somebody who’s adirect competitor they’re more likely to have a patent inyour core one hundred. However, if you’re looking at abad actor who basically bought a patent that has a yearand a half to go with claims that are overbroad -- heknows it. His plan is often to just litter the landscape withlawsuits hoping that he can collect money from people togo away. The odds that a bad actor is in our top fivehundred I think will be pretty low.

ELLENTHAL: Bad actors are often unpredictable untilthey start suing people or at least demanding payments.

WALKER: That’s right. We can’t promise people thatthey’re not going to catch that scourge. We are a positiveforce to limit it because in many cases the person whosold that patent to that abuser had nothing else he coulddo with it. Abusers have the advantage. They canoverpay for any one badly-issued patent and then decidehow to try and enforce it.

ELLENTHAL: That’s right. Our promise to the small ormedium-size operating company is we will give them asimple and affordable way to understand the patentenvironment they’re doing business in and to find thehundred patents that are most statistically relevant to theirproduct line. We will provide them with either a license or awarranty that allows them to reduce the risk they’re facingon those one hundred patents. And if you’re a small ormedium-size operating company who is coming tounderstand that every business needs an IP strategy --since IP has become a more important part of markets andthe economy -- then this is a very affordable and simpleentry-level strategy for understanding and dealing withpatent risk. And that puts you in a much better positionarguably than the position that you’re in right now which isthat you know very little about the risk you’re facing andyou can do nothing about it.

QUINN: Right. Right. That makes a lot of sense and I getthat. It also strikes me that this removes the real worrythat some court somewhere is going to say, oh, well, youwere not acting in a business responsible way and you’re

going to get hit with treble damages. I know it’s veryuncommon, but people do worry about treble damages. Ifyou said, look we went through this process and welicensed the top one hundred or two hundred patents thatwere statistically relevant, how can we have been actingirresponsibly?

WALKER: Right. It’s a phenomenal good faith demon-stration that anybody of reasonable objectiveness is goingto look at and say, these guys are not bad actors. Theyhave done what reasonable business people would do.They’ve gone around, they’ve put fire extinguishersaround the place; they put smoke alarms around theplace; they’ve run some fire drills. Could a fire break out inthis place? Sure. But they prepared in a reasonable way.

ELLENTHAL: They’ve been responsible.

WALKER: Yes. Does that mean that somebody can’t claimthat they’re nefarious infringers of devious means? Youcan claim anything you want.

QUINN: Right, right.

ELLENTHAL: All this goes back to the fact that thecurrent environment operates inefficiently. Today, everydeal is done on the basis of a legal standard of certainty ofinfringement. Using certainty as a legal standard fordealmaking and patent licensing has proven not to bescalable. The insight of doing patent licensing deals on astandard of statistical probabilitymakes patent licensingaffordable to everybody. Certainty is expensive andinaccessible to most. Probability is affordable toeverybody and is commercially scalable.

QUINN: Right, right. There’s one more thing I really wantto get to. I noticed it the other day and when I heard itand said, oh, my God, here’s just some more really, reallybad information. You’ve probably seen it or heard thatthere are some folks on the Internet who are saying thatJay Walker and his Patent Properties are just a patent trolland they’re going to be this mega patent troll. You know,an end of the world type rant. So I’d like to get your takeon that. I mean my take on it is is that anybody whoseriously looks at what you’re doing simply cannot cometo the conclusion that this is anything like a patent trollmodel.

WALKER: Here’s why it can’t be right. A patent troll,whatever in the world that means, sues companies. Onedivison of Patent Properties has my own patentedinventions and does sue companies when we can’t reacha licensing deal. But the Utility part of the company that


we’ve been talking about is completely separate andactually can’t sue companies! The Utility doesn’t own anyof the listed patents -- even if there are a million of themlisted. We’re just a non-exclusive agent. Agents have nostanding to sue anyone. We can’t possibly be a trollbecause the Utility doesn’t own any patents that it mightenforce thorugh suit.

QUINN: Right. It’s really just that simple. Even if youtried to sue you’d get bounced on a motion to dismiss.

WALKER: It’s that simple. The Utility owns no patents.We have no standing.

QUINN: But that’s no different then you having theright to those patents for many years previously. Theexistence of Patent Properties and the U.S. PatentUtility doesn’t change the fact that you have had rightsassociated with those patents all along.

WALKER: Right. It changes nothing. I’m an inventorwho has spent tens of millions of dollars inventing. Ihave assigned my inventions to the same company thatowns and runs the Utility. I think it’s important to saythat we’re not against lawsuits. When it’s appropriateand you can afford it, you should bring a lawsuit whenit’s your best choice. Anybody who would say thePatent Utility is a super troll doesn’t know what they’retalking about or they have some other agenda.

ELLENTHAL: Yes, I read the same post, Gene. I onlywish the author had the same respect for editorialquality as he seems to have for patent quality.

QUINN: Right. [Laughter]

WALKER: If it suits someone else’s politics to call us aname, they’re going to call us a name. If they do, it’smore about them and not about us.

QUINN: That’s true. I mean that’s a sad reality.

WALKER: I do want to point out one more thing,though, that I think is germane to the structure of thebusiness. We put this business into a public companyfor a set of specific reasons. One of those reasons is wewanted to build a patent utility in a public environmentso there was full transparency on all of our dealingscould withstand public scrutiny. We will publisheverything we’re doing to the SEC every quarter andpeople will see how the Utility is performing. And wethink that transparency will lend itself to more trust inthe system earlier on than if we were private.

QUINN: Yes, I agree. I think time is going to tell as ittells all things and people are going to see that this isvery different than other things that have been tried. I think you’ve got a real good chance to succeed at this.So now this leads us to a good wrap-up question. Jay,why are you doing this? You’ve been one of the mostsuccessful American inventors of all time. You’vechanged the way that people travel online. You haveearned your day in the sun, a nice retirement. Why areyou coming to this enormous undertaking at this time?

WALKER: I think it’s pretty straightforward. All peoplewho have benefited from those things that have beendone before have a responsibility to leave the systembetter than they found it. I am the beneficiary of 220years of intellectual property development in the UnitedStates. I’ve used the patent system to good effect. I haveplayed by the rules and I have done things that havecreated thousands of jobs, and billions of dollars ofmarket value. But you’ve got to take your expertise andgive it back. Why does somebody serve in the armedforces? Why does somebody serve in the government?Because service is part of the U.S. national character.

I have the capacity to serve here. So it’s my turn. It’s theright thing to do and I’ve directly experienced thegridlock of the current system. In every age there areunique challenges. In our age the challenge is not somuch to reform the patent system but to reform thelicensing system that brings progress to the marketplace.I have sat at most every seat at the table except maybefor the university seat. If not me, who? If not now,when? I’ve got a combination of both self-interest andresponsibility. I don’t view it as a fight at all. I just viewit as a great opportunity to leave a legacy of peoplesaying, you know, that U.S. Patent Utility has beenaround for 100 years. My hope is they’re going to say thatin five years.

I’m 58 years old. At a certain point in your life yourpriorities start to shift and I have a daughter whoteaches inner city special-ed kids and I’ve got a sonwho’s working with me on getting young women andminorities into medical research by the millions. Whenyou have growing children, you sort of step up and say:my turn.

QUINN: And that’s well said. And that’s probably agood place to end the conversation. I really appreciateyou guys taking the time to talk to me.

WALKER:Well, for myself, Jon and our team at PatentProperties, you’re very welcome, Gene.

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