In some respects, robotics in the health care industry can be a perfect storm of large up-front costs. There is both the large up-front cost for R&D to develop cutting edge technology and the large up-front costs for the research, studies, and specialists required to navigate the slow process of obtaining proper approval from certain governmental agencies. For those companies that set out to build a robot where both of these costs are necessary, it presents a situation where investors want to protect their large investment with IP. And to further compound the problem, sometimes the only prospect of getting a return on such a large investment is many years in the future. As a result, some companies in this position specifically seek to obtain broad patents that can protect it even if the demand it set out to satisfy has since changed. This is where people again get into the debate over whether that is proper, and whether broad patents help or hurt innovation. InTouch Health and VGo Communications have recently represented opposite ends of this debate.
On December 5, 2012, a Federal District court in Los Angeles found that VGo Communications did not, as claimed, infringe on InTouch Health’s patents for remote presence technology. In fact, the jury determined that that claim 79 of InTouch’s U.S. Patent No. 6,925,357 and claim 1 of the company’s U.S. Patent No. 7,593,030 were invalid on grounds of “obviousness,” meaning that, at the time of the invention, some combination of existing patents and/or known technology in the industry made the patented invention an obvious conclusion or next step. The ruling has been a huge boon for VGo, seen as the veritable David to InTouch’s Goliath in this intense legal battle. So, what does it mean for the rest of the industry when a robotics giant, known for aggressively wielding its patent portfolio to scare off the competition, loses its footing in the field? Is there a lesson start-ups can learn from this robotic parable of resistance? Robotics Business Review asked patent attorney C. Andrew Keisner for his take on the issue. Here are the enlightening results: Can you elaborate on this kind of patent scenario, and other occurrences like it in the robotics space? Aggressively using an extensive patent portfolio in order to maintain high prices for the purpose of ensuring a return on costly R&D is also nothing new to the healthcare industry. Indeed, pharmaceutical and medical device companies spend a large amount of money on up-front R&D, and such companies protect that investment through aggressive enforcement of their patents. Within the robotics industry, Intuitive has also gained the reputation of aggressively asserting its patent portfolio against competitors. From the point of view of InTouch, aggressively asserting its patents after investing so much up-front is both a part of its business model and something it feels entitled to do. But VGo clearly sees the situation very differently. Although VGo does not disagree with InTouch using patents, it does object to InTouch using extremely broad patents to exclude competition from all aspects of an entire industry. For Vgo, it appears to be a matter of scope rather than an outright rejection of the patent system. And this is somewhat confirmed by VGo’s reaction to the patent office accepting the re-examination, which it appears VGo will consider a success if the scope of InTouch’s patents are substantially narrowed. Whether the scope of the patents should always be narrow, or whether it helps or hurts innovation to file and assert broad patents is a far bigger issue. In this regard, InTouch and VGo have philosophically different views on the U.S. patent system and how it should be used. When a company chooses to defend its position in the market this way, what should its leaders be aware of? The reality is that patent lawsuits can be extremely expensive, and such an expense alone can sometimes be a deterrent to competitors. Unlike VGo, a lot of companies would have either licensed patents, moved overseas, or shut their doors altogether. Knowing this reality, many executives want a few broad patents in their portfolio because it can scare away competitors. However, the leaders of such robotics companies should also know that when they ask for too high of a licensing fee or too high of a royalty, particularly on questionable IP, it makes the decision to fight a lawsuit or file a re-examination an easy decision. Moreover, small and mid-size companies are increasingly seeking their own combination of narrow and broad IP, which can sometimes inflict an equal amount of fear on larger, well-established companies.
What does this verdict mean for each of these companies? Obviously the verdict shows VGo’s investors that Peter Vicars and his colleagues were right about not backing down from a patent lawsuit with InTouch. Since patent lawsuits are frustratingly expensive, this lawsuit could not have been helpful to VGo’s P&L. But still, presumably any license of InTouch’s patents would have been even more expensive and this verdict now shows that the expense of defending this lawsuit was worthwhile for VGo. For InTouch, the verdict is plainly not what it wanted. However, InTouch still has a great product, a strong executive team, a particularly well known investor, and let’s not forget, a fair amount of other patents that were not raised in this lawsuit. InTouch will be fine, but this verdict means it will have to deal with more competition in certain areas of the telepresence robotics space. In the coming months, both InTouch and VGo will be filing their briefs with the Court of Appeals for the Federal Circuit. The arguments in those briefs will show exactly what InTouch believes warrants undoing the jury’s verdict. Although the jury decided entirely in VGo’s favor, the appeal will keep this legal battle an active issue for both companies so I would not be surprised if we hear more commentary from both companies in the coming months. In the long-term, is this ruling hollowing out InTouch’s competitive edge in the health care space? This ruling does cut down on InTouch’s competitive edge to some extent, but I would think that InTouch’s extensive research and knowledgeable advisors provide it with a competitive edge in other respects, such as developing a product that satisfies a very specific set of rigorous demands by the healthcare industry. Whether these patents were a necessary part of InTouch’s competitive edge will likely depend on how much money InTouch has already spent on R&D in order to develop its robot. Only InTouch can determine whether such upfront costs were necessary, but if the quality of its robot alone cannot justify outselling cheaper telepresence alternatives, the invalidity of these patents could indeed hollow out their competitive edge. And it is worth noting that this also assumes someone willing to pay $6K for VGo’s bot would, in its absence, purchase InTouch’s robot – an assumption I know some in the robotics industry dispute.
What are the long-term implications of this ruling for the telepresence robotics space? First and foremost, it means that VGo is here to stay; and more telepresence robots are likely on their way. Since a patent typically provides a company with an exclusive right lasting 20-years from the date the patent was filed, the exclusivity rights of a patent postpones competition for a substantial amount of time. This ruling undermines the breadth of InTouch’s exclusivity rights and will likely result in more telepresence robots entering the U.S. market faster. InTouch still has a formidable paten
t portfolio, and thus, it does not free up the market entirely. But other robotics companies are going to consider most of the U.S. telepresence market fair game now, and start-up’s focusing on telepresence robots are going to have an easier time getting investments. My understanding from Frank Tobe’s article on his Everything Robotics blog is that Giraff Technologies AB, the makers of the Giraff telepresence robot, relocated to Denmark, at least in part, due to a cease and desist letter they received from InTouch. Assuming that is correct, I would expect Giraff Technologies to reassess InTouch’s patent portfolio to determine what this ruling means for its product. Bossa Nova is also likely to seek some guidance on what this verdict means for the future of its telepresence bot, and how it may impact its own IP strategy. For the robotics industry generally, VGo’s success may motivate others in the robotics industry to fight these patent lawsuits rather than shutting their doors or moving overseas. However, it also serves as a reminder of the substantial legal risks for start-up robotics companies; and shows that there is no guarantee for even well-funded industry trailblazers that they can protect their return on large R&D costs through an aggressive patent strategy. How should InTouch behave and what might be the verdict’s impact in terms of the company’s patent philosophy? In terms of InTouch’s IP protection, it is doing exactly what it needs to at this point. InTouch is appealing the decision, and I am sure its very capable lawyers are looking over every aspect of the case in order to determine what it can challenge. As aggressive as InTouch has been with asserting its patent portfolio, it appears VGo is being just as aggressive in its efforts to knock down InTouch’s IP. Especially on the heels of this verdict, and VGo’s announcement that it launched re-exams that have already rejected all of the claims in three different InTouch patents, VGo may continue to challenge the validity of InTouch’s patents through future re-examinations. Other telepresence robotics companies may also join VGo in challenging InTouch’s patents through re-examinations. However, I doubt this verdict or the re-exams will impact InTouch’s strategy of filing patents since it has the resources to continuously file patent applications and it understands the practical financial benefits that come with obtaining a portfolio of both narrow and broad patents. While a start-up or mid-size company in the industry has to be far more selective about its IP strategy, the cost of filing patents is presumably not a big concern to InTouch. Enforcing its IP, however, is where the cost becomes noticeable for even a big company like InTouch, so it is possible that these recent developments may convince InTouch to be less aggressive, particularly with some of its broader patents.
What would your advice be to a potentially less powerful robotics start-up that sees a company like InTouch as a barrier to market entry? It is important for robotics start-ups to develop a plan early that outlines exactly what will be done to assess the larger competitors’ IP, what will be done to protect the start-up from that IP, and how the expense of taking such precautions fits with the start-up’s financial situation. Far too many start-up companies – especially those who are dealing with IP issues for the first or second time – either spend more money on IP than the start-up can afford or alternatively ignore the issue altogether. Neither is a good idea. A full patent analysis can be extremely expensive and not a worthwhile, or even feasible, allocation of capital for a start-up. Such a decision, of course, may be different for an already well-funded start-up that has an imminent IP issue or is about to sink millions into R&D. For even small start-ups, however, it is sometimes worthwhile to seek patent protection on one or two key aspects of a start-up’s robot, which it can use defensively if the larger aggressive company needs the smaller start-up’s patent. A start-up with even just one or two strong patents of its own may be able to negotiate a favorable cross-license with an industry juggernaut without the expense of litigation or simply giving in to its demands. And for robotics companies of all sizes that develop multiple robots, they can often hedge against some of these risks through a more complex corporate structure than a sole LLC or Corporation. If you are a small, bootstrapped robotics start-up and you already know of a company like InTouch that might use its IP as a barrier to the market, it is a good idea to look at those patents. Anyone can do this on www.uspto.gov or Google Patents. Although patents can be very technical, and the important aspects of a patent are not always obvious to non-patent lawyers, a cursory review can sometimes still give start-ups an idea of the areas that a company has already sought to claim as its own. However, if you do not know whether a patent already exists on a certain type of technology, it becomes much harder. Although you can still do searches on your own, or hire a patent attorney to do the search, there is no guarantee it will uncover every potential patent that could be implicated by the robot that the start-up intends to build. If already faced with allegations of patent infringement by a more powerful competitor, start-ups should consider cheaper alternatives to litigation. This certainly includes re-examinations. In order to challenge an issued patent through a re-examination, new evidence needs to be submitted that shows the patent should never have been granted. The research that goes into finding prior art for a re-examination is only a fraction of the expense that goes into a patent lawsuit. However, there is no guarantee an already filed lawsuit will be put on hold during the re-exam and if the claims are not sufficiently narrowed there can be some negative consequences. In those situations where a patent owner files a patent lawsuit against multiple companies, I am almost always in favor of a joint defense that reduces the cost of the lawsuit for each company by splitting the expenses and fees amongst all of the defendants. See C. Andrew Keisner’s related article, Making Your Robotics Company a More Attractive Investment.