Capital Can Transform Invention Rights

Why do many businesses prefer lawsuits over licensing deals — and what does IP capital mean for innovation?

Phil Hartstein, co-founder of Soryn IP Capital and former CEO of Finjan Holdings, shares insights from orchestrating almost $500 million in licensing deals. He explains why patent licensing has shifted from corporate boardrooms to courtrooms, and discusses the economics of patent enforcement, the role of litigation finance in supporting legitimate innovators, and how AI is transforming IP strategy. 

Phil reveals what makes patents valuable, why most portfolios contain only single-digit percentages of enforceable assets, and his perspective on patent monetization as a strategic responsibility rather than defensive last resort.

Key Takeaways:

• Most patent portfolios derive value from only single-digit percentages of total assets
• Corporate defendants now manage 50-100 active patent lawsuits simultaneously
• Patent litigation costs range from $2-20+ million and take 3-5+ years to resolve
• Licensing discussions once happened in boardrooms over 9-12 month periods
• Modern product cycles compress multiple technology clusters into shorter timeframes
• IP capital helps innovators compete against well-funded corporate defendants
• AI tools like ChatGPT are transforming patent analysis and claim construction workflows
• Patent monetization strengthens both business balance sheets and the broader innovation ecosystem
• The U.S. patent system's constitutional foundation drives American technology development
• Strategic patent enforcement requires demonstrating credibility, capability, and resources

About the Guest:

Phil Hartstein is a technology investor, inventor, and intellectual property strategist. He co-founded Soryn IP Capital and previously served as CEO of Finjan Holdings, a public company now owned by Fortress. At Finjen, he oversaw licensing and enforcement of pioneering cybersecurity patents, orchestrating more than $300 million in licensing deals. Phil holds more than two dozen pending and issued patents and has been twice recognized as a top 40 IP dealmaker.

00:00 - Introduction to Phil Hartstein 
01:44 - Why companies prefer lawsuits to licenses 
03:03 - Boardroom licensing era vs today 
04:16 - Soryn IP Capital's role in leveling field 
06:35 - Corporate litigation dockets explained 
08:47 - Patent lawsuit economics and timelines 
10:23 - Funding plaintiffs vs bad actors debate 
13:10 - Making capital available for innovators 
15:36 - Patent quality and portfolio value 
18:07 - Supreme Court's Unwired Planet decision 
20:16 - The Alice decision's ongoing impact 
23:40 - Patent valuation and market adoption 
26:25 - PTAB's role in patent examination 
29:14 - Working with litigation finance 
31:40 - Evaluating patent portfolio strength 
34:22 - International IP enforcement landscape 
37:08 - Germany's patent system advantages 
39:30 - AI's impact on patent prosecution 
42:42 - Racing vintage cars as analog escape 
44:40 - Patent monetization as strategic duty

Transcript

[Phil Hartstein] (0:00 - 0:10)
The complexity of what we do as professionals in the licensing space is really challenging. I think we went through a couple of generations where people really didn't understand what goes into innovation.

[Bruce Berman] (0:14 - 1:11)
Hello, I'm Bruce Berman, host of Understanding IP Matters, the acclaimed series that provides leading innovators and experts the space to share their IP story, the good, the bad, and the incredible. Phil Hartstein is a technology investor, inventor, and intellectual property strategist. Prior to co-founding Soren IP Capital, he was the CEO of FinGen Holdings, a public company now owned by Fortress.

At FinGen, he oversaw the licensing and enforcement of the company's pioneering cybersecurity patents and orchestrated more than $300 million in licensing deals. Phil has more than two dozen pending and issued patents of his own and has been twice recognized as the top 40 IP dealmaker. Hi Phil, where are you speaking from today?

Hi Bruce, I am in Menlo Park, California today and happy to be here with you. Okay, that's just north of Palo Alto, I think, right?

[Phil Hartstein] (1:12 - 1:16)
Right, one town, one town north of previously the venture capital center of the universe.

[Bruce Berman] (1:16 - 1:43)
Previously. Let's get right into it. IP rights, especially technology patents, have become more difficult, if not impossible, to license without first filing costly lawsuits.

Many businesses would rather contend with these suits, defendants certainly, would rather contend with the suits than would otherwise be a legitimate license, than take an otherwise legitimate license. Why is that? Why do they want to be sued?

[Phil Hartstein] (1:44 - 2:42)
Oh boy, to put myself in their shoes. I think, you know, the challenge is, and I think hopefully we'll explore some of this today, is that there's a lot of patents out there and by the metrics, if you ask like a rule of thumb, anyone, whether you're in a corporate environment or you're on the licensing side, they're going to tell you that the value of any patent portfolio is going to reside in some small single digit percentage of the overall number of assets. And each of those assets, high and low quality, has equal access to be licensed and enforced against companies. And I think, you know, what you probably have is a 10 to 15 year run up of just anybody with a patent thinking that that was an open door to seek licenses.

And certainly understandable on the company side, that you have a growing docket of enforcement actions, that you have to have some way to prioritize and engage with that licensing community.

[Bruce Berman] (2:42 - 3:02)
But isn't it just easier to take a license? In the old days, 20 years ago or more, if it seemed reasonable on a business terms, you would take a license as an operating company, if it looked like you might be infringing or using somebody's invention. But now it's no reason, it seems there's little reason to do that.

[Phil Hartstein] (3:03 - 4:02)
I certainly am old enough to remember a time when licensing discussions would happen in boardrooms. Yeah. You'd sit across from a table with each other, you know, once every month or every six or eight weeks, and you would work over a 9, 10, 11, 12 month period to find a resolution.

This was also in a time though, where I think the focus was more on volume than it was on quality. And I think certainly the pace at which consumers demand ever increasing levels of innovation in the product life cycles, that has really condensed. And I think as a result of that, you have more broad technology groups and clusters being combined into smaller packages and products, again, that consumers are demanding.

And the pace of that design and sales cycle outpaces that for which companies can do their own R&D, right? So I think there's this natural friction between who has more patents, who has high quality patents, and frankly, it's being driven by consumer demand.

[Bruce Berman] (4:02 - 4:15)
And your firm, Sorin, provides capital to help level the playing field, as it were, with huge, highly solvent businesses. What does this source of capital mean to infringe parties and to innovation?

[Phil Hartstein] (4:16 - 6:14)
Yeah, I mean, that's a great question. And I probably couldn't have set it up any better. And I appreciate that, right?

And the idea here is, given my background and having run high volume licensing programs, having been a public company CEO, monetizing the company's own patents, even when you know that you were at the center of innovation, and you can do the analysis internal to recognize not just adoption by a single company or two companies, but broad adoption by a market, you know, really so much to say that as a venture funded entity, as an example, we defined the space.

And for one reason or another, the market either outpaced us or a company had the ability to throw hundreds of people at it and condense the timeline to take something to market. You know, or even in situations where we see maybe, you know, like a joint venture between a larger and a smaller company, where maybe there was some questions about foreground and background IP rights. You know, there are real classic examples of the innovation lifecycle where larger companies move in and have the ability to capture the actual market, which is what we're doing with technology.

We're trying to drive innovation so that consumers and markets can benefit from these products. But the cost associated with even just pursuing a licensing program, leave aside litigation, you're talking about specialty expertise, you're talking about budgets that were not in the original line items when they were explored with venture capitalists. And frankly, when you communicate what the costs of building and running a licensing and enforcement program to a small or even a large technology company that may have its own balance sheet cash, it's almost incomprehensible what the cost is and the uncertainty, if you will, of timeline and outcome and the predictability of actual income versus what you are targeting for your revenues.

[Bruce Berman] (6:14 - 6:35)
But at one time, tech licensing wasn't always contentious. It seems like it is now. At one time, you brought a business proposition to someone involving patents and they looked at it and if it made sense, they took a license.

But now it doesn't seem to be happening the way it used to.

[Phil Hartstein] (6:35 - 8:46)
I think that's right. And again, putting myself in sort of a corporate enterprise shoes, you could take any of the largest companies and you ask the person who happens to run the litigation program within those groups, they'll probably tell you they have somewhere between 50 and 60 active lawsuits, maybe 100 if you're a larger or the largest type of companies. And so I think what you have is the natural response is to just force everyone with a patent or with a license claim into a category that says, make this important for me, prioritize this for me.

And it's sort of unfortunate. I think that, and this is sort of my personal experience here, is that it's very difficult to run an actual just business to business licensing program without an actual enforcement component to it. And you know, happy to explore that more.

But I think that that's really what defines the credibility, the capability, and frankly, the resources that a company has available to them to pursue such claims. And so it's really about building that story to say, and I used to use this phrase when I was running the public company, you know, someone would say, well, why are you asking me for this amount of money? And the answer is, well, because we did the analysis, we looked at the product sales, there's a reasonable royalty, we've discounted based on the law and the constructs, and it's how we arrive at the value.

But the disconnect there is that they presume that, you know, it's all large dollars, it's all or nothing. And I think, you know, after considering whether or not to pay or engage in that discussion, the concern is, well, now that I've paid you for that interaction, everyone else is going to presume that there's a similar, you know, pathway into me, right? And so, again, this is really sort of the distinction that I want to draw here is that we're talking about really credible technical inventions, we're talking about really deep portfolios of innovative concepts, you can see the hallmarks, they start with these really broad phrases, but they move into the technical implementation to solve the real world interconnect problems that happen with existing ecosystems, you know, limitations on batteries examples, right?

[Bruce Berman] (8:47 - 9:18)
One patent in thousands, perhaps. Yeah. Patent suits, Phil, today cost anywhere from a few million dollars to more than $20 million.

It can even go higher. And it can take five, three or more years to three to five or more years to resolve. From the defendant perspective, and the public's perspective, largely, funding plaintiff suits appears to be aiding and abetting bad actors.

What's your take on this? Hot topic.

[Phil Hartstein] (9:19 - 9:19)
Certainly.

[Bruce Berman] (9:20 - 9:22)
I only ask difficult questions.

[Phil Hartstein] (9:23 - 10:20)
I don't ask these. I think, I think, you know, for me, the issue here is that it's easy to take a few bad actors and isolate sort of those snippets and build a construct that says that this is, you know, a nefarious pursuit. And I couldn't disagree more, at least with the counterparties that that we engage with.

You know, we're dealing with storied innovators and companies that have household brand recognition. And what I find is that truly unique innovation cycles live on the backs of existing technology while they can get up to speed. And those existing infrastructure providers, for example, here are often having to, to just scatter and spend tons of money to adapt.

I remember a time when to send a text message would cost you 50 cents a message. And I used to laugh.

[Bruce Berman] (10:21 - 10:23)
I'm like, wasn't that long ago?

[Phil Hartstein] (10:23 - 12:22)
Yeah. But how is it that that could cost more than hosting a persistent conversation between two parties where data packets are, you know, constantly being sent back and forth? And the answer was, well, it just wasn't set up initially to do that.

Right. And so when you think about how, you know, then you move into web-based messaging or Wi-Fi-based messaging, you know, all uses the same infrastructure that it did originally to create, but the telecommunications companies are the ones that had to really solve that functional problem in the very beginning. And so these are the types of things that you often see, right?

And you can use this in, gosh, almost any industry today where, you know, there's a new buzzword, but there was already an existing technology and an infrastructure that existed there before. I remember ISDN lines that were like a dedicated connected pathway between two sites. I mean, VOIP, you know, a lot of these things are just recreating those sort of problems that were originated and solved earlier in the life cycle with the guys who played in the space previously.

So it's really about finding these innovative programs. It's about identifying these really cohesive portfolios. You know, so for me, I don't think we deal with the side of the industry that might be, you know, buy a few patents for a couple of dollars on the hope and a dream.

I mean, for example, you may remember a time when patent complaints were allowed to be filed against a hundred defendants. You know, one complaint, and I am targeting a hundred companies used to be able to say to satisfy the elements of infringement, I'm on information and belief, right? We just don't do that.

We just don't do that anymore. I think that, you know, real diligence, real underwriting, real awareness of how technology and technology stacks grow and develop. And by engaging with those thoughtful parties and doing so really as part of the process in determining whether or not you want to be in a financial partnership with these owners.

I mean, a lot of that just happens up front now.

[Bruce Berman] (12:22 - 12:34)
How selective would you say, Finch, how selective would you say Soren is about what percentage of those deals you see, do you engage in? Oh, gosh.

[Phil Hartstein] (12:37 - 12:49)
If I had to wager a guess, you're probably, you may look at a hundred opportunities a year. You may seriously look at five or six of those. You may do two or three of those.

[Bruce Berman] (12:49 - 13:04)
That's really interesting because Adam Gill, who was on with us from what's, I don't recall the name of his funding firm in Chicago. He said exactly the same about 5% of those deals he sees, they engage.

[Phil Hartstein] (13:04 - 15:02)
Now, what I would also say when you think about firms like Soren, we're also recognized as a place where you come when you have a number of use case scenarios. So for example, just given my background, having run a public company, primarily focused on licensing its IP, we get a lot of phone calls from operating businesses who are asking, sure, I have the balance sheet to do this. I may have some skilled resources inside to do this.

I may not be the best picker of the assets. I may not know how really logically to organize a campaign. I may not know how best to present that either to a board or to shareholders.

I also can't tie up free cashflow of the business in such a way where there's no predictable outcome on a return basis, let alone an absolute loss if we make a mistake because we haven't done this before. Help us solve that problem. These are sort of self-selecting entities in large part that in this use case example, and they come to us for the more complicated things, which is like, I have 500 patents, and there are three distinct market segments.

In my lifetime, we as an entity don't have the expertise or experience, or maybe we're more defensive-minded internally, and we don't have the experience on running and building these licensing programs successfully. These two types of examples are what we see, and really what not just the underwriting and determining whether or not there's a viable licensing and enforcement program, but it's also building in the capital efficiency, being realistic about your expectations, making sure the parties are really aligned about what is fair value in a license rather than the swing for the fences and wait for the billion dollars, which I think, as we all know, largely strikes juries and the federal circuit as being unreasonable in terms of payable damages. It's really about finding that right balance about what the reward should be for that early innovation.

[Bruce Berman] (15:02 - 15:33)
I think there were more high damages awards 10 or 20 years ago or 30 years ago than there are today, despite the inflation involved. Phil, the federal government in some states would like those with a financial interest in a case, in a suit, to disclose who they are. Why is that an issue?

What's the big deal about disclosing who's invested in the case or not? Should it matter?

[Phil Hartstein] (15:34 - 17:06)
Yeah, there's a lot of questions. It's interesting because even when you sit in a room and you listen to various district court federal judges answer this question or engage in this discussion, you get a wide variety of answers. I think collectively what, and this is probably isolated in a Texas district court context, let's say it has nothing to do with the merits of the action.

A patent is an entitlement, is a right. It was duly granted by the government. You were going through the actual prescribed process of adjudication.

As the rights holder, you have to satisfy when you file who you are and you meet those obligations. I think in some regards, some people would think that it's a sideshow, it's a deflection away from the merits of the program itself or of the assets themselves. I think something that's often lost too in this discussion is investment fund structures in the financial world have been established in terms of, I mean, I'm our chief compliance officer, for example.

When you understand what the know your client requirements are and the compliance obligations and the mandates just for running a traditional GPLP fund, there are so many things that we are obligated to meet and disclose and declare in terms of just general fund operations. That's even before you get to an investment level decision. A lot of that's already being taken care of.

[Bruce Berman] (17:06 - 17:12)
Do you get involved in the case itself? You're not a lawyer, but your partner is, I believe.

[Phil Hartstein] (17:13 - 19:02)
Yeah. My business partner is actually a lawyer, but no, we do not get involved in the cases. Typically, the way that these work is someone will bring an opportunity.

We will evaluate that opportunity on the merits for the financial return prospects. We will have a very active discussion around capital efficiency with the party, which is, hey guys, don't take this money to pay yourself extraordinary amounts of dollars while we all wait and see what happens here. We find that to be very helpful.

We're also very focused on making sure that the decisions that that business or that counterparty is going to make as it relates to their licensing and enforcement program are as consolidated as possible. Again, just from the funding perspective on the GPLP side, you really have to be aware of the fund cycles. It's the same five, six, seven year cycle and sometimes there's some incongruency there with patent licensing and enforcement.

Fortunately for us, we really value opportunities where a large component of the income base will be resulting from licenses outside of litigation. Again, because these are the broader programs, they read more broadly on markets. There are more participants.

This isn't dial for dollars, every ace hardware. This is a constrained, very confined market. Players are established and we would prefer to see the businesses do as much of those business licensing deals as possible.

That, for a lot of reasons, is both income to the business and it goes a long way to repaying the financing expense. That's really where managing the alignment of interests between parties comes into play.

[Bruce Berman] (19:02 - 19:27)
You were president of FinGen, I believe, and CEO, as I recall. It was a public, for those who may not remember, it's a public licensing company that also conducted research and sold products in the cybersecurity area. It was acquired by Fortress in 2020, big financial firm.

What was the catalyst, Phil, for the sale? Why did you sell out? Or they acquire you, however you want to look at it.

[Phil Hartstein] (19:28 - 21:53)
I'm going to answer that in two parts. I'm going to say the first catalyst for getting involved with it having a second life as a public licensing business. The original catalyst for that business is what we, I think, take for granted today is the architecture that exists around providing cybersecurity protection for everything from email to phone calls to data transmissions, access to the internet.

There were so many innovative companies that are focused on different things. At the time, most people were focused on how do I move big content through small expensive pipe when people ask for it in 10 different places. This is literally the time that FinGen was inventing this, right?

Content caching was really where the industry focused. What FinGen focused on was, great, look, everyone's doing content caching, but wouldn't it be great to know if this file that is about to be content cached is secure, has not been modified, did not get hijacked along the way, let's develop an infrastructure to protect that package so that when it arrives and it is now cached, you have a very quick way to check and make sure that nothing nefarious happened between point A and point B.

That opportunity was captured by much larger companies who just basically outspent the innovator in the space. The opportunity here for FinGen that existed was a business that was owned by two very large corporate entities. It had three, four, five very prominent venture capital funds invested in it.

Looking around at the market that had adopted its technology really recognized that the value of its contribution to the marketplace was contained in its patent portfolio. I think important to note, that patent portfolio had fewer than 50 issued and pending patents around the world. We're talking about a really impressed, very early in time portfolio.

The idea for them to recapture their invested capital, again, because they didn't get to see it grow up into a big company and have a brand name, was through licensing. The idea was through fair value licensing. I think everyone also knows that the company went to great lengths to create transparency and best practices around licensing.

I know the licensing...

[Bruce Berman] (21:53 - 22:36)
What were the challenges faced by a public patent licensing company? Because by virtue of being public, as you well know, you have transparency issues. What were the unique challenges?

I know at that time, this was 10 or 15 years ago, there were a number of public patent licensing companies. I had written about a lot of them. I called them PIPCOs, public IP company.

I actually meant it to be a larger swath of the IP world, but that's another discussion. What were some of the unique challenges in being public and being a licensing company? I'm sure quarterly cash flow had something to do with that.

[Phil Hartstein] (22:36 - 28:54)
Yeah. Again, I'd put these into a couple of categories. I think there's strategic and tactical as where I would start.

I would say that FinGen made the decision as a public company to not use tactics, which I think is really what draws the ire, but to use a strategy, which is we know what the market is. We know how many players they are. We know how broadly the technology has been adopted.

We are going to license the industry. We're not going to seek specific dollar amounts from individual companies until we do that analysis, but the goal is to broadly seek licenses across the entire industry. To date, that business has done, I think, 30 or over 30 licenses to the company's patents.

I know you mentioned in the introduction, $300 million. I think it's probably closer to half a billion at this point, which is fantastic. When you adopt strategies and you walk away from tactics, again, this is the best practices, which is we want our, at that time, our engagement with the industry to be transparent, know where you stand, happy to exchange freely documents and materials on what our position is, whether that's a merit-based claim on infringement or whether or not we have a misunderstanding about how much sales volume there was in a particular product category. That engagement, we think, really greased the skids to having more productive conversations. The fastest license I think that business did was in about 10 months.

Interesting to note, this is something I don't get to say a lot, is that of those 30 licensees, we had four of those who resulted in follow-on business opportunities. We sold business units to them. We helped them identify opportunities external to their core areas of business.

We really believe that as a licensee, you were a member of the Fingen family of now licensed technology providers. That was great. That's on the one hand.

On the enforcement side, as you mentioned, the transparency requirements, which again, knowing that we were owned by corporate entities, very large corporate entities, as well as venture capitalists, their belief was that if we were going to display and deploy these transparent licensing practices, that we would have more ease of access to successful licensing negotiations. And to capital probably. Yeah, so access to capital, liquidity for long-term shareholders, better transparency, but you're right, the pressures of market dynamics and maybe this is a unique experience for me.

I was running a public company. My board was acutely aware of the specific nuanced issues. I spent years teaching them about the value of IP.

So I had a very knowledgeable board, but I also had shareholders who readily expected the IP to be monetized because again, it was a core component of value. So certainly a lot of pressure to produce on quarters. We tried to manage that the best that we could.

But I would also say that it got flipped on us a little bit. As much as we were trying to be transparent and engage freely and openly in these sort of discussions to license the company's patents, it was very easy for groups of defendants or recalcitrant non-interested licensees to form and then deploy their own tactics, right? Let's go through and let's stagger our transfer motions.

Let's do what we can to force the company into multiple quarters of delay where they're going to incur recurring expenses, right? We're going to drive the cash down to the business, put them in a negative leverage position and maybe they'll have to take a cheaper deal. That interestingly, what I'm going to draw a connection point here for you, I found myself in that position as a corporate owner of IP, as a guy who understands how to and build enforcement programs.

Having had a couple of hundred million dollars of success, I found myself in that leverage position. I myself found myself in the market to consume financing. So I did not like that experience at all.

I think litigation finance generally takes a broad-based approach to how to engage with IP owners interested in pursuing these programs. For me, I knew the value of my assets. I had an internal licensing team.

We had success in litigation in the district court. We had payouts in the tens of millions and in some instances, greater than a hundred million. My cost of capital expectation was vastly different than what was available in the marketplace.

I went to the market and basically needed to shore up my balance sheet. That was purely, I need cash on the balance sheet so that people stop playing games with me in these licensed negotiations. The best solution I found for that was in the credit markets.

It took a lot of work to communicate what it was that we had as an asset. And the strategic value of their capital being accessible to the business for operational proceeds, not just for paying lawyers and diligence and licensing teams, but that actually is how FinGen transfers into Sorin. I think we proved that for higher quality programs, for programs that had a track record and had real merit-based access to large swaths of the market deploying technology that was clearly embodied in the patents, that there was a better way to finance and that there was an opportunity to find better financing partners.

That is how I arrived here. Sorin actually was the first non-public market financier for FinGen. And in each of those highly structured credit instruments, I was able to provide liquidity to shareholders and stock buybacks.

I was able to use proceeds for operating purposes within the business, which included running the licensing program and also to be able to maintain that balance sheet strength that I mentioned initially.

[Bruce Berman] (28:54 - 29:06)
And yet Fortress took you private again. Yes. Did you come to them or they came to you or just seemed like a good thing to do at that time?

[Phil Hartstein] (29:06 - 29:13)
Yeah. I don't wish running a public company on anybody. I think there's a lot of things you learn.

[Bruce Berman] (29:13 - 29:30)
I used to do investor relations. I used to handhold a lot of these folks who were in public companies and they spent so much of their time doing nothing, having nothing to do with the business itself, but with finance and filings and all that.

[Phil Hartstein] (29:30 - 32:29)
We used to audit my time, for example, and I'll answer your question directly in a second, but it started probably two or three years in where the board would say, okay, how much time are you spending on the primary line of business, which is licensing the company's IP versus that which you spend on the company being public. And I think that the outcome of that, we ran it twice a year where we would go through literally look at calendars and we would do it by days. Are you working on licensing or are you in a courtroom or are you traveling for public company stuff?

And about two-thirds of my time was spent really managing public shareholders. And I think what you learn in that exercise is that it's the shareholders who own the business. And if you are expecting your shareholders to have advanced knowledge of intellectual property and have confidence and comfort around the ups and downs and what the words in an order that came from the court that can't be translated into plain English, what it means to your program, I mean, it's sort of a lost cause.

But at the end of the day, what you really spend a lot of time doing is managing the expectations with that larger group of people who own the business. And I think through no fault of the company's own, you ultimately reach a point where either your success grows a larger shareholder base that now has a wider varying degree of understanding of what's going on. But inevitably, you're going to face challenges.

They always want more revenue, more income, more profit, decrease of expenses. There was an old irony that you could not do a license for two quarters and show up with a $40 or $50 million license. And you'd think that would be a really great transfer of value into the share price.

And you go and you read the blogs, you show up at an investor conference. And what you hear was, well, that's really great. But we already think that you're going to spend all of the profit from that over the next two quarters and not do a license.

And therefore, the share price is going down. I'm not sure that those two, at least in a dedicated format, were really meant to be sort of symbiotically organized, which presents a really big challenge. And so I think opportunistically, I think we were seven or eight years in when we decided, are we at a point, an inflection point in the business where we have to decide where we can either grow and diversify our asset base to provide longevity to the business, which we did some deals, some additional deals.

We brought in some similar assets, and we had some other lines of businesses. But really what I think the decision from the board was is we're going to have to start representing either in an agency model, other licensing programs if we want to maintain our public status, or we have to explore strategic alternatives. And that strategic alternatives discussion led us into a fortress, a year and a half, maybe even longer process, lots of bidders, lots of time out of the office.

And ultimately, Fortress came in and completed the transaction and completed the take private. And so yes, now it is now owned by Fortress, and I still actually have the pleasure of sitting on the board for that business.

[Bruce Berman] (32:29 - 32:50)
Interesting. What's the process? At what point does the litigation funder typically get involved?

And what do you do? What's your due diligence look like? And to the extent you can manage the relationship, what are you doing with the funded entity?

How do you work with them?

[Phil Hartstein] (32:51 - 35:47)
Yeah, so this is obviously going to blend in. Maybe there's an offshoot of this line of question that goes into sort of how do you structure what the variances are. But really what you're looking for is the position in time for which the entity, not based on its claims, but actually can demonstrate that they were early in a market.

Like I remember, I'm old enough that when Bluetooth came around, I remember people would say, man, we've got this low power, you know, short distance, high bandwidth, you know, pretty solid, reliable, you know, communication standard that's going to take storm. And you're like, great, I hear that a lot. You show me one Christmas holiday shopping season where like people, everyone wants Bluetooth, great.

And I will agree with you. But right now, like I get that a lot. So I need to go to the merits, right?

I need to look at the quality of the IP, the diversity of the portfolio, the breadth of expertise and experience in the inventor base, you know, what the company's products and development timelines look like relative to the IP, do those track well? I think we all know that some companies develop IP for defensive purposes, just to have a big bulk of it. And it's a rarer breed when you find a business that either intentionally develops a industry-wide licensing optional program, or sometimes they luck into it.

But it's really about helping them identify what sort of core components of their asset base actually relate to what they think it does. And that's a merit space evaluation. We're talking about rules and constructs that are largely established by decades of established case law, policy, procedure, processes.

I mean, I have the MPP sitting here, and it's not a surprise that I open this thing once a week to figure out whether or not that's how things get done, like in the patent prosecution world. Because that's where I started, right? There is a process by which you need to get these patents.

So you take that on the merits, you then explore the markets, you then start to take maybe some of that expertise that you get over 10 or 20 years in the space of doing this. This is not something that we just sort of decided one day we were going to get into, you know, we're all professionals in this business. And you put all that together.

And if you can persuade your business partners, again, we have a lawyer, we have someone who worked in the finance industry before me, I'm more of a business and an operator. If we can convince each other that after rigorous diligence in all of those areas, and that there's a merits based case here and a large enough opportunity with enough downside protection, again, because we're not litigation finance purely, we're more of a credit model. Yeah, that's when we think about putting a term sheet out.

And frankly, it comes down to do you want to be partners with this business? It's the same thing that we think about in GPLP relationships with our investor base, same way we think about it when we consider investing in counterparty.

[Bruce Berman] (35:47 - 35:51)
And without naming names, where do you get your capital from your funding?

[Phil Hartstein] (35:52 - 36:34)
Yeah, it's a great question. And I appreciate the not naming names. We are we are institutionally investor backed primarily.

Okay, we have state pension plans, we have university endowments, we have large family offices. These are typical types of investors that you would see really in any sort of private equity based investment structure. Not all of them are like that.

Some funders actually operate, maybe under a SMA vehicle, which is like a separately managed account right underneath a much larger fund. That's not us. This is all that very difficult, meet, greet, get to know each other over a significant period of time and timing and luck aligns.

[Bruce Berman] (36:35 - 36:50)
But it's heartening that they're able to understand your model well enough to invest or to provide capital. I think that's encouraging because it's not it's not it's not like putting money in, you know, P&G or, you know, or a pharmaceutical.

[Phil Hartstein] (36:51 - 37:59)
Well, let's have some fun with this, right? I actually think that we're we're, you know, for generationally, I think I grew up in a space and I was interested in the IP space because I was aware of big companies getting into rooms and using the ruler to say who had more patents and using that to derive value. I think we went through a couple of generations where people really didn't understand what goes into innovation.

And if you're fortunate enough to work in a business where that innovation is captured in IP, I think there was even further disconnect. You know, you have engineers and software developers that tell you patents all suck. And I think, you know, that's not my opinion.

I I think patents are great. But I also think we have a new younger generation of people. I have a middle schooler at home, right?

And you're talking about kids that will spend real money on digital goods that have a brand affiliation. I mean, that is the same kind of IP that we're talking about. You can take music rights that now are more widely recognized than before.

I think the sentiment is changing, right? Some of the biggest blockbuster movies of 2024 were I mean, take Barbie, right? It was a licensed or Marvel, right?

These are licensed.

[Bruce Berman] (38:00 - 38:05)
They call them IP movies. They call them because they're so character based and licensing oriented.

[Phil Hartstein] (38:05 - 38:25)
So I think we're in that sort of paradigm shift where I think IP is more widely understood, maybe not at a detailed construct level, but at least notionally, without all the bias and, you know, without looking at the last 20 years of sort of how sort of the transition of where we get to the value of IP occurred.

[Bruce Berman] (38:25 - 38:40)
Yeah, they show increasing, WIPO had a study that showed increasing perception, awareness and positive perception in Asia, parts of Asia, China, with regard to IP, which is, you know, would be startling 20 years ago.

[Phil Hartstein] (38:40 - 38:43)
Did you think we would be saying that in the middle of a conversation, right?

[Bruce Berman] (38:43 - 39:05)
And where US and Western Europe are kind of diminishing. We're turning a page a bit. Where do you think, Phil, we are with regard to Gen AI and IP licensing?

What needs to be done to facilitate adoption of AI and integrate it more into the IP world?

[Phil Hartstein] (39:06 - 42:30)
The part I'm going to avoid on that is AI producing IP. I just, I don't spend a lot of time there. I can tell you the amount of work that goes into underwriting and making an investment in a counterparty to build a licensing and enforcement program, I think would be shocking to most people.

The amount of time that you can spend working on a deal and spreadsheets and PowerPoint presentations and reviewing claim charts and reading market research and trying to figure out who you think is right. I mean, it eclipses any of the work that I think a college level, you know, thesis document would demand. And the unfortunate outcome of that is that you often find yourselves resisting doing that diligence, you know, in a fair way.

Right. You might say, well, this group of patents only has 30 patents in it. And, you know, they're in four families and it could be on the margins and interesting read, but I've got these three other really pressing things I'm going to work on instead.

And I think for us, what AI has really transformed or has the potential to increasingly transform in our business is an equal look for all opportunities that come in, you know, in a standard unified way. I'm not saying that, you know, we process things and we rely on the output, but I'm saying the benefit of having processing that has no problem working overnight, doesn't care if you bark at it or tell it it misunderstood, or you want it redone with these six new documents and start at the beginning because you want to make sure that everything. This has a real profound impact on the types of things that can be done.

Sure. But I also think we're at the infancy. I think what most people experience chat GPT for, which is like, I don't know, like my parents, for example, ask it for movie times.

I like to actually probe and really dive into the inference that I wanted to make between things. And I wanted to, I recently went through this experience where I wanted to build a profile on me as the, as the asker of the questions, because I want it to get accustomed to being responsive in a unified format. And I, I think our finding here is that it's already making a transformational change in the way that we think about approaching these opportunities as they come in.

But it gives us an opportunity to think about them more broadly, but we are also at the limits. And I don't think many people are here yet is that these systems just are not connected to anything. They're still playing games around the walls on whether or not you're in a Google walled environment or a Microsoft walled environment.

And even if you're in the Microsoft walled environment, different applications still can't talk to each other and share information. You can ask one to do analysis and it says it's outside the realm of what it can do. And you go to the other side and it says, sure, you want that in a spreadsheet?

I'm happy to write the code for you. And so I think that there's a lot of development and integration that is likely to happen in the near term.

[Bruce Berman] (42:30 - 42:40)
Phil, we're getting near the end of our time. And I would feel remiss if I didn't ask you about your, you like to modify and race old street cars, you know, how did you get into that?

[Phil Hartstein] (42:42 - 43:12)
All right. So that story starts with the picture behind me. So that is an animal that has occupied a largely vacant building who is now being accused of having caused that damage in the building.

And if you look at the look on that animal's face is that it doesn't have time for you and it doesn't care what you think of it. So that's largely a reflection of what it's like to run a public licensing business in general. I do have some of these back here.

[Bruce Berman] (43:13 - 43:19)
And it is a bull, not a bear, right? No, I think it's a...

[Phil Hartstein] (43:20 - 43:28)
Bison. It's eluding me, but it's like a water oxen or something like that.

[Bruce Berman] (43:28 - 43:28)
A water buffalo, okay. Yeah.

[Phil Hartstein] (43:29 - 44:33)
But you learn that the complexity of what we do as professionals in the licensing space is really challenging. And I think the demands of that, and especially running a public company, I think you lose sight of the important stuff, right? Which is, you know, aside from being the person you are at work, but finding pursuits outside that allow you to be competitive and to use your hands and to engage your brain and to do so in a way where you can truly separate away from...

In an analog way, right? Yeah. And that's where these come in, right?

So yeah, racing cars is a fantastic way to take something old, give it new life. It's purely mechanical. There are no excuses.

It responds directly to your inputs. But it has become a really interesting way for me to challenge myself outside of just the daily pursuits. And as I like to say, I came for the racing and I stayed for the people.

So it turns out you meet a lot of really great people in that space as well. Thank you for asking that.

[Bruce Berman] (44:33 - 44:40)
What two ideas would you want to leave with folks today? If they remember nothing else, what would you like them to think about?

[Phil Hartstein] (44:40 - 45:39)
In my experience, monetizing patents is really no longer viewed as like a defensive last resort, but it's almost like a strategic responsibility that you have. And with that, the responsibility extends to your partners and the strategies that you put in place and, frankly, the expectations that you deliver to your board and to your shareholders. I am a firm believer that patent monetization, again, in accordance with all those things we've discussed today, really strengthens not just the balance sheet of a business, but I think it actually strengthens the broader innovation ecosystem.

I mean, if you look at the pace of technology as it's being developed in the United States, I would argue that that is principally based in the fact that we have a solid, functioning, foundational patent system that was born and embedded in our Constitution.

[Bruce Berman] (45:40 - 45:55)
Great. This is terrific. Thanks, Phil, for being with us today.

I know your schedule is busy, you travel a lot, so it was great to get you. I hope you'll be able to join us, Phil, this year at the IP Awareness Summit.

[Phil Hartstein] (45:56 - 45:56)
In Ohio.

[Bruce Berman] (45:56 - 46:10)
That's right. In Columbus, second largest city in the Midwest, next to Chicago. Center of Science and Industry in Columbus, which I think you're going to find really interesting.

It's a very dynamic and fascinating place.

[Phil Hartstein] (46:10 - 46:17)
I appreciate the opportunity to be here today. I participated last year in that event and it is already on my calendar for 2026.

[Bruce Berman] (46:17 - 46:26)
April 23rd. Great. Thanks again.

We'll have to have you back on and we'll talk to you before the event, I'm sure.

[Phil Hartstein] (46:26 - 46:27)
Thanks, Bruce. Appreciate the time.

[Bruce Berman] (46:28 - 47:11)
Hello, I'm Bruce Berman, the host of Understanding IP Matters, the critically acclaimed series that provides leading innovators and experts the space to share their IP story, the good, the bad, and the incredible. Understanding IP Matters is brought to you by the nonprofit Center for Intellectual Property Understanding, with the generous support of its partners and sponsors. Subscribe on the platform of your choice or email us at explore at understandingip.org.

Content provided is for informational purposes only and does not represent the views of CIPU or its affiliates. This episode was produced for CIPU by PodSonic. Thank you for listening.