India: "Royalty Free Patent Licensing" An Antidote for Patent Trolls

Last Updated: 18 July 2017
Article by Monika Shailesh

Most Read Contributor in India, July 2017

Patent Assertion Entities (PAEs) are business that take hold of the patents from third parties and use them to generate revenue by asserting the acquired patents against alleged patent infringers. It is also sometimes referred to as Patent Trolls. Both the legal system as well as the IPR industry suffers a lot of revenue loss and wastage of time due to these fake patent infringement lawsuits. In a recent report "Patent Assertion Entity Activity: An FTC Study "from Federal Trade Commission, examines non-public information and data for a period from 2009 to 2014. The data and information is based on about 22 PAE and 327 of respective PAE associates and approx. 2100 holding entities. The report states that about 96 percent of all patent infringements lawsuits were filed by litigation PAE's and have generated about 20 percent revenue of these PAE's. As per the report about 93 percent of the patent licensing agreements held by the PAE's resulted from litigations1.

The study found that the payments usually yielded by Litigation PAE licenses were less than the lower limits of early stage litigation costs. This data is consistent with nuisance litigation, in which defendant companies decide to settle based on the cost of litigation rather than the likelihood of their infringement. The report identifies that while fair infringement litigations plays a vital role in protecting the IP Rights and a healthy legal system promotes respect for the patent laws, nuisance infringement litigations causes a very tax on the resources and distract focus from productive business behavior. It is estimated that PAE's file somewhere around 3500 to 4000 lawsuits in US alone and are responsible for about 84% of high tech patent litigation in USA. The number of nuisance patent lawsuits in USA alone has jumped 500% in a period from 2005 to 2014. This has caused the country a loss of around $80 billion per year. These PAE's gather most of these patents from operating companies then from the Inventor or the Universities. In order to protect the IPR industry from these devious trolls many organizations have joined hands through Royalty Free Licensing.

The LOTNETWORK or LOT Agreement is an industry-led networked, royalty-free patent cross licensing agreement for transferred patents launched by business members, including Canon, Dropbox, Google and SAP with assistances by many others. According to the LOT Contract, every business that takes part bequest a license to the other members where the license becomes operative only when patents are transferred to non-participants. Transfers as part of certain spin outs or a Change of Control to a Non-Assertion Entity are carved out. This program protects LOT participants from patent attacks by the PAE's to which the patent is sold, while preserving participant's full use of their portfolio2. PAE's depend mainly on operating companies to take hold of patents, it is estimated that about 80% of the patents asserted by PAE's come from operating companies. Now if in case a PAE manages to purchase patent from an operating company that is a member of the LOTNETWORK then it cannot drag other participating members in nuisance patent litigation. Due to this the members of LOT are protected in two ways firstly the direct risk of fraudulent litigation is eradicated and secondly it disrupts the PAE cycle that costs consumers, shareholders and tax payers a fortune. LOT is a Non Profit community that works to protect the interest of innovators by protecting patents. LOT identifies the PAE's with the fact that if more than half of the total revenue of the entity and its affiliates come from patent assertion in a period of one year or if the higher management approves the plan to do so by using patent litigations those entities are classified as PAE's. LOT is highly beneficial for the Startups as the entities which do not have any patents can also join the LOTNETWORK and get protected from patent trolls.

ADVANTAGES OF LOTNETWORK

  1. Participants are free to cross license their patents.
  2. Participants are free to assert their patent for any alleged patent infringement by a non LOTNETWORK company.
  3. Participants are free to sell an owned patent to anyone.
  4. There is no burden to give notice before leaving the network.
  5. No need to list the patents owned at the time of entry
  6. Don't have to report.

Since 2014 when the LOTNETWORK was formed 42 different LOT members have divested over 42000 assets. 35 of those assets have been held by 8 different PAE's and atleast 97% of those assets were divested after the member joined LOT. Still no LOT member has ever been sued by an asset from LOT. LOTNETWORK has helped business to trust the suppliers and affiliates more. It has also helped business entities to stabilize the supply chain and its management while saving a net worth of 29 billion.3 LOT has also helped suppliers to gain access to IP. It has reduced the indemnification costs and has helped the suppliers to become preferred supplier.

NON STICKY DEFENSIVE PATENT LICENSING4

The defensive patent license is a non-negotiated network which is portfolio wide, royalty free, patent cross license without the right to sublicense. Patents in this system are readily available with no royalty to pay. This is applicable to members that abide by the same rules to similarly license patents owned by them. The earlier version of DPL was also known as STICKY DPL as in this system the license is irrevocable, so once a company joins the DPL the patents that the participant holds at the time of joining are immediately and irrevocably licensed and the license continues even if the participant moves out of the DPL. However since these terms were a bit hard another version of DPL was introduced and it is known as NON STICKY DPL. In this system the license is automatically granted and terminated when a participant moves in the group or moves out of the group. This is an attempt to make DPL more enticing with little to no risk while maintaining all other facilities.

ADVANTAGES OF "DPL"

Reduced patent risk and true competition- If a significantly large number of companies in an industry join the DPL it significantly reduces the risk of patent assertion on these companies. Since in DPL the participants mandatorily license their patents the competition is purely based on the quality of product and services.

  1. Power of Networking- The more the number of companies join DPL more is the power each participant share towards protecting itself from patent trolls, it further enhances its attractiveness to entice more companies to join and in turn changes the patent landscape.
  2. Moral high ground/greater participation in patenting efforts/improved recruiting- The DPL might make available a chance for a corporation to express a specific interpretation about competition and patent litigation. If a recognized business (or a set of companies) were to be the earliest to join the DPL, it would make a influential announcement to the marketplace. Many engineers/inventors may be more willing or eager to assist in seeking patents on behalf of a company that participate in the DPL. It may also help in hiring sought-after recruits, e.g., software engineers, who believe the current patent system needs improvement.

FIELD OF USE AGREEMENT

Field of use is the restrictions that are placed on a license granted for the use of a patent. Field of use restrictions prevents the over and reckless use of patent by restricting the use of patent to a certain industry or to a certain product. Field of use agreement is royalty free cross license and is available to members of the community or the network. Field of use licensing help the patent owner's control how the patent and inventions are used so the members in the community are free to use the patents or the inventions of other members without any fear of any nuisance litigations from PAE's. The only condition here is that the way and the extent to which the patent or invention is used are set forward by the patent owner.

Open invention network

Open source software has been one of the greatest sources of invention. It has enabled developers to invent software solution for almost all the purposes be it for the business houses for schools for universities or even for the non-commercial personal use. Free software gives a platform to the end users like government business houses educational institutes and the personal users more and more choices and customization to get technology as required best suited to the needs. It has provided a platform where one can unleash its full potential of innovation. However this platform is also not free from the harsh effect of PAE's, Unfortunately Open source software have also seen a rise in patent assertions in the previous decade. It was thought that the very basic fabric of open source is based on the culture of innovation modality which is collective in nature and it is based on engagement and sharing and thus will be immune to PAE's assertions. The Open invention network work to further strengthen the protection of open source from attacks. The Open Invention Network is a shared defensive Patent pool with the mission to protect Linux. Launched in 2005, OIN has strong industry support with backing from Google, IBM, NEC, Philips, Red Hat, Sony, SUSE, and Toyota. Any company, project or developer that is working on Linux, GNU, Android or any other Linux-related software is welcome to join OIN, free of charge or royalties.5

Comparison Table6

NSDPL SDPL LOT Field-of-Use (FOU)
Short Description Non-Sticky Multi-Party Defensive Patent Cross License Sticky Multi-Party Defensive Patent Cross License License on Transfer of Patents Field-of-Use Multi-Party Patent Cross License
License Grant royalty-free, all statutory rights, no sublicense rights royalty-free, all statutory rights, no sublicense rights royalty-free, all statutory rights, no sublicense rights royalty-free, all statutory rights, no sublicense rights
Licensed Patents Portfolio-Wide Portfolio-Wide Transferred Patents Only Portfolio-Wide (but practically speaking only those patents that are swept in by the field of use are licensed)
Licensed Products All All All Field-of-Use
Term Member can announce withdrawal at any time – inbound and outbound license to withdrawn member is automatically terminated upon expiration of withdrawal notice period (e.g., 6 months) Outbound license for withdrawing member perpetual regardless of withdrawal. Inbound can be terminated upon withdrawal. perpetual if member stays in LOT agreement perpetual for licensed patents
Patents are Licensed on Transfer Yes Yes Yes Yes
Withdrawal Provision Member can announce withdrawal at any time – inbound and outbound license to withdrawn member is automatically terminated upon expiration of withdrawal notice period (e.g., 6 months) Upon withdrawal, for withdrawing member, existing licenses to other members remain in effect. Non-withdrawing members can terminate license to withdrawing member. Member can announce withdrawal at any time and withdrawal becomes effective upon expiration of withdrawal notice period (e.g., 6 months) Upon a change in the field of use, a member has option to withdraw. For withdrawing member, licensed patents remain licensed inbound and outbound under old FOU

CONCLUSION

In order to promote a healthy atmosphere and technology ecosystem to entice innovators we need to protect the interest of genuine patent owners and the business houses from nuisance patent assertions. In spirit of fostering innovations we need to embrace the innovation community with the protection in form of collective defensive sharing of intellectual property across variety of technical areas. Open sources and royalty free sharing of patents and innovation has helped to mitigate the nuisance created by the PAE's or the Trolls. A number of networks and community like LOT, OIN etc. has been successfully able to prevent the members from unscrupulous litigations. In 2015 Toyota announced to release 5680 patents pertaining to hydrogen cell technology for cars on royalty free basis. This collective sharing will definitely encourage the innovators, while the business houses can focus more on product quality safety and services rather than to worry about the nuisance patent litigation saving a lot of resources and time.

Footnotes

1. https://www.ftc.gov/news-events/press-releases/2016/10/ftc-report-sheds-new-light-how-patent-assertion-entities-operate

2. https://www.google.com/patents/licensing/lot/

3. http://lotnet.com/wp-content/uploads/2017/01/Introduction-of-LOT-2.0.pdf

4. https://www.google.com/patents/licensing/dpl/non-sticky/

5. http://www.openinventionnetwork.com/about-us/

6. https://www.google.com/patents/licensing/comparison/

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