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Google’s Silver Bullet for Patent Trolls

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Technology companies take note: Google may have found a way to beat patent trolls, and you are invited to join them

31 July 2015

The term “patent troll” refers to an entity which exists for the sole purpose of enforcing or licensing patent rights which were not the result of its own innovation. Although the term “patent assertion entity” is preferred by policy makers and academics, the more colourful and emotive “patent troll” has firmly entered our lexicon and has recently even appeared in a U.S. Supreme Court decision.

Google, SAP, Uber and other leading technology companies have banded together to create a network they call the License on Transfer (LOT) Network, aimed at curbing litigation initiated by patent trolls. It works like this: by joining the LOT Network you agree that if you sell any patent you own to a non-member, that sale triggers an automatic royalty-free licence of that specific patent in favour of all other LOT Network members. And if a member is acquired outright by a patent troll or becomes a patent troll itself, all other members obtain an automatic royalty-free licence to its entire portfolio. In short, if a patent owned by a company within the LOT Network ends up in the hands of a patent troll, it cannot be enforced against any members of the LOT Network.

Since patent trolls generally do not develop their own patents, they must acquire them from those that do. While universities and individual inventors may be one source of such patents, most of these patents originate from operating companies which may sell patents as a result of projects being moth-balled or large patent portfolios being trimmed back to rid them of “non-core” patents. Since an operating company will usually sell a patent while retaining a license for itself, the risk of being sued for patent infringement is not on the company that developed the technology but on other players in the marketplace. I heard one general counsel of a large company compare this practice to selling overstock weaponry in your arsenal to rebels in a far flung country. It may not be your problem, but if others do the same thing in your part of the world then you become decidedly unhappy about the situation.

To curb the ability for patent trolls to bring enforcement proceedings against companies that produce products or services, Google has taken the lead in setting up the LOT Network. According to its website at www.lotnet.com, enforcement actions brought by patent trolls have cost operating companies $29 billion in direct expenses a year, slowing down the pace of innovation and driving up costs to consumers.

At first blush the LOT Network may seem a lot like a patent pool, which is often set up when an industry agrees to adopt a certain standard and all participants are required to put their patents in a pool where they can be licensed by third parties on a reasonable and non-discriminatory basis. But on closer inspection the differences are clear. Unlike patent pools, LOT Network members are free to enforce their patents against each other or against any third parties. The licence is only triggered in the event of a sale of a patent to a third party, where normal corporate mergers and acquisitions are excluded. So nothing prevents a LOT Network member from using a patent defensively or offensively, provided it retains ownership of it. You can use your arsenal as you please as long as it remains in your control.

The upside for members is that they become immune to patent enforcement proceedings brought by third parties using patents that were originally owned by LOT Network members. There are already over 325,000 patent assets, including more than 99,000 issued US patents in the LOT Network. The downside is that a member may be less able to monetize a portion of its patent portfolio by selling patents it no longer requires. The absence of patent trolls from the secondary patent market for LOT Network members, however, seems like a small price to pay for the advantages of not having any of those weapons being offloaded in your backyard.

The best part is: Any company can join, whether large or small and from any industry and with any business model. All you have to do is sign and upload the LOT Agreement on the website and pay a nominal annual fee to cover administrative costs. If your annual revenue is less than $10 million, the fee is $1,500 per year and it ratchets up to US 20,000 per year for those Fortune 500 companies with revenues of over $1 billion.

What is really positive about this solution is that it retains the benefits of patents, such as the ability to hold defensive positions, enforce rights against competitors or follow a licensing program, while curbing the abuse of the system which has given patents a bad name. The LOT Network reduces abusive behaviour without unduly restricting parties’ rights or requiring an overhaul of the patent system. This is welcome news for everyone except the patent trolls.

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By Ralph van Niekerk, Patent Attorney

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