Joff Wild

Thanks to information provided by the License On Transfer Network (LOTNet), I now understand that patent assertion entities want to make money; they “clearly seek to generate a return by enforcing patent rights against operating companies”, LOTNET explains. “They acquire patents from other companies and are motivated by profit.” Whoever would have thought it - commercial enterprises interested in generating a return? Heaven forbid that LOTNet’s current members – Google, Asana, Dropbox, Canon, Newegg, Pure Storage and SAP – are ever guided by such base principles.

That said, from where I am sitting the creation of LOTNet looks to be a very welcome development. Those who have created it deserve to be congratulated for the time and effort they have put into getting it off the ground. After all, what is not to like? Here we have IP owners coming together to create a solution to a problem which they believe has “slowed the pace of innovation, increased prices to consumers, lowered returns to shareholders, and disrupted our best technologists and senior management from moving our technology and our national economies forward”. You may not agree with them, but they have every right to make such claims and every right to do something about them. And what they propose is elegant in its simplicity:

In the event that patents held by a LOT Network participant are transferred through a triggering event (e.g., a transfer to an entity other than another LOT Network participant), every active LOT Network participant as of the date of transfer will have its license to the transferred patents become effective. This arrangement immediately reduces the risk of PAE litigation to participants. 

Should a LOT Network participant be acquired outright by a PAE, or become a PAE itself, other participants active at the time of such a transfer will obtain licenses to its entire patent portfolio.

On the IAM blog we have consistently argued that if there is a serious problem with PAEs/NPEs/trolls, then the best way to deal with it is via the market. The issue that we have with legislation, and one which is shared by a number of parties, is that not only is it being justified on the back of deeply flawed research and non-contextualised anecdote, but also that it will have a negative impact on all patent owners in all industries, not just those who might be gaming the system. The great thing about market solutions is that they do not do that; they are much more focused and are highly unlikely to have unintended, negative consequences for “innocent parties”. This certainly applies to LOTNet.

The seven founding members of the network send a general invitation out to all operating companies to join with them. They are unlikely to get their wish. While some businesses will decide that they do not need the operational and strategic flexibility around patent ownership that anyone joining the organisation loses, many others will conclude that tying their hands in that way is not for them.

“Had we formed LOT Network in 2005, and if every operating company had joined that year, approximately 10,500 defendants in PAE litigations using acquired patents may have collectively avoided more than $100 billion in costs,” the LOTNet home page states. Well, maybe; but, you could also argue that in effectively reducing the monetary value of patents to zero, such a move would also have seen Kodak go bankrupt, Nortel pensioners even more exposed than they are currently, Tesla struggle to raise cash, companies such as Nokia and Ericsson investing less in R&D, and so on.

The simple fact is that for some operating companies patents just do not matter that much; but for others they do. And sometimes, of course, things change. LOTNet members deny themselves many of the choices that those who do not sign up will have – and they do so without knowing what will happen further down the line. For the likes of Google that is probably not going to be an issue. For smaller operations, perhaps it will be. Investors will have to hope that any party that does sign up will have thought this through in detail before making what looks to be an irrevocable commitment.

Something else that I – probably rather forlornly - hope is that companies in whatever sector do not automatically look upon all NPEs and PAEs as evil trolls. LOTNet presents the issue as a very black and white one, but you have to think that someone like Chip Lutton, who is the organisation’s acting executive director, can’t really believe that it is. As chief patent counsel at Apple, Lutton was surely pretty closely involved in the negotiations that saw the formation of the winning Rockstar consortium in the Nortel auction (and would have known what would probably happen next), while as this blog has reported the company he subsequently joined as general counsel, Nest, developed a close relationship with Intellectual Ventures prior to its purchase by Google.  The simple fact is that NPEs and PAEs do not have to be the enemy. They can be partners and they can be sources of high quality patents that might actually save wise operating companies a lot of R&D time and money. “Not invented here” syndrome is very 20th century. NPEs/PAEs can be part of the cure. It’s a matter of being willing to take the medicine.

So, congratulations to Google, Canon et al for a great initiative. LOTNet is another fascinating answer to a problem that they clearly believe exists. It will work for some companies; for others it will be less appealing. Let’s hope that we see a lot more of the same emerging over the coming years. Isn’t the IP market just great?