Richard Lloyd

Later this year Patent Properties, a company that develops and monetises the inventions of Jay Walker, the founder of Priceline.com and the owner of hundreds of US patents, plans to launch the US Patent Utility, an attempt to bring a mass-market approach to patent licensing.

Speaking exclusively to IAM, Patent Properties’ CEO Jon Ellenthal claimed that because the licensing model in the US is broken the vast majority of patents are not exploited, while the court system acts as a major drag on innovation in the US economy.

Patent Properties’ logic is fairly simple. According to its numbers, of the 2.1 million active patents in the US an estimated 95%, around two million, are left on the shelf, unlicensed. That represents a significant chunk of the $5 trillion that has been spent on American R&D in the last 20 years. Effectively it’s going to waste because, said Ellenthal, a structure that relies so heavily on the legal system to determine the appropriate price of a licence acts as a high-cost barrier to most patent owners.  To combat this, the US Patent Utility, a new body owned and operated by Patent Properties, would enable owners to voluntarily register their rights and these would then be made available to companies that pay a monthly subscription fee, the majority of which would then be handed over to the patent owners.

Patents that are registered with the US Patent Utility will be packaged together in groups of 100 according to the technology or product that they relate to. Customers would then pay a flat rate to be able to license those packages. For patents that read on a package but are not part of it, the US Patent Utility would provide customers with liability insurance. For up to 100 of the most statistically relevant non-licensed patents, coverage would be for 50% of court costs arising from any infringement case. So a package may include 10 no-fault licences and then 90 liability insurance warranties.

The model has obvious similarities with offerings from defensive aggregators such as RPX, AST and the OIN. But while RPX members might pay up to $5 million depending on the size of the business, Patent Properties is offering a flat rate monthly fee which Ellenthal states will be “disruptively low”. Thus, the model is unashamedly aimed at the low-end of the market. More budget airline than private jet model is how Ellenthal puts it. In addition, start-ups will be able to join for free for the first two years and then decide whether to pay for that initial period and sign up for a full membership or walk away at no cost. “We’re focused on an un-served part of the market,” Ellenthal stressed.  

The Patent Properties team drew lessons from both no-fault car insurance and divorces in the US, which also aim to settle claims outside of the court system. “We set out to create an affordable alternative to the courts for disenfranchised patent holders,” Ellenthal said. “Patents are written in a foreign language with imprecise borders and often the only place to get certainty on those borders is in a courtroom,” he added.

Patent Properties was formed last year when Walker Digital, the company set up by Jay Walker to develop and monetise his numerous inventions, merged its patent portfolio into the listed company GlobalOptions Group. Part of the thinking behind the merger, Ellenthal explained, was to ensure that the utility has the regulatory oversight of any public company.

Walker made his name and a large chunk of his fortune by founding Priceline.com, which provided a marketplace for the large number of unused seats and hotel rooms that airlines and hotel companies were forced to swallow.  But can a system that aims to monetise hundreds of thousands of unused patents have the same sort of impact on the IP market? If patents have gone unlicensed, isn't it usually because nobody needs them? It looks like Walker and Ellenthal are keen to find out. One thing is for sure: Patent Properties is heavily dependent on the message reaching potential licensors; so in the coming months expect to hear a lot more about their plans.