Modernise or die – why corporates need to push their patents

Modernise or die – why corporates need to push their patents

Boards and directors typically prioritise non-IP issues; however, legal requirements and market activities suggest that this could be a serious misstep. Peter Cowan of Northworks IP takes a long hard look at patent pools to see what lessons boards should absorb from them.

Many boards and organisations that promote best practices fail to consider the stewardship of IP-related assets and risks. In fact, there has been little in-depth discussion surrounding board accountability with respect to intellectual property – mainly due to the lack of public information. This raises questions regarding where best practices can be drawn from and the applicable legal requirements for directors.

Boards looking for some examples of helpful governance structures could do worse than turn to patent pools.  Valuable insight can be drawn from board instructions and the way that these operate in practice. In this way, pools can be used as a proxy for IP transactions and, by extension, governance issues. Despite the limits of publicly available pool information, a review of operational details provides observations on which governance bodies or boards in various markets can rely.

Standardisation pools have provided insight into additional board decisions. For example, the 1997 Bluetooth Special Interest Group (SIG) was formed to license royalty-free Bluetooth technology and allows tiered membership classes, each with different costs and rights, to join working groups and access testing tools. The only voting class, the so-called ‘promoter members’, were invited to sit on the board, which acts as the SIG’s oversight and steering group. Within this, the board can appoint, remove and replace directors. The board also has the duty to approve all committees and working groups, which, in scope and operation, serve the board. Similarly, the MPEG-2 patent pool follows this model, where working groups handle decision making on patent inclusion and standard direction. From this, it appears that the board relies on expert working groups to address key decisions in pool structures as a known governance model. The reliance on expert groups or administration committees is not new for other pools, including MPEG LA, One-Blue and HEVC Advance pool structures.

Deferring decisions to a committee (eg, an administration committee) appointed by the board removes governance and board decisions directly from the board. In the case of the HEVC Advance pool structure, shareholders (ie, patent owners and licensees) can influence who sits on the administration committee and who, in turn, makes critical pool decisions, such as licensee voting rights. Conversely, the board has influence over only the budget and key hires, such as the pool CEO. In other pools, such as One Blue and MPEG LA, management and the administrative committees make other key decisions, such as enforcement actions. The intent of these governance structures is to ensure not only that management and directors are neutral, but also that management can make the best decisions without influence from licensees or other forces. As a result, effective board governance in pools remains focused on setting the mandate and budget, with the CEO directed to execute the mandate. While not explicit, this structure ensures that only management has access to confidential sales information and other details, which may cause increased antitrust and conflict of interest scrutiny for board members.

A survey of publicly traded IP pool-based corporations indicated general governance and board responsibilities, but few had IP-specific statements in their governance documents. At best, of the 20 publicly traded IP-centric companies reviewed, only one provided governance policies where IP matters were reserved for the board: IP Group Plc’s governance documents for “matters specifically reserved for the Board” include “Prosecution, commencement, defense or settlement of material (by size or reputation) litigation, or alternative dispute resolution mechanism”.

For an in-depth look at how to modernise IP governance frameworks, please see Peter Cowan's full article, published in IAM 93.

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