For the first time, the License On Transfer (LOT) Network has released data relating to patents that have been assigned to third parties by its members. The figures give a glimpse of how the LOT Network project has progressed since its launch in June 2014 – and an indication of whether it is coming any closer to fulfilling its primary objective of disarming ‘patent trolls’.
The concept at the centre of the LOT Agreement is a fairly simple one; the network seeks to reduce patent risk by requiring its members to grant all other members a licence to any patents they transfer to “a patent troll, or a patent assertion entity (PAE)”. The LOT Agreement defines an entity as a patent troll or PAE if: “The entity (including its parent and any subsidiaries) generates more than half its total revenue from patent assertion in a 12-month period, or if the entity has a plan approved by senior management to do so.”
That, of course, leaves open the question of what patent assertion might mean. Does it include merely seeking licences for allegedly infringed patents with the implied threat of legal action in the background, for example, or does it mean threatening suits explicitly or actually filing them? And who gets to decide? Depending on the answers, you could find very different kinds of entity included in the definition within a 12-month period. It might seem like dancing on a pinhead, but at the point of a transaction these things matter greatly. After all, a patent automatically licensed to LOT Network members is bound to be less valuable than one which isn't.
Anyway, the LOT Network revealed this week that it recently teamed up with IP analytics firm Innography in an effort to track sales and other assignments of patents made by its member companies so far. This was achieved by retrieving data from USPTO assignments records to come up with a list of all US asset transfers from LOT Network members to third parties since the organisation was formed. This list was then filtered to exclude any transfers that would not trigger the LOT Agreement provisions; these included inter-company transfers between subsidiaries, and security interests removed from an asset by a creditor where the creditor was not the original owner of the asset. This filtered list was then cross-referenced with the EPO’s International Patent Documentation database in order to include non-US equivalents.
According to the findings, 42 LOT Network members have divested patent assets since signing up. Between them, just over 42,000 patents have been assigned to third parties. Almost a quarter of these relate to wireless communications, with digital information transfer and telephonic communication making up the second- and third-largest technology areas in terms of transferred assets. Of the 42,000-plus assigned patents, 35 are now owned by eight different PAEs.
All in all then, it is only a tiny fraction of the total universe of patent assets that fall under the LOT Agreement that have ended up in the hands of PAEs. Since patents that are subject to the LOT Agreement presumably tend to be unattractive purchase prospects for most PAEs (unless, of course, they have particular targets in mind that are not members of the LOT Network and therefore do not benefit from the licence-on-transfer), these figures may be interpreted as indicating that the system is achieving its goal.
Certainly, 2016 has been a big year for the LOT Network. It now claims to have well over 585,000 patent assets within its network, against which its members are immunised from potential future PAE litigation. Moreover, the network almost doubled its membership from 49 patent owners at the start of January to 100 at the time of writing.
While many of the recent subscribers appear to be start-ups and SMEs (which may or may not have thought carefully about what signing up means for the value of the patents they own), the biggest patent holders among the membership – and therefore, the biggest contributors of defanged patent assets – are large Asia-Pacific corporates.
LOT Network founder-member Canon owns the second largest portfolio of active US patent assets, according to research published in issue 78 of IAM earlier this year; as of the end of 2015, the Japanese company held 40,011 granted patents and 8,525 applications in the country. The network’s 2016 intake included several other major Asian companies, particularly from the automotive sector; Korea’s Hyundai Motor, which joined on 1st January along with affiliate Kia Motors, holds the 124th largest – with 3,643 issued patents and 2,773 applications – as well as the joint-fifth-fastest growing US portfolio, with a three-year compound annual growth rate of 26%. Japan’s Mazda and Fuji Heavy Industries – the maker of Subaru automobiles – both signed up in March; they were followed by compatriots Nissan (96th largest active US patent portfolio) in June and Honda (29th largest) in August. Apart from Hong Kong-based VTech, the sole Chinese company to have joined the LOT Network so far is IT and consumer electronics giant Lenovo which, with 3,836 issued patents and 1,551 applications, holds the 114th largest active US portfolio.
Additonal reporting by Joff Wild