A transparent attempt… to be efficient

These are positive trends for all users of proprietary technology, especially smaller companies that are at a disadvantage in licensing negotiations and litigation

You don't often hear the words “transparency” and “patents” in the same sentence. The conventional wisdom has long held that, for patent licensors, the less anyone knows about your patents, the better. Lack of transparency has always been seen as a negotiating advantage. There are signs, however, that this mindset is changing.

Last spring, for example, Microsoft General Counsel Brad Smith publicly called for open disclosure of the real party of interest in patent ownership, and soon after, Microsoft led by example, publishing online a freely available list of its 40,000-plus patents, all searchable by title, number, country and name of the entity to which the patent has been assigned. In December, Intellectual Ventures (IV) made a similar move, releasing a searchable list of 33,000 patents (or more than 80 percent of its holdings), a shift from its earlier position that its patent holdings were confidential information.

This is a significant and welcome change in attitude by two leading licensors. Whether or not the shift at IV was driven by public policy, it does represent economic common sense. The fact is that lack of transparency isn't a useful negotiating advantage for licensors and, as Microsoft recognized, transparency can actually facilitate licensing.

This is especially true for negotiations between patent holders and larger, more sophisticated companies. When I was running global IP at Cisco, would-be licensors often claimed they had a “large pile” of patents that they claimed we also infringed (supposedly worth tens or hundreds millions of dollars in license fees), but they disclosed specifics about as few of those patents as possible. In response, we always insisted on the identification of the actual patents we were being asked to license and justification for the payment demands.

Cisco, of course, had the expertise to run its own prior art searches and analyze patent claims to determine the strength of those patents. If a potential licensor kept its patents hidden, we had the resources to insist on seeing specific patents and/or ferret them out on our own. It could be expensive in the short term, but over the long run it helped us avoid unnecessary licenses and unreasonable terms.

For smaller companies, of course, it's harder to fight back and/or deal with a licensor who won't readily disclose. So while lack of transparency can be a negotiating advantage here, it generally doesn't make a lot of economic sense to exploit it, as smaller companies, by definition, represent smaller license revenues.

It appears that some larger patent owners and licensing entities may be starting to recognize this. Patent owners are often reluctant to disclose not only specific patent holdings but also the true owners behind the assets. Obviously, knowing both would help a potential licensee decide whether it needs to take a license to the portfolio and, perhaps just as importantly, what amount to pay (and how to negotiate and/or litigate). This is a good starting point, but beyond these basic attributes, it is beginning to be possible to itemize other patent valuation attributes—everything from detailing prior art to disclosing existing license terms to reporting any previous costs of litigating the patent in question and/or comparable assets.

This data has historically been almost impossible to ascertain. In recent years, RPX has gleaned data from operating company licensees to build an increasingly broad database of patent litigation and license transactions. This, coupled with greater transparency from patent owners, could greatly streamline the current patent licensing process by moving it out of the courtroom and into the marketplace. It could also spur real steps toward ensuring patents more accurately reflect the value of the patented invention rather than the hold-up costs of litigation.

These are positive trends for all users of proprietary technology, especially smaller companies that are at a disadvantage in licensing negotiations and litigation. It's our collective responsibility to maintain this progress toward greater transactional fairness and efficiency.

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