Today, 84 percent of high-tech patent lawsuits are filed by Patent Assertion Entities (PAEs, also known as “patent trolls”).
Patent trolls—companies that don’t actually make products but instead just use patents they have purchased to sue companies who do—have become so prevalent in that being sued by a troll has become the norm in the tech industry. More than 10,000 companies have been sued at least once by a patent troll and litigation by PAEs is increasing rapidly. Further, many in the industry would confirm that the patents asserted by PAEs are of dubious quality.
These lawsuits can inflict a crippling financial blow, especially to smaller companies, even if the patents asserted in the lawsuit are later found to be invalid or to have not infringed. Patent troll lawsuits are bad for business and bad for innovation, which is why Uber, along with a number of other prominent technology companies, decided it was time to take action.
The war against patent trolls involves multiple fronts. Solutions have proven surprisingly hard to come by, despite many attempts. There is no silver bullet, but one of the most effective strategies is to cut PAEs off at the source, thereby getting ahead of the problem. To trolls, patents are weapons that can be used to extract money from operating companies without contributing anything in return. Drying up their pipeline of patents reduces their arsenal.
Many are surprised to learn that 80 percent of patents litigated by PAEs are acquired from operating companies. These asserted patents often come from failed companies or struggling companies that sell them for the revenue. We see nonprofit patent protection networks as a powerful, proactive way to dry up the PAE pipeline. This is why Uber elected to be a founding member of LOT Network.
In LOT Network, which stands for “License on Transfer,” members obtain conditional licenses that become effective upon the transfer of patents by other members to nonmembers (such as PAEs). If patents held by a LOT Network member are transferred to a PAE, every active LOT Network member gains a license to the transferred patents. If a LOT Network member is acquired outright by a PAE, LOT members obtain licenses to its entire patent portfolio. Members gain immunity for the life of that patent because PAEs cannot sue anyone in LOT Network for infringement.
The model works because it reserves the right for members to continue to protect their innovations against competitors, even other LOT members. Said another way, a company that joins LOT can still engage in competition in the marketplace, and even patent litigation, with its competitors without triggering the license to other LOT members. Wondering what the downsides are? LOT member companies cannot become or sell to a PAE without triggering the LOT license. Membership in LOT is a safety net for well-meaning companies. If you are in business to do business, and not in business to be a PAE, you should join LOT.
In addition to LOT, there are a number of other networks worth joining, or at least considering. One is Allied Security Trust, which allows members to collaboratively (and anonymously) bid with other operating companies to get licenses on patent assets as they hit the market. Another solution, for those who are in the crosshairs of PAEs, is Unified Patents. Members don’t have any control over what Unified does, but it goes after PAEs using opposition proceedings at the U.S. Patent and Trademark Office. Yet another solution is the Open Invention Network (OIN), which provides licenses to numerous patents in its portfolio in exchange for joining its member-to-member ceasefire for patents on Linux (i.e., you agree not to sue anyone for the use of Linux, but could still sue for things built on Linux).
Joining a patent protection network, such as LOT, OIN, AST or Unified, has a number of benefits. First, members gain access to a broader library of patent licenses before they get into the hands of PAEs. Second, these communities provide valuable networking opportunities and the chance to share strategy and defense ideas. Members are not as vulnerable if (or when) they are forced to face a PAE.
Additionally, joining a patent protection network is about more than just the nuts and bolts of the licenses gained. It’s about standing for innovation, and standing against those that believe in unjust enrichment for those innovations. Tech companies work incredibly hard to dream up and execute innovations that have an impact on people’s lives. PAEs don’t deserve to benefit from that work, especially not for assertion of patents of dubious quality. They should not be considered “just a cost of doing business” because the more money PAEs make, and the easier it is to make that money, the harder and faster they come.
There is power in numbers, and the more people that join a patent protection network, the better the networks can serve their members. Companies have fought (or settled) lawsuits on a case-by-case basis for decades, and PAEs only grew in strength. It’s time for a different, collective approach.
PAEs may someday serve the underrepresented inventor with quality patents, but instead, now, PAEs typically extract rents using questionable patents and questionable tactics. As such, every business should consider arming itself by joining LOT, AST, OIN and Unified, and any other community-based group that fits its particular needs and associations.