The Basics Of Open Patent Licensing

Editor’s note: Eric Adler is a patent lawyer in Seattle.
A new trio of open patent licenses can help encourage innovation, discourage patent trolls and help companies attract top engineering talent. These licenses aren’t just for open-source romantics. They are practical legal tools used by software companies like Google, Twitter and Dropbox.
Last month, I gathered a panel of experts at General Assembly in NYC to talk about open patent licenses. Here’s what I learned.

The Problem: Patent trolls

Patent trolls have two defining characteristics. They don’t make anything, and they file frivolous patent litigation. Software companies, venture capitalists, and the EFF worry that this frivolous patent litigation is slowing innovation. On the other side of the issue, big pharma, chemical companies, and different venture capitalists worry about collateral damage. They argue that measures taken to thwart trolls would also hurt legitimate innovators and discourage R&D.
Because of these conflicting interests, any legislative solutions will be slow coming. In the meantime, technology companies can think about joining an open patent license scheme. Open licenses are private arrangements that work within the current legal regime to encourage innovation, discourage trolls, and help attract top engineering talent.

Licensing Basics

A patent license is simply permission to use a new technology. A “licensee” generally pays the patent owner for this permission. In our three open patent licenses, the exchange is more creative.
License on Transfer.” LOT is the gateway drug of the open patent world. Several large technology companies are already hooked. It’s a palatable license option because the “openness” doesn’t kick in until after the original owner sells the patent.
Defensive Patent License.” The DPL creates a demilitarized technology zone. Anyone can join, and members immediately (a) license all of their patents to the pool, and (b) receive a license from everyone else in the pool.
Innovator’s Patent Agreement.” The IPA, developed by Twitter, gives geeks the keys to the patent arsenal. It prohibits companies from launching a patent lawsuit without the inventor’s permission.
Now let’s dig into some of the details.

License on Transfer

The goal of the License on Transfer (“LOT”) scheme is to choke off the flow of patents from operating companies to trolls. “More than 80% of patents litigated by [patent assertion entities] are acquired from operating companies.” LOT cuts trolls off at the source by activating a special license any time a member of the LOT club sells a patent to someone outside of the club. This sale will trigger a free license from the new owner to everyone inside the LOT club. As a result, the new owner can’t use the patent to sue anyone in the LOT clubhouse.
Imagine that Google and Dropbox are LOT members, but Apple is not. Google decides to sell its sprocket patents to TrollCo. Since TrollCo is outside the LOT clubhouse, Google’s transfer to TrollCo automatically activates a free license for everyone in the clubhouse: they all get a license to make the patented sprockets. TrollCo can’t sue Dropbox for infringing the sprocket patents because Dropbox, as a LOT member, has a license to make the sprockets. TrollCo can still sue Apple for infringement, because Apple was not a LOT member.
LOT is not a cease-fire agreement. Companies that join the LOT club can still sue each other. But they will be cautious about it because LOT only allows operating companies to join (no trolls allowed). Since all members are operating companies (they make and sell things), any patent infringement lawsuit within the club will likely be met with a counter-suit (i.e., “you think I’m infringing your patents? Well I think you’re infringing mine!”). Within the LOT club, patent litigation is allowed, but the threat of a counter-suit should discourage the frivolous kind.
LOT may sound like a crazy idea, but it has attracted companies like Google, Ford, GitHub, JP Morgan Chase and SAP. Joining is easy, but requires a small annual membership fee. For more info, check out @TheLOTNET or email admin@lotnet.com.

Defensive Patent License 

The Defensive Patent License, created by Prof. Jason Schultz, is a cease-fire agreement. Anyone can join, and by joining, you commit to only use your patents defensively. Specifically, you agree not to sue anyone else in the DPL patent pool (but if they shoot first, you can return fire).
The technology in the DPL pool becomes ‘open’ technology: anyone in the pool can use it. Anyone outside the pool can jump in, but they need to bring all of their patents with them. The more the merrier: The more companies that join the DPL pool, the more open technology it accumulates. The more open technology in the pool, the stronger the incentive for other companies to join in and gain access to the free technology.
The result is a patent-sharing community of members (“DPL users”) and their patents. DPL users each have a free license to all of the community patents, while still leaving those patents enforceable against outsiders. From the license:
1. Licensor hereby grants to any “DPL User” a worldwide, royalty-free, no-charge, non-exclusive license to make, use, sell and distribute Licensed Products and Services. [edited for brevity]
All in. DPL users are the entities that receive this free license. A DPL user is a company that “has committed to offer a license to each of its Patents under the DPL…” (section 7.6). This is a serious commitment. The DPL requires its members to license all of their patents to the community. No cherry-picking.
Leaving the DPL. This “all in” requirement is mitigated by an escape hatch. Companies can leave the DPL by making a “discontinuation announcement” giving 180 days notice. The delay gives the remaining DPL members time to negotiate a new licensing deal or stop using the patented technology that’s leaving the pool.
The DPL is for companies with a strong commitment to open technology. Unlike the License on Transfer (discussed above), DPL patents become open technology the day the owner joins the pool. It’s an immediate cease-fire agreement between members.
For more info, check out the DPL website and follow @defensivepatent.

Innovator’s Patent Agreement

Twitter’s Innovator’s Patent Agreement is like ‘two-man rule’ security installed in nuclear weapons: “If the United States went to war, two people would be necessary to unlock a nuclear weapon, each of them provided with half the code.”
Why is this two-man rule helpful? Let’s look at the normal patent lifecycle, and how it’s adjusted by the Innovator’s Patent Agreement (“IPA”).
The patent lifecycle often goes like this: a company hires an engineer, the engineer invents a cool new technology, the engineer assigns the technology to the company, and the company applies for the patent. At the end of the day, the company owns the patent and gets to decide whether and when to file a patent lawsuit. In this common patent scenario, after the inventor invents, she has no further control over the patent.

The IPA changes things. With the IPA in place, the company still owns the patent, but the inventor retains some critical controls over the company’s offensive use of the patent. The company can’t launch an offensive patent lawsuit without the inventor’s permission. This reduces the risk of frivolous patent litigation (in theory) because inventors are often reluctant to approve a frivolous lawsuit.

After a patent becomes an IPA patent, this “two-man rule” follows the patent forever, even if the patent is sold to another company. Once the IPA is attached to a patent, the patent’s owner (whoever that may be) will always need to find the original inventor and get her permission before filing an offensive patent suit.

Here’s an example to explain the IPA mechanics. Imagine Jen is a Twitter employee. Jen invents the widget, then assigns it to Twitter under an IPA assignment, and then Twitter gets the patent issued from the patent office.

Now, let’s say Twitter wants to use this widget patent to sue Startup Inc., a company that’s never filed a patent lawsuit. In this scenario, Twitter can’t file the offensive patent lawsuit unless it gets Jen’s (the original inventor’s) permission.

But permission is not required for defensive use. If some other company (let’s call them Acme Inc.) sues Twitter for patent infringement, then Twitter can use it’s widget patent a counter-suit against Acme. Twitter doesn’t need to get Jen’s permission for this type of defensive use.

For more info, check out the IPA website and follow @BenL.

Conclusion

Congress may take years to amend the patent laws, but open licenses are available now, and can mitigate pressing patent problems. The License on Transfer cuts trolls off at the source, preventing trolls from ever buying LOT patents. The Defensive Patent License creates a demilitarized open-innovation zone that anyone can join. The Innovator’s Patent License gives inventors the power to prevent their patents from being used in offensive patent litigation. It should help companies attract top engineering talent, as well as reduce frivolous patent litigation.

This article introduces the licenses, but glosses over the details. Talk to your lawyer to find out which open patent license is right for you.

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