70% of troll suits use patents from real companies. Will "license-on-transfer" fix things?
by Joe Mullin – July 9 2014, 4:40pm CDT
Six tech companies have kicked off a new program that they hope will put a major dent in patent trolling, even with Congress unable to pass patent reform.
It’s called the License on Transfer (LOT) Network, founded today by Google, Newegg, Canon, Dropbox, SAP, and teamwork-software startup Asana. The idea behind LOT is that members put all their patents in a pool, which is immediately licensed to every other company in the network—if, and only if, they’re ever sold (transferred) outside the network. That would include a sale to a patent troll or a hostile non-network competitor.
That means that as long as the patents aren’t sold, they can be used both defensively (if needed to counter-sue a competitor) or offensively (if a company believes a competitor is infringing). But the patents can’t be used by trolls to sue any member companies.
And it’s surprising how many trolls are using patents that originated with well-known operating companies. Research from RPX, a defensive patent aggregator, shows that fully 70 percent of patents being used by trolls, or "patent assertion entities," come from operating companies.
Of course, not every patent troll buys patents from operating companies. Some buy them up from individual inventors. Some are "home grown" and take the form of a "once-upon-a-time" company that never really got off the ground. A good example is ArrivalStar, the most litigious troll of 2013.
Anyone can join the LOT Network—there are sign-up forms on the website. Between the six founding members, the network includes more than 50,000 issued US Patents and nearly 300,000 "patent assets" (that phrase includes all US and foreign patents, as well as patent applications.)
That’s a lot of patents that will look less appealing to trolls, and, as the network grows, they’ll get much less appealing. The idea is for the network to grow dramatically. Eric Schulman, the Google lawyer in charge of the project, says that he’s looking at Open Invention Network, a patent network designed to protect Linux from patent attacks, which now has 900 members. "We’re hoping this will grow larger and faster," said Schulman.
Rockstar paid $4.5 billion for Nortel patents and has launched a major attack.
In addition to taking a swipe at the trolling problem, the LOT solution is also meant to stop "privateering." That’s when operating companies hand off their patents to trolls to do their dirty work but keep a cut of the proceeds. Google has direct experience: Rockstar is arguably the biggest example.
If companies withdraw from the network, they’re still obligated to license their patents to the companies that were members at the time that they left.
There’s no way the LOT Network could completely eliminate the troll problem. The founding companies acknowledge that it’s not a "silver bullet," and most are on the record as advocating in favor of legislative changes to the patent system as well.
"This is a step in the direction of saying, patents should be used in a certain way," said Lee Cheng, the chief legal officer of founding company Newegg. "They should be used to develop commercial products. This sends a message, and the companies are putting their money where their mouths are."
Founding members of LOT described the decision to join as being in the main smart patent strategy, but also something that could help with employee retention and recruitment.
"Ever since I arrived at Dropbox, the culture was very concerned with supporting open source projects and ensuring that patents were not being abused," said Brett Alten, a Dropbox IP lawyer who spoke with Ars about his company’s decision to join LOT. Engineers would ask about patent policies during the interview process. "We wanted to have a really good answer that made them comfortable and to make sure when they were inventing, they felt comfortable disclosing everything."
"Engineers are happier to build out a strong patent portfolio if they feel the patents are unlikely to be sold off to trolls," added Schulman.
When a company commits a patent to the LOT Network, engineers can be assured it won’t be litigated by a troll, at least against the member companies. It’s meant to be a virtuous cycle—as the network grows, the benefit of being in the network grows. And the patents in the network look more and more worthless for trolling, as the number of lucrative targets drops.
"One option was—just don’t participate, don’t file patents," said Asana cofounder Dustin Moskovitz, who also cofounded Facebook, describing his company’s decision to join. "But that’s not really a reasonable strategy because you have to worry about defense."
Moskovitz had heard stories from Asana engineers, including one who participated in filing for a patent he was assured would only be used for defense. But when the company sold that patent, the promise wasn’t kept. "It ended up being used for malicious means," said Moskovitz.
In today’s blog post explaining his company’s entry into the LOT Network, Moskovitz calls it "a sort of arms control for the industry" that prevents "member companies from inadvertently introducing ‘loose nukes’ in the legal environment."
The right balance
Trolls do have other means of getting patents. But if 70 percent of their ammunition were to become severely impaired, it could be a significant hit to the trolling business model. The effort is also meant to show that the tech sector isn’t just focused on lobbying Washington DC but that there are companies being good corporate citizens by pursuing "self-help" measures separate from the push for reform.
Other companies have sought to dent the patent troll practice with their own patent policies as well. Twitter started using its own "Innovators’ Patent Agreement," essentially a no-lawsuit pledge to its own employees, in 2012. The same year, two Berkeley Law professors created the Defensive Patent License, which will finally have its launch in November of this year. A few months ago, Tesla offered its own no-lawsuit pledge, essentially trying to end the patent wars through unilateral disarmament.
Those didn’t quite fit for the members of this group. Twitter’s solution places its trust in employee-inventors who have veto power over use of their patents under the IPA. But while engineers usually want to do the right thing, there’s no guarantee—and incentives can change over time.
"The [Twitter] IPA doesn’t protect against the changing nature of the employee," said Moskovitz. "It potentially precludes using a patent defensively. It felt unduly confining for the company."
The LOT Network has its origins in a survey Google sent out to potential patent allies last year. License-on-Transfer was one of four patent "self-help" options Google asked other companies about, and it garnered by far the most interest, said Schulman.
LOT’s explanation of the PAE/troll problem emphasizes that it’s not big companies that need a solution. More than half of all companies that have been defendants against PAE lawsuits earn less than $10 million in revenue per year.
Founders hope to appeal to companies both large and small. Four of the founding companies are quite big, while Dropbox is mid-sized, with around 700 employees, and Asana has 70 employees.
The network charges an annual membership fee to administer the network and for outreach to new members. The fee ranges from $1,500 for companies with less than $10 million in revenue to $20,000 for companies with more than $1 billion in revenue. The group’s executive director will be Chip Lutton, who was chief patent lawyer at Apple for 10 years before joining Nest Labs, now part of Google.
Joe Mullin / Joe Mullin has covered the intersection of law and technology — including the world’s biggest copyright and patent battles — for a number of years, mostly at The American Lawyer.
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