When a company called Allied Security Trust came out of hiding in late June, it caused new light to be shed on the increasing popularity of patent pools involving high tech titans. It’s less than clear, though, whether these pools are benign defensive organizations or trade-restraining innovation killers.
Allied Security Trust is just the latest consortium of large technology companies created to purchase and pool critical patents. The idea of a patent pool is simple: Companies coordinate their intellectual property efforts by buying critical patents and granting all members of the consortium non-exclusive licensing rights to use them. First used in the 1800s, patent pools minimize risk and cost for participating firms by avoiding expensive litigation.
In recent years, technology firms have been increasingly using patent pools to do just that. Besides Allied, whose members include Verizon, Google, Cisco and others, there are a number of other technology patent pools, each with a slightly different strategy and roster of players. Open Innovation Network, a pro-Linux group counting Novell, IBM and others as members, was organized in 2005. Intellectual Ventures, said to be backed by Microsoft and Intel, has been acquiring its patent portfolio since 2003.
Battling Trolls
Companies involved in these organizations claim they are strictly defensive, combating other companies whose sole business is to buy intellectual property and hold it hostage. These so-called trolls are at once loathed and feared because litigation can be expensive, time consuming, and distracting. More favorably called PLECs, patent licensing and enforcement companies, these trolls patrol the intellectual property landscape seeking overlooked patents that have wide-ranging applicability to the technology world. Once they own intellectual property they consider to be infringed, they contact users of the patented technology and demand payment. In a friendly transaction, the PLEC licenses the technology to other companies. In an adversarial situation, litigation ensues.
The most lucrative situations for the PLECs are those where the infringing company has deep pockets or there are many infringing firms. It is precisely these situations that patent pools are designed to prevent. By essentially out-investigating or out-bidding the trolls, patent pools avoid litigation and/or licensing costs.
Building Fortresses
But critics of modern technology patent pools say they are anti-competitive. By buying intellectual property, these groups are only a degree away from the trolls, say opponents. In the case of Allied, to become a member a company has to pay a reported $250,000 to join and put up another $5 million in escrow toward purchasing patents. The members then grant themselves non-exclusive licensing rights.
In Allied’s case, CEO Brian Hinman claims it will then sell the patents back into the market. “It’s a catch-and-release formula handled on an opt-in basis,” he told the EE Times in June 2008.
Critics contend that this simply allows the trolls to prey on smaller firms that can’t ante up the money to join the exclusive patent pools. The result, they say, is that the tech giants reinforce their dominant positions in the marketplace.
Other patent pools, though, apparently aren’t seeking to build intellectual property fortresses where only the elite can reside. Open Innovation Network makes its patents available royalty-free to anyone who agrees to not sue members. For the time being, these types of pools seem to be more benign, fostering instead of restricting innovation.
Oligopolies or Beneficent Entities?
Some observers fear the proliferation of these patent pools will result in oligopolies. The trade of key intellectual property between these groups is seen by some as akin to nations aligning themselves for their own benefit. It is quite possible that different groups could cooperate on strategy or even participate in formal or informal treaties.
Actions like these might easily be construed as anti-competitive. For the time being, players in patent pools are limiting their moves to defensive actions. But intellectual property being what it is the major tech companies participating in these associations may not remain so gracious.
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