The U.S. Sherman Antitrust Act on competition law was established as a safeguard against businesses restricting competition in the marketplace. Patent pools were initially created by the government as what many corporations viewed as a bitter pill meant to satisfy only the consumer’s interests. Yet, patent pools in the context of IP strategy have become more in vogue lately in dense patented-technology areas (so-called “patent thickets” such as in telecommunications) in which royalty stacking complicates the economics of delivering value-oriented products to the market.
A patent pool enables a licensing group to offer an umbrella of technology solutions based on a collection of patents. The licensing group has sometimes been referred to as a “reseller of consolidated license portfolios.” Unless licensed jointly, the parties who want to license the patent collection need to contact and negotiate with each company separately, and enter into separate agreements with each of them, resulting in royalty stacking. By licensing jointly, a patent pool provides a streamlined process for obtaining patent licenses.
The collection of patents that form the basis for a patent pool are typically chosen based on an “essentiality report” founded on patent analysis in which a patent expert assesses which patents are essential to implement a given standard. In complementary and interdependent technology areas, this involves not only assessing the merits of the patents, but also considering the synergistic nature in which essential patents could be used to provide complete solutions to customers. Intellectual property firms specialize in such activities.
Recent court decisions have raised questions whether the court’s opinions indicate that the established practice of excluding non-essential patents from patent pools is unwarranted, undermining a basic tenet of the Justice Department’s approach to patent-licensing practices. The DOJ and FTC issued the Antitrust Guidelines for the Licensing of Intellectual Property which institute IP-enforcement policies including patent-pool provisions involving intellectual-property owners and their rights. Intellectual-property pooling should meet several criteria to be considered pro-competitive such as:
- integrating complementary technologies,
- reducing transaction costs,
- clearing trade-blocking positions,
- avoiding expensive infringement litigation, and
- promoting the diffusion of technology.
While there are also anti-competitive caveats which need to be met as well, it is clear that patent pools could serve as a reference framework for enterprises involved in emerging technologies that are struggling to accelerate growth through an IP strategy due to lack of investment. As examples, the nanotech and biotech sectors uniquely have obstacles that impede accelerated growth which include: the “long window” to commercialization, the interdependence and synergy of complementary technologies, and the growing focus on “new school” nanotech/biotech as complete functional systems as opposed to “old school” nanotech/biotech as piecemeal components, to name a few.
Such a framework has similarities to standard cross-licensing agreements. However, a network of such agreements among strategic partners could moreover bootstrap emerging technologies to help generate new external revenue streams for startups and small enterprises. In addition, according to the DOJ’s publication, Antitrust Enforcement and Intellectual Property Rights: Promoting Innovation and Competition, reach-through licensing agreements have been said to create efficiencies in downstream value assessment. At FlashPoint IP, we refer to this framework as a PALETTE – Patent Accord for Licensing Emerging Technology of Tethered Enterprises, in our NanoPALETTE and BioPALETTE initiatives.
In the long run, nanotech and biotech will clearly impact society, and create lucrative business opportunities. However, the VC community will rarely invest in a project with a 10-15 year exit-strategy. NanoPALETTE and BioPALETTE are meant to serve as platforms for mitigating the short-term challenges. Such licensing consortia are benchmarked by revenue generation, investment milestones, negotiated partnership deals, and other tangible metrics. Furthermore, NanoPALETTE and BioPALETTE can shape the direction of future joint-development efforts by setting their own new standard, and writing a new chapter in the rulebook in how to leverage technologies in a business context to accelerate market entry.
Spearheading such an endeavor requires an effective team of professionals seasoned in patent analysis and IP strategy. FlashPoint IP, a leader among intellectual property firms, brings the requisite vision, understanding, and tact to execute such an accord, drawing on technical, legal, and business expertise to execute such a comprehensive project, which is a must. We work with industry liaisons as vital links for initiating contact with the IP stakeholders of the relevant sectors, and for providing support and reassurance of the project’s goals.
Such patent pools enable the limitations mentioned above to be mitigated by the enhanced value created through the patent accord. “One-stop-shop” solutions can be marketed once appropriate patents have been selected to be included in the patent accord. This can provide incredible leverage in a small, but rapidly growing, market. Furthermore, such benefits can have a secondary effect in attracting greater investor interest, since the licensing group creates new business opportunities. Finally, it enhances the importance of the member companies by opening the path to new partnerships and guiding new standards. Contact us to find out more about our NanoPALETTE and BioPALETTE initiatives.