Patent Pooling Is an Effective Tool for IP Monetization

The U.S. patent system has garnered a lot of attention over the past several months, much of it a negative portrayal of patents as a tool more likely to stifle than protect innovation—and much of that sentiment stemming from Apple’s recent legal triumph over Samsung.

As the larger business, government and societal debates continue relative to the future role and efficacy of the patent system, it’s worth taking a moment to remind ourselves that product and technology licensing is not anathema to the qualities of fairness and transparency.

Patent pooling is one example of a proven, effective tool that is helping industry better manage its licensing programs. By “pooling” patents from many license holders, licensors generally are able to lower transaction costs and administrative overhead, and benefit from a centralized model that encourages patent bundling and fair play. Licensees likewise enjoy advantages in the form of lower royalty fees and a single point of contact that eliminates the need to negotiate separately with multiple license holders.

One-Blue, LLC, officially launched its patent pool in July 2011 as the one-stop-shop licensing agent for the Blu-ray Disc™ (BD) industry. Representing 15 licensors from among the world’s global consumer electronics manufacturers, One-Blue operates a pool of more than 10,000 essential BD patents and to date has executed 72 Registration and/or License Agreements.  As our efforts have unfolded we have learned a number of important lessons that to us clearly demonstrate we have delivered upon our promise to promote a level playing field and foster innovation by instituting a per batch licensing process and by delivering upon our promise to enforce non-compliance.

Of course, there have been critics of patent pooling in the past, sometimes identifying what could be considered objective hurdles to the model. These business concerns, which center around monetization of patents in a timely way, largely relate to the mechanics of licensing and avoiding the free-rider problem, which unfortunately is a problem with so many collaborative business models.

To address the criticisms of patent pooling we have taken what we believe to be a unique approach.  In administering this pool, we have instituted a number of “best practices” that we believe could (and probably should) be applied with equal success to other industries, from smartphones and computers to biotechnology. By adhering to these practices we believe that companies can ensure that their patent pools are fairly governed, cost-optimized and able to take swift enforcement action when required.

Enforcement: In the event an action is warranted, all members of the pool agree to participate by making their patents available for enforcement actions. This prevents some members from opting out of patent enforcement, while at the same time enjoying the pool’s benefits.

Per-batch licensing: Each product shipment carries licensing documentation and registration logos with serial numbers that can be verified by customs officials, distributors and retailers. This avoids cases where a company signs a license agreement but then fails to abide by its terms, which ultimately increases the cost of business for all other parties. While per-batch licensing may seem like an extra step, it ensures that royalties are applied only to the products shipped—not to the company itself.

Pre-netting: In cases where licensees hold pre-existing patent licenses with patent pool licensors, pre-netting subtracts what would be due the licensors when calculating royalty payments. This step ensures that licensees pay only for what they use and encourages broader participation in the pool.

Patent weighting: Not all patents are created equal. A weighting system of patents compensates licensors whose essential patents are subjectively determined to be of greater value.

Throughout history patents have been a force that pushes innovation forward. Yes, at times there have been patent battles, but these battles are eventually marked by settling of the industry, cooperation and leaps forward for innovation and technologies.  But without the incentive to profit and a mechanism to deliver rewards based on value, scope and scale of the contribution we fail to deliver value to those willing to fund and develop innovation.

At One-Blue the adoption of what we believe are best practices improves upon an already proven model that has lead to successful licensing of core patent assets that allow industries to grow and companies to flourish. When the media paints images of all patents being bad they are doing a disservice to the industry and ignoring the good that has come from patented innovation and the sharing of such innovation via patent pools and other cross-licensing arrangements.


About the Author

William J. Lenihan is Director, IP Licensing of One-Blue, LLC. Prior to One-Blue, Bill was the Director of IP Licensing for the Philips Electronics joint optical licensing program which included the IP of Philips, SONY, Pioneer and LG Electronics. Bill is a graduate of Manhattan College and resides in Pleasantville, N.Y.



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