To license or to abandon? The Advantages of Open Licensing

Leonardo da Vinci once confirmed “Human subtlety will never devise an invention more beautiful, more simple or more direct than does nature because in her inventions nothing is lacking, and nothing is superfluous.” Nevertheless, human beings are inventing and creating every day. In 2014 World Intellectual Property Indicators, WIPO announced that patent filings grew by 9 percent worldwide in 2013. The biggest growth (26 proc.) of applications filed was determined in China. In total, there were 2.6 million patent applications filed in 2013 worldwide.

However, we are looking quite skeptical at these numbers. We do not doubt the value of the intellectual property rights. On the other hand, we do doubt if there is a positive influence to innovation, research and development by all these patent applications filed. Do really such amount of patent applications positively impacts today’s global economy and contributes to the promotion of technological innovation and to the transfer and dissemination of technology, as stated in the TRIPS agreement?

Let’s look very shortly at the changes that occurred in the patenting field in the last years. The e-filling, simplification of patent systems, lowering of requirements for patent applications all this, combined with a vast spread of information, lead to a tendentious and significant increase of number of applications. On the other hand, counted very roughly, from more than 7.5 million applications filed in USPTO during the last 20 years, only 2.39 million of patents are still in force today. Even lower numbers are calculated at the Japanese patent office: from approximately 7.9 million application filled in the last 20 years, 1.84 million patents survived till today. More complex situation is in China, because only recently China became concerned about its IP policy. In 2015 China announced the goal to treble the number of patent applications its IP office handles over the next five years. China hopes to encourage local inventors to increase the number of filed patents from four patents filed for each 10,000 persons to 14 inventions per 10,000 persons, by the year 2020. As from 2003 the patent applications in China increased very rapidly (from approximately 100k applications per year to more than 800k) so it is hard to measure the percentage of applications filed and total patents in force.

These numbers are just very approximate calculations. They may vary according to different sources, but the idea is clear – the biggest amount of patent applications either are never granted or if granted does not survive 20 years of a maximum term of patent protection. At the end, merely churning out patents does little to advance innovation. Doesn’t it?

On the other hand, it is hard likely that patent system will change in the near future. The changes are coming (for example with the unitary patent), but they are slow, bureaucratic system needs years and years to make and adopt new decisions. Nevertheless, society have come with the solutions that helps to increase the productivity of patents, reduces legal suits, makes patenting more reasonable. We believe, that it is possible to increase the life years of a patent with an open licensing.

What is open licensing?

Open licenses are private arrangements that work within the current legal regime to encourage innovation, discourage trolls, and help attract top engineering talent. It is a win-win solution for different patenting companies and user’s society. There are several different types of most common open licenses.

A License of Transfer Agreement (or shortly, a LOT agreement), that helps to prevent legal suits from non-practicing entities that purchase patents for the sole purpose of enforcing them (called Patent Assertion Entities, or PAEs). Under the LOT Agreement, every company that participates, grants a license to the other participants where the license becomes effective only when patents are transferred to non-participants. This program protects LOT participants from patent attacks brought by non-participants (e.g., a patent troll) to which the patent is sold, while preserving each participant’s full use of its retained portfolio.

In 2005 a LOT Network was created, with the purpose to prevent patent suits and, of cause, reduce litigation costs. Current network users are Canon Inc., Dropbox, Inc., Google Inc., Mazda Motor Corporation, Pandora Media, Inc., Red Hat Inc., Uber Technologies, Inc. and many more. 

A Defensive Patent License (DPL) operates by creating a set of viral, bilateral obligations focused on preventing offensive patent litigation and promoting freedom to operate and innovate. Specifically, the DPL provides every DPL user a perpetual, worldwide, royalty – free license to every other DPL user’s entire current and future patent portfolio, subject to the prior established conditions.

DPL can be Non-Sticky – automatically terminates the licenses (both inbound and outbound) at the end of a withdrawal notice period, or Sticky – once a participant joins the original DPL the patents that the participant holds at the time become irrevocably licensed even if the participant withdraws.

Creative Commons (CC) Model Patent License – is intended to provide a simple standard model license to make patents that are being held for defensive purposes available for other uses—outside of those for which they are being maintained for defensive uses—on reasonable and non-discriminatory terms: preferably free of charge and without unnecessary field limitations.

When confirmed by the patent owner, the Model Patent License Agreement becomes a public license offer. When such an offer is made available on a Web site, anyone eligible to accept the offer may accept it through a registration and acceptance process. If no limitations regarding the users are made, everyone can use patent for non-enforcement purposes.

There are more licensing agreements – like Innovator’s Patent Agreement, that gives innovator some critical controls over the company’s offensive use of the patent, or the Field-of-Use Agreement – that is a networked, field-of-use, royalty-free, patent cross license similar to the Open Invention Network (OIN). OIN, grants a royalty-free, worldwide, nonexclusive, non-transferable license under OIN patents to make, have made, use, import, and distribute any products or services.

Advantages of open licenses

There are several advantages you might get from open licensing. One of the biggest advantage, is the possibility to prevent legal claims from competitors or patent trolls, as open licensing agreements prohibit offensive use of patents against other members of the agreement. Second, it gives you a possibility to legally use patents of other companies without an additional burden to negotiate bilateral licensing agreement. Being together in an agreement with other manufacturers allows a company to innovate much more freely. You can easily build new ideas on already existing technology, without a fear of infringement. And, as far as you confirm with the general rules of the license, all these benefits are free of change (only administrative fees may be applicable).

And maybe ironically, but being in a patent pool is also an incentive to innovate and to patent. If you want to be in a LOT agreement, for example, you must be a manufacturer, it means, you must have patents to share with others. It does not signify that a company would file unreasonable patent applications for just joining in. But having a patent (or patent pending technology) would guarantee a legal shield from other members of the agreement (either because they might be using your technology, or you might be using theirs). It is a nicely working mutual cooperation.

Being in an agreement with your affiliates as well helps you to see the use of your patent – if you need to maintain your patent in force, or abandon it. It is possible, that with a time company uses some patents less, does not commercialize particular technology, what might be done by other company participating in the same bilateral licensing agreement.    

Of cause, patenting fees and maintenance fees still must be paid, however, national laws sometimes reduces annual fees, if your patent has an open license. For example according to Lithuanian Patent Law, annual fees are reduces by 50 per cent for patents that have a public license offer.

Patents are intellectual property right big and small creative companies are facing every day. Companies are patenting, and they will. Red Hat corporation is patenting, DropBox Inc. is patenting, you name it, everyone is patenting! No matter what some scholars argue, that patents are not needed and that they do not foster innovation, companies will continue patenting and playing according to a well-known IP rules established long ago. However, with the open technologies patents can really do the job they are made for – “contribute to the promotion of technological innovation and to the transfer and dissemination of technology, to the mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare, and to a balance of rights and obligations” (TRIPS Article 7).