Posts Tagged: "Patent Licensing"

Are you bullish or bearish on the patent market as we close out 2022 and move into Q1 of 2023? That is the question I recently asked a distinguished panel of intellectual property business leaders and monetization experts. For the most part, those industry insiders who responded are bullish, although several distinguish patents and the licensing of technology and innovation. Indeed, if I were to answer my own question, I would say that given the Supreme Court’s refusal to address the obvious errors of the Federal Circuit relative to patent eligibility it is extremely difficult, if not impossible, to be anything other than bearish on patents as a meaningful asset class — or at least an asset class that will compensate innovators and investors for the full measure of their contributions.

On May 9, a comment signed by a coalition of 25 law professors, economists and former U.S. government officials, and co-written by Adam Mossoff, Law Professor at George Mason University’s Antonin Scalia Law School, and Jonathan Barnett, the Torrey H. Webb Professor of Law at the University of Southern California’s Gould School of Law, was submitted to the European Commission as a response to the EU governing body’s call for evidence on standard-essential patents. Like another recent response to the EU Commission by a group of scholars with the International Center for Law & Economics (ICLE), the Mossoff-Barnett comment attempts to dispel several misconceptions about the impact that SEPs have on the commercialization of new technologies, especially major communications technologies like 4G/LTE and WiFi that have been widely commercialized to the benefit of the vast majority of global consumers, thanks in large part to the patent rights that help to structure commercialization efforts.

On January 19, consumer tech giant Apple filed a complaint with the U.S. International Trade Commission (USITC) asking the agency to institute a Section 337 investigation against Swedish telecom firm Ericsson, asserting a trio of patents related to millimeter wave technology used by electronic devices communicating on mobile 5G networks. The Section 337 complaint is the latest salvo in a legal battle that highlights the mounting tension surrounding standard-essential patents (SEPs) and where infringement litigation fits into the fair, reasonable and non-discriminatory (FRAND) obligations that standards-setting organizations (SSOs) impose upon SEP owners.

Patent licensing and technology transfer are cornerstones of modern economies, where the efficiencies of collaboration and division of labor do not require firms to be vertically integrated. The Wright brothers did not build commercial aviation, and yet commercial aviation was born thanks to the Wright brothers’ invention. Similarly, a car manufacturer can simply rely on communication technologies developed by telecom experts outside the automotive ecosystem to guarantee connectivity to its fleet and the corresponding massive economic benefits. This short article focuses on how risk – in the economic and legal sense – changes over time, and what this implies for patent licensing dynamics. Licensing negotiations are not static snapshots in time, they often evolve and change according to developing circumstances, case law, parties’ conduct, and many other factors.

Changes in the 5G radio access network (RAN) are likely to increase interest in monetizing patents essential to RAN equipment and operations (RAN SEPs). One of these changes is the significant increase in the volumes of equipment like radio units (RUs) expected over the next decade. For example, China alone plans to deploy 6 million 5G cells by 2027, at an average cell spend of $28,500. Other changes likely to spur 5G RAN licensing are the increase of new entrants to the RAN equipment market and the use of open source software and off-the-shelf hardware in new RAN deployments. These latter changes are driven by the new Open RAN model promoted by operators seeking to break vendor lock in and foster equipment democratization and price competition. These changes naturally could pose a threat to the traditional RAN equipment businesses

Much has been said about how 5G will better use the airwaves, giving wings to new communications between people and between devices. Little has been said though about how 5G could change markets and industries. The equipment market for the radio access network (RAN) is a good example of just one market that is now caught in the updraft of such change. Another market bound to rise is the market for patent licensing—and, in particular, standard essential patent licensing for 5G RAN. To help make sense of the 5G patent licensing market,  we have developed an AI-based 5G landscaping tool to help identify and weigh the relative patent portfolios (OPAL) and an indexed repository of all technical contributions made to 3GPP 2G-5G standardization work (OPEN).

The movements of IP-centric business have never been easy to appreciate. With technology patent and licensing values slowly returning to higher levels, it is a good time to revisit a business model which has been a lightning rod for criticism: the public intellectual property company or PIPCO. PIPCO is a term coined by this Intangible Investor columnist in 2013, when there were 30 or more publicly held patent licensing companies with a collective market capitalization of about $9 billion. That may sound like a lot to some, but when you look at the largest patent licensing company, Qualcomm, whose market cap is currently $136 billion, you realize almost everyone else in this group is or was relatively small, typically a micro-cap, with a market value under $1 billion. These companies’ lack of size, unpredictable quarterly revenue and attractive but unpredictable assets positioned them below the radar of most institutional investors. When it comes to weathering financial storms, like ocean-going vessels, sizes matters.

Several weeks ago, the Antitrust Division of the U.S. Department of Justice announced a positive Business Review Letter (BRL) concluding an eight-month review of Avanci’s new platform for licensing 5G standard essential patents. “In sum, the proposed 5G Platform has the potential to yield efficiencies by reducing transaction costs and streamlining licensing for connected vehicles,” wrote Assistant Attorney General Makan Delrahim, who heads the DOJ Antitrust Division. “Together these efficiencies may allow cellular standards-essential patent owners and vehicle manufacturers to focus resources elsewhere, such as investment in further research and development in emerging 5G technologies and applications. This possibility could enhance competition in these technologies, improve safety, and benefit American consumers.” The finding that the Avanci 5G platform could enhance competition is critically important for Avanci, and positively affects the technology licensing landscape.

The opening salvo in what promises to be one of the hottest debates in the new Congress was fired January 29 during a day-long hearing in the House Committee on Oversight and Reform—how to lower the price of prescription drugs. And it didn’t take long to make it clear that patents are right in the middle of the scrum. The role of patents was a prominent part of the House hearing. While cursory nods were made to the importance of encouraging innovation, the witnesses discussed how patent exclusivity, thickets, and evergreening drove up prices while promoting the greater use of Patent Trial and Appeal Board (PTAB) reviews against drug patents. The Committee was assured that curtailing patents wouldn’t harm innovation because the National Institutes of Health (NIH) is such an important funder of life science R&D.

Standard Essential Patents (SEPs) are patents that are unavoidable for the implementation of a standardized technology. They represent core, pioneering innovation that entire industries will build upon. These patents protect innovation that has taken extraordinary effort to achieve. Standard Development Organizations (SDOs) exist as a mechanism for industry innovators to work together to collectively identify and select the best and most promising innovations that will become the foundation for the entire industry to build upon for years to come. Those contributing patented technologies to the development of a standard are asked to provide a FRAND (which stands for Fair, Reasonable and Non-Discriminatory) assurance, in essence committing to providing access to patents that are or may become essential to the implementation of the standard.

All too often, the prospective licensee/purported infringer usually doesn’t begin its efforts to acquire the patent(s) until after making disparaging statements about them during negotiations.  As an example, consider the time line discussed in the case of Gust, Inc. v. Alphacap Ventures, LLC, No. 2017-2414 (Fed. Cir. September 28, 2018) in which Alphacap Ventures, the purported infringer, demanded re-assignment of the patent owner’s patents as part of a settlement offer, but only after arguing for the invalidity of such patents under 35 U.S.C. § 101… While disparaging the patents question might serve a useful purpose in reducing their value, such disparaging statements will likely haunt the new owner during subsequent assertion assuming the new owner conceals such statements because of their potentially harmful nature. 

Nokia Corporation announced it entered into a patent licensing agreement with Chinese mobile consumer electronics firm OPPO. Although terms of the deal weren’t disclosed by Nokia, the company did state that under the agreement, OPPO would make payments over a multi-year period… OPPO may not receive the same kind of attention that its domestic rivals Xiaomi and Huawei receive, but it has become a major competitor in the Chinese smartphone market in recent years. OPPO had the greatest market share of smartphone makers in terms of Chinese sales during 2016 when the company shipped 78.4 million units to achieve a 16.8 percent market share within the country.

It would be a tragic mistake to blame federal tech transfer underperformance on Bayh-Dole. Bayh-Dole needs no amending. Bayh-Dole demonstrates how secure patent rights are the lynchpin to society’s getting the greatest benefit from federal research dollars.

It continually amazes me that many business folks who negotiate tons of IP license agreements, fail to understand the difference between covenants, representations, and warranties that are “standard” in many such agreements.  Well, that is not too surprising.  What is very surprising, however, is that many of their lawyers fail to appreciate the differences as well!  Many think the terms are synonymous and thus use them interchangeably. They are not.  So, for those of you tired of faking the funk, here is some (either fresh or refresher) Contracts 101!