Patent Licensing is as American as Apple Pie

It’s patent reform season in Congress again, and along with the warming weather comes a new flurry of over-heated concerns about patent trolls, defined by some as “patent owners who file lawsuits rather than make or sell products.” Well, I’m a patent licensor — inventions are the “products” I sell to industry on behalf of my inventor clients — and I’d like to show how these patents promote innovation, not litigation.

Consider, for example, the inventions of DDD Group, a developer of intelligent video solutions whose technology we license broadly to industry. Its patented TriDef 3D software is deployed today in 51 million PCs, laptops, tablets, and televisions made under license by Sharp, Samsung, LG, Fujitsu, Sony, Lenovo, and Intel. What’s more, its TriDef apps for smartphones and tablets were named “3D Products of the Year” in 2013 by the International 3D & Advanced Imaging Society, an organization founded by DreamWorks Animation, The Walt Disney Studios, Sony, Paramount, IMAX, and Dolby to advance the art and science of 3D.

We also license technology developed by the inventor Lee Hancock, who founded the world’s first local search service for mobile devices (called Go2) in the late 1990s in partnership with Sprint and other U.S. carriers. Hancock is widely respected in technology circles for having predicted 15 years ago, long before the first iPhone was released, that “the mobile phone will dominate web-access devices.” Today, his new company, Speedfind, a cloud-based location services platform, licenses his local search technology to leading brands such as Microsoft, Coke, McDonalds, MasterCard and Ramada.

Then there’s the patented encryption technology developed by PACid inventor Guy Fielder — formerly employee No. 18 at Compaq Computer and its lead designer — whose method of password-protecting wi-fi networks is built into literally billions of 802.11 wi-fi routers sold worldwide today. We have helped Mr. Fielder license his technology up and down the value chain — to device makers Samsung, Apple, Dell, HP and Cisco, as well as to chip makers Broadcom, Marvell, and Intel.

All three of these companies’ patents cover bona fide technological advances used in millions if not billions of consumer products. They are anything but patent trolls.

To hear the rhetoric from lobbyists for some large tech companies, however, you would think patent licensing is some sort of shady business, akin to extortion. Never mind the hypocrisy inherent in these same firms earning tens of millions of dollars annually licensing their own patents — most of which are never used in their own products — to other companies.

The truth is that patent licensing is as American as apple pie, and always has been. In the 19th Century, Charles Goodyear never made or sold rubber products. Instead, he licensed his patented process for vulcanizing rubber to other companies to commercialize. Similarly, Elias Howe licensed his revolutionary lockstitch mechanism to the Singer Company. And Thomas Edison licensed his patented incandescent light bulb to the General Electric Company.

In fact, scholars estimate that more than two-thirds of the great inventors of the 19^th Century Industrial Revolution licensed their inventions directly to manufacturers or employed licensing agents like my company to do so in their stead.

Nowadays, of course, invention and commercialization are often combined within a single vertically-integrated corporation. But that’s not always the case, as demonstrated by the fact that technology licensing remains a $150 billion annual business today. In fact, the smartphone industry’s unprecedentedly-rapid growth would have been impossible without the pervasive licensing and cross-licensing of technology (by manufacturers and non-manufacturers alike) across four different industries — mobile phones, electronics, computing, and software.

Then there’s the patent licensing conducted by universities, which likewise neither make nor sell products. Their licensed breakthroughs have sparked the formation of more than 10,000 new start-up companies over the last 30 years, and at least as many new commercial products.

Litigation, of course, is a fact of life in every sector, and patents are no exception. But patent suits are actually far less common than the Chicken Littles of patent reform would have you believe. The roughly 200 smartphone patent suits filed in recent years, for example, are only one-quarter the number filed during the first “Telephone Wars” of Alexander Graham Bell’s time, when American Bell Telephone and its successor, AT&T, litigated 587 patent cases alone.

What the Big Tech lobbyists don’t want you to know is that today’s patent litigation rate is less than one-half what it was during the heyday of the Industrial Revolution.

In any case, the last year has witnessed a striking decline in patent litigation to 2009 levels. Most analysts attribute this to recent U.S. Supreme Court rulings that limited the patentability of software and increased the power of the courts to impose sanctions on abusive litigants. Also driving this drop in patent suits was the availability of new post-grant review proceedings before the USPTO’s Patent Trial and Appeal Board, created under the recently enacted America Invents Act, which have enabled third parties to challenge and ultimately invalidate close to 1,500 patent claims.

To be sure, there are real patent trolls whose practices must be stopped. These outfits typically send form letters to hundreds or even thousands of random small businesses, claiming falsely that they are “infringing” their patents and must therefore pay a so-called “license fee” to avoid a lawsuit. Their activities have no more in common with real patent licensing than a mob protection racket has with the marketing of genuine liability insurance.

Fifteen states have already enacted laws to curb these bad faith demand letters, and 11 others are actively considering similar bills. In addition, the attorneys general of several states have used consumer protection laws against making false claims to force these outfits to stop sending these demand letters. The Federal Trade Commission (FTC) has also acted against trolls.

The patent licensing community itself is also working to curb bad actors within its ranks. The Licensing Executive Society of the U.S. and Canada, the industry’s 50-year-old professional group, voted at last year’s annual meeting to develop a set of best practices that codify ethical licensing behavior. My own company, meanwhile, has publicly vowed to never work with patent owners who sue small businesses or extort settlements via serial demand letters.

I’m all in favor of patent reform, so long as it targets abusive behavior — by patent owners and infringers alike — rather than the honest majority of patentees and licensors. The last thing we need is to weaken a licensing industry crucial to transforming inventors’ breakthroughs into the new products, new services, and new medical treatments that all Americans need.