IP Bank Facilitates Transfer of Patent Rights from Large Corporations to Startups

We’ve all read the news reports of patent trolls who threaten startups with bogus patent claims (without any intention of filing a patent infringement action) in order to extort settlements from those unable to pay the costs of standing up to them in court. But we also know that there are numerous cases where the dominant industry players have poach a startup’s patented technology, using the startup’s own innovation without permission and in order to muscle the upstart out of the market. Both activities are damaging, and also prove that there are bad actors on both sides of the patent equation.

Bad actors create real damage because they have turned public sentiment against innovators by labeling everyone who seeks a patent as some kind of nefarious patent troll. Meanwhile, the very same large companies that vilify patent owners are among the largest patent owners in the world. There is a disconnect of epic proportions, but at the end of the day that really doesn’t matter. Thanks to extraordinarily successful lobbying efforts and a popular press that seems to have bought the “patents are bad” mantra, innovation is suffering because startups are responsible for nearly all breakthrough innovation and job growth in the U.S. Without strong patent rights these startups cannot get off the ground, which is undoubtedly the larger objective for those large entities that decry the patents owned by others but who are so willing to spend whatever it takes to protect their own inventions.

Over the short term there is nothing we are going to be able to do to turn the industry around and toward the traditional equilibrium point where patents enjoy the positive reputation that has historically come with government recognition of an innovation. But there are market opportunities being recognized by some entities, which could help level the playing field to some extent.

Many large corporations are sitting on stockpiles of patents, which are not core to the corporations business but nevertheless represent an asset that could be useful if placed in the right hands. There are also startup companies that find themselves in need of patent rights to take next steps in business development, such as for the purpose of raising capital from investors. Into this fray enters a new institution called the Monument Bank of Intellectual Property. Rather than a startup going to the IP Bank for a loan, they can go to the IP Bank to acquire patents that can be used to build a portfolio or to supplement their already growing organic patent portfolio. The IP Bank is looking to strengthen startups and, in the process, enhance innovation and job creation.

[Patent-Business]

The Dominion Harbor Group launched the IP Bank earlier this summer with the purpose of working to seed promising young companies with high-quality, curated IP that buttresses their products and services, strengthens their market position, expedites venture funding, and increases the likelihood of an IPO or other strategic market success. To accomplish this goal the IP Bank is working with the crowdsourcing prior art research company Article One Partners on a framework for vetting the key patents in each patent family, which are obtained for placement by larger corporations that no longer have a need for the patents in question.

Already the IP Bank has already given more a dozen startups access to more than 1,000 patent assets from roughly 20 bank depositors. By year-end, it expects to have between 5,000-10,000 patents from 50 major depositors. Patents in the bank cover a range of technology areas, including energy, health care, finance, automotive, materials, green chemistry, and general technology.

According to Brad Sheafe, the Chief Intellectual Property Officer of Dominion Harbor Group, what the startups will obtain is actual ownership of the patents, not just a license to the patent. “When the startup owns the IP that’s when the contribution truly begins to matter in driving down the cost of capital and increasing the occurrence of the successful strategic exit for the startup,” Sheafe explained. “That’s what we’re trying to get to. So when a company sells it, or provides its IP to the bank that’s an actual transfer of ownership.”

Initially, ownership will be transferred to the IP Bank, which will then own the patent asset and be able to transfer title to the startup. The acquisition of the patents by the IP Bank will occur in one of three ways. First, in a limited number of cases the IP Bank will purchase the patents outright. Second, no cash will be provided, but the company transferring the patents will obtain a backend payment should the startup be successful. Third, is a hybrid arrangement where some up front cash is paid for the patents with some backend.

The hope is that the IP Bank will benefit not only startups, but large corporate depositors of IP as well. For one thing, the bank offers an alternative monetization route for companies’ underutilized IP that suffers from none of the legal and reputational risks associated with assertion licensing or “privateering” via an outsourced NPE licensor. The IP Bank for startups thus provides large innovating firms with a new channel for sourcing their next-generation products and services.

As for independent inventors and other small patent owners, the IP Bank provides them with real options in the type of sale and the use of their IP that the current market does not offer. Although the terms of use are negotiated with each depositor, the overall aim is to bolster the IP portfolios of innovative young firms, improve their market position, and generate meaningful returns for the Bank and its investors.

“This IP Bank could become an important new vehicle for generating IP value,” says Marshall Phelps, former chief of global IP operations at IBM and Microsoft who now serves as chairman of invention-on-demand firm ipCreate. “I hope so, because we need alternative ways to profit from IP without all the costs, risks and terrible PR associated with litigation licensing.”

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