“Having three of the world’s largest patent portfolios shows others that joining LOT is like getting a flu shot. It’s a defensive mechanism and it doesn’t interfere with someone’s plans to treat IP as a business.” – Ken Seddon, CEO LOT Network
Information technology giant IBM recently announced that it had agreed to join the LOT Network, a nonprofit patent risk management consortium designed to immunize its members from lawsuits filed by patent assertion entities (PAEs). The move brings an additional 80,000 patents and patent application under the aegis of the LOT Network, which currently offers its members immunity to 2.3 million global patent assets should those patents ever be sold to companies that make more than half of their gross revenue from patent assertions. Since the IBM announcement last week, LOT Network has added a few new members, including Japanese carmaker Toyota, which just announced today that it has agreed to join the consortium.
Since we last covered LOT Network in August 2018, the organization has more than doubled in size from about 275 companies up to 623 companies. Since it was founded in 2014, LOT Network’s membership has increased by a compound annual growth rate of 115%.
According to LOT Network CEO Ken Seddon, 236 companies joined the consortium in 2019 alone. Many of those firms represent major players across a variety of industries, including Caterpillar, Disney, Comcast, Twitter and Visa. “Growth has been our top activity and that growth has been universal,” Seddon said. “We now have member companies from 36 different countries, so clearly the PAE issue isn’t just a U.S. issue—it’s a global issue.”
Despite having a cadre of tech leaders among its membership, Seddon is quick to point out that much of the LOT Network is comprised of smaller companies that have an annual income of less than $25 million. LOT Network’s membership currently includes more than 400 such startups, which are now able to join for free thanks to member dues the consortium collects from its larger members. Free membership as a startup is available to any company meeting the income guidelines regardless of how many years the company has operated or how many patents it currently owns.
Inoculating Against PAEs
Seddon indicated that IBM’s decision to join LOT Network is likely to be significant because of IBM’s position as a sophisticated player within the patent monetization industry. “With IBM saying that it wants to join LOT Network and still have a patent business, I think it gives people a lot more comfort that being a member doesn’t affect the traditional use of a patent,” Seddon said. IBM’s entry into LOT Network gives the consortium three of the top five global patent holders, according to IFI CLAIMS. “Having three of the world’s largest patent portfolios shows others that joining LOT is like getting a flu shot,” he said. “It’s a defensive mechanism and it doesn’t interfere with someone’s plans to treat IP as a business.”
Although LOT Network at the time of its founding existed as one of many possible answers to issues that corporations have had with PAEs, including Congressional reforms and case law from the federal judiciary, LOT Network has grown while other strategies have proven ineffective. Seddon points out that, in recent years, patent litigation brought by PAEs has increased while litigation between operating companies has fallen. LOT Network points to statistics published by Unified Patents which shows that non-practicing entities (NPEs) brought about 88% of lawsuits against high-tech companies during 2019. Those statistics also show that patent suits from NPEs have increased by nearly 4% between 2018 and 2019.
While IBM, the top U.S. patent recipient for 27 straight years, gives LOT Network perhaps the most high-profile American research and development firm, the consortium already counts top patent holders in important sectors of emerging technology among its members. The organization has 12 of the top 30 patent holding firms in the artificial intelligence sector, including Microsoft and Alphabet, respectively the first- and second-place patent owning firms in the AI sector. LOT Network also counts 11 of the top 45 patent owners in blockchain technologies, including IBM (first), Microsoft (fourth), Alibaba (eighth) and Canon (ninth).
Seddon couldn’t point to any specific success stories of a PAE being unable to assert patent claims against LOT Network members because of the license on transfer agreement, but said there were various reasons why he didn’t expect such situations to arise publicly. LOT Network makes a good deal of membership information publicly available, including member firms and the date those firms joined the consortium. “We’ll never get that proof point because trolls already know who’s part of the herd and who’s not,” Seddon said. “If you’re a patent troll buying IBM assets and then sue one of our members, you’re liable for sanctions and attorney’s fees for filing a frivolous lawsuit because our website tells you who our members are in a matter of seconds.”
Moving Beyond Borders
While much of LOT Network’s focus is on the patent litigation landscape in the United States, the organization has been actively looking to expand its scope beyond American borders. Seddon said that LOT Network has a few employees operating both in Japan and China that are actively meeting with patent owning companies to answer questions regarding their prospective membership in the consortium. “If you’re a Chinese company, you want to be operating globally,” Seddon said. “The troll problem in China may not be that big yet but if you want to sell into Europe and the U.S., you need to develop a global strategy.” At the same time, Seddon noted that many U.S. companies looking to operate in China are worried about the situation in that country where many millions of patent applications have been filed thanks in large part to government subsidies for patent filings. “Right now, those patents are in the hands of large corporations but as the Chinese market becomes more liquid, many of those patents will fall into the hands of PAEs,” Seddon said. He added that many U.S. companies with growth plans in China worry that Chinese PAEs might have a home-field advantage in that nation’s court system.
For now, Seddon is encouraged by the fact that the industry response to LOT Network clearly shows that many patent owning companies feel that the organization is no longer an experiment. “It may have been risky to some to join LOT Network in 2014, but now it’s risky not to join,” he said. With technological advancements in artificial intelligence, cloud computing and wireless networking set to impact every industry imaginable, Seddon said that membership in LOT Network is a safe bet for technology implementers while also protecting the interests of companies that monetize patent assets. Seddon added that the next steps for the patent risk consortium will be discussed at the 4th annual LOT Network Bridge event in San Francisco on May 6 and 7.
What’s In it for IBM?
Mark Ringes, Vice President, Assistant General Counsel IP Law at IBM, explained the company’s motivation for joining the LOT Network in more detail via the following responses to questions posed by IPWatchdog:
Is IBM looking to shield itself or is the company more interested in being a good steward of its own patent assets in the event that any of them are sold?
The benefits are twofold. On the one hand, as a member, IBM will benefit from the LOT network license, meaning that the patents of other LOT network members cannot be used against us by PAEs. In addition, our membership in the LOT network brings a broader benefit to the innovation community, reminding open source developers that they need not fear our patents will at some point fall into the hands of PAEs and be asserted against them, consistent with our pledges over the years.
We see this as a natural extension of our leadership and stewardship in intellectual property, which is reflected in the 140,000 U.S. patents IBM has earned over the last 27 years as America’s top patent recipient. In 2019 alone, IBM inventors received a record 9,262 U.S. patents, achieving a milestone of most patents ever awarded to a U.S. company.
How important was IBM’s 2019 acquisition of LOT Network founding organization Red Hat to IBM’s own decision to join LOT Network?
Red Hat’s leadership in the LOT Network, along with its longstanding dedication to promoting open innovation, is a part of its ethos and is one of the reasons why the acquisition made so much sense for IBM overall. We are delighted to join our Red Hat colleagues as members of the LOT Network and build upon the important contributions they’ve already made in this space.
Does IBM see any particular benefit to its membership in LOT Network that isn’t available through other organizations?
Our decision to join the LOT Network is just the latest step in our history of broad support for innovation and the responsible use of intellectual property. In fact, in 2005, Red Hat and IBM helped found the Open Invention Network (OIN), a community that supports open source collaboration, innovation and adoption. OIN facilitates these goals by cross-licensing to its members patents related to the Linux ecosystem. IBM is also an initial investor in Unified Patents’ Open Source Zone which is designed to protect open source software from infringement claims by PAEs.
Which tech sectors are most covered by the 80,000 patent assets that are now under the LOT Network’s license?
IBM inventors across the globe are active in many areas of cutting-edge innovation. More than half of the patents IBM was awarded in 2019 – all of which are subject to the LOT Network commitment — touched critical technology areas like AI, security, blockchain, quantum and cloud. Examples include:
- Artificial Intelligence: IBM inventors received a patent for a method for teaching AI systems how to understand and deduce the inherent nuances and implications behind certain text or phrases of speech.
- Cloud: The company was granted a patent for a method to jointly manage cloud and non-cloud computing platforms. Working with a unified portal, this technique receives, organizes and streamlines all incoming cloud and non-cloud tasks and requests, which could help organizations easily migrate to hybrid cloud platforms.
- Blockchain: IBM also led in the number of blockchain patents granted, which includes several patents for improving the security of blockchain networks. One patented technique would help in resisting ‘replay attacks’, where an attacker copies and uses signature information from one transaction on a blockchain to later perform other transactions on the blockchain that are not authorized.
- Quantum: IBM created a method to scale a quantum computer to support a larger number of qubits that perform with less error. We also created a breakthrough approach simulating molecules on a quantum computer.
What does IBM’s decision to join LOT Network say about the company’s commitment to intellectual property?
Joining the LOT Network makes sense for IBM – it is an extension of our patent leadership, and IBM’s strong support of open innovation more broadly. For years, we have supported and invested in the open community. The most notable example of this was our acquisition last July of Red Hat, which is a founding LOT member. Openness and responsible stewardship are fundamental components of IBM’s approach to innovation.