This article originally appeared in The Intellectual Property Strategist. © 2021 ALM Media LLC. Reprinted with permission.
Companies have historically turned to patent pools as vehicles for achieving shared objectives. A patent pool can be formed when a group of patent holders agree to pool their patents for some purpose. For instance, members of a patent pool may agree to pool and license their patent rights to a third party in exchange for fees or royalties. In this scenario, the pooling companies may own complementary patents that enable a technical standard. Pooling the complementary patents can enable a licensee to develop a product or service. In another scenario, members of a patent pool may agree to pool and cross-license their patent rights to one another. This may occur when a group of companies are developing similar products and services. Here, the members can benefit from shared patent rights that allow them to focus more of their resources on developing their businesses and less on patent transactional and litigation expenses.
As intellectual property continues to influence business operations, more companies are considering defensive patent pools as a strategic measure to guard against threats that can stifle innovation and growth for both businesses and industries. The License on Transfer Network and the Cryptocurrency Open Patent Alliance are two examples of defensive patent pools that can offer companies strategic value under the right circumstances. The value propositions provided by such organizations can benefit not just patent holders but also the innovation community at large, which is often instrumental to the advancement of new technologies.
License on Transfer (LOT) Network
The LOT Network is a well-known, nonprofit organization that was formed to protect companies from patent assertion entities. LOT’s membership has grown exponentially since its inception in 2014 and now includes thousands of members that range from startups to global giants. These members collectively hold millions of patent assets across a broad spectrum of technologies. Notably, LOT’s membership includes many of the largest holders of patents on artificial intelligence, blockchain, and quantum computing — all of which are emerging technologies that are expected to fundamentally alter the business landscape and remain of particular interest to patent seekers around the world.
The LOT Network operates by providing members with a license-on-transfer mechanism that grants each LOT member a lifetime license to any LOT member’s patent that falls into the hands of a patent assertion entity. Under the LOT agreement, a patent assertion entity can be a patent holder that generates more than half of its gross revenue from patent assertion. In effect, LOT members become immune to lawsuits involving pooled member patents that are sold or transferred to patent assertion entities. By shielding themselves as a group, LOT members can benefit by potentially reallocating budget that would have been spent defending lawsuits by patent assertion entities — a cost estimated to be $29 billion in aggregate — to investments that spur innovation and growth.
Since LOT’s primary focus is on reducing frivolous lawsuits, its agreement does not materially impact member rights to use their patent portfolios in accordance with their own business objectives. This means members of the LOT Network can still sell or transfer their patents, license their patents for revenue, participate in patent pools, and assert their patents against other members. The LOT Network’s value proposition has been so compelling that some of its members have encouraged their own suppliers to join LOT as a strategic measure to protect their supply chains.
Cryptocurrency Open Patent Alliance (COPA)
In late 2020, Square, Inc., a financial services and mobile payment company, announced the formation of the Cryptocurrency Open Patent Alliance (COPA), a nonprofit community that seeks to encourage the adoption and advancement of cryptocurrency technology. Since its recent formation, COPA’s membership has increased steadily and notably includes Coinbase, another leader in the cryptocurrency industry. COPA is open to all entities, from individuals to large corporations, regardless of whether those entities are themselves patent holders.
In contrast to the LOT Network, COPA requires closer collaboration among its members using a two-step approach that includes both a patent pledge and a shared patent library. Under COPA’s patent pledge, each member pledges not to offensively assert patents claiming technology that is foundational to the development of cryptocurrency applications. For example, the pledge covers patents to technologies that enable the creation, mining, storage, transmission, or security of cryptocurrencies. The patent pledge also requires each member to grant licenses to its pledged patents to enable the crypto community to grow, freely innovate, and build new and improved products. Thus, each member is expected to grant entities with licenses to develop, make, have made, use, sell, export, import, distribute, or otherwise practice inventions claimed in the member’s pledged patents. To protect the rights of its members, COPA sets forth a number of exceptions to the patent pledge. First, a member’s patent pledge does not extend to an entity that offensively asserts its intellectual property against that member. Second, a member’s patent pledge does not extend to an entity that offensively asserts its crypto technology patents against another entity. And finally, a member’s patent pledge does not extend to an entity that develops, markets, or sells a product or service that impersonates the member’s products or services.
The second step of COPA’s approach requires members to pool all of their pledged crypto technology patents to form the shared patent library. The shared patent library is intended to provide members with a collective shield that can be used to deter and defend against patent assertions. Thus, a COPA member that is the subject of an offensive patent assertion can request access to patents in the shared patent library to use defensively against an asserting entity. Since the shared patent library includes patents that are owned by different members, the COPA membership agreement provides procedures under which such patents can be legally transferred to other members for defensive patent assertion. For instance, an owner member may decide to partially assign its rights in a patent to a requesting member, so that the requesting member can assert the patent as co-owner. In another example, the owner member also has the option to exclusively license the patent to COPA, which will independently initiate and manage the defensive patent assertion. Even after transferring patent rights, the owner member is still expected to abide by a number of conditions. For instance, the owner member may be required to join an action to enforce the patent brought by the requesting member or COPA.
Despite such obligations, COPA can still provide companies in the cryptocurrency space with effective tools and leverage to reduce the risks and burdens that are typically associated with patent infringement assertions. Notably, COPA members retain rights to use their foundational crypto patents in a manner that is consistent with their business goals, including licensing or selling them.
As patent filings in key technology areas continue to rise and create potential hurdles to business and technological advancement, patent alliances, such as the LOT Network and COPA, can allow companies to strategically collaborate on shared priorities while still allowing companies to use their patent portfolios in accordance with their business objectives. Companies of all sizes should consider whether the value propositions offered by such alliances can help advance their IP strategy and long-term business objectives