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Market-based solutions to the NPE ‘problem’ will always trump the sledgehammer of legislation

Google launched a website this week which outlines a number of royalty-free defensive licences and asks for comments on them from interested parties. As calls for legislation to combat the perceived problems posed by NPEs have mounted in recent weeks, Google’s promotion of defensive cross-licensing shows that potentially there are market-based alternatives to the heavy hand of the law.

Four royalty-free licences are compared on the website, including two versions of the Defensive Patent License developed by Berkeley professors Jason Schultz and Jennifer Urban. Google is seeking feedback from other parties, which have until 9th April to express their views. It is not clear why Google has selected these four options in particular, and nowhere is it explicitly stated that Google intends to adopt one or several of them for licensing its patents should they garner sufficient interest from industry.

Writing on Google’s Public Policy Blog, Eric Schulman, the company’s director of patents, says that Google has been “encouraged by recent proposals for legislation and other reforms aimed at addressing the growing harm that patent trolls are inflicting on US consumers and small businesses”. But the problem with legislation is that the potential is always there for it to cause more harm than good – especially when its focus is on what is, in the grand scheme of things, a relatively small problem. The proposed SHIELD Act, for example, may end up making it more expensive for financially-challenged plaintiffs to enforce their rights, so giving more leverage to wealthy, and infringing, corporate defendants.

Despite expressing support for legislative action against ‘trolls’, Google is indicating that it believes market participants themselves may be able to do more to combat any threat they pose.  “We also think that companies can work together to help curb excessive patent litigation… On our site, we outline several networked, standardized, royalty-free patent licensing agreements that increase companies’ freedom to operate while reducing patent assertions, especially by trolls,” says Schulman.

As an incisive commentary on the SHIELD Act from Michael Risch makes clear, good lawyers (which most serious NPEs can afford, of course) will usually be able to find ways around legislation – especially when it is drafted with as little knowledge of the market it is supposed to be targeting as the SHIELD Act displays. Market-based solutions, on the other hand, are tightly focused, much harder to circumvent and, crucially, are significantly less likely to cause unintended harm.

In proposing royalty-free defensive licensing Google could also win itself a lot of plaudits among those who are generally critical of the patent system – a benefit that Twitter has also sought with its defence-oriented Innovator's Patent Agreement.

All that said, Google would severely restrict its ability to create value from its patents if it were eventually to put some of its defensive cross-licence proposals into practice. The company probably paid out the highest sum in history for an extant patent portfolio when it wholly acquired Motorola Mobility for US$12.4 billion in a purchase that was largely driven by Moto’s patents. There will surely be at least some Google shareholders who will be disappointed to learn that the company has no greater aspirations for those patents than to cross-license them on a royalty-free basis.


Jack Ellis
IAM Magazine
14 March 2013

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Licensing, IP politics, IP litigation, Patents, IP business

Comments

RE: Market-based solutions to the NPE ‘problem’ will always trump the sledgehammer of legislation

Jack

I beg to differ with your opinion.

In particular you correctly say:

"[G]ood lawyers (which most serious NPEs can afford, of course) will usually be able to find ways around legislation – especially when it is drafted with as little knowledge of the market it is supposed to be targeting as the SHIELD Act displays. "

That's why we also need good regulators with as much knowledge of the market as the market participants themselves who can intervene when the market fails. And markets do fail.

So in the EU we have recognized that licensing and patent strategies can give rise to market arrangements that are not in the consumer's or society's interest and the regulators are empowered to take action where such behaviour occurs. In fact there are severe financial penalties to deter the worst forms of market abuse.

Markets are not fool proof by any means.

Fred Logue, New Morning IP on 15 Mar 2013 @ 07:19

RE: Market-based solutions to the NPE ‘problem’ will always trump the sledgehammer of legislation

Re prior comment i would point out that European regulations to address NPE's are hardly an endorsement for their efficacy over market based solutions given the economic state of most EU countries.

Marc A Ehrlich, International Business Machines Corp on 28 Mar 2013 @ 00:40

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