Patent protection schemes: Racket or haven?

By Graeme Burton
20 Jan 2014 View Comments
mobsters-protection

Former US president Jimmy Carter is blamed, fairly or unfairly, for a lot of things – probably even more than Lady Thatcher. One unfortunate legacy of his administration, according to some experts (others pin the blame on his successor, Ronald Reagan), is the extension of US intellectual property laws into the realm of mere “ideas”, enabling software, algorithms and curved edges to be protected under US law and, consequently, a surge in patent filings and the emergence of “patent trolls”.

Further reading

While many organisations have profited from such an extension of intellectual property laws, many others have been forced to take evasive action to protect themselves from broadly written patents, aggressively asserted. And the technology sector has been the most affected by this extension of intellectual property rights.

As a result, over the past decade a number of organisations have emerged that seek to shield companies from the patent trolls and the aggressive enforcement of intellectual property rights.

Self protection

This was demonstrated most clearly when Imagination Technologies acquired MIPS, the designer of 64-bit server and embedded microprocessors. Rather than purchase the company outright, MIPS’ rival ARM came forward to purchase its intellectual property under the umbrella of a special-purpose vehicle (SPV) linked to another organisation, Allied Security Trust (AST).

Instead of buying MIPS’ intellectual property either to wield against rivals or to shield itself from them, ARM effectively underwrote half the cost of the $350m patent purchase, enabling it and other members of AST to take a perpetual licence for themselves, which would also cover their own licensees. Then, on 21 January this year, the patent portfolio will be auctioned, hopefully recouping much of the cost.

“AST says that it doesn’t have an interest in hanging on to patent portfolios. It temporarily takes patents off the market and licenses them to interested members to decrease the risk of non-practicing entities (NPEs) coming in, buying up the patents and then asserting them against AST’s members,” says Deborah Bould, an intellectual property law specialist and partner at law firm Pinsent Masons.

According to AST CEO Daniel McCurdy, the organisation has just under 30 members paying an annual fee of $150,000 or $200,000 depending on their level of membership. In return, it monitors patents coming onto the market around the world and provides members with access to a database enabling them to see whether anything of relevance has come up for sale.

“Once one or more members want to obtain a licence, they individually decide how much money they are willing to contribute to help purchase the patents. We then combine those funds for a specific purchase and, if successful, we license only those AST member companies that contributed to that specific patent purchase. Not everyone automatically gets a licence,” says McCurdy.

“The other participants have a chance to take a licence subsequently, but they must pay the highest amount paid by any of the participating companies,” he adds. Hence members have an incentive to participate in the original patent purchase.

On resale, AST has so far received anything between zero and three times the original purchase price – all of which is returned to the original purchasing consortium.

AST was devised, says McCurdy, after a number of companies independently approached an intellectual property consultancy called ThinkFire because they were concerned that patents belonging to defunct ecommerce software company Commerce One might fall into hostile hands after it filed for bankruptcy protection in late 2004.

They pooled resources and put together a combined bid – only to lose out to Novell, which was then fighting a copyright infringement lawsuit against SCO Group over claims that Linux infringed SCO’s own Unix-related patents.

Looking after Linux

Novell subsequently endowed the intellectual property it had captured to the Open Invention Network (OIN), another patent protection organisation. OIN focuses on protecting the open source operating system Linux – specifically, the Linux kernel, relevant libraries and relevant elements of middleware.

However, unlike AST, OIN seeks to use the deep pockets of its backers – which include Google, IBM and Red Hat – to purchase intellectual property and take it off of the market entirely. It doesn’t re-sell the patents that it purchases. “Our mission is to support ‘patent non-aggression’,” says OIN CEO Keith Bergelt.

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