Managing IP risk has become an essential part of doing business in the US. Patent infringement lawsuits claiming millions, or billions, of dollars in damages seem to increase year after year. Many companies - commonly referred to as non-practicing entities or patent trolls - are now created for the sole purpose of filing patent litigation. Large US technology companies such as Intel and Google face dozens of patent lawsuits every year and spend millions of dollars in legal fees just to fight these claims.
Challenges Faced by Asian Companies
Asian companies doing business in the US may face even more IP challenges than their US competitors. Recent surveys show that 78 percent of patent cases filed in the US against Asian technology companies are by non-practicing entities (NPEs). That is up from under 43 percent five years ago. By the end of this year, NPEs are expected to file nearly 250 cases against Asian companies in the US. That is almost as many cases as are expected to be filed against all US and European companies combined.
Adding to the IP risks faced by Asian companies, the secondary market for patents is growing rapidly, and there are many opportunities for NPEs to buy new patents they intend to monetize. With so many patents bought and sold, companies can no longer rely on using their own patent portfolio for defense against competitor patents. Competitors can sell their patents to NPEs who are not afraid to bring a lawsuit.
Many new IP entities are also being formed with new business models that call into question the old ways of dealing with IP risk. For example, patent aggregators, such as Intellectual Ventures and RPX, are amassing huge patent portfolios and claim that they can reduce patent litigation by taking patents out of the hands of patent trolls. Patent brokers offer patents for sale, often claiming that a company should buy the patent because the company infringes it and would not want to see it fall into the hands of a patent troll or a competitor.
In this rapidly evolving US IP landscape, who can Asian companies trust How should an Asian company address the rapidly changing US IP landscape
Who the Players Are
Knowing the players, how they operate, and how they make money is the first step in successfully navigating the risks and opportunities in the US IP landscape. The following list describes some of the more common types of IP players in the US.
Patent Trolls: The term patent troll generally refers to patent owners whose primary business is to seek licensing revenue by bringing lawsuits based on patents they own, and who do not have any operating business in which they produce products or provide services covered by patents. Although the term patent troll is sometimes considered derogatory, patent trolls have a legal right to seek compensation for the patents they own. Whether they are individual inventors or entities that have purchased the relevant patents, they own a property right that is protected by US law.
Patent Aggregators: A patent aggregator is an entity whose business involves buying or obtaining rights to a large number of patents in order to license the patents, either for defensive purposes or for the purposes of earning licensing revenue, or both. Many people consider Intellectual Ventures and RPX to be patent aggregators, for example. There is a great deal of controversy surrounding patent aggregators, and there are many different types. Generally, patent aggregators attempt to obtain licensing revenue without bringing lawsuits themselves. Patent aggregators can provide a very useful service, but it is also very important to understand an aggregator's business model prior to engaging in any negotiations because dealing with such an entity sometimes can be tricky.
Non-practicing Entities (NPEs): A nonpracticing entity is an entity that owns patents but does not have an operating business in which it manufactures products or provides services covered by patents. Patent trolls and patent aggregators are considered NPEs. But the term generally covers a broader spectrum of players. The term, for example, may also apply to entities such as universities that obtain patents and license them and companies such as Qualcomm and Rambus, which design products.
Patent Brokers: Patent brokers generally help others to buy patents, without taking an interest in the patents themselves. A patent broker is generally interested in closing patent sales, in order to earn commissions.
Licensing Agents: A licensing agent acts as an intermediary helping companies to obtain licensees for their patents. There are a wide variety of licensing agents in the US, and some of them also function as patent brokers. The compensation model for licensing agents can vary, but there is usually an incentive tied to the amount of revenue generated.
There are many other types of IP entities in the US, and new companies are being created every year. But simply finding out the type of entity you are dealing with is not enough. The business approach used by individual companies can vary widely, as can their reputation. Some will fully respect confidentiality agreements, while others are less careful. Some will negotiate very aggressively, while others are more willing to find win-win solutions. It is therefore important to learn as much as possible about such an entity before engaging in discussions.
Dealing with The Risk
When managing IP risk in the US, there are many options. It is important to consider all options carefully and develop a comprehensive IP risk management plan customized to your own company. Each company's IP profile is unique, and one size does not fit all.
An effective risk management plan may involve dealing directly with patent trolls and patent aggregators to obtain licenses, and it may also involve buying, selling, or licensing a company's own patents. Some defensive patent litigation probably is also necessary, but a strategic plan for dealing with such litigation should be part of the overall risk management plan.
Although dealing with IP entities in the US may be a critical part of the risk management plan, discussions with such entities can sometimes add additional risk for the reasons discussed earlier. Before doing business with any such entity, it is therefore important to understand as much as possible about the entity, and how business discussions might increase or decrease IP risk over time.
Because the US IP landscape is complex and rapidly evolving, it helps to listen carefully to IP employees who are on the ground in the US and understand local conditions. It can also be helpful to obtain guidance from an experienced IP business advisor outside your own company - one that is not interested in trying to sell or license patents to you unless you request that they do so.
Dealing with IP risk in the US can be very challenging, and the many new players in the IP landscape can sometimes be confusing. With careful planning and research, however, it is possible to successfully navigate this landscape.
About the Author
Joseph Siino is the principal founder and CEO of Ovidian Group, LLC, an IP asset management and business advisory firm in Berkeley, CA. He formerly served as Senior Vice President at Yahoo! Inc. as head of its global IP asset management department.
