Patent Pools vs PatentBooks
Why Patent Pools Are an Incomplete Solution for Patent Owners and Manufacturers
Patent Pool Licensing
Patent pools offer single price licenses to a group of patents deemed “essential” to a technical specification standard. The specifications underpinning these technologies were created to reduce friction between competitors to ensure interoperability for all the system components. Patent pools exist today for DVD, Blu-Ray, RFID, MPEG, SD-3C (memory cards), 4G/LTE, and other technologies.
Patent pools were created specifically to support industry standards bodies without violating anti-trust regulations. As a result, they have a number of constraints that limit their usefulness to both the Publisher and Subscriber sides of the licensing equation.
Patent Pool Limitations
A patent pool is comprised of patents that will be used by manufacturers using the standard. The limitations of all patent pools include:
• Exclusivity: A patent pool’s dominating attribute is exclusivity. To comply with anti-trust regulations, patents considered for inclusion into a patent pool must be deemed “essential” to the underlying specification by the patent pool administrator. If multiple patents provide different technical solutions to the same aspect of the specification, all of those patents are excluded from the pool. Product manufacturers remain at risk of violating those patents, since none are permitted in the patent pool. Therefore, a patent pool never provides comprehensive coverage to the product manufacturer.
• No patent ratings: Pools do not have a standardized mechanism to rate or value patents. All patents in a pool have equal value. This violates the reality that 20% of a given set of patents are usually worth 80% of the value. Two related attributes of a patent pool result:
- License revenue from a patent pool is distributed equally to all patent owners in a 1/n ratio, where n is the total number of patents in the pool.
- Product manufacturers are required to license all patents in the pool regardless of relative value.
- Volume of patents: A few patent pools contain a few hundred patents, but pools normally consist of only 10-100 patents. In either case, patent pools do not address the broader litigation risk mitigation goals of the product manufacturer, which often is in the thousands or tens of thousands of potentially applicable patents.
Patent Owner Problems with Patent Pools
Although patent pools represent a minor improvement over bilateral licensing, patent owners have significant challenges with patent pools as follows:
- Patents all valued equally: While a patent owner may have one of the best patents in a pool, licensing revenue for that patent is valued the same as all other patents in the pool. This issue causes ongoing consternation and in many cases limits participation. Many patent owners are, in fact, leaving patent pools because they believe their patents are better than the other patents in the pool. They believe they are not receiving fair value for their patents within the pool, and they may get more value from their patents via other licensing approaches. The result is that the strongest patents are often not included in the pool.
- Patent Pool Exclusions: Patent owners must prove that their solution is essential to the standard to have their patent included in the pool. This tends to limit participation. Many patents used in products cannot be included in a patent pool because the inventions themselves are not covered by a specification.
Manufacturers Problems with Patent Pools
Patent pools fail to address the needs of the product manufacturers, as they do not give full access to a comprehensive package of patents. Patent pool licensees are challenged by some of the same problems as bilateral licensing:
- Lack of risk mitigation: Licensing the 10-100 patents in a pool does not go nearly far enough to mitigate litigation risk across the entire spectrum of thousands of potentially relevant patents.
- Exclusion of critical patents: Due to the anti-trust requirement for exclusivity, often the most important patents are excluded from the pool.
PatentBooks Improve Coverage
PatentBooks benefit patent owners by delivering a new license revenue stream that maps both to Subscribers’ success and their respective patent quality.
Publishers benefit by removing the very large cost of finding and enforcing their patents against infringers. PatentBooks gives Publishers a mechanism to identify non-Subscribers and approach them directly for a license. Subscribers benefit from immediate licenses to a defined set of patents within a particular technology domain, thereby immediately reducing the risk of litigation.