Tech Firms Form Patent Protection Alliance

A report by the Wall Street Journal has outlined a plan by a group of major technology and communications companies to build a group defence against patent infringement lawsuits. Verizon Communications, Google, Cisco Systems, Telefon AB, Ericsson, and Hewlett-Packard are named as the core companies building the group, the Allied Security Trust. This currently has 11 members but aims for a total of 30-40 technology and communications companies which meet a "defined minimum level".

The Allied Security Trust requires fees of around US$250,000 to join the group and members need to place US$5 million into escrow to fund patent purchases. The non-profit group aims to facilitate members gaining cost-effective patent licences and to facilitate sharing licensing costs. It also states that it offers opportunities for patent holders to generate a return on their patent rights. However, the group will not engage in asserting patents against other companies, maintaining what it calls a "catch and release" scheme whereby patents are acquired, licensed to members (who contributed to the acquisition), and returned to the market.

Outlook and Implications

Litigation Expenses

The article notes that patent-related lawsuits (in the United States) have risen from 921 in 1990 to 2,500 through to October last year. The Allied Security Trust puts the cost to operating companies of defending these cases at "an average of US$3.2 million through the end of discovery and $5.2 million through trial to defend these cases when there is more than $25 million at stake." Many technology-based companies have been hit by heavy demands for payments as their complex systems infringe or potentially infringe on someone's patented property in the United States or abroad. Many companies use their portfolio of patents to defend against claims from rivals, with newer technology firms at a distinct disadvantage in this respect. Vonage was hit heavily by a number of telecoms firms over VoIP patents, while Sprint and Verizon have begun looking more broadly at cable companies that potentially infringe these patents (see United States: 25 January 2008: Sprint Joins Move to Cast VoIP Patent Net Wider and United States: 23 January 2007: Verizon Moves VoIP Patent Fight to Cable Companies with Cox Suit). One defence is to acquire a patent portfolio as ammunition for negotiating cross-licensing agreements (see World: 7 April 2008: RIM Builds Patent Portfolio). However, this defence does not work against patent holding companies that do not produce products or provide services. These are derogatorily known as "patent trolls", though they can be valid research bodies or institutions that fairly provide a return on inventions.

The Allied Security Trust is essentially a patent holding company that exists to benefit its members (major technology companies). However, the Trust expressly notes that it will withhold from making claims against its portfolio, avoiding accusations of trolling. However, it will aim to sell on patents, with attached conditions that prevent members from being sued for infringement.

Attempts at U.S. Patent Reform

Patent reform has been ongoing over recent years. The U.S. Patent Office (USPTO) is attempting to limit claims and continuations that can lead to expanding patents, but has met with resistance: a court win by GlaxoSmithKline put an end to the new regulations. A major bill, the Patent Reform Act of 2007, which passed the House in September 2007 has, however, stalled in the Senate in the face of lobbying and claims that it would weaken inventors' and patent holders' rights. This aimed to improve the definition of wilful infringement (which can triple damages) and limit the value of awards to the patented elements, rather than the overall value of the product, introduce a first-to-file rather than first-to-invent system, and allow patents validity to be challenged (see United States: 8 April 2007: Microsoft Loses US$367-mil. UI Patent Fight with Alcatel-Lucent).

Reforms Court Confusion

The courts have also been batting major decisions on patent issues between the various levels of the court system. Last month the Supreme Court reversed an appeal court decision and clarified patent exhaustion doctrine in the case Quanta Computer, Inc. v. LG Electronics, Inc. Patent exhaustion is the limitation of patent rights beyond an initial sale of a product—a product containing a licensed patent can only have a licence applied once. LG had tried to enforce a business method patent that limited the use of Intel components beyond the initial component sale, but the Supreme Court found that the business method patent was covered by the doctrine of exhaustion used on product patents: that a claim on a licensed product can only be made once in the production/sales cycle. The use of a business method patent and regulation to limit the use of components post initial sale was not valid largely as the only real use of the licensed product components. Intel was contractually allowed to "make, use, sell (directly or indirectly), offer to sell, import or otherwise dispose of", but LG had tried to limit this through its patent rights. Contractual obligations may still be used to achieve similar ends, but the Supreme Court decreed that patent regulation did not apply to extending licensing rights beyond the initial sale.

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