Anti-Troll LOT Network Expands to 500 members

The Anti-Troll (or Troll protection) LOT Network has expanded to 500 members.  I first wrote about the Google started LOT Network in 2015, and I believe it had about 47 members then.  Around four years later and we are at a significant increase.  For more on the LOT Network, please see these two prior posts, here and here.  Also, here is a blurb from a release by the LOT Network: 

"When you’re caught up in the day-to-day business of moving things forward, it’s easy to lose sight of accomplishments. It was in this way that a significant milestone — LOT Network’s membership reaching 500 members — caught us nearly by surprise. We are very proud of our community, which now counts Disney, Meituan Dianping, Centerpoint Energy, Synchrony, Yamaha,  VISA, Juniper Networks, 7-Eleven and Netgear as some of its newest members.

Our growth now spans industries — including automotive, finance, entertainment, cloud computing, retail, manufacturing, and emerging industries like blockchain — as well as continents. You can find LOT members in more than 35 different countries and counting; some of the biggest tech companies in Asia are among our strongest supporters.

Further, we’ve seen an uptick in startup membership, confirming that LOT is a solution for all companies regardless of their size or industry. Our momentum toward becoming a standard business practice grows stronger every day — more and more, we see members joining us based on information they’ve found online — often joining without contact from a LOT Network team member.  And that is because of you — the collective reputation of our membership makes joining LOT an easy decision."

Federal Circuit Pushes Back on U.S. Supreme Court’s Alice Decision on Procedure

In a pair of interesting software-related cases, the U.S. Court of Appeals for the Federal Circuit appears to push back on one of the supposed goals of the U.S. Supreme Court’s Alice v. CLS Bank International decision.  In Alice, the U.S. Supreme Court clarified and restated the Mayo Collaborative Services v. Prometheus decision’s test concerning patent eligible subject matter.  In doing so, the Supreme Court started a new era of U.S. patent law which made patent eligible subject matter a very important inquiry with respect to the patentability of inventions, particulary those in the software space—although Alice’s impact is felt in other technological areas.  Since Alice issued, the U.S. Court of Appeals for the Federal Circuit has clarified the Alice test and notably provided guidance to patent lawyers on how to “avoid” or “comply” with Alice. 

Importantly, one of the purported benefits of Alice was to allow for the early dismissal of claims based on patent eligible subject matter.  An alleged infringer could conceivably quickly raise patent eligible subject matter and get a claim dismissed on either a 12(b)(6) motion for failure to state a claim or a motion for summary judgment.  In additional push-back to Alice, the Federal Circuit in Berkheimer v. HP (February 8, 2018) has recently held that even after claim construction a motion for summary judgment on patent eligible subject matter may be improper because of genuine issues of material fact.  While this is standard law concerning motions for summary judgment, the case provides a blueprint for how genuine issues of material fact can be created with patent eligible subject matter.  Because of this possibility of creating that genuine issue of material fact, patentees will have additional settlement leverage to realistically threaten a case through trial—a costly endeavor.  What will the effect of this case be on Alice’s attempt to curb so-called patent troll litigation? 

In another recent case, the Federal Circuit in Aatrix Software v. Green Shades Software (February 14, 2018) remanded a case because the district court did not allow the patentee to amend its complaint to survive a 12(b)(6) motion on claim construction.  While the Federal Circuit was careful to note that a complaint can be dismissed on a 12(b)(6) motion to dismiss, this case cautions district court judges to carefully consider motions to amend complaints. 

It will be interesting to see if the Federal Circuit’s decisions about the procedural challenge of patents based on patent eligible subject matter in the courts will have an impact on the analysis in the pending Oil States case before the U.S. Supreme Court. 

USPTO Releases Report on Public Views on Patent Eligibility Rules

The United States Patent and Trademark Office (USPTO) has released a report titled, “PATENT ELIGIBLE SUBJECT MATTER:  REPORT ON VIEWS AND RECOMMENDATIONS FROM THEPUBLIC” (Report) concerning the comments of participants at USPTO sponsored roundtables concerning the patent eligible subject matter requirement, particularly post-Alice/Mayo.  The USPTO summary of the Report states:

Much of the feedback we received highlighted the complexities of determining the appropriate boundaries of patent subject matter eligibility. Commenters confirmed that the recent Supreme Court cases have significantly changed the standards for determining patent subject matter eligibility. Several commenters expressed concern that these decisions have created inconsistency, uncertainty, and unpredictability in the issuance and enforcement of patents, particularly in the life sciences, software, and e-commerce industries.

A diverse group of representatives from academia, industry, law firms, and legal associations proposed legislative changes aimed at reversing the recent trend in the law and restoring, in their view, a more appropriate dividing line between eligible and ineligible subject matter. In contrast, a sizable portion of representatives from the software industry argued that the Court’s two-step test provides an appropriate standard for patent subject matter eligibility. This group cautioned against legislative redress and instead recommended that the common law should be allowed to evolve.

The following is a list of the views against the new rules: “1) Decisions are Legally Flawed; 2) Exceptions are Overbroad; 3) Two Step Test is Unclear and Causes Unpredictability; 4) Preemption Conflates 101 with other Patentability Requirements; 5) Jurisprudence Stifles Innovation and Hurts Business; and 6) Consistency of U.S. Law with International Norms.” Here is a list of the views in favor of the new rules: “1) Common Law Process at Work; 2) Weeds Out Overbroad Patents; 3) Requires Claiming a Specific Way and Not a Result; 4) Litigation Tool Against Patent Assertion Entities; and 5) May Give U.S. Entities an Advantage.” 

On the point in favor of the new rules based on May Give U.S. Entities an Advantage, the Report states:

Even if the Supreme Court’s new eligibility standard differs from standards abroad, a few commentators projected that the difference could actually operate to the benefit of the United States. For example, one commentator argued that because foreign entities have an increasing stake in the U.S. patent system, “[g]eopolitical considerations . . . weigh heavily in favor of” the Supreme Court’s Mayo and Alice decisions.246 In fact, she cautioned that if the U.S. were to adopt an overly expansive patentability standard, then not only would “American inventors, American companies, American investors, and the American public” benefit, but an “equal or greater benefit [would] inure to foreign inventors, foreign companies, and, in some cases foreign governments.”247 Another participant asserted that “if a company is innovating because it can get patents in Germany or Europe but it may not be able to get as much protection in the U.S., that innovation is still happening.” 248 And, she added, “if our consumers can benefit from the additional competition that a lack of patent [protection] provides and pay lower prices here” and “the innovator can still get their investments recouped by getting monopoly profits elsewhere” that may not be a bad deal for our consumers.249

Members of the life sciences community were relatively united in their critique of the new patent eligible subject matter rules.  The computer/related technologies community was apparently less united on whether the patent eligible subject matter rules were a good thing or not. 

There are also several legislative proposals for change, including: Replace the current test with a technological arts or useful arts test; Expressly define exceptions to eligibility; Distinguish eligibility from other patentability requirements; and Establish a research exemption to infringement. 

The text concerning the research exemption states, in relevant part:

Several commentators proposed a legislative amendment to recognize a research exemption from patent infringement for experimentation conducted to better understand or improve a claimed invention.427 According to these commentators, such an amendment would address the Supreme Court’s preemption concerns, i.e., concerns that patents on foundational technological tools may stifle scientific progress by tying up the basic building blocks of human ingenuity.428 One commentator suggested that the exemption could be tailored such that “patents on research tools would be unaffected, but research on a patented invention itself would not be subject to infringement allegations.”429  

The USPTO should be applauded for its hard work in trying to make the patent eligible subject matter rules and their application accessible, and obtaining the public’s viewpoint. 

TC Heartland: Good for Patent Litigation?

In TC Heartland v. Kraft Food Group Brands, a recent opinion, the US Supreme Court decided to restrict the meaning of the patent venue statute.  This statute essentially provides in which judicial district a defendant may be sued for patent infringement.  The patent specific statute, 13 USC 1400(b), provides: “[a]ny civil action for patent infringement may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business.”  The US Supreme Court had to analyze whether “where the defendant resides” means “where the defendant is in incorporated” per a previous US Supreme Court case analyzing that provision, or according to subsequent amendments by Congress to the general venue statute which has a much broader definition of what “resides” means.  Ultimately, the US Supreme Court in a unanimous Associate Justice Thomas opinion (Associate Justice Gorsuch not participating) decided to adopt the more restrictive definition: “resides” means where the defendant is incorporated. 

Practically, many believe that this decision is another attempt to restrict “abusive” patent litigation or patent troll behavior by directing litigation out of the Eastern District of Texas to other districts—interestingly perhaps to districts that may be more favorable to accused patent infringers.  One concern about patent infringement generally has been the competence of judges and juries to address technical and complicated patent cases.  Notably, the Eastern District of Texas has handled a large number of patent cases for many years and arguably the judges have developed technical and legal competency in patent cases.  Indeed, this could explain why the district handles patent cases relatively quickly.  Arguably, we’ve now made a policy decision pushing cases away from a competent district to those that are not.  However, some cases presumably may now be brought in districts in California or Delaware (where a large number of corporations are incorporated), which may also have developed competency in handling patent cases.  I have been told that juries in some districts in California are quite technically sophisticated—such as in the Northern District of California where Silicon Valley is located.  Perhaps one benefit of TC Heartland may be better juries; although remember how the Apple v. Samsung jury was criticized.  

"Opportunistic" Google and Intertrust Launch "Patent Shield": Protection for Startups

Google and Intertrust have announced the creation of Patent Shield, which is designed to protect startups.  Essentially, the exchange is access to a patent portfolio for an equity stake in the startup.  It seems to put startups in the position of a much more resourced company with a portfolio of patents and presumably freedom to operate.  This appears to be another attempt to get ahead of something like the patent troll problem; however, it seems to be aimed at patent demands from entities that are practicing not absolute non-practicing entities because the portfolio is supposed to provide leverage against the entity asserting infringement initially.  Interestingly, this appears to be a great way for Google and Intertrust to find licensing partners for their patented technology without looking like a “bad guy” by operating through patent demand letters—let them come to us.  Very clever.  It also gives Intertrust the opportunity to offer its IP services to startups, and maybe a chance for additional investment/acquisition opportunities through notice about great new startups that have attracted the attention of established players in the market. Very, very clever. For more details, please see here. 

Stanford Law School Patent Assertion Entity Symposium Call for Proposals

The Stanford Law School is holding a Patent Assertion Entity (PAEs) symposium based on the empirical research of Mark Lemley and Shawn Miller on lawsuits involving PAEs.  Proposals to participate should be based on the research and directed to PAE reform efforts.  This is a timely symposium based on the release of the recent FTC Report on PAEs.  The details are pasted below.

Call for Proposals

PAE Reform Symposium at Stanford Law School

May 11, 2017

We hope that you will be able to join us at the Stanford Patent Litigation Policy Practicum’s Symposium on patent assertion entities (“PAEs”) on May 11, 2017 at Stanford Law School. The Stanford Program in Law, Science & Technology is cosponsoring this event. The Practicum is directed by Professors Mark Lemley and Shawn Miller. Since 2013, over twenty Stanford students have been working to create the Stanford NPE Litigation Dataset (the “dataset”), which when complete will categorize the patentees in all patent lawsuits filed between 2000 and the present as practicing or as one of eleven categories of non-practicing entities (“NPEs”). Several of our NPE categories are different species of PAEs.

 Within the month, we will finalize a 20-percent random sample of all lawsuits filled between 2000 and 2015. The main purpose of this symposium is to bring together scholars, policymakers and practitioners to listen to and discuss presentations by selected researchers who have used this data in empirical studies aimed at informing the debate on the need (or lack of need) for additional patent reform targeting PAEs. 

 We welcome your proposals for research using the dataset. Below are links to our taxonomy for categorizing patent owners and to our completed random sample of cases for the year 2000:

• Taxonomy and methodology (link)
• Sample of cases filed in 2000 (link)

Researchers who are selected to present at the Symposium will receive the entire random sample of over 10,000 lawsuits in early December. We will provide these researchers assistance in obtaining other data, including the patents asserted in each case, as needed. We do not expect completed papers by the date of the Symposium but rather presentations describing the participants’ hypotheses, methodology, empirical results and policy implications.

 Call for Proposals on the following subjects:

• The impact of PAEs on the courts, the patent system, innovation, producers and/or consumers (including in comparison with other types of patent owners).
• Whether patent reform to address PAEs is warranted given the evidence and if so what shape should it take?

 We welcome proposals for projects that would use the entire dataset as well as those focused on particular industries or technologies.

Deadline for submissions:

• December 2, 2016

 PROPOSAL SUBMISSION PROCEDURE: If you are interested in presenting empirical results at the Symposium please send a brief one to two page description of the study you would like to conduct using the Stanford NPE Litigation Dataset to the Practicum's research assistant Kevin Gibson at kpgibson@stanford.edu no later than December 2, 2016. Please include your name, current position and contact information in the e-mail accompanying the submission. 

 COST: There is no registration fee and meals will be provided during the conference. We will cover hotel accommodations and limited travel expenses for researchers whose proposals are selected for presentations.

 Please email Shawn Miller with any questions concerning the symposium, the dataset or the call for proposals: smiller@law.stanford.edu

U.S. Federal Trade Commission Releases Report on Patent Assertion Entities

On October 6, 2016, the Federal Trade Commission [FTC] released a 269 page report titled, "Patent Assertion Entity Activity: An FTC Study" [Study].  The Study reviews PAE activity from 2009 to 2014.  The press release from the study excerpts some highlights: 

The report found two types of PAEs that use distinctly different business models. One type, referred to in the report as Portfolio PAEs, were strongly capitalized and purchased patents outright. They negotiated broad licenses, covering large patent portfolios, frequently worth more than $1 million. The second, more common, type, referred to in the report as Litigation PAEs, frequently relied on revenue sharing agreements to acquire patents. They overwhelmingly filed infringement lawsuits before securing licenses, which covered a small number of patents and were generally less valuable. 

The report found that, among the PAEs in the study, Litigation PAEs accounted for 96 percent of all patent infringement lawsuits, but generated only about 20 percent of all reported PAE revenues. The report also found that 93 percent of the patent licensing agreements held by Litigation PAEs resulted from litigation, while for Portfolio PAEs that figure was 29 percent. 

The study found that the royalties typically yielded by Litigation PAE licenses were less than the lower bounds of early stage litigation costs. This data is consistent with nuisance litigation, in which defendant companies decide to settle based on the cost of litigation rather than the likelihood of their infringement.

Interestingly, the report relies on the AIPLA economic survey on patent litigation costs to conclude that the majority of Litigation PAE litigation is nuisance litigation.  That merits additional scrutiny, I think.  The Study also includes reforms to address nuisance infringement litigation: 

  

“The FTC recognizes that infringement litigation plays an important role in protecting patent rights, and that a robust judicial system promotes respect for the patent laws. Nuisance infringement litigation, however, can tax judicial resources and divert attention away from productive business behavior,” the report states. With this balance in mind, the FTC proposes reforms to: 

• Address the imbalances between the cost of litigation discovery for PAE plaintiffs and defendants;

• provide the courts and defendants with more information about the plaintiffs that have filed infringement lawsuits;

• streamline multiple cases brought against defendants on the same theories of infringement; and

• provide sufficient notice of these infringement theories as courts continue to develop heightened pleading requirements for patent cases.

Notably, the Study also reviewed " types of patents held by PAEs, and found that 88 percent were in the information and communications technology sectors; more than 75 percent of those patents were software-related patents." Interestingly, some Study PAEs frequently targeted a small number of firms in the "Computer and Electronic Manufacturing" sectors.  Further, the Study "also looked at whether PAEs were able to make money by mass-mailing so-called “demand letters”; however, the FTC observed an “absence of large demand letter campaigns for low-revenue licenses among the Study PAEs.”  This results in the Study stating that reforms concerning demand letters "on its own" would make little difference. 

Notably, the Study includes an review of the wireless chipset sector in particular: 

[T]he report also looked at the wireless chipset sector, examining how reported PAE assertion behavior compared to certain manufacturers and non-practicing entities (NPEs) (who primarily seek to develop and transfer technology ). For this study, the FTC obtained non-public data from eight manufacturers and five NPEs, for the same timeframe using its 6(b) authority. 

The wireless case study found that Litigation PAEs and manufacturers behaved differently. Within the study, Litigation PAEs brought far more infringement lawsuits involving wireless patents—nearly two-and-a-half times as many as manufacturers, NPEs, and Portfolio PAEs combined. Litigation PAE licenses involved simple lump-sum payments with few restrictions, if any, whereas the reported manufacturer licenses frequently included field-of-use restrictions, cross-licenses, and complicated payment terms.

Importantly, the Study does not draw conclusions concerning the merits of PAE activity in monetizing inventions for inventors and innovators: 

Study PAEs had diverse and heterogeneous data-keeping practices. As a result, the FTC does not report how much revenue PAEs shared with others, including independent inventors, or the costs of assertion activity. The FTC sought to evaluate the role of PAE activity in promoting patent monetization for inventors and innovation as part of its study. Towards that end, the FTC requested that Responding PAEs provide detailed data describing how they shared licensing revenue with outside parties and their costs of patent assertion. Responding PAEs used different methods to maintain information describing their revenue sharing and costs, however, which prevented any meaningful comparison of the degree of revenue sharing by PAEs or their assertion costs. For example, some Responding PAEs viewed payments to outside counsel as a cost of patent assertion, but others viewed such payments as revenue sharing (counsel often received a fixed proportion of licensing royalties). Moreover, the majority of Responding PAEs did not maintain information on assertion costs, and only a few Responding PAEs provided such data at either the Affiliate level or assertion campaign level. For these reasons, we did not analyze either the proportion of licensing revenue that they shared with outside parties, or the costs of patent assertion. Due to this limited data, this report does not address the efficiency of PAE business models. [emphasis added].

And, what impact will Alice have?  The Study notes that "it did not collect enough information regarding patent assertion after the Alice decision" to "directly measure" Alice's impact, but: 

In addition, because more than 75% of the patents in the FTC’s sample likely include software-related claims, and because the FTC estimates that Study PAEs held more than 75% of all U.S. patents held by PAEs at the end of 2013, any change in PAE behavior with respect to software patents that results from Alice will likely have a significant impact on both the overall volume of PAE assertion and the types of technologies that PAEs assert.

Study PAEs generated about $4 billion in licensing revenue.  And, the Study noted, "Fewer Than 1% of Study Patents Were Identified as Encumbered by a FRAND Commitment to a SSO."  [Hat tip to Professor Dennis Crouch's Patently Obvious Blog.]

Subsidized IP Litigation Insurance in Japan and Increased Enforcement in China

As reported by Ellie Wilson on the IP Kat blog, the Japanese Patent Office (JPO) has announced a program whereby half of the premiums for IP infringement insurance will be covered.  The program is a partnership between the JPO, the Japan Chamber of Commerce and Industry, The National Federation of Small Business Associations, and three insurance companies.  Specifically, the subsidy is directed at making affordable IP infringement litigation insurance for SMEs that are operating in countries outside of Japan. The announcement appears to cover both the need for the SME to fund IP infringement litigation against alleged infringers and to defend litigation.  Notably, the announcement explicitly mentions China as a market of concern; although my guess is that a concern with so-called patent trolls in the United States is also an issue. 

This announcement comes close in time to reports of increased enforcement of intellectual property rights in China, particularly as China reportedly is attempting to move toward an innovation and services based economy.  Interestingly, the official website for The Supreme People's Court of the People's Republic of China published an article by Ma Si (China Daily) concerning the move of smart phone wars to China titled, "Chances high for more patent cases."  The article discusses the recent stayed injunction against Apple and the prospects for more patent cases given actions in the United States concerning Huawei.  Huawei and Samsung are also embroiled in litigation in China.

Given the importance of SMEs to economic growth and job creation as well as the general high cost of litigation, it will be interesting to see if more countries move to subsidize IP litigation insurance.  Are there any other countries subsidizing IP litigation insurance?  Instead of regulating against so-called patent trolls, is this where government should intervene--helping insurance markets develop and lowering the cost of insurance, particularly for SMEs?  Should government back insurance funds for IP litigation?    

Nothing New in the World of Patents: "Patent Licensing and Secondary Markets in the Nineteenth Century"

In a recent blog post "Nothing New Under the Sun: “Patent Trolls” Have Been Around Forever," I discussed Professor Zorina Khan's review of Nineteenth century patent assertion entities.  In a recent essay, Professor Adam Mossoff of George Mason University Law School provides another supportive account of patent licensing and secondary markets in the Nineteenth century.  Specifically, Professor Mossoff, in a short and readable paper, "calls out" those commentators who assert that the "patent licensing business model" is a new phenomena. Professor Mossoff summarizes and reviews Professor Khan's research as well as the research of other historians that demonstrates there really is nothing new (at least not much) in the world of patents. 

Professor Mossoff provides the example of three inventors who licensed their patents.  He discusses Charles Goodyear (process for vulcanized rubber), Elias Howe, Jr. (lockstitch in sewing machines), and Thomas Alva Edison.  About Goodyear, Mossoff notes, "Some of Goodyear's assignees and exclusive licensees, who were patent licensing companies themselves, filed hundreds of lawsuits in the nineteenth century; they sued firms, individuals, and even many end-users such as dentists, for patent infringement."  He further states that, "Contrary to many claims today, end-user lawsuits even by patent licensing companies are nothing new in America's innovation economy."  

Notably, Mossoff states that Howe used "third-party litigation financing."  Howe also joined "the first patent pool in American history."  "[Howe] made almost the entirety of his fortune on the basis of the royalty stream from his license to this patent pool, which further licensed his rights to other companies."  Mossoff makes an interesting point about Edison.  Interestingly, he notes that Edison was famously a terrible businessman, but a great inventor.  The point here seems to be that specialization matters--licensing for commercialization to those who know how to do it is critical to getting patented inventions to the public. Not all inventors will be good businessmen--experts in manufacturing or finance. Edison's "employ[ment of] the patent licensing business easily meets today's definition of an 'NPE.'"  

Professor Mossoff also provides interesting examples of the secondary market, which include the classified advertisements in the magazine Scientific American. The classified advertisements included numerous "ads for the sale of patents and patent rights."  Moreover, he discusses the research of economists Naomi R. Lamoreaux, Kenneth Sokoloff, and Dhanoos Sutthiphisal: "Their research revealed the fundamental and significant role performed by a group of market intermediaries known at the time as 'patent agents.'"  Professor Mossoff asserts that these "patent agents" are "predecessors of today's patent aggregators." 

Finally, Professor Mossoff states that a historian notes "after detailing the problems for nineteenth-century inventors who usually lacked manufacturing and commercial finance skills, that 'given the risks associated with manufacturing, many nineteenth-century inventors preferred to either sell or license their patents.'"  He concludes that, "In sum, it is simply false to assert that these commercial mechanisms for bringing patented innovation to market are a new phenomenon today." What should be the role of this type of research given the state of the debate on NPEs/PAEs today?  Does it change the analysis concerning the merits of NPEs/PAEs?  

Cumulative mobile-SEP royalty payments no more than around 5% of mobile handset revenues

As indicated in the recent IP Finance guest posting about the US Court of Appeals judgment in Microsoft Corp. versus Motorola Inc., by Kevin Winters, in some cases there can be a massive difference between what a licensor asks for and what a licensee ends up paying in fees and royalty rates for standard-essential patents. My latest blog posting assesses cumulative royalties paid on SEPs in mobile phones, including multiple licensors, by adding up what is actually paid and what is conservatively the maximum likely to be paid, where actual payment figures are not publicly available. This total is far lower than that calculated by simply piling-up every licensor's rate demands. Expressed as a yield on total mobile handset sales revenues, it is a much smaller percentage than this speculative and defective "royalty stack" calculation.

Cumulative mobile-SEP royalty payments no more than around 5% of mobile handset revenues

Vested interests including leaders at the mobile operator-dominated NGMN Alliance promote the notion that patent licensing fee rates are “perceived” to be too high in mobile technologies; but without substantiation for such claims. Speculation that patent fees, largely for mobile SEPs, may total 30 percent of smartphone costs are projected by Intel and others.[1]  This grossly inflated figure is based on theories of hold-up and royalty stacking that lack empirical support and it ignores marketplace realities including cross licensing and discounting rates for other reasons in patent-licensing agreement negotiations, as I have already noted here and here.  That percentage would equate to more than $110 billion being paid per year in patent fees based on total global handset revenues estimated by Morgan Stanley and IDC to be  $377 billion in 2013 and $410 billion in 2014.

Actual payments are much smaller than such perceptions and projections. The following table summarizes fairly exhaustive analysis of significant mobile-SEP licensing costs based on reported licensing revenues from the audited financial reports of major licensors and other public sources including patent pool rate-card charges.  Based on these figures, it is implausible that total royalties actually paid, including lump sums and running royalties, for standard-essential 2G, 3G, and 4G technologies, amount to more than approximately $20 billion per year. This figure represents a cumulative royalty yield for licensors of around five percent on mobile handset revenues.

Mobile SEP Licensing Fee Revenues and Royalty Yields on Global Handset Market

	2014
	Revenues	Yield*
Major SEP owners with licensing programs: Alcatel-Lucent, Ericsson, Nokia, InterDigital, Qualcomm	$10.6 billion	2.6%
Patent Pools: SIPRO (WCDMA), Via Licensing (LTE), Sisvel (LTE)	<$4 billion	<1%
Others: including Apple, Huawei, RIM, Samsung, LG	<$6 billion	<1.5%
Cumulative maximum:  fees and yield for mobile SEPs	~$20 billion	~5%

* Yields are total licensing fee revenues including lump sums and running royalties as a percentage of $410 billion in total global handset revenues

The majority of mobile-SEP licensing fees are earned by five companies with licensing programs who have collectively contributed most patented technologies to 2G, 3G and 4G standards.  Alcatel-Lucent, Ericsson, InterDigital, Nokia and Qualcomm altogether generate $10.6 billion per year in licensing fees for these and other technologies. Also collectively, this represents a yield of significantly less than three percent of total global revenues for mobile handsets including smartphones.

Cumulative mobile-SEP fees paid also include less than around one percent of total handset revenues to the three mobile-SEP patent pools plus, at most, one percent or so more to other companies licensing mobile SEPs bilaterally. Patent pools lay out their prices and so these indicate the maximum they might be able to collect with willing and responsive licensees and a lot of licensing effort on the part of the pool administrators. The remaining significant mobile-SEP owners are predominantly handset manufacturers who mainly cross-license to reduce royalty out-payments rather than generate royalty income, and so their royalty fee revenues are relatively small. With each percent of royalty yield on total handset revenues now representing more than $4 billion per year in patent fees, there is insufficient evidence and no justification to conclude that opportunists not included in any of the above categories, including so-called patent trolls, patent-assertion entities and other non-practising entities, yield more than a fraction of a percent of total handset costs.

As a percentage of all consumer charges, including handset costs and $1.13 trillion in mobile operator services (GSMA Wireless Intelligence figures), which are also highly dependent on SEP technologies, the cumulative royalty yield shrinks to 1.3 percent.  Deriving this lower percentage yield figure from the broader revenue base is also applicable because it is the innovative and relatively new SEP-based technologies including 3G HSDPA/HSPA and 4G LTE which enable and drive mobile broadband data service growth. Operator revenues in mobile data services (other than basic SMS text messaging) grew from single-digit percentages of total service revenues until the introduction of HSDPA a decade ago, to around 40 percent across the entire Vodafone Group with many different national operators, for example, in 2015, according to the company's annual reports.

My more detailed and much lengthier analysis is in a pdf here.

[1]  A working paper entitled The Smartphone Royalty Stack: Surveying Royalty Demands for the Components Within Modern Smartphones was published by one in-house lawyer at Intel and two outside counsel from WilmerHale. Intel Vice President and Associate General Counsel Ann Armstrong and Wilmer Hale's Joseph Mueller and Timothy Syrett argue that aggregate patent licensing fees including SEPs and non-SEPs are excessive at around $120 per $400 smartphone.

Who are the “Good” “Trolls”? Or, How to Monetize Well?

This blog, in the past, has discussed the merits of so-called “patent trolls” or patent assertion entities (PAEs), here, here and here.  For sure, some PAEs or "trolls" provide a helpful service for firms, universities and some inventors without the wherewithal to enforce their patents.  And, defining exactly what is a “troll” may be a difficult task.  But, are all PAEs and “trolls” the same?  Are there good PAEs and “trolls”, and bad PAEs and “trolls”?  How do you tell the difference?  Joe Beyers and Wayne P. Sobon (both of Inventergy) recently published an article on Corporate Counsel titled, “Do’s and Don’ts of Corporate Patent Monetization.”  The article helpfully explains why patent owners should beware the bad “trolls” or PAEs and should partner with the good “trolls” or PAEs.  Why should they be concerned?  The authors wisely state that protection of the brand is paramount.  Association with a “bad” PAE or “troll” could reflect negatively upon the patent owner.  The authors provide a list of criteria for choosing a “licensing partner”.  Here are the “Don’ts”:

1. DON’T choose a licensor with a reputation for acquiring poor-quality patents and quickly suing.

2. DON’T select a licensor with a history of settling claims for a lot less than the cost of litigation (i.e., “nuisance fees”).

3. DON’T work with a licensor that sends widespread demand letters to multiple companies with little or no evidence that its patents are being infringed.

4. DON’T use a licensor that’s been the subject of any state actions or consent decrees, or has been forced to pay an opposing party’s attorneys’ fees.

5. DON’T partner with a licensor that operates behind hidden shell companies or otherwise has a reputation for abusive patent assertion behavior.

Here are the Do’s:

1. DO select a licensor that has made a public commitment to transparency and ethical business practices—and then speak with its licensees to confirm that this commitment is genuine in deed as well as word.

2. DO work with a licensor that seeks licenses only from appropriate companies (rather than startups or small retail businesses), and that comes to negotiations with substantive claim charts and other evidence of use.

3. DO choose a licensor that selects, owns and manages high-quality patent assets developed by global operating companies with reputations for innovation, like you.

4. DO use a licensor that takes active steps and commits material resources to ensure the quality of its patents, and vets them prior to licensing.

5. DO ensure that members of the licensor’s executive team have product or service company experience, and understand the needs and concerns of companies like yours regarding patent value creation.

This brings me to my next question.  Well readers, who are the “good” “PAEs” or “trolls”?  Please name them.  

I suppose maybe there are no “trolls”--just naughty behavior.