Patent trolls, also known as patent assertion entities (PAEs), have been threatening technology companies for years through patent infringement lawsuits, stifling innovation and profits alike. These PAEs acquire patents primarily to sue companies for patent infringement and to demand licensing fees. Legal expenses for technology companies have been rising due to the increased activity of PAEs, and now the companies are beginning to fight back. Google is leading the charge and has teamed up with five other large technology companies to form an alliance called the License on Transfer (“LOT”) Network.
Some estimates suggest that PAE litigation costs technology companies more than $29 billion per year. The cost of a normal defense (through trial) ranges from $500,000 to $5 million, and possibly even higher. Due to these high costs, technology companies frequently settle and pay PAEs for patent licenses, even though less than 1% of defendants in PAE suits are ultimately found to have infringed a valid patent.
Litigation brought by PAEs has increased 33% in recent years, and more than 10,000 companies have been sued at least once by a PAE. Approximately 6,500 patent-infringement lawsuits were filed in 2013 alone. While some hoped that Congress would address this rising problem, the Senate shelved legislation to curb patent-infringement lawsuits in May. The dead bill had strong support from Google and other technology companies, but some companies, such as Apple, fought the bill out of a concern that the legislation would hinder their ability to protect their own patents.
With the LOT Network, Google and other large companies have started building an alliance that hopes to be one of the best tools for curbing abusive PAE lawsuits. The member companies involved in the LOT Network include Canon, software maker SAP, Internet retailer Newegg, data-storage company Dropbox, and Asana, a software designer. Altogether, these six companies hold almost 300,000 patents and patent applications.
The LOT Network will limit PAE suits by granting all participating companies a royalty-free license to use a patent that has been sold by another participating company out of the LOT group. In the words of Brett Alten, the head of IP at Dropbox, “If a LOT member owns the patents, they can do whatever they want, but if they transfer the patent outside the network, then the folks inside the network get a license. It really leads people to reach out and find ways to work with each other.” This alliance will still allow members to sue another member directly for patent infringement, but the members cannot privateer against each other, and even if their patents end up in trolls’ hands, every member is protected.
The success of the LOT Network will eventually turn on how many companies join the alliance. If membership continues to grow, then PAEs may slowly die off because there will be too few potential defendants for them to sue. For now, LOT is relatively small. While the 300,000 patents currently covered under the LOT Network seem like a large number, there are still millions of patents in the world, which PAEs are hungry to get their hands on. Some companies, such as Ericsson, Panasonic, and Huawei Technologies have faced investor pressure to sell patents at a good price, and so they have been unloading their patents onto PAEs. Regardless of LOT’s ultimate fate, its creation demonstrates a huge step towards curbing patent infringement suits and also illustrates the willpower of the technology industry to effect change in the face of congressional stagnation.