patent licensing

Showing posts with label patent licensing. Show all posts
Showing posts with label patent licensing. Show all posts
Saturday, 17 September 2016

Academic-Industry Patent Licensing

The US-based Biotechnology Industry Organisation has just released a fascinating study on the impact that academic technology transfer makes to the US economy. The study is limited to US universities, but is probably equally indicative of the impact that technology transfer makes in other countries. The study (available here) estimated that in the 18 years from 1996 to 2013 academic licensing boosted industry output by USD 1.18 trillion and US GDP by USD 518 billion, creating 3,824,000 US jobs.

The study concludes that the Bayh-Dole Act passed in 1980 which allowed universities to maintain the rights to US government sponsored research has contributed to this success. Prior to the passage of the act, no drugs had apparently been commercialised based on the results of the government R&D spending. Subsequently over 183 drugs have been developed, as was report by the New England Journal of Medicine in 2011 in this article. Unsurprisingly a number of countries have adopted similar laws.

The survey submits that absence the incentives of patent ownership and exclusive licences, companies and investors could not justify the effort in bringing these drugs to market. The results seem to be in contradiction to the study by Robin Feldman and Mark Lemley available here, which argued that licensing did not contribute to innovation. Gene Quinn of IP Watchdog argued very succinctly that that study was seriously flawed since it relied on a subjective survey of practitioners.

The argument about whether research funded by governments should be patented and licenced by private companies for their own benefit is one that has been running ever since this author carried out his own Ph.D. research. The latest study seems to demonstrate the value of allowing universities to patent and licence their own IP, even if the public has paid for the research through their tax dollars/euros. It’s probably a question of finding the balance - there may be some research that really should not be patented.
Friday, 16 September 2016

"Patent holdup" allegations encourage SEP free-riders

Despite many years of speculation and recently adjusted claims, there is no empirical support for the theory of “patent holdup.” Various eminent experts refute allegations of systemic “patent holdup.” It is likely that “patent holdup” has not occurred in the context of standards and licensing of standards essential patents (SEPs) because of the fair, reasonable and non-discriminatory (FRAND) licensing contracts and available recourse to the courts have ensured that licensees cannot be forced to pay “excessive” licensing fees. 

Free Riders Abound
“Patent holdout,” which is also sometimes referred to as “reverse holdup,“ rather than “patent holdup” may instead be a prevalent problem; although calls for remedies have largely been in response to “patent holdup” allegations. Beguiled courts, antitrust authorities, government policy makers and even a standards development organisation (SDO) are tipping the scales in favour of “patent holdout” by infringing implementers of SEPs. This is destabilising the equilibrium between the interests of the licensors and licensees forged by consensus over decades in the IPR policies of SDOs such as ETSI with Fair, Reasonable and Non-Discriminatory licensing.  As leading academics note, “FRAND Implies Balance” and “FRAND [is not] a one-way street.”  Whereas alleged “patent holdup” supposedly results in excessive royalties, “patent holdout” is undermining licensors attempts even to achieve FRAND terms or to complete any licensing at all in many cases. Licensors are therefore losing their ability to make a fair return on their investments in SEP technologies. This discourages ongoing investments in standard-essential technologies, participation in SDOs and contribution to the standards.

Free-riders who are not paying for the IP they use are gaining an unfair advantage over other implementers who are paying FRAND royalties as well as stealing property rights from technology developers. There is significant evidence of some infringers flourishing while avoiding paying patent licensing fees on their manufactures and product sales for many years. They can, for example, typically challenge FRAND offers in lengthy litigation before paying any royalties. In some jurisdictions, even the royalties ultimately awarded can be derisorily low.[1]In particular, various Asian OEMs accounting for a substantial proportion of global smartphone sales remain significantly unlicensed for at least some of the many SEPs they implement in the devices they manufacture or sell.

On the other hand, Alcatel-Lucent, Ericsson, Nokia and Qualcomm have exited the mobile phone market over the last 15 years while ramping-up R&D in 3G and 4G technologies. These and other technology-development oriented companies can only sustain these risky R&D investments if they can make direct returns on their patent portfolios through licensing. Former network equipment market leader Ericsson has recently ousted its CEO due to poor growth and weak profits despite cost reductions, including in R&D.

“Patent holdup” is manifestly not a systemic problem. There is no empirical evidence of harm to markets or consumers, and such abundant proof of market success—particularly for innovative smartphones and the extensive 3G and 4G networks to which they are connected—including seven billion cellular connections and modest licensing costs totalling only around five percent of device prices. 

Unmentionable claims
I came upon a paper entitled “Patent Holdup: Myth or Reality?” by Carl Shapiro, dated 6th October 2015, which was circulated as a hard-copy and presented at an IEEE-SIIT conference at the Intel-sponsored key-note address. In this, the author concedes that there are “few documented instances of actual holdups” and that they are “exceedingly difficult for researchers to detect and reliably quantify.” He has backed off from his previous claims of prevalence of “patent holdup” where he stated “patentees regularly settle with companies in the information technology industries for far more money than their inventions are actually worth. These companies are paying holdup money to avoid the threat of infringement.”  Shapiro has retreated due to lack of empirical support for these original claims which is because portfolio licensing among many licensees on FRAND terms together with the courts ensure that holdup royalties are rarely demanded and are never paid. However, Shapiro takes another position where there is also no supporting evidence. He now claims that the social costs caused by the alleged “patent holdup” problem are in the actions taken to prevent holdup and in the opportunities forgone under the threat of “patent holdup.”

His 2015 paper is labelled a preliminary draft that should not be quoted, yet the verbatim thesis of this most outspoken author is evidently being adopted elsewhere; including in a speech by the US Department of Justice’s Chief Economist, Nancy Rose, at a George Washington University conference on “Patents in Telecoms” in November 2015.In this, she analogises that “patent holdup” is like dark matter in the universe – something that cannot itself be detected but is present. She said that the existence of dark matter can be inferred from effects on visible matter.

With the passing of ten months since Shapiro presented his paper at the IEEE event and with the DoJ’s name endorsing this latest development in “patent holdup” theory, I believe it is high time to shine some light on the flaws in arguments made by Shapiro and Rose by making their writings available and by rebutting them here. I do not see why they should enjoy the privilege of being heard and given the opportunity to persuade, while also indefinitely being able to shield their postulations from scrutiny or criticism.

My full analysis on Shapiro's paper and Rose's presentation can be found in a pdf here.


[1]For example, a Chinese court awarded InterDigital in patent litigation against Huawei a mobile SEP royalty rate of only 0.019 percent of device sales. This is extremely low given that InterDigital’s overall royalty yield (i.e. its total royalty income divided by total device market sales revenues) including licensed and unlicensed sales globally is five times higher at around 0.10 percent.