In the recent Supreme Court eBay ruling, four Justices said in a concurring opinion that "an industry has developed in which firms use patents not for producing and selling goods but, instead, primarily for obtaining licensing fees." The Justices continued disapprovingly: "For these firms, an injunction . . . can be employed as a bargaining tool to charge exorbitant fees to companies that seek to buy licenses to practice the patent."

The concurring Justices' disdain for licensing is behind the curve of marketplace reality. Tech companies, increasingly, treat their creativity as independent assets, and leverage intellectual property (IP) assets into comprehensive business strategies. They no longer use patents only for the familiar purpose of excluding competitors from copying a product made by the patent holder.

Justice Thomas' opinion for the Court in eBay showed more sympathy for this trend toward sophistication: "patent holders, such as university researchers or self-made inventors, might reasonably prefer to license their patents, rather than undertake efforts to secure the financing necessary to bring their works to market themselves."

Let us hope the Thomas perception prevails, because the issue is important. A recent article from SignOnSanDiego.com observes how U.S. firms leverage patents to expand their business markets, create “ecosystems” for industry wide technology sharing and derive revenue. These IP strategies arose partially from U.S. industry reaction to competition from overseas rivals who face much lower manufacturing costs.

According to the article, companies use their patents to "seed (its) technology across various markets." Patent licensing can broaden a company's influence by creating a "business ecosystem that shares the same technology." Licensing also enables companies to "collaborate in ways that advance the technology as a whole."

Louis Lupin, general counsel of San Diego based Qualcomm, is cited as stating that IP licensing is “almost implicit” where “standardization and interoperability are essential.” Qualcomm manufacturers few products of its own, but has a dedicated in-house R&D group and last year derived over 30% of $5.8 billion in revenue licensing its industry standard wireless technologies to over 130 other companies.

The biggest technology industry names have adopted IP strategies. IBM, HP and Microsoft currently leverage patent licensing to ‘make better use of their technology innovation and patent holdings.”

Patent pools are another form of current IP licensing, which the article observes as important for industry standards development. An example is MPEG-2, a digital video compression technology that includes patent contributions from Fujitsu, General Instrument, Lucent Technologies and Matsushita and other companies.

Gary Weiss, a San Diego technology investor views IP as vastly important for startups. Weiss backs several companies that do not manufacture their own products but invest in R&D and then license the ensuing patents to manufacturers. Nathan Myhrvold's patent venture investment firm, Intellectual Ventures, similarly invests in R&D and licenses patents, but also specializes in patent acquisitions.

posted by Noel Le @ 3:01 PM | Patents

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