Don't relinquish your IP rights if you don't have to. It’s has been been almost a sacred cow in IP and a freedom to operate (FTO) necessity.
Companies have long used defensive and offensive strategies to create and protect new markets, enter existing ones and monetize IP investments, typically resolving disputes through direct negotiations and bilateral agreements.
While FTO remains a cornerstone of most IP strategies, the world is changing. IP management is increasingly complex. Technology stacks have become far more complicated and frequently overlap. More parties own patents and trademarks. The value of some brands is measured in the tens of billions.
An important change in the recent years has been the willingness - often an eagerness - to invest in IP, build a patent portfolio, and then freely grant access to it. This doesn’t mean willingly ceding one’s patent rights to the public domain, or abandoning them. Instead, it’s using alternative IP strategies in which sharing patent access rights can help influence markets and influence the behavior of enemies (and frenemies). It can also help achieve larger business goals.
As you’ll see below, alternative IP strategies have proven for some to be much more effective than the tradition of tight IP control.
Challenges to the Status Quo
Against a backdrop of broad interoperability and adoption hurdles such as technology standards and open source software, how do you ensure FTO when there are so many parties and competing interests?
Faced with very large incumbents or standards that you need to disrupt or replace, how do you increase the likelihood of success?
One could argue that the importance of ensuring FTO has also been the catalyst for the rise of alternative IP strategies.
FTO Meet FUD
In the context of alternative IP strategies, IP can be a cornerstone of a FUD-based sales strategy to accomplish something that has little to nothing to do with IP. FUD, an acronym for “fear, uncertainty, and doubt,” has been part of marketing or sales strategies for decades. Often based on mendacities and partial truths, it can help convince sales prospects or even an entire market to hesitate and focus on risk rather than reward.
Consider a market in which the established leader is facing a challenge from a competitor or aspirational startup promising a sexy new alterative. The media spotlight and conference buzz is growing. What’s the market leader’s response? How about some IP-centric risk avoidance messaging to refocus the market back toward its stable and safe place. Microsoft is an expert at this.
The Microsoft/Linux controversy of the late 90s/early 2000s is a good example of how this works in practice. It also demonstrates how creative IP strategies are not restricted to the aggressor; companies and entities on the opposing side of an IP battle can also use them to support and defend their defensive agenda.
Microsoft, Linux and The Threat of Litigation
In the early-2000s, you couldn’t open an enterprise networking magazine like InfoWorld or Network World without seeing glowing praise for Linux and the promise of open source operating systems. The Linux movement promised much to developers and large organizations, notably open-source freedom from the restrictions and renewal costs of proprietary software vendors like Microsoft.
Linux’s threat to billions of licensing dollars was very real and something Microsoft had already discussed as early as 1998. Leaked internal memos from the time show that Microsoft clearly recognized Linux as “a direct, short-term revenue and platform threat to Microsoft” and “a long-term developer mindshare threat.” Microsoft’s leadership clearly understood the danger and needed a solution.
The solution was IP. Microsoft had already identified IP as an opportunity to not only sow doubt about the long-term merits of Linux as a technology, but also the potential liability that companies using Linux might incur. Linux developers would have to violate IP rights to continue to improve it, and the Linux community would be sued if developers continued to innovate.
Microsoft invested heavily in a variety of marketing communications activities, such as advertising and media relations, to ensure that companies considering Linux adoption were well aware of the risks and potential consequences. Market research in the United States and Europe later confirmed that the possibility of Linux patent lawsuits made them feel far less favorable towards Linux. This fear of litigation wasn’t unjustified as it turned out; for some it was a very real and expensive distraction.
SCO Group, considered by many to have specifically acted almost as a proxy for Microsoft, was an enthusiastic litigant. Between 2003 and 2007, it targeted both end-users and organizations, including IBM, Novell, DaimlerChrysler and AutoZone. The legal arguments were lengthy sagas that darkened Linux’s commercial prospects for years. Despite the expense of tens of millions of dollars in legal fees, however, the ultimate result was that SCO lost pretty much everywhere.
Note: This practice of sowing doubt and fear within a target market isn’t new; it was a high-profile part of the nascent American auto industry in the first decade of the 20th-century. Litigation threats and indemnification promises figured prominently in advertisements of the day due to the Selden Patent. (See Famous Patent Wars: 1900-1950 for more info).
The Birth of the Play Nicely Pledge
From an IP strategy perspective, what’s most noteworthy about the Microsoft/Linux fight is its effect on companies and organizations that either create or join communities centered around a specific technology. The threat to Linux drove its champions (Red Hat, Novell, IBM, Ericsson, and others) to gradually announce or pledge that they would not assert patents against Linux.
Red Hat was one of the highest profile pledgers. As early as 2002, it had explained its position in an official Statement of Position and Promise on Software Patents (Current version). Red Hat noted that, while software patents were inconsistent with open source/free software, they were also a necessary evil to protect the Open Source/Free Software community. The company pledged to not enforce them, subject to certain conditions. Similar collaborative models were adopted beyond software in areas such as green technology (Eco-Patent Commons (defunct), the GreenXchange (defunct) and Canada’s Oil Sands Innovation Alliance).
Innovators in the automotive sector raised their hands, too, particularly in 2014 when Tesla and Toyota both publicly pledged to refrain from using their patents offensively:
- Tesla: “Will not initiate patent lawsuits against anyone who, in good faith, wants to use our technology”
- Toyota: Unilateral royalty-free license of thousands of hydrogen fuel cell patents that expire in 2020
Public pronouncements such as these are beginning to reshape the role and function of patents in our economy. Voluntary commitments by patent holders, whether unilaterally or as members of organizations and initiatives, to refrain from exercising their patent rights have become far more common. They clearly demonstrate that business models based on tight control over intellectual property are not the only viable pathways to innovation and product development.
As Jorge Contreras, Associate Professor at the University of Utah’s S.J. Quinney College of Law, notes, “unlike patent holders that willingly cede their rights to the public domain, [pledging] firms retain ownership of, and the ability to exercise at least some rights in, their patents.”
Below are some of the ways that companies are doing what Contreras describes. They are usually based on non-assertion covenants or pledges, springing licenses, and/or public declarations of licensing terms.
Non-Assertion Covenants, Licenses and Pledges
Non-assertion licenses and pledges are effectively “We won’t sue” promises with conditions. They come in many flavors;
Red Hat: “Massive software patent portfolios are ripe for misuse” so Red Hat will refrain from enforcing its patents.
Novell: To counter “vague accusations of intellectual property risk made by entrenched interests,” Novell pledged to use patents solely to defend against IP claims against Novell open source products.
IBM: IBM pledged the free use of 500 open source patent families, while retaining the right to terminate if any IP was asserted against it.
Ericsson: Pledged that it would not assert US patent 5.946.679 against Linux, but reserved the right to terminate if any IP was asserted against any Ericsson company, customer, distributor, developer or user.
Computer Associates: Made a legally binding commitment to not assert 14 patent families against open source software, but retained right to terminate if any IP asserted.
Sometimes, pledges are not based on an actual license. Instead, they are based on patent owners simply promising not to sue. Whether pledges are binding or not, the sense of community conditions members to avoid litigation. Is this enough for companies? Members may rely on implied license, equitable estoppel, and/or laches to protect themselves against IP claims.
A final consideration is the context in which these pledges are made. Often, the driving force is PR spin and accrual of goodwill. (It’s not unlike the reasons why large companies sponsor arts and culture organizations). The publicity arising from joining or founding an initiative whose goals include reducing patent trolling, protecting the “little guy,” and increasing qualify of life for all humanity is invariably very positive.
Companies seeking to contribute their IP to a common pool have a surprising number of options. Here are some of the more established ones:
Launched in 2005 to counter the Linux FUD raised by Microsoft and other large patent holders, OIN is one of the earliest collectives. With thousands of companies as members, it’s a royalty-free Linux patent pool and community of patent non-aggression. Reciprocity is required; by joining OIN, you promise not to use your Linux patents to sue anyone else inside the group. In return, you can reap the IP benefits of other companies.
Patent Pledge was proposed by Y Combinator co-founder Paul Graham in 2011 to help nascent companies avoid crippling by larger companies. The "no first use of software patents if the target employs fewer than 25 employees" promise did not apply to specific patents or technology categories nor is it legally binding. As of October 1, 2016, 35 companies, including AirBnB and Dropbox, are signatories.
Founded in 2012, Unified Patents was created to deter non-practicing entity (NPE) assertions in specific technology areas. It does this by tracking and challenging NPE patents using IPRs (inter partes reviews). Its goal, and the expectations of its 100+ members, is to make NPE's nervous about even asserting their patents in these technology areas. In June and July 2016, the organization filed IPRs on patents belonging to the three most litigious NPEs, Uniloc, Sportbrain Holdings, and Shipping & Transit LLC.
The Defensive Patent License (DPL) was created by two UC Berkeley law professors as a patent licensing equivalent of the GPL copyright license. It’s an all-or-you’re-not-one-of-us approach. Entities licensing their patents under the DPL must agree to license all of them. Participants can sue non-participants. Just imagine that every patent holder signed up; patents would then have zero value.
Springing Licenses: A Different Kind of Strategy
The LOT Network was conceived to protect members from NPEs. Over 60 companies, representing more than 400,000 IP assets, are members. LOT members can do whatever they want with their assets. However, if a member sells or transfers a patent to an NPE, other members receive a springing license, automatically granting them immunity against NPE lawsuits.
This program also includes a springing-type obligation. The origin of the concept, which launched in 2015, was the realization that NPEs were acquiring patents from operating companies without advance notice or publicity. The solution was to create a transparent membership system that gives operating companies an opportunity to buy them first. Membership, which currently stands at more than 25, is open to anyone, It requires a 45-day notice if an operating company is planning to sell patents to an NPE. Failure to do this automatically springs a license for those assets to every other member.
Other than being Google, this 2013 pledge was noteworthy because it specifically named 245 patents it would not assert except in defensive cases.
“We will not exercise our patent rights where trace amounts of our patented seed or traits are present in farmer's fields as a result of inadvertent means.”
Myriad’s Pledge to Patients and the Research Community
Myriad will not “impede non-commercial, academic research that uses patented technology licensed or owned by us …” This is one of the ways that Myriad encourages research institutions to conduct research on their fundamental genetic technology. It’s using IP to support a business goal of generating more academic activity in their technology domain.
Twitter used IP as part of its recruitment efforts to attract engineering talent wary of the misuse of IP. Unveiled in 2012, Its solution was a unique program to deter litigation threats while giving inventors licensing rights. Twitter will not use patents offensively unless another party tries to sue first, or the company believes it will deter litigation. Inventors retain the right to license their patent to the defendant if they disagree with Twitter’s decision to sue.
IP Warranty Programs
Red Hat’s launched its Open Source Assurance Program in 2006 to provide additional peace of mind to purchasers of its Red Hat Enterprise Linux software. A key feature was the Intellectual Property Warranty, which ensured, that in the event that an infringement issue was identified in Red Hat Enterprise Linux software code, Red Hat would replace the infringing code. Basically, if an IP issue arose, customers would be able to continue to use the software without interruption
Litigation Defense Funds
To assuage liability fears among developers, channel partners and prospective customers, companies can promise to support them in the event of litigation. An example is The Linux Legal Defense Fund, which was created to defray legal expenses of Linux end users should they be targeted by the SCO Group. Red Hat launched its own program, the Open Source Now Fund, in August 2003, to “cover legal expenses associated with infringement claims brought against companies developing software under the General Public License.”
Indemnifications also fall into the category of alternative IP strategies. Hewlett Packard, Oracle and Novell all launched programs to protect their Linux customers from the financial cost of lawsuits arising from IP infringement claims. JBoss Group, creator of an open source application server, launched a similar program in 2003 that offered unlimited legal defense and code repair, as well as damages up to four times the contract value.
Patent pools are often developed around a technology standard, such as MPEG compression (MPEG-2 patent pool). W3C (the World Wide Web Consortium is the main international standards organization for the World Wide Web) and IEEE (The Institute of Electrical and Electronics Engineers Standards Association) are other organizations that develop global standards. In these cases, pools are a good solution; many patents are often owned by multiple patent owners, licensing would consequently be extremely laborious, and interoperability is often a prerequisite for commercial success. To spur adoption, therefore, patent owners will create a pool so that entities can acquire patent rights through a single transaction.
Alternative IP Strategies Through Creativity
As this lengthy list of alternative IP strategies illustrates, there are a lot of creative options to leverage IP. Given the success of some of the programs described above, the traditional IP control strategy is not always the best choice.
What’s also clear from the youth of many of these programs, and the reason why their founding date is included, is that much of the innovative thinking is very recent. There are a lot of creative thinkers in the IP industry, many of whom believe in a “there must be a better way” approach to resolving the challenges of innovation.
What could you do differently with your IP program while still supporting your business goals?
Thinking outside the box, as cliched as that sounds, and seriously considering alternative IP strategies could be a new way to meet your organization's FTO objective.