Abstract
The previous chapter explored how IP legislation affords patent and copyright holders with a legal monopoly over their intellectual asset; with a view to reducing the amount of uncertainty they have over them. Other IPRs also are intended to grant exclusive control over valuable features of those assets. However, the market power allowed by such legal title is far from giving absolute certainty and control to titleholders. Market conditions limit their real capacity to impose full control to their asset use, due to the qualifying circumstances the market presents to them. In principle, that situation leads IP holders to deploy strategies aimed at enhancing their power over the market, to impose economic limitations upon their rivals on their capacity to seize strategic competitive capabilities.
Alternatively, companies may prefer to trade strategic assets in order to develop their own competitive capabilities. This option allows them to obtain useful inputs that may allow them to develop competitive advantages needed to penetrate new markets. IP managers define what skills they may develop in cooperation with other businesses; and how their patent titles give them intangible assets they can trade with other firms as currency to obtain missing capabilities, either by trading them or by licensing them in exchange for other licenses (patent pooling). This chapter will explore in detail how these trades take place.
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Notes
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Millien and Laurie (2009) find 17 highly particular types of intermediaries, including distinctions between Patent Licensing and Enforcement Companies, and IP/Technology Development Companies.
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Patent thickets may have ambiguous effects on patent transactions. On the one hand, they may discourage patent deals because patent ownership is not centralized but scattered among many patent holders. As the number of patent owners with whom buyers and licensees have to strike deals increases, transaction costs rise. However, they may also encourage licensing deals because the presence of overlapping patent rights may reduce the value at stake in each patent licensing negotiation. Furthermore, incumbent firms (especially in mature industries) may use patent thickets as a strategy to raise the entry costs of potential competitors, if patent standards are low, and the technologies are complex (Bessen 2002). Patent thickets are thus used to defend against competitors designing around a single patent. When they assert these patents through the threat of litigation, innovators are forced to share rents under cross-licenses, making R&D incentives sub-optimal. On the other hand, when lead-time advantages are significant, and patent standards are high, firms pursue strategies of “mutual non-aggression.”
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The expression “thicket” comes from the SCM Corp. v. Xerox Corp. patent litigation case (SCM Corp. v. Xerox Corp., 645 F.2d 1195, 1203 (2d Cir. 1981), wherein SCM argued that that Xerox assembled a “patent thicket” to prevent competition.
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Grover & Baker, I.M. Singer & Co., Wheeler, and Wilson & Co.
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The parties were the Trustees of Columbia University, Lucent Technologies Inc., General Instrument Corp., Fujitsu Limited, Matsushita Electric Industrial Co., Ltd., Mitsubishi Electric Corp., Scientific_Atlanta, Inc., Sony Corp.
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Critics had complained that IP licensing was an inefficient and costly way to do business. Most of these complaints centered on the fact that negotiations raised many transaction costs that outweighed the value of the license. These included value determination of the IP and the market potential of the technology; identifying possible licensees; once the licensee candidate was chosen, it was necessary to do a due diligence; and only then, negotiations over the license agreement conditions. In the most optimistic scenario, this process usually took several months to complete (Boger and Ziegler 2012).
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Pannekoek explained: We were astonished by some of the initial responses to our marketing efforts. We decided to go directly to the business operations of our potential licensees and approached CEOs and others in the executive suite to make a business case. When we sat down with those who got back to us, in most cases, the initial discussions went very well – people understood what we were saying about it being an efficient, transparent process which allowed the licensee to get fair terms based on a market price. But then, the process would stall. At some point, the door was shut and eventually the response was “we don’t need to do anything until you file in court.”
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IPXI put together a package for a collection of nearly 200 IEEE standard 802.11n compliant patents. But as IPXI’s CEO explained, “we provided in-depth due diligence on essentiality history, determination, claims charts and more, plus a 75 percent discount on payments relating to alleged past infringements, as well as the ability to be on a level playing field with market-based pricing,” he explained. “But still they were not willing to transact or negotiate.”
- 15.
Contreras and Reichman (2015) argues that IPXI’s demise was due to a complexity of factors. First, the patents whose licenses would align under ULRs were not essential to manufacturers, so IPXI would not serve as a one-stop solution for alleviating the burden of negotiating bilateral license agreements about the standard. Second, IPXI’s sponsors were not necessarily perceived as key players in the licensees’ market, nor did they have a tradition of license enforcers; hence, these manufacturers may not have seen these sponsors as a threat that could be forestalled through preventive licensing. Finally, and one could say, paradoxically, URL standardization of contractual terms between licensors and licensees, which was intended to enhance market trading and pricing, was inflexible, hence unfit to accommodate specific transaction needs. Thus, ULRs were a less convenient option, compared to cross-licensing and patent pools which enable the licensee to use its patents as a currency in obtaining a desired license from the patent holder, thus offsetting part of their license cost.
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These include platforms such as Yet2 (http://www.yet2.com/) and Tynax (http://www.tynax.com/).
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These difficulties include coordination costs between potential co-owners, coordinating costs with the sellers assessment of potential market success for the technology and IP valuation.
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De Leon, I., Fernandez Donoso, J. (2017). Sharing IP Strategy: Commercialization. In: Innovation, Startups and Intellectual Property Management. Springer, Cham. https://doi.org/10.1007/978-3-319-54906-4_3
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