These FAQS attempt to summarize key details of the LOT Agreement. To the extent there is inconsistency between these FAQs and the LOT Agreement, the LOT Agreement takes precedence.
In a word, no. Over the past decade, we’ve seen patent valuations steadily decline, due in part to some Supreme Court rulings and changes to the patent system, so already patent portfolios are worth less than in previous years. While patents have gone down, what hasn’t changed is the underlying opportunity for PAEs to monetize them: there is more capital than ever in the marketplace looking to invest in PAEs, and it is cheaper than ever for trolls to buy patents. More and more, we’re seeing a trend of trolls suing larger numbers of companies for smaller per-company settlements – meaning more and more companies will be sued. With LOT, your patents can still be freely used for their intended purposes – sold and licensed as you like.
PAEs increasingly rely on patents purchased from operating companies to sue other operating companies. By some estimates, over 80% of patents asserted by PAEs come from operating companies. If a PAE purchases a patent from a LOT Network member (referred to as “LOT Users” in the LOT Agreement), that PAE will not be able to sue any LOT Network members for infringement of that patent.
This is beneficial to LOT Network members in two ways. First, LOT Network members are directly protected from that specific patent. So that threat is removed.
Second, LOT Network disrupts the PAE cycle that costs consumers and shareholders tens of billions of dollars annually. Even better, this longer-term reduction of risk increases as more and more operating companies join LOT Network.
PAE refers to a “Patent Assertion Entity.” The LOT Agreement refers to PAEs as “Assertion Entities” which is define as an entity and its affiliates if more than half of their total revenue is derived from patent assertion in a twelve month period, or if it has a plan approved by senior management to do so.
A “Transfer” to a PAE includes any circumstance in which the patent becomes owned or controlled by a PAE, including assignment, sale, exclusive licenses or other transfer to a PAE.
The LOT Agreement does not prevent LOT Network members from selling their patents to anyone, regardless of whether the buyer is a LOT Network member. However, the LOT Agreement license continues to apply if the buyer or any subsequent transferee of the patent is or becomes a PAE.
Membership cost in LOT Network is tiered, based on the members’s annual revenue, to ensure that LOT Network is affordable for companies of every size. The first year’s membership fee for new LOT Network members is prorated based on the date of membership.
|Participant’s Annual Revenue||LOT Network Annual Membership Fee|
|<$5M||$0 with two referrals to prospective members|
|$10M to $25M||$2,500|
|$25M to $50M||$5,000|
|$50M to $100M||$10,000|
|$100M to $1B||$15,000|
No. Even if you don’t own patents, you can still be sued using others’ patents; by joining LOT you would be protected against PAE litigation involving any of the assets that are in our members’ portfolios.
Membership in LOT Network continues until the member notifies the LOT Network Administrator that the member intends to withdraw. Withdrawal becomes effective after a minimum of a six-month notice period.
Any company withdrawing from LOT Network keeps any licenses and releases to patents that were transferred, directly or indirectly, to a PAE from within LOT Network while that company was a member, but not to patents transferred to a PAE after its withdrawal.
Likewise, any withdrawing company’s pre-withdrawal patents remain subject to the obligations of the LOT Agreement, even after withdrawal, but only with respect to the LOT Network members existing at the time of the withdrawal. If, for example, a new company joins LOT Network after another company leaves, that new company will not receive a license to any patents the first company subsequently sells to a PAE. Thus, it is beneficial for companies to join earlier to maximize their coverage opportunity under the LOT Agreement.
Patents acquired by a company after withdrawing from LOT Network are not subject to the LOT Agreement.
The license granted by the LOT Agreement is perpetual, for the life of the subject patent.
Yes. The LOT Agreement is designed to reduce the number of patent infringement claims received from PAEs while maintaining the value of and other beneficial uses of patents. The transfer of patents to an operating company does not trigger the conditions of the LOT license. However, the license continues to apply if the buyer or any subsequent transferee of the patent is, or becomes, a PAE.
The licenses that LOT members receive may be useful even if the other LOT members are in different industries. Often when a company selects patents to sell, they select “non-core” patent assets. As such, a patent that one LOT member might consider a good candidate for sale because it is in a non-core business, may be in a core business for another LOT participant.
Additionally, some patents relate to technologies that are commonly used by companies regardless of industry or across multiple industries. For example, PAEs have targeted companies for claims of patent infringement based on features commonly found on a corporate website, a mobile app or wireless technologies. The license provided under the LOT Agreement would protect LOT members in all industries against these types of claims, wherever the patent originated.
Each LOT Network member licenses all patents that it owns or has the right to license during its participation period. A LOT Network member is not required to grant licenses to patents that would require payments to unrelated third parties (unless someone else agrees to make those payments).
PAEs have been estimated to cost companies tens of billions of dollars a year, with small or medium sized companies incurring a significant portion of these costs. While small companies may have smaller revenues to target, the high costs of litigation may have a disproportionate impact.
By some estimates, 62% of companies targeted by PAEs have revenues of less than $100M. By participating in LOT Network, a small company can obtain protection against patents owned by other LOT Network members that may be transferred to PAEs, effectively eliminating litigation risk and cost associated with any PAE assertion of these patents. Current LOT Network members hold hundreds of thousands of patents and patent applications worldwide.
PAEs frequently target large companies with significant revenues and visibility in the industry. A large company’s own patent portfolio does not provide a deterrent against PAEs who do not sell their own products or services. By some estimates, over 70% of patents asserted by PAEs come from operating companies. By participating in LOT Network, a large company can obtain protection against patents owned by other LOT Network members that may be transferred to PAEs. Current LOT members hold hundreds of thousands of patents and patent applications worldwide.
A company should not join LOT Network if it is unable or unwilling to license its patents to other LOT Network participants upon transfer to a PAE.
- If the acquirer is an active LOT Network member, then both the acquirer and the acquired LOT Network member will continue to enjoy the benefits of the LOT Agreement – status quo for both companies.
- If the acquirer is not an active LOT Network member but the acquirer joins LOT Network within six months, the acquired LOT Network member’s participation in LOT Network without interruption.
- If the acquirer chooses not to join within the six month period following the closing of the acquisition, its patents do not become subject to the LOT Agreement merely by virtue of having acquired control of a LOT Network participant, and the acquired LOT Network member will be deemed to have withdrawn from LOT Network. Thus, LOT Network is not a poison pill for companies.
Yes, many law firms have lawyers familiar with the LOT Agreement. In fact, a number of top law firms have lawyers participating on LOT Network’s Advisory Board.
These law firms may be able to assist your company or provide a referral to another lawyer familiar with the LOT agreement.