License on Transfer (LOT) Network is looking to make it even easier for smaller startups to sign up for its cross-licensing patent “immunization” organization, which includes members like Google, Netflix and Uber. Between now and March 1, 2017, any new members that join LOT Network that have annual revenues below $5 million won’t have to pay the standard annual membership fees the group normally charges.
Google, Canon and Red Hat originally created LOT Network in 2014 to help protect members from patent trolls, by essentially pooling the patent holdings of all participating organizations and cross-licensing said intellectual property automatically when any patent held by a company within its ranks falls into possession of a “patent assertion entity” (PAE), which is the formal name for what we generally refer to as patent trolls. This can happen when companies switch from actively producing products to making possession and defense of intellectual property their sole line of business, or when smaller firms are acquired by PAEs, for instance.
“We wanted to find a way to solve for the troll problem, while still preserving the value of patents,” explained LOT CEO Ken Seddon. “So the LOT agreement was formed, and it was revamped last November, which has really been the catalyst for all the growth we’ve had. Under the new agreement, companies are basically free to use their patents for all the traditional uses, but if any of their patents fall into the hands of a troll, the rest of the community is immunized against it and gets a free license.”
Since the new agreement was put in place in November, LOT has grown from 15 to 78 members, which includes top-tier tech companies, banks, broadcasters, automakers and more. The new rule change today is designed to help add much smaller, younger companies to the mix. And Seddon believes that in addition to the fee waiver, there’s good reason for startups to consider membership.
“There’s actually a distinct advantage that startups have that the big companies really don’t get as part of LOT,” Seddon explained. “So when a startup company joins LOT, it immediately begins accruing all of these license rights. The good news is that if one of our startup companies gets acquired by a bigger company, it’s allowed to pass on those rights on whoever acquires it. So basically, it hasn’t happened yet, but it’s only a matter of time before a large company buys one of the startup companies in LOT in large part because of the license rights it’s accrued.”
Seddon also pointed out that PAEs are increasingly targeting startups instead of big companies; the process of suing smaller companies with less money might result in smaller eventual paydays, but those paydays come faster because the targets don’t have the resources to sustain long legal battles. Waiving the fees for companies with revenue under $5 million should help narrow the range of attack vectors PAEs have against smaller startups.
“We think that LOT is pretty much a one-size fits all solution for companies – large companies, small companies – to help address their patent troll problem,” Google’s Senior Patent Counsel Tim Kowalski told me in an interview. “But with small, early stage companies cash is king, so we’re behind essentially removing a potential barrier to them joining, which makes a lot of sense because the benefit to all the members grows as more members join.”
To be clear, this isn’t a blanket cross-licensing arrangement for all companies involved; firms can still pursue legal action against other legitimate companies they believe are using their IP without proper license, and the “immunizing” cross-licensing is triggered only when it falls under the control of a PAE or patent troll. I asked if sweeping patent reform might be a better answer, and Seddon said that LOT believes “companies themselves” should be the ones who solve this issue, rather than leaving it up to legislative reform around patent law itself, precisely because that risks affecting “how patents have been used historically” prior to PAEs taking advantage of the system.
More info on the specifics of the waiver arrangement and LOT itself, as well as details on how startups can sign up, is available on LOT Network’s website.