Aggressive litigation by patent trolls earned them notoriety over the past few years. At last, bills with a chance of protecting consumers and the economy from unrestrained patent trolling are moving through Congress (S. 1720 and H.R. 3309). While the focus of those bills is patent trolls, the bills should also tighten controls on patent pools which impose unwarranted costs on consumers.
The difference between patent pools and patent trolls can be scant. Patent trolls typically gather patent portfolios and try to collect licensing fees or patent infringement damages. Trolls typically do not provide products or services against which a threatened company could countersue as a defensive tactic. Other groups purchase patents that the trolls might otherwise purchase, to give themselves a defensive basis for counter assertion of such patents in litigation. Even defensive patent groups may sometimes behave like trolls.
The U.S. Patent and Trademark Office describes patent pooling as an agreement between patent owners to license some patents to one another or third parties. A pool allows contracting for all the necessary tools for a technology in one place, rather than contracting individually for each patent. Licensing the pool of patents could be cheaper than licensing only the items you need.
Trolls and pools have the same assets – patents. The difference between the groups is in how they package and price. Usually trolls price licenses or infringement damages one patent at a time. Pools seek licensing or infringement damages for their entire pool of patents. In practice, this “all or nothing” licensing approach includes patents in the pool that are expired or useless to the purchaser. That increases the cost for licensees and, in turn, it hikes prices paid for consumers who buy the ultimate retail products that rely on patents from the pool.
Patent pool abuses are not new. John D. Rockefeller’s Standard Oil used pooling of patents and contracts among licensees to control the supply of gasoline made by crude oil cracking (26% of all gasoline at that time). Controlling the supply allowed the pool owners to set gasoline prices higher than the market would otherwise sustain.
Two medical laser manufacturers (Summit and VISX) pooled their patents on vision-improving laser surgery devices (commonly known as Lasik). Their contract and pool of patents established a monopoly allowing them to extract $250 per treatment for devices using their patent pool. The Federal Trade Commission (FTC) forced them to unwind the pool and become competitive. VISX soon re-priced the use of its patents to $100 per treatment, reducing the burden on consumers.
Similarly, the Italy-based patent troll and pool Sisvel was founded in 1982 to collectively pool patents that were widely used by Italian television manufacturers. Since its founding, Sisvel has swollen into one of the largest and most infamously aggressive patent assertion entities in the world – effectively, a patent troll by some accounts.
Back in the states, a pool containing patents associated with Blu-Ray technology is called One-Blue. The pool license sits at a steady $9 despite a 75% drop in device prices. The One-Blue pool license price is excessive given the age of the technology and, by numerous observers, it fails the “access to technology is enhanced” expectations of the Department of Justice (DOJ).
The DOJ and FTC each have tried to set standards for patent pools. They agree that patents must be unexpired and promote access to technology – unfortunately for consumers those standards are not always enforced. As a pro-consumer matter, patent reform legislation should address laxity in oversight of patent pools.
Alan Daley writes for The American Consumer Institute Center for Citizen Research, a nonprofit educational and research organization. For more information about the Institute, visit www.theamericanconsumer.org. This article was published in The Hill’s Congress Blog on April 4, 2014.