Every startup has a story. From university dorms to mothers’ basements and neighbour’s garages, the startup culture is often founded upon humble beginnings and Google Inc is no exception.
In recognition of the importance of startups to global technological innovation, Google announced last month that it would be giving eligible startups access to two of its own patents at no cost as a means of giving those smaller companies a friendly leg-up in the competitive technology industry.
This news comes after Google spent the last few months adding relevant patents to its own portfolio from smaller companies who could no longer afford to keep them or which were due to expire under US patent law.
Google’s plan was to buy-up those patents before they fell into the hands of patent trolls – businesses that make money primarily by litigating infringements of the patents they own. Patent litigation is costly and burdensome on small startups that need all their resources just to get their ideas off the ground. As a result, patent trolls represent a serious threat to startups and their actions strike at the core principles of the patents system and innovation sector.
In recognising the key role startups play in their industry and the blockade to innovation caused by patent trolls, Google is now conditionally giving away certain patents to 50 eligible startups. So what’s the catch? What does Google get out of all this? A condition of the program is that each startup joins the License of Transfer (LOT) Network.
Google, Canon, DropBox, Uber and other larger tech companies are already members of the LOT Network – a country club of sorts for patent owners big and small. Indeed, Many smaller companies from various sectors, including energy and biotechnology, have now joined LOT as a means of gaining a foothold in the ever-expanding US technology market. Members of the LOT Network are granted royalty-free cross-licenses to other members’ patents upon commercial license to a non-member, or alternatively, can buy the patent from the other member. Put simply, the goal of LOT is to keep the patents in the family so that trolls aren’t fed to begin with.
Encouraging licenses to other member companies allows the collective patent pool to grow over time, as the mechanism provides companies with an incentive to hold onto their patents until they expire. However, well-established companies who join LOT may see their patents diminish in value should they wish to sell the patent to a non-member. This is largely due to the mandatory royalty-free cross-license all LOT members receive if a member sells their patent to a non-member. Such a mechanism has an obvious adverse effect on the patent’s value, as the license diminishes the exclusivity of the rights conferred by the patent and would subsist in the patent even after its’ owner left the LOT Network.
Despite all this, membership to LOT has been relatively steady by larger industry players, while the smaller startups Google have purported to target are yet to jump on board.
It is clear that Google is attempting to change the patent market, at least in the technology sector, by importing long term defensive strategies into the LOT agreement. While Google claims this is for the greater good of the patent system, it is easy to see Google has championed the fight against patent trolls in this way in a move to reduce its own annual spending on patent litigation. Many commentators have also accused Google and friends of simply shifting the power base of patent ownership control.
While this is certainly the case as a matter of practicality, Google argues that LOT provides for responsible management of patents, rather than leaving these resources (and the seemingly defenceless startups that hold them) as free game for the trolls. Despite Google’s best efforts to project a public perception of corporate responsibility, the LOT Network still leaves some feeling uneasy.
Other tech companies have taken the divergent philosophy of giving away patents for free. Last year, Tesla Motors CEO Elon Musk announced his company would be treating its patents as open source in a move to encourage innovation in the automotive industry. It was Musk’s belief that his battle was against the internal combustion engine, rather than the other companies in his industry. Organisations like LOT and DPL have a similar goal to foster innovation in their industries, albeit, while taking a more defensive approach.
Google’s plan for the LOT network, while beneficial to the technology industry, undoubtedly has its motives in preventing costly litigation for the technology giant. Although patent litigation is expensive and time-consuming for all patent-holders, it remains to be seen whether the finely sharpened axe of the patent trolls will be enough to encourage smaller startups to side with Google, as membership has been relatively slow since the announcement. Likewise, it will be interesting to see just how effective the LOT network will be at changing the US technology patents market as Google so boldly claims.