Why patent pools rock – the licensee perspective
Programmes run the Sisvel way bring enormous benefits to rights owners, licensees and the innovation ecosystem as a whole.
This is the first instalment in a three-part series on the benefits of patent pools. Check back for more throughout the week.
So much has changed in the licensing market since Sisvel was established in 1982, but the patent pool model has persisted and evolved with Sisvel-led innovations. That’s because the efficiencies unlocked by aggregated patent licensing bring so many benefits to so many different players.
Our many partners trust us to create licensing programmes that provide transparent, efficient and FRAND-compliant alternatives to what is otherwise a thicket of confidential bilateral deals. We know from experience that our solutions help level the playing field by creating structures where smaller innovators and implementers can access the IP market on equivalent terms to their much larger peers.
But recent policy developments and public commentary serve as a reminder that the long-established advantages of the pool model can’t be taken for granted. Over the next three days, we will publish our view on how Sisvel patent pools create value from three perspectives: for patent owners, for technology implementers and for the overall innovation ecosystem.
In this first instalment, we cover the benefits patent pools bring to implementers of the standardised technologies they cover.
Why pools are good for licensees
When a Sisvel patent pool gains traction in a certain technology or vertical, life gets a lot easier for the implementers in that space. Pools like those run by Sisvel bring transparency and efficiency to new markets and verticals while harnessing the power of aggregation to minimise transaction costs and offer balanced royalty rates.
Simple and efficient
Corporate management wants to focus on sales and results, not licensing and litigation. A pool licence offer enables the licensee’s legal team to bring management a single deal covering a multitude of portfolios at a single rate, rather than a series of agreements with different counterparties and varying terms and rates.
The efficiencies of a pool licence don’t end when a deal is signed. Pools offer much less ongoing administrative burden as well, allowing licensees to report in a single format and make one payment to a single payee.
These benefits are becoming more important over time, as an increasing number of companies take part in standards setting. Pools will play a crucial role in enabling access to standardised technologies as the ‘long tail’ of patent owners continues to grow, making it more onerous to negotiate individual deals with all of them. This is especially important for small and medium sized technology users.
Balanced rates
Due to transactional efficiencies created by aggregation, pool licences generally are recognised by courts and commentators to cost less than the sum of their parts (bilateral deals with each of the participating patent owners). This is true of the per-unit royalty rate, even before factoring in the time and cost savings from consolidating multiple negotiations into one.
To understand why, consider how pool rates are set. When an administrator like Sisvel negotiates with patent owners during the formation of the pool, it has an incentive to set realistic royalty expectations in order to achieve a rate that will gain quick acceptance in the market through consensual licensing. If the rates don’t make business sense for licensees, the pool will be dead on arrival – major adjustments after pool launch are extremely difficult and rare.
Note that in many cases some of the patent owners in the pool also sell covered products, obliging them to pay the rate that is ultimately set by the group. The participation of licensor-licensees significantly enhances the credibility of a pool’s offer as balanced.
Patent owners and the administrator typically agree to offer a rate that offers a discount to the sum of all the stacked bilateral rates. This is possible due to the transactional efficiencies pools provide and is also motivated by patent owners’ interest in stimulating adoption of their technology. The result, in Sisvel’s experience, is a royalty cost that’s significantly lower than the cost of licensing all the pooled portfolios bilaterally.
Pool administrators operate from a big-picture view of the total royalty stack rather than privileging the importance of one portfolio or another. This helps to arrive at a rate which reflects the holistic value of the technology. In bilateral negotiations, a licensee will face numerous patent owners who each insist their contributions are uniquely valuable and should command a premium royalty rate.
Standardised terms
Licensees who accept a pool offer can be confident in telling management that they have secured a fair deal that will not disadvantage them in relation to their competitors.
In bilateral negotiations, it is hard to know the terms on which others have done deals. Not so with pools, which have no room to offer differentiated terms to similarly situated licensees. This creates parity among licensees who are competitors in the market.
Moreover, the terms of a pool deal have been negotiated between multiple parties, reviewed by multiple legal teams and approved by multiple boards of large and small companies alike, both on the licensor side and the licensee side.
This goes a long way toward levelling the playing field in the given technology area, because it allows new entrants, start-ups and SMEs to access patent rights on standardised terms at parity with similarly situated companies.
These standardised terms also mean that when new patent owners join the pool, the rates usually stay the same. Thus, the growth of patent pools means broadened patent coverage at no additional cost to licensees, a significant benefit to everyone in the market.
Transparent and predictable
In a market where a significant share of negotiations and deals are conducted under non-disclosure agreements, patent pools like those operated by Sisvel provide a remarkable amount of transparency.
In the absence of a pool, implementers may be left to worry about which patent owners will be asking what amounts for which patents. A pool offer covering a significant share of the relevant patents gives businesses greater visibility on costs of adopting a technology, reducing the potential for surprises.
Sisvel discloses as much information as practicable about each of our programmes, based on our agreements with the relevant patent owners. Various Sisvel pools publish patent lists, royalty rate tables and the terms and conditions of the standardised sublicence agreement.
Patent brochures contain further information, including:
Material linking claims of evaluated patents to specific sections, tables and drawings of the relevant standards
Bibliographic patent information such as international patent family members and filing dates, which can be used to obtain the expected expiry
Standard declaration information
In negotiations, Sisvel’s pools offer further information including a comprehensive explanation of the royalty rate and how it is calculated.
This information provides important clarity and predictability for all licensees – including those that choose to pursue bilateral licences rather than a pool deal. Setting a respected benchmark royalty figure, in many cases negotiated with the input of both licensors and licensees, makes financial modelling and business planning much easier, benefiting the technology space as a whole.
In Part II of this series, we will turn to the licensor side to explain the benefits patent owners gain from participation in pools.