Why patent pools rock – the licensor perspective
A force multiplier for patent licensing departments of any size
In Part I of this series, we explained the ample benefits patent pools bring to implementers of the standardised technologies they cover.
We now turn to the licensor side, and the manifold ways in which patent owners benefit from leveraging patent pools to complement their own licensing efforts.
Cost-efficient dealmaking
The most fundamental benefit of a patent pool is its ability to reduce transaction costs through aggregation. By forming a pool around a certain technology, a group of patent owners can share the expense of licensing and eliminate hundreds or thousands of largely duplicative negotiated agreements with implementers.
From the perspective of a licensor, the pool acts as an outsourced licensing team focused on a particular market. This well-oiled dealmaking machine hums in the background, freeing up the in-house function to focus on its most important bilateral relationships and strategic priorities.
This benefit is becoming more important as standardised technologies proliferate. The centre of gravity for licensing is shifting from markets dominated by a handful of big tech companies to markets with a ‘long tail’, encompassing thousands of small or medium-scale implementers. Even the largest companies may lack the in-house resources to effectively address these markets.
But many patent owners – particularly SMEs, academic institutions and research labs – have practically no internal licensing resources whatsoever. The pool licensing option is one of the few viable paths they have to fund their ongoing research with royalty streams. The presence of pools in the market therefore ensures that smaller, mission-driven organisations continue to have a seat at the table during global standards setting.
A more attractive product
A patent pool is more than the sum of its parts. Through portfolio aggregation, patent owners can offer a much more attractive value proposition to potential licensees, making the overall business opportunity bigger.
Licensees want peace of mind that pools are well-suited to deliver. Bilaterally, patent owners will rarely be able to offer a level of risk clearance that compares with what a pool can provide. When a pool amasses a meaningful portion of the overall patent universe in a technology, it becomes an attractive option for risk-focused in-house counsel on the implementer side.
In many cases, pools also play a key technology promotion role. They create order in emerging and sometimes chaotic industries. When a technology is new or faces competing alternatives, uncertainty about the cost of adoption can severely restrict investment. When pools are transparent about the patents they represent and the rates they charge, they provide that certainty by creating a benchmark validated by multiple market participants. This enables new entrants to build business cases around the new technology, creating a dynamism in the market that not only drives royalty revenue, but can also boost sales of related products and services.
Inclusion in a pool also provides external validation for a licensor’s IP. Patents in Sisvel’s pools go through an independent third-party essentiality evaluation, giving assurance to licensees that they truly need a licence. Pools give implementers visibility into the patent landscape around a given technology and demonstrate where each patent owner sits among its peers.
Institutional knowledge and expert administration
Joining a patent pool means enlisting the institutional knowledge within the administrator to support your licensing efforts.
Sisvel has been in business for over 40 years. During that time, it has handled thousands of licensing deals worth billions of euros with a wide range of counterparties, fueling additional research and new product innovation. The contacts, market expertise and valuation instincts that come from this experience form the basis on which we are able to put together successful licensing programmes.
Patent pools can home in on specific technology areas and market verticals, developing a degree of specialisation that is hard to come by in generalist IP departments. The people who run Sisvel programmes know their markets backwards and forwards – commercially, technologically and in terms of the patent landscape.
Sisvel also boasts a dedicated technical team comprised of experts in the standardised technologies we license. That means we have the internal resources to complete technical discussions with licensees in a timely manner, something that can be a roadblock for in-house teams.
Sisvel’s stable of experts extends into administration and many other critical fields as well – including all aspects of law, contracts and litigation, tax and accounting, policy and government relations, and marketing and communications. Furthermore, the team has a presence across Europe, the United States and Asia with ample local expertise on the ground in each locale.
Stable, downside-protected returns
Once a pool has secured acceptance in the market, it offers a better prospect of stablerecurring royalties than a bilateral licensing programme. Licensees know that pools have little to no leeway to offer better terms, so renewals of pool deals are much less likely to turn into re-negotiations or devolve into litigation compared with bilateral renewals.
Because pools largely earn money by deducting an administration fee from royalty receipts, patent owners’ financial exposure is all upside. The pool shoulders the upfront costs of establishing a programme and carrying out day-to-day licensing activities, which provides downside protection to patent owners in the event that a programme is unsuccessful.
For some patent owners, membership in a pool enables them to engage in business discussions with implementer companies independent of and unencumbered by licensing talks.
Crucially, pool participation doesn’t close off possibilities for bilateral licensing. For a company with an active licensing function, it simply provides an alternative – one more way for implementers to learn about and take a licence to a portfolio. Patent owners are encouraged to pursue bilateral licensing as part of a holistic licensing strategy.
This is the second instalment in a three-part series on the benefits of patent pools. Click below to navigate to the other parts.