Do Patent Licensing Demands Mean Innovation?

Author:Robin Feldman & Mark A. Lemley
Position:Harry & Lillian Hastings Professor, University of California Hastings College of the Law/William H. Neukom Professor of Law, Stanford Law School; Partner, Durie Tangri LLP
Pages:137-189
SUMMARY

A commonly offered justification for patent trolls or nonpracticing entities ("NPEs") is that they serve as a middleman, facilitating innovation and bringing new technology from inventors to those who can implement it. We survey those involved in patent licensing to see how often patent license demands actually led to innovation or technology transfer. We find that very few patent license demands ... (see full summary)

 
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137
Do Patent Licensing Demands Mean
Innovation?
Robin Feldman & Mark A. Lemley
ABSTRACT: A commonly offered justification for patent trolls or non-
practicing entities (“NPEs”) is that they serve as a middleman, facilitating
innovation and bringing new technology from inventors to those who can
implement it. We survey those involved in patent licensing to see how often
patent license demands actually led to innovation or technology transfer. We
find that very few patent license demands actually lead to new innovation;
most demands simply involve payment for the freedom to keep doing what the
licensee was already doing. Surprisingly, thi s is true not only of NPE licenses
but even of licenses from product-producing companies and universities. Our
results cast significant doubt on one common justification for patent trolls.
Harry & Lillian Hastings Professor, University of California Hastings College of the Law.
 William H. Neukom Professor, Stanford Law School; Partner, Durie Tangri LLP.
Thanks to Colleen Chien, Peter Detkin, Joe Fitzgerald, Rose Hagan, Bob Harris, Jay Kesan,
Oskar Liivak, Brian Love, Doug Melamed, Lisa Larrimore Ouellette, Michael Risch, Dave
Schwartz, and Ted Sichelman for comments on an earlier draft. We are grateful to Jenny Alsup,
Afshin Emrani, Evan Frondorf, Cassidy Kim, Louis Lee, Alana Mannige, Robert Mazzola, and
Daniel Yosef for their research assistance. © 2015 Robin Feldman & Mark A. Lemley.
138 IOWA LAW REVIEW [Vol. 101:137
I. INTRODUCTION ............................................................................. 138
II. PATENT TROLLS AND PATENT LICENSING ..................................... 139
III. METHODOLOGY ............................................................................ 144
IV. RESULTS ........................................................................................ 149
A. EXTENT AND DISTRIBUTION OF SUITS AND LICENSING
REQUESTS ............................................................................... 149
B. DID LICENSING LEAD TO INNOVATION OR TECHNOLOGY
TRANSFER? ............................................................................. 155
1. NPE Licenses Do Not Produce Technology
Transfer .......................................................................... 156
2. University and Practicing Entity Licenses Rarely
Generate Technology Transfer .................................... 160
C. TECHNOLOGY TRANSFER AND LICENSING BY INDUSTRY ............. 166
V. IMPLICATIONS ............................................................................... 173
APPENDIX A .................................................................................. 178
APPENDIX B ................................................................................... 180
I. INTRODUCTION
Patent trolls—patent-holding entities that do not make any products but
sue or threaten others with patent infringement—are the subject of intense
debate. Congress is considering legislation to curb patent trolls, and many
scholars have worried that the growing prevalence of patent lawsuits filed by
trolls reflects a fundamental problem with the patent system. Defenders of
patent trolls, meanwhile, have argued that they are desirable intermediaries
that enable technology to move from the minds of inventors into the hands
of those who can make productive use of it.
A critical factual assumption that underlies this debate is whether patent
licensing by trolls is in fact a mechanism for technology transfer to the
licensees and the creation of new products, or whether a request that a
company take a patent license is simply a means of collecting money in
exchange for agreeing not to sue. The answer matters not only for the debate
over the desirability of patent trolls but for the health of the patent system
altogether. Patents are supposed to promote not just invention but
innovation—the development and deployment of new technology into the
world. If they are serving this function, we should expect to see troll patent
2015] DO PATENT LICENSING DEMANDS MEAN INNOVATION? 139
licenses leading to the deployment of new products or at least creating the
proper environment for such deployment. If that is not happening, then
aspects of the patent system begin to look more like economic waste, a tax on
innovative companies being paid in part to inventors but increasingly to
intermediaries that themselves contribute little to society.
In this Article, we offer a first window on that critical factual question by
surveying people who actually engage in patent license negotiations to see
whether the deals they strike lead to new products or to technology transfer
or other markers of innovation. We find that very few patentee-initiated
license requests result in any innovation, whether we measure that directly by
looking for new products and features, or indirectly by looking for proxies
such as the transfer of technology, sharing of personnel, or the development
of joint ventures. Notably, our results seem to hold regardless of whether the
patent owner seeking a license is a patent troll, a product-producing company,
or a university. Based on our survey results, ex post patent licensing
negotiations seem to be almost entirely divorced from innovation. Because of
the small number of respondents, however, we encourage further research
before drawing definitive policy conclusions.
To b e clea r, we d o not f ind or sugge st tha t ther e is no techn ology trans fer
occurring, or that the patent system cannot promote that technology transfer.
Universities and inventors can and do strike deals with companies that are
better positioned to implement the new ideas they develop, and these
alliances have, indeed, led to valuable drugs and other products. But those
deals frequently take place ex ante, before a patent issues and often before
patents are even filed. It is the technology being sold; the patents accompany
the sale of the technology. Ex post licensing demands and litigation—the
focus of our Article—seem less promising.
In Part II, we discuss the debate over patent trolls and the relevance of
technology transfer. In Part III, we explain our methodology. Part IV presents
our results, and Part V offers some tentative policy implications of those
results.
II. PATENT TROLLS AND PATENT LICENSING
Patent trolls are the hottest topic of debate within patent law today.1
Trolls, also known as “non-practicing entities” (“NPEs”) or “patent assertion
entities” (“PAEs”), are individuals or businesses that do not make any
products and instead make their money from licensing or asserting patents
against entities that do make products. While there is some debate as to who
fits in the troll category, under most reasonable definitions roughly half of the
1. See, e.g., Mark A. Lemley & A. Douglas Melamed, Missing the Forest for the Trolls, 113
COLUM. L. REV. 2117, 2118–21 (2013).

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