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

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).