By: Niccolò Galli, Windsor Law LTEC Student Writer
Patent aggregation is one of the critical paths to raise revenue and earn a return on investment in the ICT sector. It comprises all activities whereby firms build sets of related patents, so-called patent portfolios, and subsequently use these beyond manufacturing. Different kinds of entities pursue such patent aggregation activities, well beyond the usual suspects of patent trolls and pools. The main distinction between patent aggregators is between practising entities and non-practising entities. The former ones are vertically integrated patentees that both sell patent implementing products and monetise their patents. The later ones are patentees operating only in upstream technology markets without downstream product activities. Several notable instances of patent aggregation activities relate to Canadian firms.
The NTP/RIM Seminal Patent Infringement Settlement
First, in 2001, NTP, a so-called patent assertion entity, that is a firm that aggregates patents just to enforce them, sued for patent infringement Research in Motion, the manufacturer of BlackBerry phones, in Virginia. The District Court found the five US patents relating to wireless emailing valid and infringed. It so ordered both a compensatory damage award and a permanent injunction that would have barred BlackBerry phones from the US. During the appeal, while the injunction and other remedies were stayed, also upon the involvement of the US Department of Defense highlighting the importance of the BlackBerry service for national security purposes, the Parties settled their dispute. Canada-based RIM agreed to pay a lump sum of US$615 million in exchange for a license under NTP’s patent portfolio. Later, RIM succeeded in having the USPTO finding all patent claims asserted by NTP invalid due to prior art, yet the finality of the settlement meant the payment was unrecoverable. The NTP/RIM case is significant because it led to the 2006 US Supreme Court eBay/MercExchange judgment that changed US patent law, making it more difficult for patentees to obtain permanent injunctions against infringers.
Rocking on Nortel’s Patents
A second example is the 2011 bankruptcy auction of Canadian Nortel’s patent portfolio in the midst of the smartphone patent wars involving Apple and Microsoft/Nokia against several Android smartphone makers. A consortium named Rockstar, operated by former Nortel patent professionals, overtook Google bids from US$900 million to 3.6 billion. Rockstar shifted about 2,000 patents to its members and retained the rest, which it later enforced until selling it in 2015 to the defensive patent fund RPX for US$900 million.
COSIA Patent Pool
Patent aggregation in Canada goes beyond the ICT sector. Since 2012, the Canadian Oil Sands Innovation Alliance (COSIA) operates an information-sharing platform and patent pool for Canadian oil sands firms. Members of COSIA make their oil sand-related IP accessible at no cost to other members, while non-members can pay for a license to the pooled patents.
Innovation Asset Collective
The more recent and significant instance of Canadian patent aggregation is the Patent Collective. Canada had a vivid policy debate on creating a national patent aggregator to pursue national economic interests like France, South Korea, and Japan did before. Ultimately, the advocates of a Canadian national patent aggregator prevailed against the detractors concerned with the retortions by trade allies such as the US and the EU. In fact, in late 2018, the Government, through the department of innovation, science and economic development, budgeted CA$85 million over five years to support a national IP strategy. CA$30 million of this budget were reserved for a no-profit Canadian Patent Collective. A call for proposals was opened until March 2019 for the realisation of such a patent collective with the goals of recruiting Canadian SMEs belonging to a given tech space, helping recruited members grow to scale through IP support, creating a network as well as in return providing IP insights to the Canadian Government. A project titled Innovation Asset Collective won the call and began operating last December. It focuses on the data-driven clean technology sector, costs CA$15,000 annually for members, and offers several IP services through its expert personnel. The focus is definitively defensive, not offensive. It is still to be seen how the patent collective evolves. In general, previous comparable national patent aggregators had mixed success, and their sustainability relied on repeated investment by the Government.
Patent Aggregation and Innovation
Against the background of Canadian patent aggregation, the real hornets’ nest when dealing with patent aggregation is its debatable impact on innovation since none of its underlying activities brings new patent-implementing products to market directly. Take the controversial case of Qualcomm, a vertically integrated patent aggregator that sells chips and licenses its telecommunication patent portfolio to many smartphone manufacturers. Qualcomm is undoubtedly an innovator since, without its Snapdragon chips, there would be no premium 5G smartphones. However, Qualcomm’s patent licensing practices have been investigated since the late 2000s by antitrust authorities in the EU, China, Japan, South Korea, Taiwan and the US. The essential allegation is that Qualcomm abuses its dominant position in the market for the licensing of its patent portfolio against licensees, and in doing so, it stifles innovation by other smartphone chip manufacturers. It is interesting to question if Qualcomm’s licenses, whether anti-competitive or not, are nevertheless necessary for its chips innovations. It is perhaps also for such an unchartered issue that most antitrust cases against Qualcomm settled or failed on appeal.
To have a complete picture of the pro- or anti-innovativeness of any patent aggregation instance, one should consider at least six dyads of balancing positive and negative innovation effects.
Patent aggregation activities allow for specialisation and division of innovation labour. However, they might entail an inefficient allocation of innovation risks, whereby patent aggregators profit from patented inventions at the expense of those who put such inventions into practice;
Patent aggregation boosts the market for patents by creating demand, injecting liquidity and reducing matching costs. Nonetheless, rents from patent aggregation might as well be insufficiently redistributed to original inventors or reinvested into R&D;
Certain patent aggregation practices accelerate technology diffusion and enhance follow-on innovation, whereas others lead to either unilateral or coordinated innovation suppression;
Patent aggregation that fights technology free-riding (so-called patent hold-out) is often borderline with patent hold-up, namely out-right foreclosure or exploitation of alleged infringers;
One-stop-shop efficient patent aggregation activities, solving double marginalisation and royalty-stacking issues, oppose fragmentary and anti-commons ones where a previously complementary patent portfolio is split and assigned to more patent aggregators;
All patent portfolio-specific advantages for innovation have downsides. For example, portfolio licensing, whereby patents are licensed as a bundle, minimises transaction costs, but it might also shield weak patents from invalidation or tie unneeded ones.
Assessing every dyad of effects gives a complete picture of the innovation impact of a patent aggregation case, though this is easier said than done…
Niccolò Galli is a researcher at the Robert Schuman Centre for Advanced Studies of the European University Institute within the project “Innovation and Intellectual Property in the digital age”. Between 2017-2020, Niccolò was a Marie Skłodowska-Curie Early-Stage Researcher within the EIPIN – Innovation Society European Joint Doctorate and PhD Candidate at Max-Planck Institute for Innovation and Competition in Munich. He is waiting to defend his doctoral thesis before the universities of Augsburg and Maastricht. His research focuses on the competition and patent law issues arising in the electrical engineering industry due to its increasingly incremental, convergent, and fast-paced technological progress.