snIP/ITs Insights on Canadian Technology and Intellectual Property Law

LOT Network

Posted in Intellectual Property, Patents
Fiona LegereMarissa Caldwell

In a previous blog post, we briefly discussed the LOT Network’s initiative in in the fight against patent assertion entities (PAEs), more commonly known as patent trolls. Since the publication of that post, the LOT Network has overhauled its member agreement and published new information and statistics on how the program is working to protect companies from PAEs We have provided below a brief summary of some of the key changes.

Background

The LOT Network is a non-profit organization that was established to protect companies from the thousands of potential PAE lawsuits that, according to LOT Network, use patents to hurt innovation. In the words of Ken Seddon, LOT Network’s CEO, “[w]hile tech companies strive to innovate, patent trolls see opportunities to monetize the patents they’ve acquired by suing operating tech companies.” According to a LOT Network publication, patent lawsuits jumped 500% between 2005 and 2014, and PAEs are responsible for 84% of patent litigation in the United States. Because 81% of patents acquired by PAEs come from companies (as opposed to inventors or universities), the LOT Network’s aim is to unite operating companies in the fight against exploitation by PAEs.

Before diving in to the specifics of the new and improved LOT Network, a review of how the program works is warranted. To become a LOT member, a company must agree to the LOT Agreement. The Agreement operates as a mutual non-aggression pact between members.  Members pledge that none of their patents will ever be used by a PAE to sue another member.  This pledge is actualized in the form of a conditional cross-licenses between all parties. The goal of the Agreement would be that, upon becoming a member of the LOT network, when another member sells or transfers a patent to a PAE, due to the conditional license in the LOT Agreement, you are automatically granted immunity, via license, against lawsuits brought by PAEs.

As of December 2016, the LOT network had 100 members, roughly double the size of its membership in January 2016.

The Updated LOT Network

The new LOT Agreement (available for download here)has narrowed its scope to focus specifically on the issues caused by PAEs. For example, under the original agreement the conditional license was triggered upon transfer of the patent to any non-member organization.  Under the new LOT Agreement, the license is triggered upon the transfer of the patent to a PAE.  An entity is considered a PAE if: “The entity (including its parent and any subsidiaries) generates more than half of its total revenue from patent assertion in a 12-month period, or if the entity has a plan approved by senior management to do so.”  While the original agreement would have impacted a company’s ability to sell its patents to other companies, the new LOT Agreement attempts to carve out space for a company to assert, sell, or license its patents to anyone.

Has the LOT Network Achieved its Promise?

In order to gauge the success of the LOT network, one would need to know exactly how many patents were divested by member companies. Only then could members know how many patents they had received cross-licenses for, and therefore how many patents they cannot have asserted against them. In December 2016, LOT Network was, for the first time, able to share how many assets had left the network.   Through a partnership with IP analytics firm Innography, LOT Network was able to track sales and other assignments of patents made by member companies.  The results?  42 different LOT members had divested a total of over 42,000 assets world-wide.  At the time these results were published, the LOT Network included more than 585,000 assets.

Of the more than 42,000 divested patent assets, 35 were found to be owned by eight different PAEs. While this is only a drop in the bucket, it does indicate that the program is moving towards achieving its goal.  The fact that so few patents are being acquired by PAEs shows that the patents belonging to LOT members are becoming unattractive.  Unless a PAE knows of another target, outside the LOT Network’s membership, to assert the patent against, the patents are worth less to a PAE and become even less valuable with every new LOT member.

In considering whether the LOT Network is right for your company, you should be assessing your products and/or services for whether they may be subject to a claim that a third party’s patent is being used. In particular, companies in high-tech industries should consider whether they may benefit from the protection of being granted a license to the patents of other member companies, most of which operate in the high-tech area.  You can see a complete list of member companies here.