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Research and Innovation
Report of the Expert Group on
PatentAggregation
EUROPEAN COMMISSION
Directorate-General for Research and InnovationDirectorate B – Innovation and European Research AreaUnit B.3 – SMEs, financial instruments and State aid
Contact: Peter Droell
E-mail: [email protected] [email protected]
European CommissionB-1049 Brussels
EUROPEAN COMMISSION
Directorate-General for Research and Innovation2015
Report of theExpert Group on
Patent Aggregation
Paola GiuriDenise Hirsch
Krystyna Szepanowska-KozlowskaHannes Selhofer
John Temple LangNikolaus Thumm
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Luxembourg: Publications Office of the European Union, 2015
ISBN 978-92-79-41182-3doi:10.2777/96371
© European Union, 2015Reproduction is authorised provided the source is acknowledged.
CONTENTS
1. EXECUTIVE SUMMARY ............................................................................ 5
1.1 Introduction .................................................................................... 5
1.2 General problems in patent markets ................................................... 5
1.3 Patent pools.................................................................................... 6
1.4 Patent funds and other forms of intermediation .................................... 7
1.5 Recommendations ........................................................................... 8
2. INTRODUCTION ................................................................................... 10
2.1 Background and objectives ............................................................. 11 2.1.1 Background ........................................................................................ 11 2.1.2 Objectives .......................................................................................... 12
2.2 Working method ............................................................................ 14
3. ASSESSMENT OF PROBLEMS IN PATENT MARKETS .................................... 17
3.1 General problems in the patent market ............................................. 18 3.1.1 The underlying concern: potentially valuable patents that remain unused .. 18 3.1.2 Lack of transparency ........................................................................... 20 3.1.3 Asymmetric information ....................................................................... 22 3.1.4 High transaction costs ......................................................................... 22 3.1.5 Difficulties in enforcing patents ............................................................. 23
3.2 Problems relevant for both owners and users ..................................... 23 3.2.1 Difficulties in patent valuation .............................................................. 23 3.2.2 Problems with patent quality ................................................................ 24 3.2.3 Problems due to patent owners' technology being incomplete or "immature"25 3.2.4 Negotiating mutually satisfactory licence terms ...................................... 25
3.3 Specific problems for patent owners ................................................. 26 3.3.1 Lack of finance ................................................................................... 26 3.3.2 Difficulties in securitisation ................................................................... 26
3.4 Specific problems for potential users of patents .................................. 27 3.4.1 Too many patents due to the rising complexity of technologies ................. 28 3.4.2 Costs & effort for obtaining licences ...................................................... 28 3.4.3 Growing number of standards ............................................................... 28
3.5 SME-specific challenges .................................................................. 29 3.5.1 Difficulties to conclude contracts with large firms on patent-related issues . 29 3.5.2 Lack of awareness for IPR issues .......................................................... 30 3.5.3 A lack of finance for legally protecting their IPR ...................................... 30 3.5.4 A lack of patent-related support services from intermediaries ................... 30
3.6 Conclusions on challenges in patent markets ..................................... 31
4. EVIDENCE ON PATENT POOLS ................................................................ 33
4.1 Definition and main types of patent pools .......................................... 33
4.2 Considerations on patent pools ........................................................ 35 4.2.1 General principles for patent pools ........................................................ 35 4.2.2 Opportunities ..................................................................................... 37 4.2.3 Challenges and concerns ...................................................................... 38
4.3 Conclusions on patent pools ............................................................ 42
5. EVIDENCE ON PATENT FUNDS AND OTHER FORMS OF AGGREGATION AND INTERMEDIATION ......................................................................... 43
5.1 Definition ..................................................................................... 43
5.2 Patent funds – types and evidence ................................................... 44
5.3 The case for / against state-supported patent funds ........................... 46 5.3.1 International examples of state-supported patent funds .......................... 46 5.3.2 European examples ............................................................................. 47 5.3.3 Assessment of the opportunities and risks .............................................. 49
5.4 Other forms of intermediation ......................................................... 50
5.5 Opportunities and challenges related to funds and other forms of intermediation ............................................................................... 53 5.5.1 Opportunities ..................................................................................... 53 5.5.2 Challenges ......................................................................................... 54
5.6 Conclusions on patent funds ............................................................ 55
6. RECOMMENDATIONS ............................................................................ 57
6.1 Recommendations for improving the framework conditions for patent
markets ....................................................................................... 57
6.2 Specific recommendations with regard to pools, funds and other types of intermediation ............................................................................... 60
7. ANNEXES ............................................................................................ 63
7.1 Annex I: Members of the expert group and meetings held ................... 63
7.2 Annex II: Experts interviewed ......................................................... 65 7.2.1 Experts who participated in the hearings ................................................ 65 7.2.2 Reviewers .......................................................................................... 67
7.3 Annex III: Questionnaire used in interviews and hearings .................... 68
7.4 Annex IV: Mandate of the Expert Group ............................................ 74
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1. EXECUTIVE SUMMARY
1.1 Introduction
Background and objectives
This report was produced by the expert group on patent aggregation. This group was convened by the European Commission to investigate whether there is a need for EU level intervention to foster the development of patent markets, in particular
through aggregation of patents, with a focus on patent pools and funds. The work of the expert group builds on the publication of the Commission Staff Working Document "Towards enhanced patent valorisation for growth and jobs”1, the
outcome of reflections of an earlier expert group on options for patent valorisation, as well as on a number of recent specific studies. The premise is that some patents would be more valuable, or would be more likely to be used, if they were
aggregated, that is, if patents belonging to different owners were gathered together in such a way that single entities or groups could act as licensors of all the patents, or of as many of them as licensees might want to obtain licences for.
Working method and schedule
The expert group consisted of a core group of eight members, whose deliberations
were complemented by invited experts (37 in total), each of whom was asked to attend one specific meeting for exchanges with the group. The group met seven times in Brussels between 17 October 2013 and 6 March 2014. Most meetings
consisted of panel hearings of invited experts. In addition, further hearings with invited experts were conducted in February 2014 in Brussels, Munich and Bologna, and by Skype. The experts included respected economists, representatives of
different sectors of industry and types of companies, IPR practitioners such as managers of patent funds and representatives of technology transfer organisations, patent attorneys, and advisors of small and medium-sized enterprises (SMEs). A balance was sought among professional backgrounds, countries and types of
companies.
1.2 General problems in patent markets
Establishing a transparent, fair and liquid market for patents and licences is a challenging task. Patent markets are complex and difficult to address. Most experts and studies consider that the patent market is characterised by a lack of
transparency and asymmetry in information, resulting in high transaction costs for trading and licensing patents (see Section 3.1).
The main concern underlying the work of the expert group was that potentially valuable patents are not being commercialised and exploited for innovation, even
when patent owners would be willing to license the technology protected by the patents (or sell the patents). Not all patents, even if they are valid, have commercial value, for a variety of reasons.
However, there are potentially valuable patents available which remain unexploited. One of the main reasons is the insufficient development of the
underlying technologies. The critical challenge is whether the technologies can be
1 http://ec.europa.eu/enterprise/policies/innovation/files/swd-2012-458_en.pdf
6
further advanced and matured – which suggests the need for initiatives to support
the development of promising but immature technologies. Patent pools and technology development funds can play a role, but the mere aggregation of such patents would not meet the need, since that would not influence the value of the
individual patents or maturity of the underlying technology in question.
Another reason for under-exploitation is inadequate information. Asymmetric information, where one party has more or better information about the market than
the other, may result in economic inefficiency and constitute a market failure. However, there are conflicting views on whether this problem (in combination with others) constitutes a general market failure in the patent market in economic terms. So while there is broad agreement that the patent market is characterised, at least
to some extent, by asymmetric information, if the term “market failure” is to be used, it should refer only to the fraction of potentially valuable patents which remain unexploited as described above.
There is, in any case, no dispute about the many specific problems, both for patent owners and for potential users of patents, that are directly or indirectly related to these general challenges. Not all of these problems are necessarily
relevant for policy. They include issues that are simply a function of the complex nature of the underlying technologies, and are not susceptible to resolution through policy intervention (see Section 3.2). Examples include:
Difficulties in patent valuation;
Problems with patent quality;
The lack of finance for commercialising an invention (funding through the time needed to fully develop a new technology);
Negotiating mutually satisfactory licensing terms;
Difficulties in securitisation;
Increasing complexity due to a rising number of patents and standards, and the
application of technologies (in particular ICT-based standards) in many products and services (“embedded systems”);
SME-specific challenges, such as the difficulties faced by smaller companies in concluding contracts with large companies on IPR, insufficient awareness of IPR
issues, the lack of an appropriate IPR strategy, and inadequate finance to challenge possible counterfeiting by larger foreign entities operating in international markets.
1.3 Patent pools
In current usage, a patent pool is “an organizational approach in which two or more patent owners make their patents available as a bundle for a pre-defined (and openly publicized) price to any interested party.”2
An important distinction must be made between patent pools that are built around a technical standard and other patent pools (see Section 4.1). Patent pools are in
2 Patents and Standards. A modern framework for IPR-based standardization (2014). Study
prepared by ECORYS and the Technical University of Eindhoven, as part of the ECSIP
Consortium, for the European Commission, DG Enterprise and Industry.
7
particular important in the context of standard setting, as they are often
established to aggregate all those patents which are essential to manufacture products that should comply with a certain industry standard. In general, such pools of standard-essential patents are seen as procompetitive, they work well in practice
and their formation should be encouraged. Most contemporary pools are based around technical standards. There are also other patent pools, however, which are not built around a technical standard; these can have many different purposes (see
Section 4.1 for examples).
Patent pools can offer many advantages, both for pool members and for third party licensees. In particular, pools can be a solution to the problem of dispersed ownership, i.e. where the patents are owned by large numbers of companies, since
the pool reduces the number of transactions and negotiations and thus permits the savings in transaction costs.
A patent pool could also be an instrument to develop and deploy technical
solutions in fields with a public/social need but where private interest is insufficient. Patent pools could be used, for instance, if the patent situation blocks the development for the use of solutions for these social needs. A typical example
would be the development of a treatment for neglected diseases.
The public sector might consider fostering the setting up patent pools in the case of specific, strategically important technologies, such as disruptive technologies in materials science, or the efficiency of batteries for electric cars. In these areas,
lack of aggregation can be an obstacle to advancing and commercialising the technologies. Pools might help accelerate progress in such contexts, in particular when an entire industry needs a new technical regime.
However, apart from these specific use cases, most experts, including the members
of this group, do not advocate publicly financed patent pools as a general means to foster innovation. There is no evidence of such an initiative creating
externalities that would justify the investment of public funds, or bring significant solutions to any of the problems in patent markets.
1.4 Patent funds and other forms of intermediation
A patent fund is an investment vehicle independent of the original patentees, with owners who typically do not themselves exploit the protected technology to develop new products or services, but instead trade in IPR by acquiring and licensing and
sublicensing rights. Other potential forms of aggregation, in addition to funds and pools, include listings of patents, and brokerage services - such as online portals enabling patent-related transactions. These services are probably best described as
intermediation services (see Section 5.1).
Different types of patent funds follow different objectives. Recent evidence suggests that more than half of the funds in Europe are technology development funds
(see Section 5.2). These acquire patented technologies, and invest in their further development with the aim of commercialising them through sale, licensing, or creation of new firms.
The merits of establishing state-supported (in the sense of publicly-financed)
patent funds have been hotly debated for years, and were also discussed by the expert group. Their proponents regard such an initiative as an appropriate industrial policy response to similar initiatives by other governments – see Section 5.3. One
European example is France Brevets, an investment fund created in March 2011 in
8
the framework of the French public initiative “Programme d’Investissements
d’Avenir”.
However, most experts, including the members of this group do not advocate publicly financed patent funds as a general means to foster innovation. There is as
yet no available evidence to allow us to make firm recommendations for design
features for public patent funds, and moreover questions remain even over their rationale. This broadly confirms the conclusions of the earlier expert group on
patent valorisation (2012) 3 and of a study by the University of St. Gallen and Fraunhofer (2011).4
1.5 Recommendations
The expert group has agreed on the following recommendations for the European Commission and for other stakeholders involved in patent markets.
Recommendations for improving the framework conditions for patent
markets
The European Commission, together with actors in the patent system, should fully
exploit opportunities to improve the framework conditions of patent markets before any reflection on direct interventions to establish a financial market.5 The specific recommendations derived from the analysis are (see Section 6):
Recommendations
Recommendation 1.1: The European Patent Office and the European Commission should explore the feasibility of requiring the registration of patent ownership and changes in ownership to increase the transparency in the patent market.
Recommendation 1.2: Patentees should be allowed to declare and encouraged to highlight their willingness to license out their patents either on an exclusive or non-exclusive basis.
Recommendation 1.3: The European Patent Office should aim to ensure that
the high quality of European patents can be maintained in the future. While patent quality is important, measures to improve quality should be considered only if they are cost efficient and do not lead to a lengthening of the patent
procedure.
Recommendation 1.4: Holders of standard-essential patents, who are under their obligation to offer licences on a FRAND basis, should retain the right to seek
injunctions as well as damages against users who infringe the patents and who are unwilling to accept a licence on a FRAND basis.
Recommendation 1.5: If there has to be co-ownership of IPR, co-owners of IPR should agree that each joint owner can freely use the jointly made inventions and
3 „Options for an EU instrument for patent valorisation“ (2012). Report prepared by the
Expert Group on IPR valorisation; Rapporteur: Yann Ménière. 4 Creating a financial market for IPR (2011). Study by the Institute of Technology
Management at the University of St. Gallen (ITEM-HSG) and Fraunhofer Zentrum für Mittel
und Osteuropa (MOEZ), conducted on behalf of the European Commission. 5 This recommendation echoes a recommendation made by the study on, which argues that
the “EC should not establish or support the IPR Financial Market before the underlying IPR
Asset Market in Europe has not been substantially improved” (see Recommendation 10, p.
272f).
9
patents granted for them, and assign one of the owners with the responsibility and right to grant licences on behalf of the consortium.
Recommendation 1.6: The European Commission and Member States should (in
consultation with intermediaries) consider supporting and promoting measures that would assist SMEs in developing and executing an IPR strategy and actively managing their IPR, particularly SMEs participating in EU or national
RTD programmes.
Specific recommendations with regard to pools, funds and other types of
intermediation
The following recommendations concern the potential establishment of patent pools or funds, to promote innovation in Europe.
Recommendations
Recommendation 2.1: The establishment with public finance of a patent
pool or patent trading fund to serve multiple objectives should not be envisaged.
Recommendation 2.2: : The European Commission (or Member States) should, in
exceptional cases, consider supporting “mission-oriented” patent pools established specifically to advance or accelerate the development or deployment of solutions to social challenges and where there is a clear market failure, such as
treatments for neglected diseases.
Recommendation 2.3: The European Commission and Member States should consider supporting the establishment of technology development funds in specific fields, to advance technological progress and to sustain Europe’s role as
a global innovation leader.
Recommendation 2.4: The Commission would usefully explain in its Anti-trust guidance that substitutable patents may be included in pools if they are
needed in practice by the users of the standard essential patents, and if the additional royalties for these patents are small in relation to those for the standard essential ones.
Recommendation 2.5: The Commission should make it clear that European competition law allows companies in standard-setting organisations that own standard essential patents to discuss royalty levels with other patent owners (and not only with licensees), after it has become clear which patents are
likely to be technically essential, when this is necessary to ensure that the new standard is adopted quickly, even if there is no pool or plan for a pool.
10
2. INTRODUCTION
This report provides a synthesis of the work of the expert group on patent aggregation. The expert group has been convened by the European Commission in
2013 to provide expert views on whether there is a need and an opportunity for EC intervention to foster the development of markets in patents and licences in
particular through aggregation of patents, with a focus on patent pools and patent
funds. If the answer is in the affirmative, the expert group was mandated to suggest what form such action should take.
There are concerns that the valorisation of patents in Europe is not as effective as
would be desirable. “Valorisation” refers to “the action of creating value from patents by capturing and extracting their latent economic potential through developing and commercialising the underlying technology.”6 Empirical evidence shows that relatively few patents are available for licensing or sale in the patent
markets.7 This raises the question whether there is a case for promoting the market in patents and licences, in order to drive innovation in Europe and to increase returns to entities that are actively engaged in R&D. A special focus in this context is
on small and medium sized enterprises and organisations that may not have the marketing and legal potential to fully exploit and enforce their patents.
The report considers situations involving patents, technology and other intellectual
property rights in some or all of the EU Member States. The conclusions reached will remain valid after the European Unitary Patent becomes available and is increasingly used, a welcome development that will lead to many advantages not discussed here. We are confident that the European Patent Office will continue to grant sound
and high quality patents, and that this will continue to avoid or minimize the problems caused by questionable validity of patents that exist elsewhere.
We have considered a number of issues for the purpose of promoting innovation and
technological development in the European economy in general, as well as the distinct viewpoints of different interest groups – patent owners, users of patents, and SMEs. We have considered, and agree broadly with, the conclusions of several
other recent European-level reports on related issues. We have considered the information available about patent-related funds in Europe and in Asia. We are aware that technology markets in Europe and elsewhere are changing fast and will continue to change, but though these changes may make our conclusions more
important, we do not foresee any developments that would put those conclusions into question.
6 This definition was used by the earlier Expert Group on patent valorisation (2012), see
final report, p. 4 7 The PatVal 2 survey of inventors (Gambardella et al 2013, Invention processes and
economic uses of patents: evidence from the PatVal 2 Survey), conducted in 2010-2011
and covering 20 EU countries and Israel, indicates that between 9-24% of patents of
inventors located in Europe could be available for licensing or sale in the IP markets. The
shares are larger for small firms (in the range of 18-26%) and universities or PROs (27-
51%), while they are lower for large firms (6-21%).
11
2.1 Background and objectives
2.1.1 Background
The expert group was set up (i) in the context of the implementation of the Innovation Union flagship initiative8, in particular commitment 22 on the
development of a European knowledge market
“By the end of 2011, working closely with Member States and stakeholders, the Commission will make proposals to develop a European knowledge market for patents and licensing. This should build on Member State experience in
trading platforms that match supply and demand, market places to enable financial investments in intangible assets, and other ideas for breathing new life into neglected intellectual property, such as patent pools and innovation
brokering”
and (ii) as part of the follow up to of the Commission's Staff Working Document "Towards enhanced patent valorisation for growth and jobs”9 (2012). The 2012 Staff Working Document (SWD) describes a series of barriers to exploitation of
patents including the difficulty in assessing patent value, low transparency of the patent market, insufficient awareness of business opportunities, high transaction costs and difficult access to funding of commercialisation of patents. The document
outlined short to medium-term options including pilot projects on valorising unused patents and fostering pro-competitive forms of patent aggregation and exploiting patents which result from EU funded research and innovation projects. This group
focused on the conclusions related to aggregation.
Conclusions of the earlier expert group on patent valorisation
This SWD took into consideration the deliberations of an earlier expert group on options for patent valorisation (in 2012) to explore options and make recommendations.10 That expert group concluded that (…) “patent valorisation
through technology development and commercialisation represents a relevant policy objective, as it is highly beneficial to innovation and knowledge diffusion”, but that (…) “policy intervention should avoid encouraging short-term forms of patent
valorisation through the enforcement of patent rights.”
The earlier Group further concluded that patent valorisation through technology commercialisation was subject to market failures due to important transaction costs,
and therefore suggested that “effective policy measures to reduce transaction costs could enhance patent valorisation in Europe”.
That expert group considered three potential policy instruments: the creation of IPR exchange platforms, the provision of services to enhance patent valorisation
(e.g. providing standardised tools such as guidelines and checklists) and the establishment of patent funds.
8 Communication from the Commission: Europe 2020 Flagship Initiative Innovation Union,
COM(2010) 546 final, Brussels, 6.10.2010, see http://ec.europa.eu/research/innovation-
union/pdf/innovation-union-communication_en.pdf#view=fit&pagemode=none. 9 see : http://ec.europa.eu/enterprise/policies/innovation/files/swd-2012-458_en.pdf
((SWD (2012) 458 final, 21.12.2012) 10 see: „Options for an EU instrument for patent valorisation“ (2012). Report prepared by the
Expert Group on IPR valorisation; Rapporteur: Yann Ménière.
12
With regard to the creation of exchange platforms, they recommended raising
awareness about existing platforms among SMEs rather than the creation of an IPR exchange platform at European level (which was not seen as a superior alternative to commercial platforms).
As for the provision of specific services to enhance valorisation, it was
recommended that policy measures are taken to enhance patent valorisation by SMEs. However, these should address specific local needs and therefore should be
left to Member States.
Regarding the establishment of patent funds, the earlier expert group recommended that the European Commission should not support the creation of a fund as was proposed at that time by the French Caisse des Dépôts et Consignations
(CDC). That group saw no practical evidence of a successful business case which would provide reason to support a patent trading fund in general and concluded that the CDC proposal did not demonstrate the value added of a financial support by the
Commission as compared with private investors. The present group noted that this conclusion concerned a specific model and did not rule out the possibility of there being a rationale for a patent fund with different objectives and a different business
model and addressed the question whether any other form of fund could be supported.
2.1.2 Objectives
Overall mandate of the expert group
The conclusions of the earlier (2012) expert group on patent valorisation and the Staff Working Document represented the starting point of the work of the expert group on patent aggregation. While these addressed the underlying issues from a
broader perspective, our mandate was to focus more specifically on whether there are opportunities to encourage patent valorisation by facilitating patent aggregation mechanisms. The overall mandate of our group as specified in the terms of
reference was that it should:
“Explore the need for and identify the feasible options for EU level action to foster aggregation of patents that could be (partly) funded or in other ways
promoted at the EU level.”
At the outset, the expert group identified as potential or possible actions at EU level both the creation of framework conditions for an optimal functioning of patent pools or funds and the potential establishment of a partly publicly financed fund.
There is a direct link to Commitment 22 of the Innovation Union initiative, which requests that the Commission will look at “ideas for breathing new life into neglected intellectual property, such as patent pools and innovation brokering”.
Specifically we were asked to consider patent funds and patent pools, which both involve “aggregation” of patents, and to consider other ways of aggregating intellectual property rights. Aggregation of patents means collecting patents
previously owned by different owners and bringing them into common ownership or control.
The request is based on the premise that some patents would be more valuable, or more likely to be used, if they were aggregated, that is, if patents owned by
different owners were gathered together in the hands of single entities or groups which could then act as licensors of all the patents, or as licensors of as many of the
13
patents as licensees might want to obtain licences for. This would be useful if in
practice users or producers in the industry in question would need all or many of the patents in question, in order to produce their products or services. If users need to use a number of patents, it is obviously more convenient for them to be available
from a single source. The need to use several patents to produce a single product is more likely to arise in some industries than in others. The need for licences of several patents for a single product is much less, for example, in the pharmaceutical
and biochemical industries (except in the case of biomedical technologies) than in the telecommunications industry.
Specific issues to be addressed
Based on the overall mandate, the terms of reference for the expert group specify three main issues which the group addresses:
The benefits, costs and risks of a potential creation of a partly EU funded intellectual property financial facility.
The benefits, costs and risks of a potential EU action which could be taken to
foster the formation of patent pools, and if undertaken the legal and other conditions under which it should operate.
The benefits, costs and risks of a potential EU action which could be taken to
foster the formation of other forms of patent aggregation, and if undertaken the legal and other conditions under which it should operate.
The underlying policy rationale and policy objectives
It is our understanding that the fostering of the development of the patent market, the mandate and the work of the expert group are part of the overall policy
rationale of improving the framework conditions for innovation in Europe (see introduction to Section 3).
Nevertheless, we are aware that patents are rather indicators of the capacity to
innovate; but holding patents does not automatically lead to successful innovation. Moreover, filing and maintaining a patent may be done for different business objectives.11 From a policy perspective, however, the goal is to create framework
conditions that foster the active application of patented inventions for the development of innovative products and services. Even this common rationale covers a number of different specific objectives, depending on the group of stakeholders in focus. Ideally, measures and initiatives would address the following
objectives which are related to fostering innovation in parallel:
Inventors should be adequately compensated for their inventions and thus have an incentive for carrying out R&D and developing new technologies.
Innovative companies that want to apply the inventions protected by patents (for developing new products and services) should be able to have access to the required patents at fair and reasonable terms.
11 A patent is an exclusive right granted for an invention in any field of technology. If a
patent is not commercially exploited in the sense that the protected technology is not
being actively applied, licensed out or sold by the owner of the patent, this does not mean
that it is not being “used”; blocking competitors from using this technology may also be an
economic purpose (and thus “use”) of a patent.
14
There should be smooth(er) mechanisms for technology transfer between
research organisations or SMEs (that develop new technologies) and those companies that commercialise these technologies.
The transparency in patent markets should be improved with all possible means.
In practice, it may be difficult to address all specific objectives at the same time.
Policy makers therefore must be clear about the objectives which a policy is to address.
2.2 Working method
Structure, group meetings and decisions on focus
Given the amount of recent reports and ongoing work in the field, the mandate suggested that the expert group base its work on a consultation of a wider circle of experts and practitioners in the field as well as on the conclusions of other studies rather than itself commission new studies.
The expert group consisted of a core group of eight members (see Annex I, 7.1) who attended all or most of the meetings, and was complemented by a much larger number of invited experts who were asked to attend one specific meeting where
they were interviewed or heard by the expert group (see Annex I, 7.2).
The tasks of the expert group were to organise the work from an operational perspective, to collect and assess empirical evidence about patent aggregation from
other studies and the consulted persons, to form an opinion regarding the questions
issued in the terms and to document the results in this report. The invited experts were invited to contribute their knowledge, experience and views in the specific area of their expertise.
The expert group met altogether seven times meetings in Brussels in the period from 17 October 2013 to 06 March 2014 (see Annex I, 7.1 for details). The most part of these meetings consisted of panel hearings of the invited experts in panels.
In addition, further hearings with invited experts were conducted in Brussels, Munich and Bologna12 in February 2014 and by Skype.
In the first meeting on 17 October 2013, the operational arrangements and
procedures were discussed and agreed. These included the scope and focus of the mandate, suggestions of possible experts were collected that could be invited for the hearings to be held as part of the subsequent meetings.
In preparing for the hearings, the Group realised that it needed to take some major
decisions on the focus and scope of the assignment.
Firstly, although the terms of reference initially referred to “IPR” in the broader sense (rather than patents in particular), we opted in consultation with the
Commission to limit our scope to patents, not all IPR, and sought to assess the possibility of improving their valorisation through aggregation mechanisms. The
12 The hearing in Bologna (on 13 February 2014) was organised in connection with the FinKT
workshop, making use of the workshop presence of both experts and members of the
Expert Group.
15
main reasons for this decision were: (i) even when focusing on patents, the field to
cover was extremely broad; (ii) the main aggregation mechanisms to be assessed (pools, funds) are mainly applied for patents rather than other forms of IPR (trademarks, copyrights). Inevitably, general problems and issues related to patents
and licences which are directly or indirectly related to their aggregation came up and were discussed. If our analysis had aimed to include other forms of IPR (such as copyrights and trademarks) as well, it would have become extremely difficult to
come with any specific recommendations. We are fully aware, however, that “innovation” is not always linked with patents, and that there are many ways and means to promote an innovative Europe which are not directly linked with patents.
Secondly, the group realised that the analysis of options for patent aggregation
cannot be separated from discussing general problems and issues in the patent system as a whole. The related issues are too intertwined. Therefore, the Group decided that it was necessary to broaden its perspective in that regard and also
consider general concerns which experts have about the patent system, to the extent that they are barriers for the valorisation of patents and that policy could initiate measures to effectively address them. To an extent this led to a revisiting of
certain issues previously addressed. However given the plan to consult widely, this was considered useful.
Based on these decisions, after the first meeting in October 2013, we prepared a questionnaire guideline for use in the forthcoming interviews and hearings (see
Annex III). Subsequently, the proposed experts were contacted and, if available, invited to attend a specific meeting.
In the period from November 2013 to March 2014, the focus of the expert group
was on collecting evidence (from the invited experts as well as from literature) and to form an opinion on the basis of this evidence. An early draft of the report was
discussed with representatives of the EC and a further group of experts (persons
who had not already participated in the hearings) on 21 and 22 May 2014 in Brussels. Based on the comments received, and on further discussions within the group, the report was then revised and finalised.
Interviews and hearings with invited experts
In total, we have interviewed 37 invited experts to collect evidence on their
perspectives on the characteristics of the patent market that inhibit technology transfer, about patent aggregation and views on the case for an intervention by the Commission.13 These experts include internationally renowned economists, industry
representatives (from different sectors and types of companies) and other IPR practitioners (such as managers of patent funds and representatives of technology transfer organisations including both public research organisations and
intermediaries), patent attorneys and SME advisors. The selection was made with a view to ensure an appropriate balance of professional backgrounds, countries and types of companies represented. The aim was to acquire a comprehensive perspective on the issues at stake. When viewed together with the available
literature, the group is of the view that they provide a fairly clear picture of where there is consensus, whether views are controversial or shared at least by a broad majority of participants and analysts.
13 see Annex II for a detailed list of the experts interviewed and heard
16
Most of the experts were heard in panel sessions of 2-3 hours, gathering 3-5
experts and letting them discuss the issues at stake. The hearings were chaired by N. Thumm, former Chief Economist of the European Patent Office. All expert group members present at the hearings had the opportunity to ask questions to the panel.
In addition to the hearings, a few interviews were conducted with individual experts (either by face-to-face or by video conference). To prepare for the hearings/interviews, all experts were sent a questionnaire guideline in advance (see
Annex III). All experts were also invited (on a voluntary basis) to provide written comments on specific issues of their expertise; many of them availed of the opportunity.
Literature reviewed
The expert group also made use of existing research on patent aggregation
(including studies, academic papers, research reports, blogs and specific articles). Some of this literature was provided / recommended by the experts interviewed. We have also considered the results of a study commissioned by DG Enterprise and
Industry on “Patents and Standards” that was completed in early 2014.14 In addition, the group benefited from a literature review on patent market developments and patent aggregation conducted as part of the study “Support to
the development and implementation of Innovation Union commitment 21 on knowledge transfer”.15
This final report is based on a literature survey, evidence taken at hearings, discussion within the expert group as well as feed-back from the review meetings.
All discussions took place under Chatham House rules and thus there is no attribution of views to individual interlocutors. The conclusions reached by the expert group are of the group alone. They do not necessarily reflect the position of
the interlocutors, reviewers or the Commission itself.
14 Patents and Standards. A modern framework for IPR-based standardization (2014). Study
prepared by ECORYS and the Technical University of Eindhoven, as part of the ECSIP
Consortium, for the European Commission, DG Enterprise and Industry. 15 Study for DG Research and Innovation, carried out by DLA Piper (coordinator) and
empirica GmbH.
17
3. ASSESSMENT OF PROBLEMS IN PATENT MARKETS
Introduction
A well-organised and functioning market for patents is commonly seen as an important mechanism for facilitating technology transfer and, thus, as an enabler of
innovation.16 Therefore, the structure, functioning and quality of the patent system and market can be seen, from a longer-term perspective, as a relevant framework condition for sustaining prosperity in western economies. The importance of
innovation for sustaining productivity, economic growth and welfare in highly developed economies is uncontested. The links between patent markets and the innovation activities of firms are likely to be further reinforced by the proliferation of
promising sources of knowledge in the internet age. The facilitated access to information has led large and small corporations to adapt their innovation models and to search across the globe for the best solutions to their individual needs.17
However, the group heard that establishing and governing a transparent, fair and
liquid market for patents and licences is a highly challenging task. This is, partly, due to the intrinsically complex nature of the “goods” that are traded on this market. Moreover, in contrast to other markets where the “producers” are usually
interested in finding a buyer for their product or service, this is not always the case with patents, since patentees, unless they are universities or other public research organisations (PROs), are usually interested in exploiting their technology
themselves and excluding others from the use of the patented technology. In addition to these fundamental challenges, the creation of a well-functioning patent market is hindered by other factors.18 These include asymmetric information and bargaining19 and enforcement difficulties.20
These circumstances make IPR markets in general and patent markets in particular an extremely challenging terrain for all actors or, as one study put it: “A majority of actors describes the existing IPR market as a ‘black box’.”21 In particular, small and
medium-sized enterprises (SMEs), which usually cannot afford legal departments
16 cf., for example: Creating a financial market for IPR (2011). Study by the Institute of
Technology Management at the University of St. Gallen (ITEM-HSG) and Fraunhofer
Zentrum für Mittel und Osteuropa (MOEZ), conducted on behalf of the European
Commission. Patents and Standards. A modern framework for IPR-based standardization
(2014). Study prepared by the ECSIP Consortium for the European Commission, DG
Enterprise and Industry. 17 cf. OECD (2013): IPR Strategies and policies in the era of Knowledge Networks and
Markets 18 Cf. Key messages from the OECD Workshop on Knowledge Networks and Markets, Paris,
10-11 May 2012 (Summary of the Proceedings: Patent Practice and Innovation), available
at http://www.oecd.org/sti/inno/workshop-patent-practice-and-innovation-summary.pdf 19 If one party in a transaction has more or better information than the other, this creates an
imbalance of power in transactions. This is a problem in patent markets, where owners of
patents tend to have much better information about the technologies protected by the
patents than potential buyers, in particular because the technologies protected by patents
are never identical. 20 Owners of IPR may not have the means to protect their IPR against infringements by other
parties. 21 Creating a financial market for IPR (2011). Study by the Institute of Technology
Management at the University of St. Gallen (ITEM-HSG) and Fraunhofer Zentrum für Mittel
und Osteuropa (MOEZ), conducted on behalf of the European Commission, published in
December 2011.
18
specialised in dealing with patents, can find it challenging to act effectively in this
market, faced with cumbersome and expensive requirements for filing patents, managing their patent portfolio, and scanning the market for existing patents (as part of developing new products, to ensure that they do not violate patents held by
others, or because they need licences for their innovation activities).
From a broader perspective, we suggest that many of the specific issues can be viewed as either causes or symptoms (or components) of the following larger
challenges:
These challenges could lead to a market failure where potentially valuable patents are not being used and exploited for innovation (even where patent owners would be willing to license the technology), with negative impacts on
wealth creation.
The patent market is characterised by a lack of transparency and by asymmetric information. The licensor has privileged access to information.
The licensee faces high costs for due diligence and uncertainty about the scope of or validity of the patents. Moreover, the terms on which patents can be licensed are often unclear.
This causes high transaction costs for trading patents and licences: sellers and buyers of patents do not find each other effectively, and negotiations over licensing terms are often difficult.
Patentees face challenges in enforcing their patent right to prevent third
party use in the absence of a licence agreement.
The following sections present arguments raised on causes and effects in the expert hearings, and selected evidence from the literature. The considerations not only
concern the patent market in general, but also have relevance to patent aggregation
(see Sections 4 and 5 on pools, funds and other types of intermediation). The main questions are why market actors, if buyers and sellers do not find each other
effectively, do not come up with profitable solutions to support the matching, and whether the public sector should step in.
3.1 General problems in the patent market
3.1.1 The underlying concern: potentially valuable patents that
remain unused
The underlying concern that prompted the work of the expert group is that
potentially valuable patents are not being commercialised and exploited for innovation, although patent owners would be willing to license the technology protected by the patents (or sell the patents). If this is the case, it can have a
negative impact on innovation and wealth creation.22
22 It is important not to confuse “valuable” with “valid” when applying these terms to
patents. A patent is valid if it meets the technical patentability requirements (see Section
3.2.2); it is valuable (for the owner) if it has a commercial/financial value for the owner. A
patent can be valid but not valuable, for instance because a new invention has made it
obsolete. On the other hand, even a patent which would, if contested, be declared invalid
19
The question is whether at least a fraction of these unused patents could be better
commercially exploited if some of the barriers and challenges in the patent market could be overcome. The Commission Staff Working Document “Towards enhanced patent valorisation for growth and jobs”23 (2012) presented figures from
international sources on the share of patents that are not being used. More recently, a survey of inventors, Patval II24, conducted in 2010-2011, indicates that 9-24% of all patents of inventors located in Europe could be available for licensing or sale in
the patent market. These shares are larger for small firms (in the range of 18-26%) and universities and public research organisations (27-51%), while they are lower for large firms (6-21%). The survey covered 20 EU countries and Israel.
It is important to note that these shares of unused, but potentially usable patents
do not include blocking patents or other unused inventions that were patented for strategic reasons (such as enlarging patent portfolios so as to gain bargaining power with partners in cross licensing negotiations). Blocking patents, which are patents
that are not used commercially in a product, process or service, and are not licensed, sold or used to start a new venture, are not available in the market because they serve a strategic purpose and their owners are not willing to transfer
them to other actors.
The previous expert group on patent valorisation already pointed out that, since the distribution of patent value is asymmetric25, that is there is a large share of patents with small or no value and a small fraction of patents which is valuable, not all
unused patents that are available for licensing or sale can actually be potentially used if successfully traded in technology markets.
We reconfirm their view that there is not really a significant market failure in terms
of all unused patents, but only with regard to the smaller fraction of ‘valuable’ patents remaining unexploited while available in the market, at least in the current
maturity status of the technology. We recognise, moreover, that there are probably
many patents that protect potentially valuable technologies (the potential for commercialisation has not yet been developed), provided that they can be further advanced and matured. Thus, there is a case for initiatives to support the development of promising but immature technologies, for instance through
technology development funds.
The vast majority of experts endorsed our view. They rejected the assumption that a “considerable share of valuable patents are not being used”26, but they confirmed
that there are practical difficulties with licensing-in as well as licensing-out patents, and with buying and selling patents. The hearings confirmed that very few patents are of value and that many unused patents are unused because either there is no
market for the technology, or the market has chosen a different technology or the technology is not yet market ready.
can have a (commercial) value. Moreover, the technology protected by a patent can be
used in products or not, which is not exactly the same as having a value. 23 European Commission (2012): Towards enhanced patent valorisation for growth and jobs.
Commission Staff Working Document, SWD(2012) 458 final, 21.12.2012 24 Gambardella A., Giuri P, Harhoff D., Hoisl L., Mariani M., Nagaoka S., Torrisi S., (2014).
Invention processes and economic uses of patents: evidence from the PatVal 2 Survey.
Working paper, InnoS&T EC project Contract n° 217299. 25 Typically, a relatively small share of patents accounts for a large share of the total
commercial value of all patents. 26 see item 1.1.1 in the questionnaire presented to experts (Annex III)
20
The invention in question may have been superseded by a later and better one. The
invention may not be sufficiently useful, or sufficiently cheap to produce, to make it attractive to buyers or to manufacturers. Also, the invented technology may not yet be mature enough to be commercialised, and therefore the patent remains
unexploited for the time being.
For these reasons the (mere) existence of a patent does not automatically lead to a successful exploitation of the underlying technology.
In all these cases, aggregating patents in pools or funds would not alter the value of the individual patents in question. In conclusion, patents, even if they are valid, may have no value for a variety of reasons as described above.
3.1.2 Lack of transparency
There is wide consensus that the patent market suffers from a lack of transparency. Many of the experts we have talked to explicitly referred to “transparency” in one
way or the other when asked what they considered to be the main challenges in the patent market. There is broad agreement that this presents a major problem in many cases, and often for both parties (sellers and buyers of patents).
Problems for potential users of patents resulting from a lack of transparency include uncertainty about the validity of patents, their ownership, their availability and terms for licensing; and making sure that no patents would be infringed. For
example, the terms on which patents can be licensed are often not known. Even for patents that have been licensed before, the terms of those licences are typically confidential. This can make it cumbersome to explore the benefits of potential inventions; the transaction costs for obtaining information and negotiating
conditions are high.
In the extreme, these problems may be a major barrier for potential start-ups in fast-moving industries to enter the market (the time and resources needed to
ensure that the company does not infringe any patents with its business idea may keep the company from actually developing the technology).However, there are different, sometimes controversial, views as to what could and should be done about
this critical challenge.
Several interlocutors (experts and practitioners) proposed that a lack of transparency is, to some extent, inevitable. It is a function of the complex nature of the technologies that are protected by patents and does not necessarily present an
institutional failure of the patent system as such. These interlocutors therefore warned against over-optimistic hopes related to initiatives in the field.
On the other hand, many of the interlocutors also suggested specific measures or
initiatives which could, in their view, reduce the lack of transparency at least to some extent. Most of these measures are controversially debated, however. There are controversial views about the effectiveness of specific measures; the proposed
interventions may involve a conflict of interest between different parties affected, or they are difficult to evaluate in terms of their cost-benefit ratio.
For example, some interlocutors recommend that patents should be subject to more
intensive scrutiny when issued, i.e. that more effort should be dedicated to
examining a patent application before a patent is granted (in order to have a better quality in the description and scope of the patents), while others argue that the
21
additional cost to the system (for achieving more scrutiny) would be higher than the
resulting benefit (see also Section 3.2.2 – Problems with patent quality).
As for improving the transparency specifically of standard-essential patents, the Commission study on Patents and Standards (2014) discusses the benefits, costs
and disadvantages of a number of potential measures which all relate to the
essential patent disclosure mechanisms that most standard setting organisations have. The potential measures are (see Section 5.2, p. 141ff. for a detailed
discussion):
defining update requirements & disclosure scope for disclosures of standard-essential patents (SEPs);
requiring precise information to substantiate essentiality;
routinely checking essentiality;
entering licensing information in databases of standard setting organisations;
limiting the use of blanket disclosures;
adopting a stricter disclosure regime;
notifying of transfer of SEP ownership by recordation;
increasing collaboration between standard setting organisations and patent
offices.
Some of these measures have also been discussed by our group and in the hearings, in particular whether (and to what extent) licensing information should be entered in the databases of the European Patent Office and of standard setting
organisations, and if this should be mandatory and if the transfer of SEP ownership should be notified and recorded. We suggest that changes of patent ownership
should be recorded, and that information about the licensing status of patent should
be available (but not the specific conditions of existing licences).
At present the European Patent Register of the EPO contains information on ownership and change of ownership of a European patent until the granted patent
goes to the national level (see article 127 of the European Patent Convention). Once a European patent becomes a bundle of national patents, it is up to the national patent offices to keep the registers with ownership and changes in ownership as the EPO would have no legal basis to play a role in this post-grant national phase.
In order to provide information on subsequent changes in ownership the EPO is constructing the so-called “Federated Register”, which is a new section, built into the European Patent Register that provides data on the legal status of an EPO
originating patent in the national phase. Once the Federated Register is fully up and running, the information on patent ownership registered by national patent offices will be available from a central source, i.e. the EPO’s Federated Register.
In addition Regulation 1257/2012 on unitary patent protection foresees a “Register for unitary patent protection”, which is “the register constituting part of the European Patent Register in which the unitary effect and any limitation, licence, transfer, revocation or lapse of a European patent with unitary effect are
registered”. The provisions for this are currently under discussion in the preparation
of the rules relating to the Unitary patent.
While the group welcomes that with these developments there should be more
information on ownership of European Patents and on Unitary patents, the group
22
considers these provisions should be made binding and that all Member States
should introduce similar provisions recording changes in ownership of national originating patents.
3.1.3 Asymmetric information
Information asymmetry means that one party in a transaction is better informed
than the other and is therefore in a better position to negotiate. In economic reasoning, this problem can be a cause for a free market not to be efficient and thus represent a market failure.
In the patent market, information tends to be asymmetric. The licensor has privileged access to information, while the licensee faces high due diligence costs and uncertainty about the scope and validity of the patent. The information shortages will normally increase with the amount of information or technology (i.e.
the number of patents) and the number of owners (i.e. licensors).27
The information asymmetry is also linked with the fact that patents are intangibles. Intangible assets have characteristics which make it difficult for efficient markets to
develop. In many sectors, there are noted difficulties in describing and understanding what the core of the underlying invention is (in particular in the software and IT industries). This creates an imbalance of power in transactions.
3.1.4 High transaction costs
The described problems in patent markets result in high transaction costs. This
covers different types of costs at different stages of the innovation process, including (i) increased costs for patent searches; (ii) increased costs of negotiation; (iii) increased enforcement costs to protect ones patents; and (iv) increased costs for dispute resolution.28 In particular, several experts raised the issue that even
finding out who currently owns a patent can be cumbersome, if the initial ownership has been transferred (see also comments on transparency above). Having this information easily available would help to improve somewhat the transparency and
reduce costs in patent searches.
Some experts favour regulation that the publication of patent assignment and license terms should be required. They argue that this would permit an aggregate
record of what companies pay for rights which signals what particular patents are worth and how strong they are. However, this recommendation is controversial. The majority of experts we have heard have strongly rejected the idea that the specific licence terms should be disclosed, as this is commercially sensitive business
information, and the expert group agrees with this position.
Against this background, it was proposed that there should be an initiative to facilitate the process of getting information about the availability of patents in a
certain field, and who is responsible for the licensing. There were no specific suggestions made, however, how exactly this information could be established in cost-efficient and sustainable way, and whether the Commission should have a role
in this. Also, this lack of information is less of a problem for large firms which
27 see „Patents and Standards“ (2014), op. cit., p. 26 28 see also „Patents and Standards“ (2014), op. cit., p. 26
23
normally have a better knowledge about available technologies through their
systematic scouting activities; it is more of a problem for SMEs.
3.1.5 Difficulties in enforcing patents
The group heard that many patents are infringed. Often, this does not have any
consequences; either the patent holder is not aware of the infringement, or he does not have the means to do something against it. An expert we have heard went so
far as to say that he observed “a de-facto non-excludability” in the patent market, contrary to the initial idea of a patent as a right to forbid use. As a result, “unused patents” often meant rather “unpaid patents”. In other words, there were many
cases where a technology protected by a patent was actually used, but not paid for. Several experts made similar points and argued that, in particular, SMEs and public research organisations were facing difficulties in enforcing their rights (see also Section 5 on patent funds).
3.2 Problems relevant for both owners and users
In this section, we refer to specific problems in the patent market that were raised and discussed during the hearings. While we consider these problems as valid and relevant for market actors, we would like to point out, however, that not all of these
problems are necessarily relevant for policy. They include challenges where probably little can be done about it. Still, we believe it is important to refer to them, not only because they were brought forward by the experts we talked to, but also because
they should be taken into consideration when discussing and taking decisions on interventions. In case measures have been proposed to us to address any of the challenges, they are mentioned.
Many of the problems in the patent market are relevant for both owners and users
of patents. These include the following challenges:
difficulties in patent valuation, resulting from the intrinsically complex nature of patents;
problems related to patent quality;
problems due to patent owners' technology being incomplete or "immature" (or without production knowhow or experience, or without an
appropriate business model);
problems of negotiating mutually satisfactory licence terms.
3.2.1 Difficulties in patent valuation
Due to their very nature, it is difficult to assess the commercial value of patents. The valuation is further complicated by the fact that no two patents are the same.
Since it is often very complicated even for the owner of a patent to fully understand its value, it is even more challenging for a third party to determine the value of a patent. This makes licensing very challenging. While there is broad agreement that
the valuation of patents is a critical issue both for owners and potential users, there are different views on whether it is a methodological problem or whether it is more a problem of not having the relevant data and information that would be needed. Issues related to patent valuation have been extensively explored by another expert
24
group of the European Commission.29 The group concluded that there was “a clear
need to increase market actors’ confidence and certainty in patent valuation methods”, while arguing that the challenge was not a lack of valuation methods or of standards for valuing patents. However, as patents cover, by their nature,
innovative and therefore different technologies, there is no automated or automatic approach to patent valuation. Each case requires a specific investigation.
3.2.2 Problems with patent quality
A lot of patents (in particular SME patents, according to the view of several experts) are of little quality. This can be a problem both for patent owners and users. The
quality of a patent refers mainly to the following characteristics:
Clarity of language and scope: A patent should be written in a language that is unambiguously understandable, at least for the representatives of the community for whom the technology protected by the patent is relevant. This
includes the requirement that the scope of the patent (what is actually protected) is well-defined. Ensuring the clarity of the language is an issue that lies with the patent office. However, different jurisdictions may interpret claims
differently. The same patent30 may be found to be valid under one jurisdiction but invalid under another, depending on different national approaches.
Validity – meeting the patentability requirements: A patent should be valid
and enforceable, which is not necessarily the case for a granted patent. Even existing patents can be challenged on several grounds. There are two main issues in this context:
The prior art may not have been correctly searched and identified, or
the interpretation thereof by the examiner of the patent application is not correct.
The issue of sufficient disclosure: this is a highly ‘technical’ issue.31 If it
is not correctly applied, it may lead to patents which are not valid, because not enabling or more often with a scope that is not commensurate with the actual invention.
It was also proposed to us that uncertainties about patent validity were a major issue which can create distortion between large portfolio owners and smaller players, as well as between early stage and mature patents. The recommended way to evaluate the validity and the commercial value of patents was qualitative
analysis, as applied by major licensing players in the US (up to pre-litigation claim mapping and claim charting) as well as emerging patent aggregators in Europe. Typically, only approximately 5% of a patent portfolio will reach the stage of being reviewed by experts
with technical, legal and commercial insights. This stage is, however, a prerequisite
for valuable licensing or sales deal; but it is out of reach of most smaller players (including many SMEs and technology transfer offices from universities throughout Europe).
29 see: Final Report from the Expert Group on Intellectual Property Valuation, 29th
November 2013 (http://ec.europa.eu/research/innovation-union/pdf/KI-01-14-460-EN-N-
IP_valuation_Expert_Group.pdf#view=fit&pagemode=none). 30 More precisely, it is not the same patent, but patents of the same patent family which
have identical (subject to translation accuracy) claims. 31 Often, experimentation is necessary to assess whether the disclosure is enabling or not.
However, it is beyond the means of the patent office to assess this.
25
We recommend therefore that the Commission could consider promoting
instruments / measures by which SMEs could be assisted in developing and executing a patent strategy. Intermediaries such as innovation agencies will play an important role here.
3.2.3 Problems due to patent owners' technology being incomplete
or "immature"
A major difficulty for the commercialisation of innovations is in many cases that the new technology is initially not yet mature enough to be directly used in products and
services. The challenge is, for all potentially interested parties involved, to raise sufficient money to further develop the technology until it can be commercially exploited. This period which needs to be bridged is often referred to as the “valley of
death”, as many potentially interesting innovations remain in an early stage due to a lack of finance.32
In the patent market, this is a problem both for potential users of patents (in the sense that the technology is not mature enough for them to be commercialised) as
well as for the patentee who cannot directly commercialise his invention and needs to invest further resources to develop it.
An invention may be “immature” not only with regard to the new technology as
such; the challenge may also be a lack of related know-how that would be necessary (e.g. production knowhow or experience), or a lack of an appropriate business model for its exploitation.
3.2.4 Negotiating mutually satisfactory licence terms
It is often difficult to negotiate mutually satisfactory licence terms for patents. The terms of a licence are rarely known beforehand, as they are the outcome of
intensive licence negotiations between the parties. A licence agreement is often not only a patent licence agreement but involves a significant amount of know-how or other IP-related issues. Nobody can foresee in advance what terms will be
appropriate, or what the "right" royalty rate should be. Guidelines setting out various kinds of clauses for patent licences might be useful, although such guidelines already exist, but they would not help to fix the royalty rates. In our
view, it is unrealistic to expect that one can know, before beginning to negotiate, what the financial conditions will be, or ought to be.
A specific challenge for potential users of patents is the case of co-owned patents. It is often difficult and time-consuming to negotiate licences with a consortium
owning the IPR, because the co-owners have not agreed on general conditions amongst themselves and discuss this on a case-by-case basis. Thus, co-ownership can discourage licensing whenever there is an obligation to seek the consent of the
other joint owner(s) and/or to share the revenues received. This may be the case if such obligations have not been agreed but where statutory rules may apply. The unwanted consequences of this are not limited to devaluing jointly owned patents;
mere knowledge of this circumstance may render intimate technical collaboration itself unattractive. An effective remedy to this problem would be that co-owners seek an agreement that each joint owner can freely use jointly made inventions and
32 see for example: “Bridging the valley of death: improving the commercialisation of
research”, UK House of Commons, Science and Technology Committee, Eighth Report of
Session 2012–13, 13 March 2013
26
patents granted for them, or that the co-owners assign one of the owners with the
responsibility and right to grant licences on behalf of the consortium (see Section 6, recommendation 1.5).
Another challenge for concluding contracts on licences is often how to organise the
transfer of know-how. Often, the commercial exploitation of a patent requires
having access to the engineers and scientists who have developed the technology. It can be difficult to agree on the conditions for these exchanges. This is also an
important problem for patent pools and funds (see Section 5.5.2).
3.3 Specific problems for patent owners
Problems which are mostly relevant for patent owners can be grouped into the
following categories:
problems resulting from a lack of finance (e.g. to develop the technology, or to enforce the patents), in particular for SMEs and universities;
difficulties in securitisation: it is difficult to raise money on the security of intellectual property.
3.3.1 Lack of finance
There is broad agreement among experts that many technologies protected by patents are not actively used because they are not yet mature enough to be applied
in products or services. However, financing the development of a promising (but early stage) technology into a ‘mature’ technology that can be commercialised is a major challenge. Substantial investments would be needed to make them usable.
This applies to practically all sectors. The more time it takes to develop a fundamental technology into commercial products, the more challenging is it to fund this period. This applies, in particular, to high-tech sectors such as nanotechnology
and semiconductors; to a lesser extent in ICT. This is a major problem, in particular, for universities and start-ups and SMEs. The cost for patenting an invention, for extending it to other markets and sustaining it, is substantial. For instance for biotech start-ups, it is very difficult to understand and decide which patent(s) to file
for and how to bundle them. It was also stated that there is a mismatch between those companies who can afford to attack and protect, and those who have innovative ideas but do not have the means to protect them.
3.3.2 Difficulties in securitisation
A topic that has recently gained in importance is how to use IPR as collateral for
raising capital to develop technologies. We refer in this context to a recent study by the UK IP office on "Banking on IP". The study has convincingly made the point that debt financing is problematic for new technology-based companies, and that this is
mainly due to difficulties of valuation of IP as collateral, although intangible assets have increasing importance.33 The study identifies three distinct issues with IPR as an intangible asset which inhibit securitisation and thus the flow of finance to
33 UK Intellectual Property Office (2013): Banking on IP? The role of Intellectual Property and
Intangible Assets in facilitating business finance.
27
innovative SMEs: the valuation of IPR, the taking of effective security over them,
and their disposal if necessary.
The study also points out that the problem is not just on the side of the financial industry: “IP and related intangibles are a vitally important asset class for business
value and economic growth potential. (…) However, they are often poorly
understood – by businesses that own them, as well as financiers that could be benefiting from them.” (p. 6). This means that SMEs are not much better placed to
understand and communicate the IP and intangibles they own than the lender or investors, which “makes it harder than it should be for financiers to obtain the information they need to make an informed decision about whether any IP is valuable or fundable” (p. 15).
One aspect of the challenge is, according to the study, that registered IP is only “the tip of the iceberg”. An IPO-sponsored IP audit showed that UK businesses, on average, had two trademarks they could register, and more than two-thirds had at
least one potentially registrable design. The study concludes that “companies clearly need a stronger focus on their IP and intangibles”.
To improve the situation, the study concludes that a resource toolkit should be
established which includes measures to inform and encourage SMEs to adopt appropriate IP management practices, and which helps SMEs, lenders and investors to make more effective use of the value IP and intangibles represent within businesses. There is a related recommendation from the expert group on patent
valorisation to create services and facilitate expert consulting to SMEs, in order to promote their patent valorisation.34
3.4 Specific problems for potential users of patents
Problems which are mostly relevant for potential users of patents can be grouped
into the following categories:
in specific sectors such as semiconductors and electronics, the rising complexity of the protected technologies and their ubiquitous use creates
challenges;
high transaction costs, because there are too many patents that need to be assessed by companies carefully to see if they might be infringing them, and high costs for licensing;
problems resulting from changes in standardisation and the role of standards.
34 Options for an EU instrument for patent valorisation. Report of the expert group in patent
valorisation.
28
3.4.1 Too many patents due to the rising complexity of
technologies
The complexity of today’s products (especially of the ever increasing number of products relying on some degree of electronics) means that those products incorporate a large number of functions and a large number of new technologies.
The sheer volume of patents involved in the production of many products is a big challenge for effective bilateral or patent pool licensing. In the hearings, the following examples were given: flat screen displays have over 50,000 relevant
patents, smartphones in excess of 250,000.
The average licensing transaction requires 18-36 months and several face-to-face negotiations and focuses on 1-20 patents. The more players that have to be talked
to in order to ensure that a product can be licensed, the more complex the situation gets. This makes it very difficult for a user who needs to license in technology to develop a new product and bring it to the market. This evidence was confirmed by investors who said that they spend more time today than they used to on securing
freedom-to-operate for the companies in which they invest. As a result, manufacturers may decide to go ahead with their idea without obtaining all the licences they would actually need.35
The increase of embedded technology has significant impacts on IPR frameworks. They increase patent-related requirements for products with embedded systems. For instance, a car may have 1200 sensors built in, covered by different patents.
This poses new patent-related requirements for producers of cars or components of cars which include such sensors. Embedded technology has another impact: the paradigm of product development has changed. Often, a product will not stay the same during its lifetime; new technology can be added (e.g. firmware updates). This
has immense legal consequences.
This complexity of technology is likely to be further increased in the future by the capability of most products to be connected to the internet and therefore interface
with other devices in hitherto unknown ways.
3.4.2 Costs & effort for obtaining licences
In some cases, the cost problem is not the transaction costs for finding out about patents, but the high costs for licensing. There may be patents which are valuable and which are nonetheless not used, but not because they are not known or difficult to find. The problem is that the price for acquiring a licence (or buying the patent) is
often too high for those that would like to use it – notably if these are SMEs.
3.4.3 Growing number of standards
It was proposed to us that developments in standards and standardisation add to the complexity challenge. Experts argued that the role of standards has been changing over time. Standards used to be developed for a limited purpose and
context and a relatively small set of stakeholders. This has become much more complex. More and more, companies are affected by standards without having been
35 The example is from TAEUS, a company promoting and providing the “PatentBook”
solution.
29
directly involved in the development of them. As a result, standards have
increasingly significant implications across different sectors.
This means that even for standard-essential patents it has become very complex to pool all patents for a complex technology (such as LTE) in one pool. The EC study on
Patents and Standards confirms the growing number of standard-essential patents
(see Section 4.1.1) and argues that this is related to two different factors: “(1) a growing number of patented technologies included in standards; and (2) a growing
number of patents declared as SEPs to the SSOs.”36
The issue of standards is not the same in all industries, however. While standards are much used in ICT sectors, they are less used in the pharmaceutical and biotech industries.
3.5 SME-specific challenges
Throughout the hearings and the group’s considerations of problems in the patent market, the specific challenges of small and medium-sized enterprises and their implications took an important place in the discussion. The many aspects discussed
predominantly concerned SMEs in the role as IPR owners (their challenges to properly protect and commercialise their own IPR), and occasionally also their role as IPR buyers (challenges in having access to technology). Many of the specific
issues that were mentioned and discussed can be grouped into the following three categories:
the general challenges of smaller companies of concluding contracts with large companies and having their IPR protected;
the lack of awareness of IPR issues and of an appropriate strategy among many smaller companies;
a lack of necessary finance to challenge possible infringing activities by other
(larger) entities;
and, as a result of the above, the need for having appropriate support services that assist smaller companies in dealing with IPR-related issues.
3.5.1 Difficulties to conclude contracts with large firms on patent-
related issues
In the hearings, several industry representatives, also from large companies, acknowledged that it was difficult for SMEs to negotiate patent-related issues with
large companies. The challenge is that the activities of SMEs are often not known or ignored by large firms. In the context of standard setting and patent pooling, everybody should be entitled to their fair “share of the cake” (according to what
they have contributed to a specific technology). However, it was difficult for SMEs to secure their fair share. The large companies mainly conclude their deals with other large firms, but do not actively approach SMEs; SMEs, on the other hand, have not
the means to contact large players either.
36 see „Patents and Standards“ (2014), op. cit., p. 111
30
More specifically, it was proposed that the problem for SMEs is rather not to protect
the exclusivity of their invention, but how to negotiate licences for their technologies with the potential adopters. The argument is that innovative SMEs will often not be in a position to bring their invention to the market themselves (for example, no SME
will be a major producer of a smart phone). Many SMEs, however, do not have a proper strategy for licensing out patents.
Experts therefore challenged the notion that providing SMEs access to technology
was a valid objective. Innovation would happen mostly in the upstream part of the value chain, while in the downstream, marketing was more important. As most technology-intensive SMEs are active in the upstream part, their problem was rather not having access to technology; they were mainly the developers (and potential
sellers) of new technological solutions themselves. While this may hold true in many cases, the group recognises that there are also many SMEs which operate complementary production facilities, but conduct to a lesser extent their own R&D
activity. These SMEs may very well have a need to licence in external technologies which they need to improve their production processes.
It was recommended to us that the best approach for an SME (or a university) with
technology assets to deal with a larger industry player was to offer its technology assets (not just patents) through business development and/or technology contacts inside the large corporation, rather than through direct patent offerings that will typically be handled by the legal team. It was also suggested that it helps a lot if
there are established (personal) contacts between the trading parties, and that this may be an advantage brought by patent brokers and intermediaries, acting as a “personal entry point” for SMEs to large corporations.While we largely agree with
the observation of this “institutional” problem, we do not see how any measure from the public sector could help to overcome it.
3.5.2 Lack of awareness for IPR issues
Several experts suggested in the hearings that many companies, in particular SMEs, are often not fully aware of the importance of properly managing their IPR. This is
one of the reasons why they often have difficulties in properly commercialising their inventions. They think about protecting and commercialising IPR mainly in terms of something that creates additional costs (which is correct) and tend to underestimate the longer-term importance of this activity for their business. Some experts stated
that SMEs in other economies, in particular in Japan and some of the emerging Asian economies such as Korea, tended to be much more aware of the role of IPR management. We do not have sufficient empirical evidence to confirm or reject this
assumption, however.
3.5.3 A lack of finance for legally protecting their IPR
Many innovative European SMEs with existing patent portfolios lack the necessary finance to legally protect their IPR against infringements, in particular to challenge possible infringing activities by large companies (which often operate in international
markets, notably in the US). The cost for such legal procedures can go into the millions.
3.5.4 A lack of patent-related support services from intermediaries
Some of our interlocutors stated that there is a lack of IPR-related support services from intermediaries (such as business centres). Some of the existing organisations may not be well positioned in this particular field. This could present an opportunity
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for support from the public sector. If the quality of IPR advisory services provided to
SMEs could be further enhanced, this could raise the awareness of the importance of related issues and contribute to the establishment of a well-functioning patent market in Europe.
This should not be misunderstood as a criticism of the important work of the
existing intermediaries, including institutions such as the Enterprise Europe Network37 and the European IPR helpdesks38, as well as comparable regional
and national initiatives. The point is rather that the services provided through these and other platforms could be further enhanced by providing them with additional resources and tools to provide specific support on IPR issues.
3.6 Conclusions on challenges in patent markets
Many of the problems described above are not new and have been reported
elsewhere. They are nevertheless (re-)presented here as conclusions, to the extent that the expert group noted that the invited witnesses, comprising both practitioners and specialised experts, had emphasised them. In other words, the experts
consulted by the group considered these as the major characteristics, and problems, of the patent market, patent pools, patent funds and other forms of intermediation. They are also the issues on which the group reflected on whether or not actionable
recommendations could be made.
In conclusion of this chapter, the challenges in patent markets can be summarised as follows:
Patents, even when they are valid, may have no commercial value for a variety
of reasons. However, there is a fraction of potentially valuable patents which remain unexploited although available in the market. The expert group takes the position that, if the term “market failure” is to be used, it should
concern only this fraction of patents rather than referring to the patent market in general.
A main reason for such patents remaining unexploited is that the technologies’
potential for commercialisation has not yet been developed. The critical challenge is whether the technology can be further advanced and matured. This suggests there is a case for initiatives to support the development of promising but immature technologies. Patent pools and technology
development funds can play a role here, but the mere aggregation of such patents would not influence the value or maturity of the individual patents in question. Patent markets are extremely complex and difficult to address. Most
37 The Enterprise Europe Network brings together business support organisations from more
than 50 countries which have, together, close to 600 member organisations. They are
connected through databases and possess an excellent knowledge of Europe. The
network’s mission is to support small companies in making the most of the business
opportunities in the European Union. Its support services include advice on intellectual
property issues and patents. See http://een.ec.europa.eu/ 38 The European IPR Helpdesk is the official IP service initiative of the European Commission
providing free-of-charge, first-line advice and information on Intellectual Property (IP) and
Intellectual Property Rights (IPR). The service is targeted at researchers and European
small and medium-sized enterprises (SMEs) participating in EU-funded collaborative
research projects. In addition it addresses SMEs involved in international technology
transfer processes. See https://www.iprhelpdesk.eu/services.
32
experts agree that the patent market is characterised by a lack of
transparency and by asymmetric information, and that this translates into high transaction costs for trading / licensing patents.
Information problems such as asymmetric information, where one party has
more or better information about the market than the other, may result in economic inefficiency and constitute a market failure. While there is broad
agreement that the patent market is characterised, at least to some extent, by
asymmetric information, experts and studies take different positions on whether this problem (in combination with others) constitutes a market failure in the patent market in economic terms.
There are many specific problems, both for patent owners and for potential
users of patents which are directly or indirectly related to these general challenges which are simply a function of the complex nature of the underlying technologies at stake and are not susceptible to a policy response.
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4. EVIDENCE ON PATENT POOLS
4.1 Definition and main types of patent pools
Definition
According to the Commission study on “Patents and Standards” (2014), a (modern) patent pool is “an organisational approach in which two or more patent owners make their patents available as a bundle for a pre-defined (and openly publicized)
price to any interested party.” The study also states that “most contemporary pools are based around technical standards.”39 The terms of these licences and the revenue sharing between pool members are fixed by agreement between the
pooling companies. The companies forming the pool maintain, however, the ownership of the patents they contribute to the pool.
The effect of a pool is therefore to collect or aggregate all of the patents that are
most important for the purpose in question, for the benefit of the members of the pool and their licensees. Patent pools between large companies are often required by competition law to licence out the pooled patents.
An important distinction must be made between patent pools that are built around a
technical standard and other patent pools.
Pools of standard-essential patents
Patent pools are in particular important in the context of standard setting, as they are often established to aggregate “standard-essential patents” (SEP).40 This
may give companies owning SEPs significant market power. As a result, standards
bodies generally require their members to commit to license SEPs on fair, reasonable and non-discriminatory (FRAND) terms. If all the essential patents are
aggregated in a pool, these can then be easily licensed out to third parties. The pool is thus a solution to dispersed patent ownership: for users of the technical standard, such patent pools provide a one-stop solution for licensing in the full bundle of required standard-essential patents (which are owned by different entities) in a
single transaction. This can significantly reduce transaction costs for both licensees and licensors.
For patent owners, pools of SEP are an opportunity to fulfil their obligations to
standard-setting organisations with regard to offer access to their patents on “fair, reasonable and non-discriminatory” (“FRAND”) licensing terms. Moreover, setting up a pool of SEP may lead the patent owners to make sure that the total royalty level
for non-members of the pool is not so high that they will be discouraged from using the technology.
The size of such patent pools varies considerably both in terms of licensors and licensees.41 In practice, the companies in a patent pool need to satisfy themselves
39 Patents and Standards. A modern framework for IPR-based standardization (2014). Study
prepared by ECORYS and the Technical University of Eindhoven, as part of the ECSIP
Consortium, for the European Commission, DG Enterprise and Industry. 40 SEPs are patents essential to implement a specific industry standard. It is not possible to
manufacture products that should comply with that standard without accessing the related
patents. 41 ibid., p. 169f.
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as far as possible that the patents in the pool include all of the patents that are
technically essential for the purpose of the standard in question.
An example of a pool aggregating standard-essential patents is the DVD patent pool. In 1998 and 1999, 13 leading technology companies formed two patent
pools to facilitate the roll-out of the DVD technology. This was because the
previous practice of concluding multiple one-to-one licensing agreements became untenable. One of the pools is administered by Philips, the other by an
agency set up for that purpose. Both pool agreements include a grant-back provision requiring licensors to include their new essential patents in the pool.42
In general, pools of standard-essential patents are seen as procompetitive, and their formation should be encouraged by the European Commission. In many areas of
increasing importance in society, and in almost every sector introducing “smart” systems, ICT standards are essential, many patents are needed, and pools can provide them more efficiently. Examples are smart grids and energy supply, e-
health, public transport, road safety, and intelligent transport systems.
The importance of patent pools built around standards differs between industries, depending on the role of standards. Standards are much used in the electronic and
ICT sectors, for instance; they are less used in the pharmaceutical and biotech industries.
Other patent pools
There are also patent pools, however, which are not built around a technical standard. Even if none of the patents is essential for a standard, a pool may be a
convenient way to arrange cross-licensing between the members, and also to arrange licences to non-members, if that is necessary or desirable. For example, a
group of companies and research organisations may decide to form a pool that
gathers some of their existing patents and to cross-license these patents to each other (through the pool), as part of a longer-term research collaboration, or to jointly license out the group of patents covered by the pool to third parties. It may
be for the benefit of all the companies to licence all the patents to non-members of the pool, since this will increase and widen the use of the technology in question.
On the other hand, when a patent pool’s revenue sharing is based on a predefined formula involving counting patents in some way, this may mean participation in
pools is less attractive for companies holding only few patents and/or patents of higher than average value.
Pools not built around a specific standard can have many different purposes, as
illustrated by the following examples:
Many patent pools focus on ICT-related technologies. The US-based Open Invention Network (OIN) is a shared defensive patent pool with the mission to
protect the Linux, a free IT operating system.43 Any company, project or developer that is working on Linux, GNU, Android or any other Linux-related software is welcome to join OIN, free of charge or royalties. Its mission is “to
42 see: “Patent Pools: Are they right for your business?” by Kevin Closson, in: SPIE
Professional, October 2009 (http://spie.org/x37543.xml, accessed in June 2014) 43 OIN was launched in 2005. It has strong industry support with backing from Google, IBM,
NEC, Philips, Red Hat, Sony and SUSE. See http://www.openinventionnetwork.com/about-
us/
35
safeguard developers, distributors and users from organizations that would
leverage intellectual property to hinder its growth and innovation”. It does so by acquiring and sharing IP to promote a collaborative Linux ecosystem. OIN (i) cross licenses Linux-related patents between OIN community members and (ii)
provides a royalty-free license to its strategic IP portfolio.
Pools can also be established to address societal objectives. The Medicines
Patent Pool (MPP), a United Nations backed organisation established in 2010,
aims to improve access to appropriate, affordable HIV medicines and technologies for people living in developing countries. It does this through voluntary licensing of key patents required for developing HIV medicines.44 MPP first developed a list of priority HIV medicines for inclusion in its pool, based on
medical needs of people living with HIV, and how widely needed treatments are patented. It then invited relevant patent holders to enter negotiations to license their patents to the MPP. A majority of patent holders have answered positively,
allowing other producers to manufacture and sell low-cost, quality versions of the patented medicines in developing countries.
There are not only cases, however, where either every patent in a pool is standard-
essential or no patent is essential. There are also environments where essential and nonessential patents co-exist. Literature about patent pools has often failed to reflect upon these different cases.45 Overall, there is wide agreement that, from a policy perspective, pools of essential patents should “generally be allowed, and
encouraged to be as inclusive as possible”.46
4.2 Considerations on patent pools
4.2.1 General principles for patent pools
Patent pools are set up in practice by agreement between companies each of which owns patents which others are likely to use. The pooled patents are licensed under a single licence to those using the patented technologies. This can be the pool
members themselves but also to non-members. In the latter case, the members of the pool may agree (and may be required by competition law to agree) to grant licences to non-members of the pool on terms that do not discriminate in favour of
members of the pool, and that are reasonable (in the meaning of the FRAND concept).47 If these requirements are fulfilled, it is not important whether the pool grants one single licence of all the patents, or whether a series of parallel licences are granted on terms agreed between the members of the pool.
44 see http://www.medicinespatentpool.org/about/ 45 Daniel Quint (2013): Pooling with Essential and Non-Essential Patents. Research report
about a study conducted by the Department of Economics, University of Wisconsin. 46 ibid. 47 Under European competition law, when companies together having a large proportion of
the relevant market agree to set up a patent pool or agree on a standard, they are
obliged, in order to comply with Article 101(3) TFEU, to licence out the patents concerned
to other companies on terms that are fair and reasonable, and also non-discriminatory.
This is made clear by the Commission's Guidelines on horizontal cooperation, and was the
basis of the Commission's action in the IGR Stereo television/Salora case. In such a
situation, the owner of the patent may not enforce the patent unless it is offering a licence
on what are, objectively, fair, reasonable and non-discriminatory terms. This may not be
sufficiently widely known, but it is not controversial.
36
Patents that are owned by different companies or individuals may also be gathered
together if a single company acquires the patents, or acquires the rights to licence them. In effect, if a patent owner voluntarily gathers the patents and arranges for them to be licensed, it is acting as a patent pool. Typically patent pools are
managed by specialised companies (patent pool administrators), that do not own intellectual property themselves. They set up licensing programmes, collect licence fees, and distribute the proceeds to member companies. In many cases there are advantages in having a professional patent pool administrator that is independent from the patent owners and the licensees. For example, the independence of the administrator can help safeguard patent pools from potential antitrust risk and guarantees the pool pro-competitiveness.
This form of “patent clearance”48 is particularly useful when there are mutually
blocking patents that are important or essential for a particular purpose. Clearance can benefit all the licensors, provided that they all obtain fair shares of the royalties, and it benefits users by reducing transaction costs, “unblocking” the patents, and
making them available. Patent clearance may be however anticompetitive and exploitative if it is practiced by a dominant company using it to obtain a uniquely privileged position at the expense of other companies.
A patent pool, if one were to be set up, would undertake what would essentially be “patent clearance”. It would have to identify areas for which a number of patents, owned by different owners, were needed. Since any entity undertaking patent clearance can pay the patent owners by giving them shares in the royalties that it
collects, a fund would not be in a significantly better position than any other entity in doing this. To engage in “innovation brokering”, no substantial amount of capital is needed, and there are already brokers which are active in the market.
Whether patents are aggregated by a number of companies in a pool or by a single company that has undertaken patent clearance, the operation will be carried out
only with a particular kind of product or service in mind, for which licences of
several patents are needed. Patent aggregation, if it needs to be encouraged, would therefore occur only if a need to gather the patents in question for a specific purpose had been identified. One question that we have considered is whether there is any reason to believe that there are many patents that could usefully be
aggregated for identifiable purposes, but which have not been collected together, and if so, what the explanation for this failure might be.
If patents need to be aggregated, it must be for an identifiable purpose. The patents
to be aggregated would be identified only because they are thought to be useful for the production of an identifiable kind of product or service or for carrying out an identifiable process. This would generally mean a commercial product but could also
facilitate access to medicines. Aggregating patents without having a specific aim in mind would be useless. This is clear in the case of patent pools and “patent clearance” (see above).
48 In this section, the term “patent clearance” means gathering together potentially blocking
patents in order to create freedom to operate. In general, the term covers different means
for enabling the exploitation of a technology without infringing intellectual property rights
of third parties, such as getting licences or having patents declared in valid.
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4.2.2 Opportunities
General advantages of patent pools
Patent pools can offer many advantages. Pools are particularly useful when they include the patents owned by large numbers of companies, since the savings in
transaction costs are greatest in those circumstances. In particular, pools can be a solution to the problem of dispersed ownership.
Patent pools can improve transparency and reduce asymmetry by providing
exhaustive and professional information on the patent portfolio, on the relevant technologies as well as on the products that implement the technologies, to any potential licensees.
Pools provide an efficient method of collecting royalty revenues for all the companies in the pool. The bargaining power of a pool is greater than that of the members individually, and it is more worthwhile to sue to obtain the royalties due to all the members of the pool. Pools increase the chances of success in litigation, and
spread the risks. Because all the companies in the pool have to agree on the total royalty to be charged, pools avoid excessive cumulative royalties due to “stacking” of royalties. Pools use standard licences, which reduce transaction costs and reduce
delays. They help to ensure access to all the patents needed for complex technologies, and so to avoid the risk of hold-up or non-availability of licences. Pools verify that the patents pooled are really essential for standards purposes (not all
patents declared as essential are in fact essential, so verification is necessary). Pools provide full information about the essential patents owned by each pool member, and make known the terms on which the pool’s patents are licensed. Because of the obligation not to discriminate, licensees know that they are not
paying higher royalties than their competitors.
Licences granted by pools often include grant-back clauses, which make the licensee’s technology available to the pool members (and sometimes also to other
licensees). Patents included in a pool cannot later be used to demand excessive royalties. In contrast to cross-licensing arrangements, which may create barriers to entry for other companies, pools that licence out the technology tend to promote
competition while still enabling patent owners to obtain more royalty revenues than they would be able to obtain in practice if they were acting alone.
While patent pools facilitate technology transfer as described, aggregation of patents into pools is not always needed and freedom to operate can also be
facilitated by bilateral licensing. The choice of whether to enter a pool or undertake bilateral licensing is a business decision.
Patent pools as a means to foster socially desirable technologies
A majority of the experts rejected the idea of establishing publicly financed patent
pools as a general means to foster innovation. However, several experts proposed that a patent pool could be an instrument to develop and advance technical solutions in specific fields with a public/social need but without sufficient private
interest. In other words, patent pools are needed when there is a conflict between the ownership (monopoly) of the patent and a specific public interest, i.e. if the
patent situation blocks the development of solutions for these social needs. A typical example would be the development of a medical treatment for neglected (tropical)
diseases. Experts suggested that providing incentives for the aggregation of patents
38
(which would otherwise not happen) could be useful to drive forward the
development of solutions to the social need (e.g. develop new medical treatments).
A specific example to illustrate this case referred to the “London Declaration on Neglected Tropical Diseases”, a collaborative disease eradication programme
launched on 30 January 2012.49 The declaration was signed by numerous large
companies (being large patent holders). A pool of patents (including the patents of the endorsers) could be established to foster the development and production of
such disease-curing regimes in countries with patent protection. However, this would probably require a financial incentive from the public to put projects into practice.
However, we have not heard any specific practical examples for the establishment,
management and operation of such patent pools whose objective would be to drive forward the development of socially desirable solutions / technologies.
A specific aspect raised in this context was that ICT standards are becoming
enabling technologies for many areas of increasing societal importance, such as smart grids and energy supply, e-health solutions, public transport, road safety and intelligent transport systems – in fact, nearly every sector where so-called “smart
systems” are introduced. As a result, the requirements (from the demand side) for essential patents are changing considerably, and the need for access to them is becoming increasingly critical. There is a risk that the existing mechanisms of bilateral licensing may become ineffective. Patent pools could be an opportunity to
satisfy the requirements.
Pools as a means to accelerate technological progress
Another case for the public sector to possibly engage in setting up patent pools
concerns disruptive technologies (e.g. in material sciences, battery efficiency in
electric cars). It was proposed that these represent technological areas where the lack of aggregation can be an obstacle for advancing and commercialising the technologies.
In theory, pools may be useful to accelerate technological progress in such contexts, in particular when a whole industry needs to a new technical regime. This occurred, for example, in Germany in 1980 when a new system of stereophonic television was adopted. We have been told that pools might be useful in material sciences, and in
connection with more efficient batteries in electric cars. In such circumstances pools may be useful, but whatever problems there may be are not primarily due to lack of aggregation. The existence of a pool may encourage other companies to adopt the
technology used by the pool.
4.2.3 Challenges and concerns
Patent pools and competition law: pools with complementary vs.
substitutable patents
Several experts have referred to certain questions of competition law that are relevant to patent aggregation. We comment briefly on these points.
49 http://unitingtocombatntds.org/
39
Under competition law, pools are considered procompetitive when all the
patents are complementary to one another, provided that the patent owners licence the patents to non-members of the pool on appropriate terms.
If pools aggregate patents that are substitutable for50 or in competition with one
another, competition is restricted because price competition between those patents is eliminated. Licensees often need to obtain licences of patents that are
substitutable for one another and so not included in the pool, and to that extent
the pool is not reducing transaction costs as much as it could. Competition authorities therefore require an appropriate justification if substitutable or competing patents on the terms offered by the pool are included in a pool.
The European Commission should therefore explain as far as possible how far
substitutable patents can legally be licensed by patent pools to licensees which want to obtain them. We are aware that some guidance on this issue is to be found in the recently adopted Guidelines on technology transfer agreements.51 However, this
may not go far enough to be useful. In particular, what are popularly described as “commercially essential” patents are sometimes substitutable for one another. They may provide two or more different ways of performing the same or similar functions.
The group is of the view that the Commission would usefully make it clear that substitutable patents may legally be licensed by patent pools to licensees which want to take licences of them, if some or all of the substitutable patents are always or usually needed in practice by users of the essential patents, if it would take too
long or cost too much for users to develop their own alternative technology, and if the additional royalties paid for the substitutable patents are small in relation to the royalty for the essential patents.
Conflicts of interest in agreeing on royalties
It is not always easy or possible to agree to set up a pool. Companies owning the patents may have interests that cannot be reconciled with one another. The interest of companies that are primarily patent owners is to obtain high royalties. The
interest of the companies that are primarily users of the technology is to keep royalties as low as possible. All the companies will consider whether they would make more profit overall by making bilateral arrangements outside the pool. Companies have different business models and different patent strengths. For
example, firms with predominantly downstream commercial interests are likely to have different licensing objectives than upstream technology providers. Firms with predominantly downstream interests may be promoting pools with certain
parameters because they are looking to influence both overall royalties and valuation methodologies outside of the pool.
However, there does not seem to be any official action that could be taken by the
Commission to resolve difficulties of this kind. The only public intervention that could be envisaged would be via compulsory licensing but this would be in the exceptional circumstances foreseen in patent law. They can best be resolved by bilateral negotiations between pairs of companies that wish to obtain cross-licences
from one another.
50 Patents are considered as substitutes if they cover alternative technologies and are non-
blocking, i.e. the technologies covered by substitute patents can be used in parallel
without infringing the other patent. Cf. WIPO (2014): Patent Pools and Antitrust – A
Comparative Analysis. 51 http://eur-lex.europa.eu/legal-
content/EN/TXT/?uri=uriserv:OJ.C_.2014.089.01.0003.01.ENG
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Royalties and efficient standard setting processes
Any patent pool, unless its policy is royalty-free open access, must collect royalties
and therefore must be ready to enforce its patents in court if necessary. It must aim to collect royalties from all users of its patents, since it must not allow users that have not taken licences to be better treated than those that have. A pool that is not
set up in order to subsidise or to provide open access must be ready to sue. Patent pools always discuss the total royalty to be charged to licensees, and how that total should be divided between the companies in the pool. This is clearly permitted by
competition law.
Whereas the majority of pools follow this model, there are two categories of pools which do not involve collection of royalties. One is a defensive pool, described above, which pools technologies to provide freedom to operate and provides a
return to its investors indirectly. The pool facilitates development of applications on platforms and which applications generate revenue. The other is the society challenge pool which aim is development of medicines where there is no market
incentive for pharmaceutical firms to invest. Such pools provide access to technology to provide medicines at affordable prices. The pool does not make revenue and in order to compensate patentees it needs either public subsidies or
philanthropic donations.
When companies agree on a standard, they do not need to discuss royalties, unless they are also setting up a patent pool. Competition authorities have been reluctant to allow discussion of royalty rates, even for technically essential patents. This is
unfortunate, because even if the royalty claimed by each owner of an essential patent were reasonable, the cumulative royalty rate might be so high as to be uneconomic.52 This is likely, in particular, in the case of complex products
incorporating many patents. The result may be delay in applying the standard, and
a network of bilateral cross-licence agreements, which is time-consuming, troublesome, and inefficient to negotiate.
We consider that the distinction drawn by the Commission between patent pools, which are free to discuss royalties, and standards organisations, which are not, is not always justified. To promote innovation and licensing on satisfactory terms, and to minimise transaction costs, competition authorities should make it clear that
companies engaged in standard setting that own standard essential patents should be free to discuss royalty rates with other patent owners, after it has become clear which patents are likely to be technically essential, and when this is necessary to
ensure the new standard is adopted quickly, even if there is no pool or no plan for a pool.
Determination of essentiality and complementarity
Several experts raised, during the hearings, the issue that the determination of
essentiality (i.e. whether in fact a patent is or is not essential for a certain standard) can be a challenge.53 It would be desirable that only essential patents are included
52 However, it seems that royalties have not proven too high to prevent widespread adoption
of telecommunication technologies such as GSM, GPRS and UMTS. 53 The Commission study on Patents and Standards (2014) notes on this issue: “Almost all
IPR policies define what an essential patent is, and while all definitions are compatible …
[with the common notion that there is no way to implement the standard according the
specification without using the technology that is protected by the patent], there is a large
degree of variety and diversity in the more detailed parts of the definition.”
41
in such a pool. However, the task to determine essentiality is directly related to the
inherent complexity of the technologies at stake. The question whether any given patent is essential for the purposes of a particular standard can only be determined on a patent-by-patent basis, and this is often extremely difficult and time
consuming to do. It becomes even more challenging as the situation may change over time (certain patents may become essential as a technology evolves).54
Similarly, there can be controversial views in certain cases on whether technologies
which are assembled in a patent pool are, in fact, complementary or substitutable.
Effective mechanisms to support the determination of essentiality or complementarity of patents to be pooled could therefore facilitate the process of pool formation, and could help to reduce undesirable effects on competition
resulting from the pooling of substitutable patents. There does not seem to be any way in which a publicly funded mechanism could usefully pay for such determinations. There could not be an open ended programme of support. Most of
the experts heard, in particular representatives of the large industry players, pointed out that the practice of establishing standard-essential pools, by and large, works well (notwithstanding the mentioned challenges) and said they saw no reason
for an intervention.
For detailed evidence on the issue of standardisation and patents licensing practices, we refer to the recent study on “Patents and Standards” (2014) carried out for DG Enterprise and Industry. This study has explored practices in four industries where
standardisation plays a particularly important role and in which standards comprise patented technologies (telecommunications, consumer electronics, automotive and electricity), as well as in four industries which are less dependent on standards
(chemicals, diagnostics, mechanical engineering and nano-technologies).
The study recommends the promotion of patent pools for standard-essential patents: “Patent pools provide a one-stop solution for licensing a bundle of
standard-essential patents owned by different entities, thereby aiming to mitigate transaction costs, avoid royalty stacking and create a level playing field.” (p. 13). The study has examined different aspects in this context, namely strengthening the relation between SSOs and pools, providing incentives to SEP holders to participate
in patent pools; and encouraging entities such as universities and SMEs to participate in patent pools. Regarding the incentives to participate in pools, the study refers to the DVB standard (Digital Video Broadcasting)55 as an example of
good practice. The IPR policy of the DVP pool includes several innovative elements, such as “negative disclosure”56 and arbitration mechanisms.57
54 cf. WIPO (2014): Patent Pools and Antitrust – A Comparative Analysis (p. 5); Pierre
Regibeau, Patent Pools: An Economics Primer, Charles River Associates (April 2012) 55 Digital Video Broadcasting (DVB) is a bundle of internationally accepted open technical
standards for the delivery of digital television. The standards are developed and
maintained by the DVB Project, an industry-led consortium of over 200 broadcasters,
manufacturers, network operators, software developers and regulators from around the
world. The technical specifications as developed by DVB Project are turned into standards
by international standards bodies such as ETSI or CENELEC. Cf. https://www.dvb.org/ 56 the obligation of each member to license IPRs essential to DVB specifications unless it
gives notice of the unavailability of the IPR 57 see: Eltzroth, C. (2008). IPR Policy of the DVB Project: Negative Disclosure, FR&ND
arbitration Unless Pool rules OK Part 1. J. of IT Standards & Standardization Research,
6(2), 18-39. Quoted in the Commission study on Patents and Standards (2014), op. cit.
42
Costs for the valuation of patents to be included in a pool
A full-scale valuation of a single patent, needed for negotiations in the pool, may
cost as much as €10,000. Negotiation of a pool agreement can be difficult, slow, and not certain to succeed. A company with no patents or technology to contribute cannot expect to join a pool.
Patent pools act as “trolls”
Patent pools where the public sector is involved, and whose objective is to foster the active use of the protected technologies and know-how for innovation, face a possible conflict of interest (from the public perspective). They have to protect the
patents covered by the pool against infringement; at the same time, a wide use of the technologies protected by the patents for developing new products and services should be encouraged and promoted. This potential conflict of interest has been widely debated and was mentioned by numerous experts during the hearings when
the idea of a publicly funded patent pool (or patent fund) was discussed.
4.3 Conclusions on patent pools
Our conclusion on patent pools is that:
Patent pools are useful and should certainly be encouraged and facilitated where
adequate, in particular with regard to standard-essential patents.
Improved support mechanisms for the determination of essentiality or complementarity could facilitate patent pool formation and reduce negative
effects on competition; however, it is difficult to envisage the practicalities how such a support mechanism could be established.
Most of the difficulties encountered in setting up and managing patent pools are inherent in many situations, and cannot be avoided or minimized by official
action.
Providing public support for the establishment of a patent pool could be an instrument to advance or accelerate the development of solutions to social
challenges and needs (e.g. the development of a medical treatment for neglected diseases). This is a different objective than fostering innovation at large, however, and would need to be evaluated on a case-by-case basis.
The European Commission should develop improved and more constructive guidelines explaining when and under what conditions substitutable patents may legitimately be included in the patents offered for licensing by patent pools.
The Commission should make it clear that European competition law allows
companies in standard-setting organisations that own standard essential patents to discuss royalty levels with other patent owners (and not only with licensees), after it has become clear which patents are likely to be technically essential,
when this is necessary to ensure that the new standard is adopted quickly, even if there is no pool or plan for a pool.
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5. EVIDENCE ON PATENT FUNDS AND OTHER FORMS OF
AGGREGATION AND INTERMEDIATION
5.1 Definition
Our initial working definition of a patent fund was that it is an investment vehicle
independent of the original patentees and whose owners typically do not exploit the patents (i.e. use the protected technology to develop new products or services) themselves, but rather trade in IPR by acquiring and licensing and sublicensing
these rights.
The OECD (2013)58 has defined a patent fund as an
“entity that invests in the acquisition of titles to patents from third parties,
with a view to achieve a return by monetising these patents through sale, use of security interest, licensing or litigation.”
There are some difficulties in drawing a clear demarcation line between “patent pools” and “patent funds”. A distinction exists in that companies forming a patent
pool always maintain the ownership of their patents (they cross-licence the patents among pool members to provide freedom-to-operate and may license the patents to external members), while in a fund an entity normally acquires patents and then
licenses or sells them to third parties. Moreover, while pools often emerge around a core technology or a standard, patent funds do not, but may acquire a patent portfolio from a range of technological fields.
The challenge remains, however, that the term “patent fund” is applied to a wide variety of entities operating in different ways and with different objectives.
In addition to funds and pools, other potential forms of aggregation include listings of patents and brokerage services such as online portals enabling patent-related
transactions. These services are probably best described as intermediation services.
Patent funds and other IPR-related intermediation services differ considerably in
their underlying rationales and missions. They can be an investment vehicle whose major purpose is to maximise the profits of the investors. But patent funds (in particular state-owned funds) can also be established to support stakeholders
from the national or regional economy, for instance to protect the rights of SMEs or universities and assist them in exploiting their patents. A fund can also have the mission to encourage technological progress in specific fields, for instance by helping to bridge the gap between invention and the exploitation of a patent.
The heterogeneity of objectives and the resulting diversity of business models and commercial activities in the field made it difficult for the group (as well as for the invited experts) to identify specific needs and opportunities, and to derive
recommendations for a potential public sector intervention. Nevertheless, it is recognised that the appropriate approach is to distinguish types of funds according to their primary objectives and not to consider a fund as a magic bullet addressing
multiple objectives.
58 OECD (2013): IPR Strategies and policies in the era of Knowledge Networks and Markets
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5.2 Patent funds – types and evidence
Much of the evidence we gathered on patent funds is derived from literature, in particular specific recent studies. The invited experts we interviewed had few
comments specifically on patent funds and still fewer on a possible role for the European Commission. We infer that there is not only confusion about the term
“patent fund”, but also a lack of empirical evidence about experiences with
different instruments, their effectiveness and their suitability for different purposes. Further efforts to establish clear definitions and classification (such as the one drawn up by the FinKT study59) may be helpful in providing a baseline which is
needed for carrying out empirical evaluations and analyses.
A classification of patent funds / patent-backed financing instruments
There have been various attempts to better understand, classify and describe the different types of patent funds and related patent-backed financial instruments.60 For our purposes, from the classification and market overview adopted in the FinKT
report (Galiakmethof et al, 2014), we note the following types of patent funds:
Technology Development Patent Funds: funds that acquire patented technologies, invest in incubation to make patents more attractive to industry
players, and commercialize them through sale, licensing, or creation of new ventures, pursing an “asset picking” approach (the “acquire, develop, and sell/license/start-up” business model);
Technology Trading Patent Funds: funds that invest in the acquisition of undervalued patents organize these patents into coherent technology clusters, search for the right counterparty (possibly in a different industrial sector), and license or sell the patents or patent clusters to third parties (the “acquire and
sell/license” business model).
Offensive Patent Funds: funds that exploit patents as liability rights primarily for offensive purposes (the “acquire and assert” business model);
Defensive Patent Funds: funds that seek to acquire portfolios of patents selectively for defensive reasons (the “acquire and hold” business model);
[Patent-backed Financial Instruments: companies that provide financing for
IPR owners usually in the form of loan or debt financing, where the security for loan is either wholly or partially patent backed, so called IP collateralisation.]61
As indicated above, the borderlines between funds and pools are not always clear. For example, defensive funds (such as Open Invention Network62, described in
59 FinKT Project, Deliverable n. 3.4: Research Report on the Role of Patent Funds and Patent-
backed Financial Instruments to Foster Technology Transfer (2014). Ruslan Galiakmetov,
Paola Giuri, Federico Munari, and Salvatore Torrisi. The FinKT Project (“Financing
knowledge transfer in Europe”) is funded by the European Investment Bank under the
Research programme on European IP regimes and their impact on technology transfer / IP
finance. 60 see, for example: Rüther, F. (2012). Patent Aggregating Companies – Their Strategies,
Activities, and Options for Producing Companies. Dissertation. University of St. Gallen.
Buchtela, G., et al. (2010). SEE.IP Fund Feasibility Report; South-East European Co-
operation of Innovation and Finance Agencies (SEE IFA Network) Project. 61 This type of activity has not been relevant for the considerations of this expert group. 62 An intellectual property company that was formed to promote Linux by using patents to
create a collaborative environment, see Section 4.1 and
http://www.openinventionnetwork.com/
45
section 4.1 above) could be seen as either. They are funds to the extent they
require capital to acquire patents and then license these out; they are pools to the extent that the aim is to provide freedom to operate.
Technology development funds are needed to address the identified problem that
patented technologies in universities and public research organisations are
frequently far from market ready and require considerable investment to prove the concept both in technological as well as market terms before the technologies can
be commercialised, either via technology transfer or creation of spin-out firms. Proof of concept funds are usually loss making and these losses can be made up only when some of the projects form the basis of successful technology based spin-offs or licence deals. Thus there is a clear need for public intervention to finance such
funds. However the group noted that aggregation of patents is not an essential feature of such funds.
In addition to the types of patent funds described by the FinKT study, there are
further business models for third parties to act as intermediaries in IPR markets. These include IP brokers, IP exchanges where IPR is used as securities, IP insurances, platforms facilitating IP auctions and IP clearinghouses.
Evidence on the market situation
The FinKT study used a combination of different methods to identify 36 funds operating in different European countries that fall into any of the categories described above. Most of them (19) are Technology Development Patent Funds. Geographically, many of the identified funds are located in Germany (16) and the
UK (9). The 36 funds were established in the period from 1981 to 2013, with a peak in the years 2007 and 2008 when 11 funds were established, while only two funds were established in the last two years63.
The technological focus of these funds is in the chemical & pharmaceutical industry (with >30 funds investing in this area), electrical engineering (about 25), instruments, process engineering and mechanical engineering. While most
Technology Development Patent Funds focus their patent acquisition activity in their region or country, Technology Trading Patent Funds have a wider geographical distribution of their acquisition activities.
The FinKT study found that the profitability of most of these trading funds was
uncertain and that some had closed their operations. Eleven funds are not currently active, and in two of these cases the company is still active but has closed the patent fund activities. Moreover, for active funds, the financial performance and the
sustainability of the business model is not clearly evident (there is a lack of reliable data on the performance of patent funds).
Some interlocutors suggested that those who profit from trading in patents do so
through aggressive assertion of their rights, and that this assertion is neither necessarily conducive to fostering innovation, nor does it necessarily involve much
63 Technology trading patent funds first appeared in 2002. However, funds that were
established in the early 80’s and 90’s got actively involved in patent monetization and
commercialization business in the last decades. For instance, PAPST Licensing
(http://papstlicensing.com), an offensive patent fund specialised in enforcing infringed
patents with the goal to conclude a license agreement with the infringer, was established
in 1992 and has started its third party patent aggregation and exploitation business only
in 2000 (FinKT report, D 3.4, 2014).
46
aggregation. This is the main reason the previous expert group opposed publicly-
financed funds. The present group shares this position.
5.3 The case for / against state-supported patent funds
For several years, there has been a debate on whether there is a case for the establishment of state-supported (in the sense of publicly-financed) patent funds.
This has also been the focal point in our discussion and the hearings we have conducted on the subject of funds. Supporters of a European initiative in this field argue mainly from two angles. First, they regard a possible European initiative as an
appropriate industrial policy response to increasingly fierce international competition and patent-related public-private partnerships adopted in other economies (see following section). The second line of argument links such initiatives with SME policy, claiming that SMEs need support in defending and exploiting their
patents.
5.3.1 International examples of state-supported patent funds
Some governments (specifically in France, South Korea, Japan and Taiwan) have contributed financially to the creation of private-public entities, either directly, or through state-owned banks, which fund the acquisition of IPR (mainly patents) from
national research organisations. The acquired patents are then typically bundled into clusters/pools and licensed out. The activities of these funds are based on the perception that the patent aggregation and defensive services are under-supplied in
the market, requiring some degree of public coordination and support.64 The goal is to create added value for both the licensees (lower fees for licensing in patents in bundles) and the originators of the patents (better access to markets, more
revenues from licensing).
For a compilation of international examples of publicly-financed patent fund initiatives, we refer to the recent OECD Report on “IPR Strategies and policies in the era of Knowledge Networks and Markets” (2013, p. 58f.). The report refers to
initiatives in Korea (Intellectual Discovery and IP Cube Partners funds), France Brevets (see below), and Japan (Life Sciences IP Platform Fund). In addition, there are many examples of public support for patent security pledges and IP-based
mechanisms in China. In the following, we present two examples to illustrate the mechanisms and goals of such initiatives:
Intellectual Discovery Co. Ltd. (http://www.i-discovery.com/), a Korean fund, was founded in 2010. It is based on a public-private partnership with an initial
endowment of about 500 billion won (about €315 million) from public and private investors. The fund operates a programme for sharing patents necessary for technology development of various industrial groups and providing licences
to them. It purchases patents which are then licensed out. The portfolio of the fund currently consists of about 1,000 patents, mainly from major industrial fields of the national economy such as mobile communication, semiconductors,
networks and energy. These patents are bundled into different pools (packages) which are then licensed out. The fund acts mainly as a broker: its aim is to provide licensing opportunities while returning reasonable compensation for the
64 see OECD (2013): IPR Strategies and policies in the era of Knowledge Networks and
Markets
47
values of patents owned by individual inventors, universities, research institutes
and companies. Intellectual Discovery claims that it can “provide licensing opportunities greater than the industrial value of the individual patent technology respectively owned by each patentee”.
The Life Sciences IP Platform Fund (LSIP) was jointly set up by the Japanese Intellectual Property Strategy Network, Inc. (IPSN) and the Innovation
Network Corporation of Japan (INCJ), a public-private partnership founded in
2009 to promote innovation in Japan (http://www.incj.co.jp/english/). The LSIP invests in life-science-related intellectual property, focusing on specific areas such as biomarkers and cancer. The fund bundles patents from universities, public research centres and other institutions. It assesses their potential value
and, in some cases, complements them with patents it has acquired elsewhere on the market. The patents are then grouped into clusters and licensed out to companies. Profits are shared with the inventors. The fund aims to promote
research and enhance the competitiveness of the Japanese economy, rather than pursuing strictly financial objectives. Specific goals include: increasing the value of IP in universities; raising the probability of success by universities in
commercialising their advanced technology; and developing IP human resources in Japan.
Against this background, it is argued that Europe needs a strategic response to these international developments and should set up similar public-private
partnerships to promote innovation in Europe. It has also been argued that this is necessary to protect European inventions (patents) from being acquired by such international state funds and then being commercially exploited elsewhere.
As indicated above, publicly owned patent funds are also seen as a means to assist, in particular, SMEs and universities in commercialising their patents. They often have difficulties in getting their rights acknowledged, and their patents are
frequently infringed. In addition, due to the growing complexity of many new technologies which are linked with numerous patents around the world, many users developing new products can never be absolutely certain that they are not infringing patents. For SMEs, the challenge is how to deal with this situation: how do they get
their rights acknowledged, properly valued and enforced? It was suggested that patent funds could be a mechanism to help patent holders to get their rights recognised and properly valued.
5.3.2 European examples
France Brevets
The possibly best known European example is France Brevets, an investment fund
created in March 2011 in the framework of the French public initiative “Programme d’Investissements d’Avenir”.
France Brevets aims at “building value for research activities and fostering increased
transfers from research to industry” and argues that it is “the first investment fund fully dedicated to patents promotion and monetization in Europe.”65 The fund has a size of €100 million, 50% contributed by the state and 50% by Caisse des Dépôts et Consignations (CDC)66. Representatives of the fund (both from the fund
65 http://www.francebrevets.com/en/who-we-are 66 Caisse des dépôts (CDC, http://www.caissedesdepots.fr) is a public-owned holding
company that makes long-term investments in pursuit of public policy objectives,
economic general interest and to foster economic development. Since 2000, CDC has
48
management and from CDC) were invited to our hearings and presented their case.
They argued that few SME patent owners were implementing a strategy to capture the full value of their patents. A publicly owned fund such as France Brevets could support SMEs by an approach that couples both protection and revenue
maximisation for these often under-valued assets.
Representatives of France Brevets maintain that it has a longer-term vision than a private fund would have, and a broader vision for the sectors involved. It is better
able to coordinate and ensure cooperation between firms when that is needed. It advises SMEs that are patent owners and those that are patent users. It both defends its clients and enforces their patents. It does not subsidise the companies it works with.
Several experts referred during the hearings to the France Brevets example. At the time of the hearings and less than three years after its inception, there were mixed views about this concept. The evidence about the success of the model is not yet
clear, which makes it difficult to derive a straight-forward recommendation for a European initiative of this type. More evidence on the effectiveness of this model is expected in the coming months, as France Brevets plans to publish a review on the
outcomes of its activities. It has been suggested that an independent review, focusing particularly on the benefits of the model for innovative European SMEs, could be conducted by the EU IPR observatory as part of its efforts under the EU Communication “Towards a renewed consensus on the enforcement of Intellectual
Property Rights: An EU Action Plan”.67
Earlier proposal of CDC
An earlier initiative by CDC to support the establishment of a publicly-financed European patent fund was already considered and assessed by the earlier expert
group on IPR valorisation, and was not recommended. That group had reservations about the proposal, describing it as “too vague at this stage” expressing “doubts about the fund’s ability to succeed at the commercialisation stage” and about the
value added of a financial support provided by the Commission (rather than by private investors).68
More recently, the proponents recognised the risk that such a facility would have to litigate against other European companies for infringement of its patents. The
decision to drop the initiative was a response to and acceptance of criticisms of the concept.
This does not mean that either the earlier expert group or our own opposed all types
of funds. As indicated by the classification above, patent funds of various types work for various purposes. The question is which types merit endorsement.
taken several initiatives to support competitiveness and innovation, such as establishing a
venture capital fund of funds, investments in digital infrastructure and in industrial
competitive clusters. 67 COM(2014)392 final, 01.07.2014 68 see Final Report of the Expert Group, p. 7
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5.3.3 Assessment of the opportunities and risks
The OECD perspective on publicly-financed patent fund initiatives
The OECD report on “IPR Strategies and policies in the era of Knowledge Networks and Markets” (2013) concludes that “many of these interventions are based on the
perception that the IP aggregation and defensive services are undersupplied in the marketplace, requiring some degree of public coordination and support.” (p. 58). Also, such initiatives reflect the perception that national innovation systems are
weakened by the “increasingly fierce international competition and rapidly changing global value chains and patent-related initiatives adopted elsewhere” (p. 59), and that this requires a response from the public sector as part of a national or
European industrial policy.
However, the report also refers to several objections that have been raised against such funds:
“Constraints on the IP assertion strategies may be difficult to define and
implement in practice, especially if the fund is operated at arms’ length from public authorities. The acquisition strategies of funds may in the short term raise prices without necessarily increasing the levels of inventive activity,
especially if the intervention is considered by actors to be transitory. The likely competition effects of public patent funds are difficult to predict as they will depend on the precise implementation of the fund and the
interrelationship between the various components of the patent rights portfolio. (...) Adverse selection and moral hazard are common problems to private and public patent funds (…). By focusing their activities on specific technology domains, government-backed patent funds may unintentionally
trigger technology lock-in.” (p. 58)
The report concludes that there is, unfortunately, still insufficient evidence available upon which to make any firm recommendations for design features for public patent
funds, even more so as their own rationale is still subject to questions.
Conclusions of the expert group
This expert group endorses the conclusions of the OECD report regarding the uncertainties and doubts about the concept. The earlier expert group on patent
valorisation also gathered some examples on the activities of patent funds in an attempt to assess whether they could help drive the exploitation of patents.69 The evidence we have gathered broadly confirms the conclusions of the expert group on patent valorisation and the earlier St. Gallen / Fraunhofer Study70 that a partly
publicly supported patent trading fund to serve multiple objectives should not be envisaged.
However the group is of the view that there could be a case for a public intervention
in some specific cases, once a clear distinction of the different possible aims is made and the primary objective is identified (see Section 5.5.1).
69 see Section 2.3, p. 38f. 70 Creating a financial market for IPR (2011), op. cit.
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5.4 Other forms of intermediation
In addition to patent funds, there are other IPR-related intermediation and aggregation services. Some examples are described in the following.
IPR-related online platforms supported by public institutions
In some countries, there are IPR-related online platforms that provide services of a marketplace for IPR. For example, Denmark’s Patent and Trademark Office in 2007 launched “IP Marketplace”, an online marketplace to facilitate the trading of IPR.71
IPR holders can offer patents, patent applications, utility models, designs and trademarks for sale or out-licensing. IP Marketplace facilitates the initial contact between trading partners, but not the transaction as such. The platform also
supports the search for partners for innovation projects. All services are free of charge.
Some European countries, including the UK and Germany, have established a “Licence of right” (LOR) system. The patents available for licensing under LOR are
signalled through the online patent database of the national patent office. LOR means that patent holders file a statement that they are prepared to license the patents to a person on a non-exclusive basis; in return, they get a 50% reduction of
renewal fees for these patents. In the UK, fewer than 5% of all patents are LOR.72
Initiative by Caisse des dépôts for a publicly financed “European Patent
Licensing Facility”
Caisse des dépôts has proposed that the European Commission should support the establishment of a “European Patent Licensing Facility” (EPLF).
The proponents of this initiative argue that the traditional aim of the patent system “to reconcile private interest with collective interest” is at risk, as the whole invention landscape is, according to their view, undergoing fundamental changes.73 They regard this as a means to better match supply and demand for inventions, to
promote the dissemination of knowledge and inventions, and to enhance innovation production and commercialisation. This facility, according to its advocates, should act as a market mechanism to better coordinate supply and demand for licensing
patents in a transparent and secure way, mostly on a non-exclusive basis. It would emphasise improving the market access of European SMEs and public research organisations.
A market operator would manage the facility. This operator would be in charge of supplying licensable patents from multiple sources, and of confirming their legal validity, ownership and encumbrances. It would bundle patents into technological clusters and then market them towards potential users (focusing, in particular, on
SMEs). The facility would also organise the price fixing, offer standard contracts for licences, and provide information to make transactions transparent and predictable.
71 https://www.ip-marketplace.org/ 72 see Final Report of the expert group on patent valorisation, p. 27 73 ”New Economics of Invention and Intellectual Property, Part I: A Radical Disruption”.
Presentation by Patrick Terroir, General Manager, CDC Propriété Intellectuelle, held at the
1st meeting of the expert group on IP aggregation, 17th October 2013, Brussels.
51
The resources of such a licensing facility would mainly be dedicated to patent quality
control, the construction of patent bundles, the marketing and commercialisation activities, and settlement and delivery. Revenues would be generated either from a fixed transaction price or from sharing the revenues from licence fees. CDC
estimates that the initial costs for establishing the market operator (i.e. the need for working capital) would be around €35 million.
The advocates claim that no problem exists on the supply side, i.e. the provision of
patents that are to be marketed by the EPLF. They expect that patents would be provided by research organisations, universities, technology transfer organisations, as well as from individual inventors, start-ups and innovative SMEs, and from large European groups.
On the demand side, they expect that demand for patents and patent bundles will come from all types of firms that need patents to ensure their freedom to operate (by acquisition of patents that are complementary to their portfolio), and by firms
that are looking for inventions to develop innovations. The proponents mention, as a risk to their scenario, that the awareness of patents among SMEs is still underdeveloped.
This market mechanism would also develop and provide insurance services and market instruments to support quality rating processes. It would cooperate closely with other intermediaries in the IPR market.
The advocates do not state that an EPLF can solve all problems associated with
patent licensing, and they accept that other knowledge transfer mechanisms and expertise will remain necessary. They also recognise that the start-up phase of an EPLF raises difficulties, as it would not be realistic to open up the facility to all
sectors simultaneously. As a first step, they therefore propose to focus on the so-
called key enabling technologies (KET) – advanced material, electronics, nanotechnologies, biotechnologies and photonics. They insist on the need for
European scope for the initiative, since national initiatives would not have the critical size, and market regulation is a European concern. They see a clear role for the European Commission in initiating the establishment of a patent market which is operated by an EPLF: national financial institutions might provide funding, but their
commitment to invest would rely on strong European Union endorsement.
We discussed this CDC proposal in the group and asked experts in the hearings for their views.74 Our conclusion is that a publicly financed and operated “licensing
facility” as described would not be a solution to the problems in the parent market described in section 3.
Our concerns are similar to those articulated by the earlier expert group. It is
difficult to see how such a facility could provide all the clearing and marketing services described for so many potential patents to be covered by the pools. It is also unclear how such a facility would be better placed than the private sector to select and aggregate patents into pools in such a way that, economically speaking,
the facility creates positive externalities (such as more and better innovation). Thus we do not recommend that the Commission should establish or finance the establishment of such a facility.
74 Some of the questions in the questionnaire guideline (see Annex III) concerned (directly
or indirectly) this proposal without naming it.
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Commercial platforms facilitating IPR-related transactions
There are several commercial platforms that facilitate the trading of patents (and
other IPR). Many of them have been created since the late 1990’s, in particular in North America.75
Examples include Sparkup Inc., a Canadian company that describes itself as a
“marketplace for innovation”. It offers an online platform and support services such as standard contracts that enable companies to buy and sell innovations online. Sparkup claims that its solutions help innovators to improve time-to-market and
save on legal costs. The services are available to members, both individuals and institutions. Membership fees vary from 3000 – 10,000 CAD per year.76 Access is free of charge for universities and public organisations. Users can search for patents on a thematic or other basis.
Another example is ICAP Patent Brokerage, a US platform aiming “to match buyers and sellers for the sale of patents and other intellectual property assets”. ICAP offers multiple transaction platforms and services including auctioning, public
and private brokerage. 77
Also US-based, Intellectual Property Exchange International, Inc. (IPXI) claims to be “the world's first financial exchange that facilitates non-exclusive licensing and
trading” of IPR.78 The initial product traded on IPXI is a so-called “Unit License Right” (ULR), a non-exclusive license right, offered on a non-discriminatory basis at a market-based price and with standardized terms. Each purchaser of a ULR contract is granted the right to use the underlying technology for a pre-established
number of instances, defined on a case-by-case basis.
There are also more and more platforms which do not facilitate the trade of patents
or other formalised IPR, but rather aim at bringing together innovators (and their
ideas) with potential sponsors at an early phase of the innovation process. These initiatives can broadly be characterised as crowdsourcing activities. An example is innovationexchange (IX), a marketplace for open innovation, which aims to bring
together people with creative ideas (innovators) with organisations that seek innovative solutions to specific problems (potential sponsors). The sponsoring companies can present challenges on the platform. Innovators can then propose solutions which are reviewed by IX and the sponsor. The innovator (it can be a
team) coming up with the best solution that meets the organisation’s needs is awarded a success fee.
Crowdsourcing is also increasingly used for identifying prior art, even by the patent
offices. The European Patent Office has launched a Third Party Observation service for this purpose.79
There are other types of brokerages and intermediaries. Typically, these services
are offered by specialised IPR consultancies and law firms, and include patent
75 Options for an EU instrument for patent valorisation. Final report of the expert group on
patent valorisation. p. 28 76 See: https://www.sparkupinc.com 77 http://icappatentbrokerage.com/company 78 https://www.ipxi.com/ 79 http://www.epo.org/searching/free/observations.html, see also OECD (2013): IPR
Strategies and policies in the era of Knowledge Networks and Markets, p. 52
53
valuation, support in IPR search and acquisition processes, and other forms of IP
consulting.
An example for a special aggregation service which aims to aggregate patents that are pertinent to a product (rather than a technology) is the “PatentBooks” solution
by TAEUS International Corporation (USA).80 The goal is to facilitate cost-effective
patent licences between patent holders and manufacturers.
5.5 Opportunities and challenges related to funds and other
forms of intermediation
5.5.1 Opportunities
Patent funds as a mechanism to develop technologies
Technology development funds are clearly needed because IPR from universities and public research organisations is typically not market ready. Funds can be a useful mechanism to advance the development of specific technologies, and public support is in place for such funds.
Regarding funds that would provide freedom to operate, the group considers it expensive and difficult to develop and assert a patent portfolio for European industry if European companies own few patents in the technological field
concerned. Efforts would be regarded as protectionist if there were a limitation on who could be a licensee. The situation differs considerably between sectors and technologies. For instance, in the aerospace and Galileo sector, most of the parents
are European owned, whereas in the “cloud” sector, almost none are. The problems in any sector depend on who owns the patents. The establishment and working principle of any potential fund must therefore be assessed on an industry-by-industry basis; the problems cannot be discussed in the abstract. In any given
sector, it should be possible to reconcile assertion of patents and defensive use.
Reducing transaction costs
The basic business idea of any commercial market intermediary is to establish a service that cuts transaction costs for trading partners, and to be compensated for
this service out of the cost-savings. IPR brokerages and platforms act in this way, often serving as one-stop-shops for companies trading IPR. They claim to reduce transaction costs for sellers and buyers, licensees and licensors. The service
providers are paid in different ways, e.g. through membership or transaction fees.
80 TAEUS International Corporation, an IP service provider headquartered in Colorado
Springs, USA, claims that its “PatentBooks” solution is a new and efficient model of
licensing technology. PatentBooks aim to address the challenge that commercially
significant products have become so complex that assertion of infringement can be almost
inevitable for a manufacturer. TAEUS argues that a patent book has advantages over a
pool or fund: it typically encompasses a much larger number and wider scope of patents
than currently available patent pools, and it is more efficient than a patent fund, as the
cost of acquiring patents in a fund is generally far higher. See: http://www.taeus.com
54
Aggregation of technology transfer capacity in universities and PROs
On the technology supply side, there is a trend towards aggregating technology
transfer capacity of universities and public research organisations, and the joint showcasing of the IPR held by the cooperating institutions. Whereas there are many ways of establishing and organising such joint infrastructures, the group is of the
view that thy do not necessarily require patents to be aggregated in funds or pools as such. Rather, while there is probably no single best solution for all cases and contexts, we believe that such initiatives should include pro-active marketing
mechanisms in seeking buyers for the IPR managed by them rather than be restricted to passive listing.
Cooperation in technology transfer could also be a means for Technology Transfer Offices (TTOs) inside universities and technology centres that do not have the
expertise and the scale to manage and commercialise patents in an appropriate way on their own. Often, in order to exploit patents, TTOs give exclusive licences mainly to big corporations which in turn could become long-term partners able to finance
grants and research activities. In this way, they simultaneously limit the access of SMEs to these technologies.
The need to build “critical mass” in technology transfer capacity, and to gather
expertise in IPR issues, is also confirmed by the OECD (2012): “As PROs have become more involved in commercialization activities, they have built up an extensive infrastructure in the form of technology licensing and transfer offices (TTOs), which play a key intermediary role in the market for knowledge generated
in PROs. However, these initiatives have not been met with uniform success, often due to lack of expertise, incentives and critical mass.” (p. 66)81
5.5.2 Challenges
The limited value of “isolated” patents
A challenge for funds acting merely as an investment and trading vehicles is that a patent is of little value without the know-how of the group that has developed the
technology. Commercial application of a patent in developing innovative products and services usually requires access to the know-how, the technology and possibly the people who have developed it. In particular if the goal of a fund is to promote
innovation and technology advancement, the management of the patent fund must be combined with the underlying technology, and cannot consist just in managing the pure exclusion rights.
We agree with views expressed by experts during the hearings that the technology
know-how from engineers and scientists often matters much more than the actual patent for the commercialisation of ideas. This is not a challenge for patent assertion entities or non-practicing entities because they do not work the inventions
and do not need a technology connected to it.82 This is a basic challenge for any
81 OECD (2013): IPR Strategies and policies in the era of Knowledge Networks and Markets. 82 This was already concluded by the previous Expert Group on IPR valorisation: “Patent
trading funds primarily aim at commercializing technology, and might therefore present an
interest from a policy perspective. However, their approach to valorisation focusing only
on the trade of patent assets seems to have obtained limited success so far at the
commercialisation phase.” (p. 44)
55
trading fund public or private if the aims are other than revenue maximisation
through assertion of rights.
Funds acting as NPEs – aggressive assertion
A closely related concern is that any “patent fund” is essentially a non-practising
entity (NPE) – the fund engages in trade in and/or licensing of the protected IPR,
but does not directly apply the protected technology. Where the fund maximises revenue through assertion of patent rights; it is unlikely to maximise the development and use of the technology and foster innovation, which is the
overarching rationale of the public sector Some experts suggested that opportunities associated with patent funds today are rather based on exploiting weaknesses of the overall patent practice, as illustrated by the rise in quantitative aggregation, NPE litigation, and overall licensing efforts (in particular in the ICT sector and in the US).
The group is of the view that it would be inappropriate for a publicly supported fund to engage in aggressive assertion. This does not, however, mean that a holder of patent rights can never litigate to enforce them, as rights are worthless in the
absence of enforcement. A defensive fund, in contrast, might be seen as fostering further innovation; as it facilitates freedom to operate.
Costs for maintaining patents throughout the long period to commercialise
them
Cost is a major issue for patent funds. Theoretically, a fund could be a useful
mechanism to better commercialise patents of public research organisations. State-owned universities and technology centres which generate many publicly owned patents could benefit, since they often lack resources to cover the high cost of filing patent applications and maintaining them across many jurisdictions. However either
these costs would have to be compensated or losses tolerated.
5.6 Conclusions on patent funds
In conclusion of this chapter, the evidence on patent funds and other forms of aggregation and intermediation can be summarised as follows:
Different concepts of patent funds cover a wide array of intermediation activities based on different objectives and business models. Basic distinctions are firstly whether a fund focuses on technology development or the trade of patents, and in
the case of a trading fund whether it pursues purely commercial objectives (maximising profits for investors) or other goals such as bringing the results of publicly funded research to the market or freedom to operate. These latter objectives are only likely to be profitable if they can facilitate the generation of other
revenue streams. If not they would most likely be loss making.
There is little evidence on the profitability and sustainability of patent trading funds. Their financial performance remains unclear. Several such funds that had been
established in the past decade have been terminated. Evidence suggests that those ventures profiting from trading in patents do so mainly through aggressive assertion of their rights.
Given the diversity of purposes and business models, there is no clear single best strategy for a fund management with regard to the selection, acquisition and commercialisation of the patents to be managed. Thus we cannot make any
56
recommendations for specific contractual means in the acquisition and management
of patents.
The group has seen no convincing evidence that patent funds are an effective means to promote the licensing of technologies to European SMEs and thus improve
SME access to technology. The main challenge for innovative SMEs is not access to
technology, but their need for support in protecting and effectively commercialising their own inventions.
Therefore we are not in favour of developing a patent trading fund supported in part by public funds to serve multiple objectives. There is no clear evidence how such an initiative could create added value in the aggregate, foster innovation in Europe, or provide significant solutions to any of the fundamental problems in the patent
markets.
The group is of the view that it would be inappropriate for a publicly supported fund to engage in aggressive assertion.
There could be a case, however, for a public intervention in some specific cases, similar to that of the Medicines Patent Pool, aiming at providing freedom to operate to ensure production of a medicines which otherwise were not available to a
particular group of patients. The criteria for such an intervention would be that there is a social need, whose solution requires access to technologies with dispersed patent ownership, and where the use of these technologies would not be feasible under market conditions.
Whereas this would be in the context of ensuring freedom to operate in order to ensure development of or provision of technology to satisfy a need not addressed by the market, the group was not in a position to identify any such opportunity other
than the existing Medicines Patent Pool and is of the view that the opportunity for such intervention will be rare.
57
6. RECOMMENDATIONS
In light of the evidence gathered and discussed on the issues presented in this report, the expert group has agreed on some recommendations for the European
Commission and other stakeholders involved in patent markets. The recommendations fall into two categories: Section 6.1 makes general
recommendations to improve the framework conditions for further development of
the European patent market, based on the assessment of problems as described in Chapter 3; Section 6.2 makes specific recommendations about possible interventions related to patent pools and funds, based on the observations reported
in Chapters 4 and 5.
6.1 Recommendations for improving the framework
conditions for patent markets
The group recommends that the European Commission and actors in the patent system should concentrate on opportunities to improve framework conditions of
patent markets before considering interventions to directly establish a financial market.83 This includes, in particular, potential measures to improve the transparency of patent availability and ownership, to reduce transaction costs, to
ensure patent quality and to provide support to SMEs on patent-related issues.
Recommendation 1.1:
To increase transparency in the patent market, the European Patent Office and the European Commission should explore the feasibility of requiring
the registration of patent ownership and changes in ownership.
The Commission and the European Patent Office should consider the feasibility and benefits and cost implications of such an initiative. However, further assessment is necessary, and current developments in this field (see Section 3.1.2) need to be
taken into account. A possible first step would be an impact study into the feasibility and expected costs and benefits for stakeholders.
Recommendation 1.2:
Patentees should be allowed to declare and encouraged to highlight their
willingness to license out their patents on an exclusive or non-exclusive basis.
Since this information would further improve transparency in the patent market,
mechanisms should be considered and consultation should be conducted on the details and practicalities. Patent offices could, for example, require disclosure of a licensing relationship, without information about the specific licensing conditions. Within standard setting organisations, even specific conditions might be revealed,
since these should not be discriminatory.
83 This recommendation echoes a recommendation made by the study on, which argues that
the “EC should not establish or support the IPR Financial Market before the underlying IPR
Asset Market in Europe has not been substantially improved” (see Recommendation 10, p.
272f).
58
Recommendation 1.3:
The European Patent Office should aim to ensure that the high quality of
European patents can be maintained when the "unitary patent" and a unified European patent court are put in place.84 While patent quality is important, measures to further improve quality should be considered
only if they are cost-efficient and do not lead to a lengthening of the patent grant procedure.
Uncertainty about patent validity and about the scope of patents (i.e. of what is actually protected) impairs transparency in the patent market. Even in the European patent system, patents often suffer from a lack of quality in this aspect (see Section 3.2.2). Achieving a higher level of scrutiny by patent offices might offer a remedy,
but might also raise costs (for the employment of more patent examiners), or even lengthen the patent procedure (if the current examiners were to spend more time in their scrutiny). One possible measure would be to raise the bar on what constitutes
an inventive step. We therefore urge measures that improve patent scrutiny without (unduly) lengthening the grant procedure or making it more costly.
This should not be misunderstood as a general critique of the European patent
system, where patent descriptions are widely recognised for their quality. This quality must be maintained, and care will be needed to ensure no unwanted side-effects from the implementation of the "unitary patent" and a unified European patent court. While the group acknowledges different views on how much emphasis
should be placed on increasing patent scrutiny in the examination process, the current ratio of patent examiners to patent applications should not be reduced.
Recommendation 1.4:
Holders of standard-essential patents, who are under an obligation to offer
licences on a FRAND basis, should retain the right to seek injunctions as well as damages against those users who infringe the patents and who are unwilling to accept a licence on a FRAND basis.
Increasing enforcement costs for protecting ones patents contribute to the high transaction costs in the patent market (see Section 3.1). In general patent holders have the right to bring injunctions against those who infringe their patents without having a licence. We recommend that even where a patent holder has committed to
license patents (such as patents that have been declared as essential to a standard) on fair, reasonable and non-discriminatory (FRAND) terms, the right to seek injunctions as well as damages should be maintained to tackle infringers who are
unwilling to accept an offer of a licence on a FRAND basis.85
84 The European patent with unitary effect ("unitary patent") will be another option for users
besides already-existing national patents and classical European patents. A unitary patent
will be a European patent granted by the EPO under the provisions of the European Patent
Convention to which unitary effect for the territory of the 25 participating states (all EU
Member States except Spain and Italy) is given after grant, at the patentee's request. The
relevant regulations entered into force on 20 January 2013. However, they will only apply
from the date of entry into force of the Agreement on a Unified Patent Court. 85 This is in line with the recently adopted decisions by the European Commission concerning
Motorola and Samsung, cf. “Antitrust: Commission finds that Motorola Mobility infringed
EU competition rules by misusing standard essential patents”, press release by the
59
Recommendation 1.5:
If there has to be co-ownership of IPR, we recommend that co-owners
should seek an agreement that each can freely use jointly made inventions and patents granted, and they assign one of the owners with the responsibility and right to grant licences on behalf of the consortium.
It is often difficult to negotiate mutually satisfactory licence terms for patents (see Section 3.2.4), and the challenge is all the greater for potential users of patents in the case of co-owned patents, which can arise in the case of research collaboration.
Negotiations can be difficult and time-consuming with a consortium when the co-owners have not agreed amongst themselves on general conditions. Co-ownership can in this way be a barrier to licensing technology, and can add to transaction costs. The group thus discourages co-ownership.
The group therefore urges consortia that jointly own IPR (for example European research consortia that have been funded under the EU R&D Framework Programmes) to agree on mechanisms for facilitating licensing out the co-owned IPR
to third parties. The goal should be to avoid lengthy procedures involving negotiations within the consortium on a case-by-case basis.
Recommendation 1.6:
The European Commission and Member States should, in consultation with
intermediaries, consider supporting and promoting measures that would assist SMEs in developing and executing an IPR strategy and actively managing their IPR, particularly SMEs participating in EU or national funded RTD programmes.
The requirements and challenges for SMEs in protecting and managing their own IPR have been mentioned above (see Section 3.5). Smaller firms in particular are often not sufficiently aware or sufficiently equipped for the task, and they face high
costs for filing and maintaining patents, a lack of IPR-related skills, and difficulties in dealing with large and well-resourced companies on IPR issues.
Although many of the problems are inherent to the nature of patents and cannot
easily be addressed by any specific measure, the group recommends that the European Commission and Member States consider measures to assist SMEs in this area. Support should build on existing services, for instance those provided by the Enterprise Europe Network and the European IPR helpdesks, or by related national
initiatives. Any measures should be selected and designed in close consultation with intermediaries that advise SMEs, such as national and regional innovation agencies and help desks. For example, smaller players’ engagement in technology licensing
could be facilitated by the development of tool-kits such as guidelines and check-lists. But little is to be gained by developing standard licensing contracts, as the technology and market context of patents varies from deal to deal.
European Commission, Brussels, 29 April 2014 (http://europa.eu/rapid/press-release_IP-
14-489_en.htm). The Commission found that it was abusive for Motorola to both seek and
enforce an injunction against Apple in Germany on the basis of an SEP which it had
committed to license on FRAND terms and where Apple had agreed to take a licence and
be bound by a determination of the FRAND royalties by the relevant German court.
60
Before developing any new tools and instruments, the Commission could initiate a
collection of best practices in this field, for consideration by Member States and regions.
6.2 Specific recommendations with regard to pools, funds
and other types of intermediation
The following recommendations concern the potential establishment of patent pools or funds, as a means to promote innovation in Europe. They reflect the assessment by experts of proposals that the European Commission should become active in this
direction.
Recommendation 2.1:
A (partly) publicly financed patent pool or patent trading fund to serve multiple objectives should not be envisaged.
There is still a debate about the case for or against the establishment of publicly-supported patent pools or funds (see Section 5.3). Proponents of this idea refer to international initiatives in other economies (for instance in South Korea and Japan – see Section 5.3.1) and argue that Europe needs a strategic response (see 5.3.2).
They argue for a European initiative to establish pools or funds that act in the public interest and follow multiple objectives, such as fostering innovation in Europe at large, while protecting interests of European companies, supporting SMEs (in
protecting and commercialising their IPR), and coordinating the interests of inventors (in obtaining revenues from their inventions) with those of technology users (seeking access to technology at fair prices) and produce a return of
investment.
The group has seen no evidence on the effectiveness of such facilities, their business models, and their construction (such as the minimum critical size to achieve an impact).
Funds acting merely as a trading vehicle are subject to the additional problem that patents are often of little value if detached from the know-how of the researchers / research group that has developed the technology (see Section 5.5.2). It is difficult
to envisage how a large-scale European patent pool or fund would manage these relations.
Along with the majority of the experts we have heard, the group therefore does not
recommend that the Commission should envisage the establishment of a European pool or fund that follows such multiple objectives.
Recommendation 2.2:
In exceptional cases, the European Commission (or Member States) could provide support to “mission-oriented” patent pools established specifically
to advance or accelerate the development or deployment of solutions to social challenges and where there is a market failure such as treatments for neglected diseases.
While most experts rejected publicly financed patent pools as a general means to foster innovation, several proposed that a patent pool could be needed to develop and advance technical solutions to address specific fields with public/social needs
61
which require a technological solution involving patent aggregation but where there
is a lack of private interest as the product market in question is not profitable (see Section 4.2.2). The group is of the view that these conditions are not likely to be met frequently. An example would be the development or production of medicines
to treat neglected diseases and which needs access to IPR from several companies as was the case with the Medicines Patent Pool.
We recommend that this model could be a solution where the conditions apply, but
do not recommend any specific initiatives. The European Commission and/or Member States could assess more closely and consider whether there are actual cases where it could be applied.
Recommendation 2.3:
The European Commission and Member States should consider supporting
the establishment of technology development funds in specific fields to advance technological progress and sustain Europe’s role as a global innovation leader.
The European Commission and Member States should consider supporting the establishment of technology development funds to advance technological progress in specific fields, particularly in the context of EU-funded RTD programmes, and with
a view to facilitating the market uptake of technologies.
While such funds would not necessarily foster aggregation of patents, their objective would be to address the situation that many promising technologies are immature (see Section 3.1.1 – discussion on potentially valuable patents remaining unused)
and in need of further investment to bring them to the market. Investments are needed (i) for the further development of the technology to make it more robust
and (ii) for exploring the commercial potential, including the possible product
market application. Support could focus on technologies seen as strategically important for the European economy or, in case of Member States initiatives, in the national economy.
There were different views among the expert group members about this recommendation, with some pointing to the risks of wasting public funds by betting on the wrong technology or of simply losing money.
Recommendation 2.4:
The Commission would usefully explain in its Anti-trust guidance that
substitutable patents may be included in pools if they are needed in practice by the users of the standard essential patents, and if the additional royalties for these patents are small in relation to those for the standard
essential ones.
If patent pools aggregate patents that are substitutable for or in competition with one another, competition is restricted (see Section 4.2.3). Competition authorities
therefore require an appropriate justification if substitutable or competing patents on the terms offered by the pool are included in a pool. The European Commission has therefore issued some guidance on this issue in the recently adopted Guidelines
on technology transfer agreements. However, this may not go far enough to be
useful. We recommend that the Commission should make it clear that substitutable patents may legally be licensed by patent pools to licensees which want to take licences of them, if some or all of the substitutable patents are always or usually
62
needed in practice by users of the essential patents, if it would take too long or cost
too much for users to develop their own alternative technology, and if the additional royalties paid for the substitutable patents are small in relation to the royalty for the essential patents.
Recommendation 2.5:
The Commission should make it clear that European competition law allows companies in standard-setting organisations that own standard essential patents to discuss royalty levels with other patent owners (and not only
with licensees), after it has become clear which patents are likely to be technically essential,
when this is necessary to ensure that the new standard is adopted quickly, even if there is no pool or plan for a pool.
Patent pools are in particular important in the context of standard setting, as they
are often established to aggregate so-called “standard-essential patents” (see Section 4.1). Patent pools also necessarily involve agreement on the royalties for licences of the patents pooled, even if they are (only) cross-licensed between the members of the pool. However, similar agreements on standards do not necessarily
involve agreement on royalty rates. Competition authorities have therefore been reluctant to allow discussion of royalty rates, even for technically essential patents (see Section 4.2.3).
Competition authorities should make it clear that, in order to promote innovation and licensing on satisfactory terms, and to minimise transaction costs, companies should be free to discuss royalty rates once it has been agreed which patents are
essential to the standard, as is allowed in the case of pools – so as to prevent the cumulative royalty level becoming excessive. This can be done when it has become clear that this is necessary to ensure that the standard is implemented as soon as
possible.
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7. ANNEXES
7.1 Annex I: Members of the expert group and meetings
held
Members of the expert group
The expert group consisted of eight core members who attended all or most of the
meetings.
Name Position / Organisation Role
Paola Giuri Bologna University, Department of
Management
Expert
Denise Hirsch Director Intellectual Property,
InsermTransfer
Expert
Agata Janaszczyk European Commission, DG Research
& Innovation
EC
representative
Patrick McCutcheon European Commission, DG Research
& Innovation
EC
representative
Hannes Selhofer Head of InnovationLab, Salzburg
Research GmbH
Rapporteur
Krystyna Szepanowska-
Kozlowska
Lawyer, DLA Piper Expert
John Temple Lang Solicitor, Cleary Gottlieb Steen &
Hamilton LLP
Expert
Nikolaus Thumm Senior Visiting Fellow, at Max Planck
Institute for Intellectual Property
and Competition Law
Chair
64
Meetings held
The following meetings and hearings were held (a few hearings/interviews were
conducted by selected members of the expert group on behalf of the whole group):
Date Place Meeting
17-10-2013 Brussels Expert group meeting with presentation by P. Terroir, CDC
propriété intellectuelle, proposing a mechanism to establish
European patent pools
21-11-2013 Brussels Expert group meeting with video-interview of 1 expert
12-12-2013 Brussels Expert group meeting with hearings of 6 experts (2 panels)
29-01-2014 Brussels Expert group meeting with hearings of 8 experts (2 panels)
30-01-2014 Brussels Expert group meeting with hearings of 10 experts (2 panels)
03-02-2014 Brussels Interview with 1 expert
12-02-2014 Munich Interview with 1 expert
13-02-2014 Bologna Expert group meeting with hearing of 4 experts
06-03-2014 Brussels Expert group meeting with hearing of 4 experts
65
7.2 Annex II: Experts interviewed
The expert group in its work consulted several other experts and practitioners. Most were invited to hearings at which they provided insight and expressed their view.
Others were consulted by conference call. The conclusions and recommendations expressed in this report do not necessarily reflect the opinion or position of the
experts who participated either in the hearings or in the review of the first draft
report.
7.2.1 Experts who participated in the hearings
Name Position Country Date
Place &
interview
method
Patrick Terroir Directeur Général Délégué, CDC
propriété intellectuelle, Paris
France 17-10-
2013
Hearing in
Brussels
Daniel Alge Patent attorney, Partner at
Sonn & Partner, Vienna
Austria
12-12-
2013
Hearings in
Brussels (two
panels, one in
the morning,
one in the
afternoon,
experts
present)
Stuart Graham Assistant professor of business
strategy at the Scheller College
of Business at Georgia Tec;
former Chief economist of US
PTO
USA
Geert Glas Partner at Allen & Overy LLP,
chairman of the Global IP Group
Belgium
Windham
Loopesko
CEO and President of W. E.
Loopesko & Associates, INC.
USA
George Whitten Vice President, Patent Counsel
at Qualcomm Europe
UK
Vincent Pluvinage Co-Founder and Managing
Partner, Invention Capital
Partners
USA 12-12-
2013
Skype
interview,
Brussels/US
Monica
Magnusson
Director, Strategy and Portfolio
Management, Ericsson,
Stockholm
Sweden
29-01-
2014
Hearings in
Brussels (two
panels, one in
the morning,
one in the
afternoon,
experts
present)
Peter Stumpf Managing Director, TransMIT
GmbH, Giessen; Member of the
Board of Directors of
TechnologieAllianz
Germany
Raymond Hegarty IP Strategist, Managing
Director, Intellectual Ventures
Ireland
Giustino De
Sanctis
Director, Sisvel UK Limited,
London
UK
Martin Bader Patent Attorney, Institute of
Technology Management
(ITEM), University of St Gallen
Switzerlan
d
66
Ruud Peters Chief IP Officer (ret.), Philips Netherland
s
Georg Buchtela Managing Director, OFI -
Austrian Research Institute for
Chemicals and Technology,
Vienna
Austria
Rudi Bekkers Assoc. Professor, Technical
University of Eindhoven
Netherland
s
Alfonso
Gambardella
Professor of Corporate
Management and Dean of the
PhD School of Bocconi
University, Milan
Italy 30-01-
2014
Skype
interview,
Brussels/Milan
Jean-Charles
Hourcade
Founder and Managing Director
France Brevets, Paris
France 30-01-
2014
Hearings in
Brussels (two
panels, one in
the morning,
one in the
afternoon,
experts
present)
Roberto Dini Founder and Managing Director
Sisvel spa, Torino
Italy
Serge Raes Senior Manager, Orange, Issy
Moulineaux
France
Kevin Nachtrab Senior IP Attorney,
Johnson&Johnson, Diegem
Belgium
Ivan Coulter Founder and CEO, Sigmoid
Pharma, Dublin
Ireland
Luigi Amati META Group, Terni; Vice
President of Business Angels
Europe
Italy
John Knechtel Founding COO at Sparkup Inc,
Montreal
Canada
Theon Van Dijk Chief Economist EPO, Munich Germany
Tony Clayton Chief Economist, UK Intellectual
Property Office
UK
Marc Lambrechts Capricorn Venture Partners,
Leuven
Belgium
Sir Robin Jacob Sir Hugh Laddie Chair in
intellectual property at
University College London
UK 03-02-
2014
Interview in
Brussels
Dietmar Harhoff Director, Max Planck Institute
for Intellectual Property and
Competition Law, Munich Center
for Innovation and
Entrepreneurship (MCIER)
Germany 12-02-
2014
Interview
conducted in
Munich
Nicolas Carboni President of Conectus Alsace
Inc.
France 13-02-
2014
Hearing in
Bologna
(expert panel,
experts Rachel Helmsley Senior Business Manager, UCL
Business PLC, London
UK
67
Josep Maria
Pujals
Lawyer, Oficina Ponti, Spain Spain present)
Massimiliano
Granieri
Associate Professor of
Comparative Private Law and
Professor of Economic Analysis
of Law at the University of
Foggia Law School
Italy
Mark
Schankermann
Professor of Economics, London
School of Economics
UK 06-03-
2014
Hearing in
Brussels
(expert panel,
experts
present)
Lorenz Kaiser Division Director for Legal
Affairs and Contracts,
Fraunhofer-Gesellschaft, Munich
Germany 06-03-
2014
Corinne Le Buhan
Jordan
Founder and principal
consultant, IPStudies SARL
Switzerlan
d
06-03-
2014
Keith Bergelt CEO, Research Triangle Park
Center, Durham
UK 06-03-
2014
7.2.2 Reviewers
The following experts have reviewed a draft version of the report and provided comments and suggestions in a validation workshop on 22 May 2014.
Name Position Country Date of
workshop
Roya Ghafele Director, Oxfirst Ltd. UK
22-05-2014
Jonas Heitto Corporate IP Counsel, Alcatel-Lucent IP
Business Group
Germany
Jukka Nihtila Head of Business Development, IPR,
Nokia
Finland
Emma Fau Founder EUcapital SPRL, Head of
Brussels Office at META Group
Belgium
Bruno van
Pottelsberghe
Dean and Professor at the Solvay
Brussels School of Economics and
Management
Belgium
Malgorzata
Darowska
Partner, Bird & Bird, Warsaw Poland
Jacques D’Arcy Head of Technology Transfer &
Intellectual Property, European
Investment Fund
EU
Mariagrazia
Squicciarini
Head of Division, OECD, Directorate for
Science, Technology and Industry
France (by Skype,
22-05-2014)
68
7.3 Annex III: Questionnaire used in interviews and
hearings
The following questionnaire guideline was used for structuring the hearings and interviews. The experts were also asked and invited (on a voluntary basis) to provide written comments on specific issues of their expertise; many of the experts
followed this request.
EUROPEAN COMMISSION DIRECTORATE-GENERAL FOR RESEARCH & INNOVATION
European Commission’ Expert Group on Intellectual Property Aggregation
Questionnaire for expert hearings
BACKGROUND AND OBJECTIVE
The European Commission, further to publication of a Commission Staff Working Document "Towards enhanced patent valorisation for growth and jobs” on IP
markets and further to an earlier Expert Group on options for patent valorisation has convened an expert group to investigate whether there is a need for EC intervention to foster the development of IP markets in particular through aggregation of IP
(with a focus on IP pools and IP funds).
A recent survey of inventors, Patval II (Giuri et al 2013), conducted in 2010-2011, indicates that between 9 to 24 % of patents of inventors located in Europe could be
available for licensing or sale in the IP markets. These shares are larger for small firms (in the range of 18-26%) and universities/PROs (27-51%), while they are lower for large firms (6-21%). This survey covered 20 EU countries + Israel
The overarching question is whether the Commission should undertake any action to
promote aggregation of patents as a means to promote the development of the market in patents and licences and, if the answer is in the affirmative, what such action should be.
The development of the market in patents and licences should be understood as the enhanced application of patents and licences to drive innovation as well as maximise returns to entities that are actively engaged in R&D, in particular small and medium
sized entities, that may not have the marketing and legal potential to fully exploit and enforce their individual or limited number of patents.
This expert group has decided to take evidence from experienced practitioners and analysts on this issue and based on a set of questions as set out below. The
questions address (i) the interlocutor’s perception of the nature and extent of a(ny) market challenges which might warrant a public intervention at EU level and (ii) the
interlocutor’s views on the characteristics of some possible modes of interventions.
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1. IP MARKET CHALLENGES
1.1 What do you think are the most important challenges for IP markets (please
provide concrete examples from specific industries)?
Yes No
1.1.1 A considerable share of valuable patents are not being used.
Difficulties with licensing in IP.
Difficulties with licensing out IP
Difficulties with buying IP
Difficulties with selling IP
1.1.2 Intermediaries and brokers are not bringing licensors and licensees
together effectively.
1.1.3 The validity of (valuable) patents is not being confirmed.
1.1.4 It is too difficult to estimate the value of patents.
1.1.5 It is too difficult to raise money on the security of intellectual property.
1.1.6 The terms on which patents can be licensed are not known.
1.1.7 Information regarding the ownership of IPRs is not available
1.1.8 Others (please specify under comments)
Comments:
1.2 Is it correct that in the biotechnology and pharma industries there is less
need to aggregate patents, and less of a problem of ensuring that valuable
patents are used than in other industries?
yes / no
Comments:
2 PATENT POOLS
A patent pool should be understood as a package of patents formed by two or more
patentees in order to facilitate exploitation by both the patentees as well as by third
parties to whom the package is licensed. Patent pools are in particular important in
the context of standard setting for standard essential patents.
2.1 Scope of patent pools
2.1.1 In which areas are key enabling technologies covered by a large number of patents
and patent pools are relevant/beneficial as a tool to facilitate the exploitation of
patents?
Comments:
2.1.2 Are there any sectors in which there is a serious lack of patent pools?
Comments:
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2.2 Publicly owned patents
2.2.1 What would be the advantages and challenges to base a pool on patents which are
publicly owned?
Comments:
2.2.2 Where public ownership of patents is not significant, under which circumstances and
conditions would it be opportune or useful for public policy to encourage the formation
of a patent pool?
Comments:
2.3 Pool formation
2.3.1 What should be the technical, legal and business conditions for reaching an
agreement on a patent pool?
Comments:
2.3.2 To what extent can patent pools can be more effective than cross-licensing
agreements?
Comments:
Yes No
2.3.2 Do SMEs have the same opportunities to participate in patent pools as
larger entities?
2.3.3 In some industries many technologies are needed for a given product
(in particular telecommunications). Should policy makers encourage or
facilitate formation of patent pools to licence portfolios of all or most of
the patents needed?
2.3.4 Should patent pools include patents that are not technically essential, in
spite of the fact that they may be substitutable for one another?
2.4 The Commission's role
2.4.1 Should the Commission play a role in fostering the formation and optimal functioning
of patent pools related to standard essential patents other than ensuring compliance
with anti-trust rules?
yes / no
2.4.2 If yes, what should this role involve?
Comments
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3 PATENT FUNDS
For the purpose of this exercise a patent fund should be understood as an investment
vehicle independent of the original patentees and whose owners typically do not
exploit the patents but rather trade in intellectual property rights by acquiring and
licensing and sublicensing these rights.
3.1 The feasibility, effectiveness and costs of patent funds
3.1.1 To what extent could a fund enhance the exploitation of publicly owned patents and
improve SME access to technology?
…
3.1.2 To what extent could a fund SME access to technology?
…
3.1.3 What conditions are required to ensure both the exploitation of publicly owned patents
this aim, SME access to technology and that of financial sustainability?
…
3.1.4 What would the costs of such action be?
…
3.1.5 To what extent should a fund encompass other forms of IPR such as copyright, utility
models and design rights?
…
Comments:
3.2 Acquisition & management strategy
3.2.1 How should fund managers identify the technology markets in which patents could be
acquired and would be managed and how could the ones that are potentially most
exploitable be identified?
…
3.2.2 From which sources (universities, SMEs, and other firms domestic or non-domestic)
should these IPRs be acquired and managed?
…
3.2.3 By what contractual means (including acquisition, licensing and listing IPR) should a
fund that ensures the above aims (the exploitation of publicly owned patents this aim,
SME access to technology and that of financial sustainability) acquire and manage
patents?
…
Comments:
72
3.3 Commercialisation strategy
3.3.1 To what extent would it be feasible for the commercialisation strategy to focus on
licensing to SMEs in Europe as opposed to maximising licensing revenue by seeking
licensees globally?
…
3.3.2 What are the conditions needed to ensure that the fund that ensures the above aims
(the exploitation of publicly owned patents this aim, SME access to technology and
that of financial sustainability) would be sustainable in the long run?
…
Comments:
3.4 Overall assessment & the Commission’s role
3.4.1 What would be the net benefit of a publicly funded fund when taking into account the
expected benefits and (direct) costs as well as the risks inherent to the management
of such a fund?
…
3.4.2 What role, if any, should the Commission play in fostering formation of patent funds?
…
Comments:
4 OTHER FORMS OF IP AGGREGATION & INTERMEDIATION
4.1 Other forms
4.1.1 What other significant forms of IP aggregation are emerging?
Comments:
4.2 Publicly owned patents
4.2.1 What would be the prospects of basing an aggregation on patents which are publicly
owned?
Comments:
4.3 Patent aggregation (formation) & the Commission’s role
4.3.1 Which other forms of IP aggregation should be supported or encouraged at national or
EU level, if any?
…
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4.3.2 Where public ownership of patents in these sectors is not significant, under which
circumstances and conditions would it be opportune or useful to encourage the
formation of an aggregation of patents?
…
4.3.3 What role could the Commission play to facilitate IP aggregation in financing the
process or otherwise encouraging participation therein?
…
4.3.4 It has been suggested that a new European broker or intermediary should be set up,
at least for Key Technologies. It could identify valuable unused patents, check their
validity, and gather related patents together if necessary. What could a new entity do
that is not already being done (or could not be done) by existing brokers and
intermediaries?
…
4.3.5 Why would a new body do these things better than the existing enterprises, or is
there a niche in the market that is not filled and is not likely to be filled? If so, what is
it?
…
Comments:
5 RECOMMENDATIONS
Yes No
5.1 Should patent owners be obliged to register the fact that they have sold
or licensed their patents?
5.2 Should owners of patents that are not being licensed or used be obliged
to give compulsory licences, or to "use it or lose it?
5.3 Should patents be subject to more intensive scrutiny when issued (so
that they would be more likely to be valid)?
5.4 Should the register entry of each patent be supplemented by a
description by the patent owner of the possible uses and value of the
patent, and an indication of whether it is available to be licensed?
5.5 Should there be a public register of brokers and intermediaries, indicating
what industries they specialize in?
5.6 Would it be useful to set up an (optional) European system of arbitration
to determine patent royalties?
5.7 In what respect might it be possible to provide more information on the
terms on which licences are granted? Would it be useful to have an
(optional) set of standard patent licences or a registry of licensing terms?
5.8 Should the European Patent Office further discourage divisional patent
applications (assuming that it is more difficult to challenge validity and
patent to license with divisionals)?
5.9 Other recommendations (please describe under “comments”)
Comments:
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7.4 Annex IV: Mandate of the Expert Group
(as stated in Section 2.1 of the Terms of Reference)
“The Expert Group will explore need for and identify the feasible options for EU level
action to foster aggregation of patents that could be (partly) funded or in other
ways promoted at the EU level.
The Expert Group will specifically address both patent funds and patent pools
which, while they both involve aggregation of patents, represent two different types of aggregation of patents, as well as identify and analyse other ways of aggregating IP.
For the purpose of this exercise a patent fund – should be understood as an investment vehicle independent of the original patentees and whose owners typically do not exploit the patents but rather trade in intellectual property rights by acquiring and licencing and sublicensing these rights.
In contrast, a patent pool should be understood as a package of patents formed by two or more patentees in order to facilitate exploitation by both the patentees as well as by third parties to whom the package is licenced. Sometimes patent pools
are formed in the context of standard setting and in this case holders of standard essential patents are required to offer licences on FRAND (fair reasonable and non-discriminatory) terms.
Other forms of aggregation could include portfolios of patents in technologies independent of a standard setting context and virtual portfolios where the aggregation is in the form of listing and with a focus on brokerage.
The work of the Expert Group will be structured the overarching question of if the
Commission should undertake any action to promote aggregation of patents as a
means to promote the development of the market in patents and licences and, if the answer is in the affirmative, what such action should be. The development of the
market in patents and licences should be understood as the enhanced application of patents and licences to drive innovation as well as maximise returns to entities that are actively engaged in R&D in particular small and medium sized entities that may
not have the marketing and legal potential to fully exploit and enforce their individual or limited number of patents. It should not be understood solely from a profit maximising perspective. this will involve the following questions:
With regard to patent funds, the overarching issue is the goal of such a fund and
the types of activities a partly- publicly funded patent fund should engage in. This involves addressing the following questions.
Feasibility/Effectiveness/Costs: To what extent could such a fund enhance the
exploitation of publicly owned patents and improve SME access to technology? What conditions are required to ensure both this aim and that of financial sustainability? What would the costs of such action be? To what extent should
such a fund encompass other forms of intellectual property rights (IPR) such as copyright, utility models and design rights?
Acquisition/management strategy: How should the fund managers identify the technology markets in which patents could be acquired and would be managed
and how could the ones that are potentially most exploitable be identified? From which sources (Universities, SMEs, and other firms domestic or non-domestic) should these IPRs be acquired and managed? To what extent would it be
feasible for acquisition/ and management involve sectors in which there are relatively few publicly owned patents or relatively low European ownership of patents in the sector? By what contractual means should the fund acquire and
manage these patents?
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Commercialisation strategy: How should the fund commercialise its IPR
portfolio? To what extent would it be feasible for the commercialisation strategy focus on licencing to SMEs in Europe as opposed to maximising licencing revenue by seeking licensees globally? What are the conditions needed to
ensure that the fund would be sustainable in the long run?
Litigation strategy: Whereas exploitation of an IPR portfolio may, legitimately,
require recourse to litigation to avoid infringement of the IPR by third parties
(e.g. where the latter are opportunistically refusing to take a licence based on FRAND terms), how should the litigation strategy of the patent fund be incentivised to avoid that it engages in exclusive profit maximising rather than optimal exploitation for rights-holders/ innovators in the assertion of these
rights?
Overall assessment: What would be the net benefit of such a fund when taking into account the expected benefits and (direct) costs as well as the risks
inherent to the management of such a fund as outlined above (acquisition/management, commercialisation, litigation) and potential positive and adverse impacts on other (potential) market participants and market
structure (e.g. is there a risk that EU action would limit or bias competition in innovation markets?), both in the short term and in the dynamic, long-term context?
With regard to patent pools, the EG will distinguish pools based on standard
essential patents from other forms of aggregation, some of which are labelled as patent pools, and other forms of IP aggregation. The overarching issue on patent pools related to standard essential patents is what role a European public initiative
could and should play in fostering the formation of patent pools or other forms of IP aggregation. This will involve addressing the following questions.
The Commission's role: Should the Commission play a role in fostering the
formation and optimal functioning of patent pools related to standard essential patents other than ensuring compliance with anti-trust rules? If yes, what should this role involve? If not, how would the situation most likely evolve?
Whereas the Commission proposal for rules of participation and dissemination
under Horizon2020 allows for and, in specific work programmes, may per Articles 40 and 41 require patent protection of the results and strategies to transfer these technologies to those best placed to exploit them what would be
the opportunities, challenges and risks for the Commission to take this further and encourage the formation of patent pools?
Scope: In which areas are key enabling or similar technologies covered by a
large number of patents. Here a distinction is made between those ready for commercialisation and those which require further investment to be put on the market)?
Publicly owned patents: What would be the opportunities to base a pool (either
largely or exclusively) on patents which are publicly owned? Where public ownership of patents in these sectors is not significant, under which circumstances and conditions would it be opportune or useful to encourage the
formation of a patent pool?
Pool formation: What should be the conditions for reaching an agreement on a patent pool? What role should the Commission play to facilitate pool formation
either in financing the process or otherwise encouraging participation therein?
With regard to other forms of patent aggregation, again the EG is asked to identifying the range of these other forms and address the overarching issue of the role a European public initiative should play in fostering their formation. The group
76
should look, inter alia, at IP brokerages and portals. This will involve addressing the
following questions.
Other forms: What other forms of IP aggregation are emerging and which should be supported or encouraged at national or EU level ?
The Commission's role: What role, if any, should the Commission play in
fostering formation of these other forms of IP aggregation?
Scope: In which areas are key enabling or similar technologies covered by a
large number of patents. Here again, a distinction is made between those ready for commercialisation and those which require further investment to be put on the market?
Publicly owned patents: What would be the prospects of basing an aggregation
on patents which are publicly owned? Where public ownership of patents in these sectors is not significant, under which circumstances and conditions would it be opportune or useful to encourage the formation of an aggregation of
patents?
Patent aggregation (formation): What role could the Commission play to facilitate IP aggregation be it in financing the process or otherwise encouraging participation
therein. These questions apply both to brokerages and to portals as well as other forms of aggregation identified by the EG. For each the expert group should advise on how the IP is identified and bundled.
While each type of patent aggregator has the potential to produce pro-competitive
as well as pro-innovation effects by facilitating dissemination of technology and innovation that would otherwise not occur, the expert group will identify with reference to the technology transfer block exemption Regulation and related
guidance how potentially anti-competitive effects of patent aggregation could be avoided.
Conclusions
If the experts, based on the analysis of the above questions, identify a patent fund concept that is feasible, the expert group will identify the specification for this and based on this prepare the parameters for a call for expression of interest in the establishment of a partly publicly funded patent fund. They will provide justification
why such a fund concept would achieve the aim outlined above and be beneficial for the European Union as a whole without inflicting significant adverse effects on specific (groups of) stakeholders.
Similarly if the experts identify a role for the Commission to foster patent pool formation or formation of other forms of patent aggregation, they should identify the appropriate business model, structure and who would exploit the patents as well
as the nature of and conditions for a Commission intervention and justify this proposition along the same lines as for the patent fund.
The expert group should take account of the work already undertaken on IP valorisation as well as that of another expert group working on methods of valuation
of IPR and various on-going studies on the role of patents in standardisation and developing a model linking supply and demand of IP. The Commission will ensure the necessary coordination between the two groups and output of other relevant
studies.”
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This expert group report investigates whether there is a need for EU level intervention to foster the development of patent markets, in particular through aggregation of patents, with a focus on patent pools and funds. In their conclusions, the experts do not recommend publicly financed patent pools or funds as a general means to foster innovation; they see no evidence of such an initiative creating externalities that would justify the investment of public funds, or bring significant solutions to any of the problems in patent markets. They see a case, however, for supporting the establishment of technology development funds in specific fields, to advance technological progress and to sustain Europe’s role as a global innovation leader in these areas.
Studies and reports
KI-01-14-852-EN-N
doi:10.2777/96371
