Non-practicing entities (NPEs) are generally companies with only one asset—their patents. So why would an NPE give away licenses to the only things it can generate value from? If it seems too good to be true, that’s because it might be.
Act Now For A Free Patent License!
iPEL (Innovative Patents, Ethical Licensing) is a new NPE, formed by self-described “patent monetizer” Brian Yates (formerly of IP Prognosis and hundreds of shell companies—more on that below) and Rasheed McWilliams (a litigator). It’s offering licenses to its portfolio until the end of the year, and those licenses are free to companies with less than $5 million in annual revenue.
Free stuff isn’t always good, and the details of the licenses suggest why they might not be all that good for the licensees.
Painting A Target On Your Back?
The free licenses are only available to small companies with limited revenue—the kind of company that often lacks the resources to determine whether the patent applies, and to defend itself from the allegations of infringement. Even responding to a demand letter when no lawsuit is filed is expensive—a single demand letter might wipe out 5% of the profits of a SME like the ones these licenses are directed to. And that’s for a response where the company’s products clearly don’t infringe.
That makes these licenses extremely valuable to iPEL—they identify future targets, and often future targets who lack the resources to effectively defend themselves. (For fans of the TV show “Silicon Valley”, you might recall the patent troll episode noting that you get sued when you become visible by showing up on the top sellers list.) By signing up for a free license, you’ve told iPEL you exist and you’ve told them you’re concerned enough about their patents to inquire after a license.
You’ve also taken a license which expires on a yearly basis. If you choose not to renew, iPEL now has a pretty good idea that suing you might be worthwhile. And if you go beyond the revenue threshold, iPEL definitely has the idea that suing you might be worthwhile (or else you’re going to have to start paying for that license).
But it’s worse than just making iPEL aware that suing you might be a good idea. By taking a license, you might also have made it easier for them to win.
Jumping In Front Of The Arrow
Imagine you’re a juror in a patent case. You probably don’t have the technical background to really get to grips with the patent itself; you rely on the experts, and both sides have an expert telling you that the patent is infringed (or not) and invalid (or not.)
But one thing both sides have to agree on is that the defendant used to have a license to the patent, and now they don’t. Most jurors are going to wonder “why did they take a license if they didn’t need one? And if they needed one, and they don’t have it, don’t they infringe?”
Evidence of a prior license might well harm a defendant in court. The license has a lot of value for iPEL—but despite the “free” terminology, it may have hidden costs for licensees.
An “Ethical” NPE? Actions Speak Louder Than Words
iPEL also has proposed an “ethical” NPE program, claiming that an NPE acts ethically when it rewards proactive licensees and always offers companies a chance to license before suing.
That might be the case, but NPEs don’t always have a great history of abiding by their publicly stated principles. Another NPE, MOSAID (now Conversant) had its own set of principles for distinguishing between a ‘good’ NPE and a troll. One of their principles? Offering companies a chance to license before suing. And yet, when it came to their own actions, MOSAID often had no problem suing without making a prior offer to license.
And the parties involved in setting up this particular NPE have their own history. iPEL co-owner Brian Yates has such a long history of experience with patent assertion that, in his own words, “people thought I retired or left the patent monetization business, because during the last year, I have not created dozens of new NPEs or filed hundreds of new patent lawsuits.”
That might be understating the case—Yates was, in just one instance, sanctioned by Judge Rodney Gilstrap of the Eastern District of Texas in what Judge Gilstrap called “the clearest example of an exceptional case to yet come before [him].” Judge Gilstrap determined that Yates engaged in “a pattern of setting up empty shell companies” and “intended to game the judicial system as part of a pattern of continuing conduct.” And this pattern of gamesmanship wasn’t because of sloppiness or errors by others. Judge Gilstrap was clear, stating “[e]very reason for this Court’s exceptional case finding emanates from Mr. Yates” and that Yates had engaged in “conduct [that] rises to the level of an abuse of the judicial system.”
Maybe iPEL will buck the historical trend for both NPEs and one of its owners. It’s not where I’d put my money, though.
Edited 8-6-2018: Subsequent to the posting of this article, and in part due to some of the criticisms contained within it, iPEL modified some of the terms of their license. While the modifications address some of the criticism above, they do not eliminate many of the risks we have described and our concerns remain.