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Study finds patent licensing rarely results in innovation

By February 21, 2015 One Comment

It may come as little surprise to players in online real estate who have been cajoled into such deals, but patent licensing rarely results in new products, technology transfer or other markers of innovation.

That’s according to an academic study that provides some ammunition for critics of “patent trolls,” who say patent licensing serves as little more than a mechanism for “nonpracticing entities” — companies that don’t actually provide goods or services — to collect money from companies that do, in exchange for promising not to sue them.

What may come as a surprise is that the study found patent licensing doesn’t seem to do much to fuel innovation, regardless of whether it’s “patent trolls” or other patent holders like universities seeking the licenses.

In a report detailing their findings, “Does Patent Licensing Mean Innovation?” law professors Robin Feldman (University of California Hastings College of the Law) and Mark Lemley (Stanford Law School) say their results “seem to hold regardless of whether the patent owner seeking a license is a patent troll, a product‐producing company, or a university.”

When “nonpracticiting entities” convinced companies to license a patent — often by filing a lawsuit — 92 percent of licensees reported that they rarely, if ever, led to new products or services. The same was true when universities sought patent licenses — 86 percent said they didn’t lead to new products or services. When companies that actually produce products sought out licenses, 70 percent of licensees said they rarely, if ever, spurred innovation.

The study, based on a survey of 188 people in a number of industries who have actually negotiated patent licenses, found that the practice “seems to be an activity almost entirely divorced from innovation, a fact that has troubling implications for the patent system as a whole.”

But because of the small number of respondents, Feldman and Lemley say they “encourage further research before drawing definitive policy conclusions.”

Lawmakers are considering legislation to curb patent trolls, but “many scholars have worried that the growing prevalence of patent lawsuits filed by trolls reflects a fundamental problem with the patent system” itself, the authors note.

Last year, more than a dozen real estate companies — including Re/Max, Century 21 and Keller Williams — were hit with patent infringement lawsuits by Property Disclosure Technologies LLC, a company characterized as a “nonpracticing entity,” or NPE.

In 2011, NAR negotiated a blanket licensing agreement with CIVIX-DDI LLC, a company that holds several patents on location-based Internet search techniques, after the company filed patent infringement lawsuits against two of the nation’s largest multiple listing services and demanded licensing fees from several others. NAR paid CIVIX a total of $7.5 million that it collected from Realtor associations, MLSs and MLS vendors to pay for a blanket licensing agreement that applied to the industry as a whole.

The agreement did not apply to third-party portals. Zillow paid CIVIX $850,000 in 2012 to be released from any claims that Zillow infringed on the CIVIX patents, and later that year Trulia settled a patent infringement lawsuit filed by CIVIX for $900,000. In a regulatory filing, operator Move Inc. said it paid $4.86 million in 2009 to settle both a 2005 claim brought by CIVIX against Move and NAR, and another patent infringement case brought by Tren Technologies Holdings LLC. The cost of each settlement was not broken out in the filing.

Since then, REDPLAN Inc., a nonprofit that launched in 2013 to help real estate organizations safeguard their information from data pirates, has been building up a legal reserve fund the trade group says will be used to tackle issues such as intellectual property theft, copyright violations and patent troll protection.

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