One-Blue's 5 Steps to Effective Patent Licensing

You most likely don't need an introduction to Blu-Ray, but you may not have heard about One-Blue LLC. The technology and the firm are connected in many ways, and each is critical to the other's survival.

I will write more about One-Blue (and the headway it is making in one segment of the electronics industry) in a future post. For now, let me say it is one of several businesses trying to come up with a solution to the prevailing madness in the IP licensing industry.

Just to whet your appetite. I recently interviewed two of One-Blue's top executives -- CEO Roel Kramer and IP licensing director Bill Lenihan -- on its strategy of pooling IPs related to Blu-Ray technology from a group of companies with the goal of licensing them directly on the companies' behalf to interested parties. This strategy would provide a one-stop shop for IPs for the technology and end the need for multiple discussions and multiple agreements with multiple parties, all of which may be claiming the rights to one or more of the technologies involved.

One-Blue was set up by its high-tech owners to champion their interests in patents related to Blu-Ray technology. The firm should be on your radar if your company has an interest in this area or already sells devices that incorporate any of the IPs developed for the segment. The strategy it has deployed may form part of the solution for some of the disputes that have mushroomed in the electronics industry over intellectual property rights, including lawsuits that have pitched major companies like Apple, Samsung, HTC, and Google against one another.

But I digress. For the purpose of this blog, I would like to introduce you to the five principles that One-Blue believes can help companies avoid patent licensing disagreements. These principles might help your company avoid exposing itself to litigation or paying millions for infringing on another company's patents. The core of One-Blue's suggestion is that "patent pooling," as it termed the strategy in an email, "can also help companies sharply reduce the amount paid to IP holders as royalty and cut transaction fees." Here are the five steps as they are outlined by One-Blue.

1. Start with independence: 15 patent owners are licensors in the pool operated by One-Blue, namely Cyberlink, Dell, Fujitsu, Hewlett-Packard, Hitachi, JVC Kenwood, LG, Panasonic, Philips, Pioneer, Samsung, Sharp, Sony, Taiyo Yuden, and Yamaha. Five of these companies are also shareholders in One-Blue, but One-Blue operates the pool as an independent licensing entity.

   For complex markets with diverse patent environments, this model allows a pool to more equitably manage the licensing process and removes possible points of contention between licensors. Also, by moving licensors away from the front lines of enforcement action, an independent entity has the autonomy to aggressively enforce patent rights anywhere and against any party.

2. Required participation in enforcement: In the event an enforcement action is warranted, all members of the pool agree to participate by making their patents available for use by legal counsel. This prevents some members from opting out of enforcing their patents, while at the same time enjoying the pool's benefits.
3. Per-batch licensing: All too often, companies sign a license agreement but fail to abide by its terms. A company that refuses to pay royalties increases the cost of business for all other parties while giving itself an unfair advantage. Per-batch licensing closes this loophole by licensing only the products shipped, not the company itself. Each product shipment carries licensing documentation and registration logos with serial numbers that can be verified by customs officials, distributors, and retailers. While it may seem like an extra step, per-batch licensing ensures licensees pay for what they ship.
4. Pre-netting: In many cases, licensees hold pre-existing patent licenses with various patent pool licensors. Pre-netting takes these pre-existing licenses into account and subtracts what would be due licensors that have the granted pre-existing licenses when calculating royalty payments. This step ensures that licensees pay only for what they use and encourages broader participation in the pool.
5. Patent weighting: Not all patents are created equal. One mistake patent pools often make is to ignore this fact and assign the same worth to each patent in the pool. Not only does this approach reward licensors whose essential patents may be more valuable, it also discourages a patent arms race in which licensors are incentivized to roll as many less valuable patents into the pool as possible in order to inflate their royalty share.