There are about 30,000 to 40,000 patents for sale on the open market at any moment. Traditionally, most patents for sale stem from distressed tech companies.
Patent assertion entities (PAEs, sometimes referred to as “patent trolls”) take advantage of the situation by buying up patents that provide fodder for patent lawsuits.
“They can just find a halfway decent looking patent for $50,000 or $100,000, and then they can threaten a high tech company with a $100 million lawsuit,” said Ken Seddon, CEO of the nonprofit LOT Network focused on protecting companies from the threat of PAE litigation.
PAEs were responsible for 87% of U.S. patent litigation in 2021, according to LOT Network.
One strategy the tech industry has used to combat the problem is devaluing patents to “limit how much damage they face when patents fall into the hands of a troll,” Seddon said.
The tactic has frustrated many biopharma companies whose business relies on drug patents that have become more likely to be attacked and are more challenging to enforce.
“There have been all these efforts with lobbying Congress — passing laws,” Seddon said.
And in 2012, the U.S. Patent and Trademark Office enacted inter partes review (IPR), enabling a defendant to challenge the validity of a patent.
Ken Seddon
Pushes to weaken patent protection are unpopular in an industry where a single patent protects a drug. “If you develop a new drug and someone can attack and blow up that patent, then it becomes generic, and you’ve lost the ability to recoup your investment,” Seddon said.
Adding to the frustration is the fact that PAEs have traditionally been more of an issue for the high-tech industry. Because the pharma industry tends to hold onto the patents it develops, “patent trolls typically don’t sue the industry.”
Seddon notes that a growing number of biopharma and medtech companies have expressed interest in joining the LOT Network as a way of lowering their IP risk.
Thermo Fisher Scientific (NYSE:TMO), Avery Dennison (NYSE:AVY), Bayer (ETR:BAYN) and Edwards Lifesciences (NYSE:EW) are members even though they and other similar companies have not traditionally been on the receiving end of patent troll lawsuits.
“Companies like Bayer don’t have a troll problem,” Seddon said. “But, ironically, by solving the troll problem, they can get to a world with stronger patents.”
“Patents are sacrosanct at Bayer,” said Jörg Thomaier, CEO of Bayer Intellectual Property GmbH, in a statement. “LOT allows us to protect our innovations and address PAE risks from the convergence of technology, while preserving the value of our patent portfolio and protecting our customers.”
The LOT Network protects members from PAE lawsuits stemming from any member of the organization. If a member of the LOT Network sells or transfers a patent to a PAE, a conditional license agreement grants all of its members immunity for the life of that patent.
“If any of our patents should ever fall into the hands of a troll, the herd is going to get free immunization,” Seddon said. “As the high-tech industry takes responsibility for the troll problem, it doesn’t need to weaken the patent system anymore.”
PAE litigation has increased in recent years. Image courtesy of LOTNetwork.
The LOT Network currently has more than 1,950 members, who are free to use patents in traditional ways. The organization was founded in 2014.
Membership is free for companies with up to $25 million in annual revenue and is capped at $20,000 annually for companies with at least $1 billion in revenue.
The LOT Network also sees IP ramifications of the continued consumerization of the medical device industry.
“As medtech is becoming high tech, the boundaries between these industries is rapidly decaying,” Seddon said. “You’re seeing companies like Medtronic and Boston Scientific using mobile apps, Wi-Fi technology and AI.”
“The claim language of a patent doesn’t discriminate based on what industry you’re in,” he said.
Filed Under: Drug Discovery
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