Tech Heavyweights Launch Patent Trust

A number of technology heavyweights trying to reduce the risk of costly patent-infringement suits Monday launched a trust to try to buy those patents that they deem most important to their businesses.

Members of the Allied Security Trust include Cisco, Google, Hewlett-Packard, Motorola, Sun Microsystems, Telefon AB L.M. Ericsson, and Verizon Communications. The group is hoping to work together to reduce their exposure to lawsuits filed by nontechnology companies that buy patents in order to extract licensing fees from others, as well as suits filed by technology companies that buy and enforce patents.

While the trust is open to anyone who wants to join, the price tag limits membership to larger companies. While declining to give exact numbers, Allied Security Trust CFO Jonathan Brandl said the first year's initiation and annual fee would be "south of $500,000." In addition, each member has to put up $5 million, which is placed in escrow for patent purchases.

Patent litigation is on the rise, and the tech industry has asked Congress to reform the process of obtaining patents. Lawmakers, however, have yet to agree on how to implement patent reform to curb frivolous and expensive infringement suits.

While Congress struggles with the issue, the trust is an example of how the tech giants are proactively trying to find relief on their own. "The companies have founded one of many solutions to maintain some kind of freedom of operation and avoid the cost of tremendously costly patent lawsuits or assertions," Brandl told InformationWeek.

The trust's job is to go out and try to buy patents that its members have expressed interest. For example, if two or three members say they are interested in a particular patent, then the trust would offer to buy it from the patent holder, and the cost would be deducted from those companies' escrow accounts.

Purchased patents would be licensed to the interested trust members for the lifetime of the patent, which would then be sold or, if no one was interested in buying it, donated to a university or some other organization. Such used patents would have considerably less value in the marketplace.

The trust does not intent to hold any patents or to get into the licensing business, Brandl said. "The intent is to acquire licenses on a cost-share basis, not to hold on to them."

Companies that make a business buying patents and then seeking licensing fees are often referred to as "patent trolls" in the industry. One case that sent shivers through the industry was patent-holding company NTP's suit against Research In Motion. The lawsuit threatened to shut down RIM's popular BlackBerry e-mail service, until RIM agreed in 2006 to pay NTP $612.5 million, four years after a federal jury had sided with NTP.

In a recent high-profile case, computer makers Acer, Apple, Dell, and HP were sued last week for violating four patents held by Saxon Innovations, an intellectual property licensing company.

The call for patent reform has gone beyond the tech industry. Companies in financial services and manufacturing also are seeking action from lawmakers, as well as legal scholars, economists, consumer and public interest organizations, and government institutions. Currently, the Patent Reform Act, a bill championed by Google and other tech companies, remains stalled in the Senate.