Patent Acquisition and Venture Capital

Last week the Wall Street Journal revealed that a group of tech companies got together to incorporate a new group, called Allied Security Trust. The way it is being described, see the WSJ Law Blog, is that the companies, among which Cisco, Google, Verizon, buy patents they fear might be used against them by patent trolls or NPE’s (non practicing entities, rather like that term, see our earlier blog). Each member puts money in the basket to acquire those patents. All members get a license right to use the acquired patent(s). Here are some thoughts.

Firstly, it shows once more that NPEs have had a welcome effect of showing the real value of patents, we blogged earlier about this. Without patent trolls or NPEs these patents would have remained unnoticed. Now the potential value of it is being recognized.

It’s not only that. Taking the US system of potential triple damages after willful infringement, many companies do not wish to actively look for patents they might infringe. Doing so would almost force them to take a license under the patents, upon penalty of being accused of knowingly infringing the patent if it would come to an assertion by the patent owner. To avoid NPE’s actions however, one must actively look for “patent mines” in the field to create freedom to operate. Doing so without taking a license right away would be dangerous, so what’s the alternative? Well, pool together and buy these potentially “dangerous” patents as a group. Then agree on a common license for all members. Two birds killed by one stone. The risk of damages is thus eliminated as it saves the individual company from being identified as a potential infringer and thus to triple damages exposure and secondly it gives access to technology one could otherwise be forbidden to use.

A further thought is the financial industry is encouraged in financing the acquisition of good quality patents floating around in Patent Registries. Financial institutions most notably Venture Capital funds (VCs), funded by private equity, want to get a piece of this growing “buyers market” and make money they usually make by acquiring other asset types in M&A transactions. Interestingly, IP has a different risk profile all together and is, especially in time where a worldwide credit crunch is forcing banks and financial institutions to look for alternative asset structures, a welcome alternative.

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