How will sovereign patent funds affect startups and inventors?

By 8 August 2014 Insights No Comments
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Patent assertion entities have been making waves in the last few years. Though these entities are referred to in a wide variety of ways (patent assertion entities, non-practicing entities, etc.) and the actual definition is vague, generally these terms describe companies whose main business involves acquiring patents and licensing out those patents, or suing companies who they claim to be infringing. Usually, these companies do not produce any products or services of their own.

These entities are controversial to say the least. Detractors claim that they slow down innovation by suing startups and companies actually making products. At their worst, they are accused of bringing frivolous suits.

Supporters on the other hand, claim that patent assertion entities (PAEs) serve a valuable role in the innovation landscape. By purchasing patents, they provide much needed funding for creative inventors and researchers who can be rewarded for their work, even if they are unable to commercialize their invention on their own. This argument is similar to the logic behind investment funds, such as funds that provide financing and business expertise to struggling companies.

A new development in the patent assertion entity world are sovereign patent funds. Much like sovereign funds (that is, investment funds that are owned by governments), sovereign patent funds (SPFs) are patent investment funds backed wholly or in part by a government. Several countries, including South Korea, France, and Japan have started such funds. And much like private PAEs, these SPFs generally buy up patents and try to get licensing fees for them, and if that fails, litigate. The French fund, France Brevets, in fact filed its first suits last year against HTC and LG in the US and Germany, asserting infringement claims after licensing discussions broke down.

So what does the emergence of sovereign patent funds mean for startups, inventors, or other small and medium-sized entities with patents? The industry is still relatively new, but these entities will hopefully represent another source of funding or demand for patents. Being a small enterprise is difficult enough; having more entities out there willing to pay money for your inventions, even if they are not fully commercialized, can be a godsend.

Perhaps more interestingly, these SPFs may fill niches that are not well served by private patent assertion entities. Whereas private PAEs understandably are chasing the types of patents that generate the greatest returns, SPFs may have slightly different goals. Even though they too are in the business of making money, they may also be tasked in promoting innovation in specific areas or industries, or to help champion their own homegrown industries. Because of these different aims, they may be keen to invest in areas of research and industry that are less attractive to private patent acquiring companies.

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