Patent Licensing Program

Who Runs Licensing Programs

• (a) OPERATING TECHNOLOGY COMPANIES: Qualcomm: earns $8-9B annually from licensing its CDMA, WCDMA, LTE, and 5G patent portfolios
• Licenses are mandatory for handset manufacturers
• Nokia: technology company that earns substantial revenue from licensing its cellular standards patent portfolio
• Ericsson: similar to Nokia
• Wi-LAN: Canadian company that has built a licensing program around wireless patents

Ibm

• Historically the world's largest patent licensor by volume
• (b) SEMICONDUCTOR IP COMPANIES: ARM Holdings: licenses its processor architecture IP to chip manufacturers
• MIPS Technologies: similar architecture licensing
• (c) PATENT ASSERTION ENTITIES (PAEs): as discussed separately, these focus entirely on licensing
• (d) UNIVERSITIES: Wisconsin Alumni Research Foundation (WARF)
• University of California
• MIT
• License academic research patents to operating companies

What a Program Looks Like

• SMALL PROGRAM (startup, 10-50 patents): ad hoc licensing as opportunities arise
• No dedicated licensing team
• Patent counsel handles licensing as part of IP portfolio management
• MEDIUM PROGRAM (mid-size tech company, 100-1,000 patents): dedicated IP licensing director
• Systematic outreach to identified potential licensees
• Licensing rate card
• LARGE PROGRAM (large tech company or NPE, 1,000+ patents): full licensing department with business development, legal, technical, and financial professionals
• Systematic industry programs
• Licensing metrics tracked
• Enforcement team
• Annual revenue targets
• DEFENSIVE vs.

Offensive Orientation

• Most operating companies run 'defensive' programs — licensing primarily to generate revenue from underutilized patents, not to threaten competitors
• PAEs run offensive programs — licensing is the primary revenue mechanism.

Portfolio Quality Audit

• For each patent or family, assess: (a) CLAIM COVERAGE: do the claims read on products or processes actually in commercial use today? A patent that covers technology nobody uses cannot be licensed
• (b) REMAINING TERM: patents with fewer than 3 years of term have limited licensing value
• The license will expire quickly
• (c) PROSECUTION HISTORY: heavily amended claims with narrow scope are harder to license broadly
• (d) FORWARD CITATIONS: highly cited patents may be more foundational and better for licensing
• (e) ALICE/§ 101 RISK: software and business method patents face eligibility challenges
• Licensees will challenge § 101 before paying
• (f) KNOWN PRIOR ART: if you know of prior art that wasn't before the examiner, the patent's licensing value is limited by the risk of invalidity

Claim Mapping

• The most important step — map the independent claims of your best patents to actual products in the market
• If you can't identify at least one product that reads on the claims, the patent cannot be asserted

Target Identification

• Identify which companies make, use, or sell products covered by the claims
• Which companies are NOT already licensed? Which companies have the financial resources to pay meaningful royalties? A $5,000 license from a startup is not worth pursuing
• A $5M license from a large company justifies investment

Realistic Revenue Projection

• Project potential revenue: number of unlicensed targets × likely royalty rate × likelihood of success
• Typical licensing success rates: 20-40% of contacts result in a license
• Royalty negotiations typically result in 20-50% of the initial demand

Portfolio Concentration Risk

• If the program depends on one or two patents, invalidity or claim construction adverse rulings can destroy the entire program
• A sustainable program needs a portfolio of at least 5-10 strong families.

Rate-setting Approaches

• (a) COMPARABLE LICENSES: the most reliable method is looking at what rates have been paid for similar patents in similar contexts
• Prior licensing history is the most powerful evidence
• Published settlement agreements and licensing databases (if available)
• (b) GEORGIA-PACIFIC FACTORS: the 15 Georgia-Pacific factors for determining a reasonable royalty (primarily used in litigation) guide licensing negotiations: include the prior licensing history
• The royalty paid for other licenses in the industry
• The established royalty
• The utility and advantages of the patented property
• The portion of profits attributable to the invention
• (c) ANALYTICAL APPROACH: calculate the value the patented technology adds to the licensee's product
• The royalty should capture a reasonable share of that incremental value
• (d) TOP-DOWN APPROACH: start from the total product price
• Identify the percentage attributable to the patented component
• A royalty rate applied to that component value

Rate Structures

• (a) RUNNING ROYALTY: percentage of sales revenue
• E.g., 3% of net selling price of each licensed product
• (b) LUMP-SUM: flat fee for a fixed term or unlimited use
• Easier to administer but creates no incentive for licensee to limit use
• (c) TIERED ROYALTIES: rate decreases as volume increases (volume discounts)
• Or increases after minimum thresholds
• (d) PER-UNIT: flat fee per unit sold
• Common for components (e.g., $0.25 per chip)
• (e) MINIMUM ANNUAL ROYALTY: guarantees minimum payments even if sales are low

FRAND Context

• For standards-essential patents (SEPs), royalties must be fair, reasonable, and non-discriminatory (FRAND)
• TCL v. Ericsson (2018): court established top-down methodology for FRAND rates
• Rates must reflect the ex ante value of the contribution to the standard, not the standard-hold-up value.

Identifying and Prioritizing Targets

• Use patent landscape analysis to identify which companies use the patented technology
• Prioritize by: revenue size (larger companies = larger potential royalties)
• Clear infringement evidence (strong claim charts reduce negotiation friction)
• Absence of existing license
• Reachable decision-maker

Initial Outreach — Options

• (a) INFORMAL INTRODUCTION (preferred for operating company programs): reach out through business development, existing relationships, or industry conferences
• Frame as a partnership opportunity, not a threat
• (b) FORMAL LICENSING LETTER: formal letter identifying patents and requesting a meeting
• Less threatening than a demand letter but clearly signals licensing intent
• (c) DEMAND LETTER: identifies specific infringement
• Requests a specific royalty rate
• Sets a deadline for response
• Appropriate for PAE programs or when informal outreach has failed

(1) Introduction Meeting

• Present the patent portfolio
• Show claim charts
• Propose license terms

(2) Due Diligence Period

• Licensee reviews patents, assesses infringement and validity risks
• 30-90 days

(3) Counter-proposals

• Licensee may dispute claim construction, raise invalidity defenses, propose different rate structures
• (4) MEDIATION (optional): neutral patent mediator to facilitate
• Common in FRAND negotiations

What Licensees Want

• Most sophisticated licensees will want: (a) representation that the licensor has all rights to license
• (b) most-favored-licensee (MFL) protection — the licensor won't give competitors better terms
• (c) covenant not to sue for licensed products
• (d) rights to sublicense (in some contexts)
• (e) license to continuation claims filed after execution.

Level 1 — Informal Outreach

• Business development meeting or informal licensing inquiry
• No legal formality
• Lowest cost
• Best outcome if successful

Level 2 — Formal Licensing Letter

• Written letter identifying patents and requesting licensing discussions
• Starts the clock for some legal purposes (notice of infringement for § 287 marking purposes)

Level 3 — Demand Letter from Counsel

• Letter from patent counsel identifying specific claims, specific products, and requesting a specific royalty
• More formal
• Establishes notice of infringement
• May include a deadline

Level 4 — Filing Suit

• Patent infringement complaint filed in district court
• Complaint must identify the patent and at least one claim
• Iqbal/Twombly pleading standard
• ITC complaint (§ 337) can exclude infringing imports at the border — very powerful for product-based disputes

Level 5 — ITC Investigation

• Section 337 investigation at the International Trade Commission
• Can result in exclusion orders within 15-18 months
• No monetary damages but exclusion is powerful
• Expensive ($2M-$5M+)

Enforcement Budget

• Realistic budgets for enforcement: demand letter campaign: $50,000-$200,000 for a portfolio of targets
• Single district court case through claim construction: $500,000-$2,000,000
• Single district court case through trial: $2,000,000-$10,000,000+
• ITC investigation: $2,000,000-$5,000,000

Contingency Counsel

• Many operating companies and PAEs use contingency fee patent counsel (outside counsel paid from a percentage of recoveries)
• Allows enforcement without upfront cost
• Counsel typically takes 25-40% of net recoveries
• Alignment of interests (both sides want to maximize recovery) but counsel controls strategy decisions

Licensing Program Metrics

• Track: (a) contacts made
• (b) meetings held
• (c) active negotiations
• (d) licenses executed
• (e) total licensing revenue
• (f) pending litigation
• (g) settlement rate.