The demonization of Non-Practicing Entities

Licensing views
July 18, 2019

In this post we explain why Non- Practicing Entities (NPEs) should not be demonized

Over the years, many significant technological advancements have been achieved by universities and other research-driven organizations that have no intent to build products that leverage their research. Instead, they monetize their research by licensing the technology to third parties, either directly or via a pool of related patents.

As an example, Sisvel Wi-Fi licensing program contains licensors like Columbia University and Fraunhofer that don’t manufacture and sell actual products. Organizations of this nature are, by definition Non-Practicing Entities (NPEs), and their research has enabled a host of products like smart phones, computers, and TV sets that most consumers couldn’t live without. Additionally, often, these organizations elect to divest their patents through secondary markets, instead of participating to a multi-year licensing program, enabling them to realize immediate returns from a straight sale. In the secondary market, often, buyers are other Non-Practicing Entities, who are dedicated to running licensing programs.

This research and technology licensing model let’s all participants do what they do best; researchers innovate and receive license fees in return, while others bring their technologies to market and profit through product sales. This business model has proved successful both for many generations of technologies and products, as well as for inventor and implementor for way more years than the average lifetime of today’s technology companies (i.e. for decades).

Recently, multiple technology companies founded the Alliance for Open Media (AOM) to develop and deploy a new video codec called AV1.  According to their website, AOM is a “Joint Development Foundation Project”, under which all AOM participants must agree to contribute their intellectual property to the Alliance on a royalty-free basis. This approach is inherently unfriendly to NPEs since the only way for participants to monetize their research is by selling products that use or otherwise benefit from the new codec.

Clearly, Joint Development Foundation Projects make sense for some companies, and all IP owners are free to deploy and leverage their IP any way they see fit. But it’s important to recognize two things. First, while there is little to no incentive for Universities, R&D centers and other players to join AOM, AOM’s formation doesn’t in any way invalidate the concept of NPEs. Rather, the NPE/product company business model has benefited inventor and implementor for many years and will continue to do so.

Second, just because AOM members agreed to contribute their technology on a royalty-free basis doesn’t mean that they own all IP used in the AV1 codec; the issues are entirely unrelated. After an extensive IP analysis, Sisvel found that the AV1 codec uses patented technologies owned by members of the recently formed AV1 pool. We will discuss these findings in another blog post that will publish next week.

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