IP EDGE Calls For Patent Transparency and Democratizing Innovation

Patents have been utilized by entrepreneurs and corporations for protecting intellectual property, securing funding, and receiving licensing royalties. Since the first patent being issued in 1790, patents have accelerated success and recognition for millions of individuals.

The patent industry, however, hasn't evolved from this point and has become increasingly ineffective in protecting patent holders. Policy makers have misidentified the problem with the patent industry, believing that early-stage settlements reached prior to trial indicate unscrupulous activity. Based on this perception, policy makers have systematically implemented policy to weaken patent holder rights, to deter alleged bad actors from leveraging patents for financial gain. However, this is a false narrative that must be broken. IP EDGE explains how system inefficiencies drive these behaviors and how AI could address the root problem.

Lillian, Sanjay, and Gautham are managing partners and co-founders of IP EDGE, a Texas-based patent licensing firm. They believe the industry must be reformed to support patent holders, while also reducing systemic inefficiencies. IP EDGE has decades of experience in monetizing and licensing patents. The trio founded their company IP EDGE in 2010 to represent inventors incapable of monetizing their patents against powerful opponents. This mission differentiated IP EDGE from other firms that only operate within limited markets.

To illustrate the problem, Gautham provides an analogy. "Let's say you paid $200,000 for your home, and now want to sell and need an appraisal for its current value. But what if the appraisal cost is $1,000,000, and there is an 85% risk of nullifying the value of your home if you attempted to sell it? Would you seek that appraisal and attempt to sell your home, where the cost and risk outweigh any potential upside?" asks Gautham. "This is the dilemma every patent holder faces when it believes a corporation is infringing its patents and wishes to enforce its patent rights. This is the fundamental problem with the patent system."

In the current patent industry, litigation and court determinations are the sole means to appraise and enforce a patent's value, scope, and validity. But this court-driven appraisal process takes an average of 1.4 years and on average costs $1 million dollars. But patent owners are successful only 9% to 14% of the time in litigation, and face a 80 to 94% rate for their patents to be found invalid, meaning there is a strong likelihood they could end up empty handed in attempting to enforce patent rights and obtain licensing revenue.

IP EDGE supports patent holders through this patent appraisal process, by managing licensing discussions, while controlling costs and mitigating risks to the underlying patent asset. Depending on patent value (e.g., if a patent license may be worth less than $1 million), this may result in a settlement before trial and in a settlement less than the cost to go to trial.

Though 95% of cases are settle before they reach trial, many policymakers label early-stage settlements as nuisance litigation or as "patent trolling," perpetuated by bad actors. As a result, policymakers have implemented patent policy to weaken patent holder rights and proposed patent legislation to curb allegedly based actors.

But according to IP EDGE, this viewpoint and policy misses the mark of addressing the real problem with the patent system. Instead of a bad actor framework, IP EDGE insists that the current trend of early-stage settlements is an economic phenomena, which can be understood through the teachings of Nobel Memorial Prize winner Douglass North.

Applying North's transaction-model economics, the patent industry is suffering from exorbitant transactional costs that make it prohibitive for a patent holder to initiate a court-driven appraisal, to determine the most basic information relating to a patent: its value and scope. According to IP EDGE's application of North's teachings, early-stage settlements are an economic response to these unwieldy transactional costs, such settlements serving to decrease the costs to reach a license agreement, and mitigate the underlying risk to patent assets inherent in this appraisal process.

This is why IP EDGE advocates for patent reform, by lowering the appraisal costs and risks associated with determining patent scope, value, and validity. By doing so, the market would be fertile for more efficient patent transactions, thus lowering the barrier to entry for inventors to realize licensing revenue from their inventions.

According to IP EDGE's application of North's teachings, there exists a systemic bias to perpetuate the current patent litigation framework, even if it is transactionally prohibitive and ultimately hurts innovation. But IP EDGE advocates that AI offers a potential alternative for saving millions and avoiding lengthy court cases. This software could stimulate favorable licensing transactions by reducing unnecessary and costly litigation to determine the most basic informational attributes of a patent.

IP EDGE believes that artificial intelligence, machine learning, and natural language processing should all be utilized to help the patent industry. Combining these smart algorithms and predictions could significantly improve patent validity decisions and offer extensive infringement analyses in seconds. Carnegie Mellon is currently exploring the possibilities of this development at the Center for AI and Patent Analysis (CAPA).

IP Edge and its team understand that AI can be intimidating to integrate, but these smart tools would provide long-term benefits. Not only would they increase efficiency for consuming legal and technical documents, but they would also offer unbiased decision-making. Judges and juries shouldn't be replaced by computers, but IP EDGE sees the benefits of supplementing human work with technical intelligence. For example, natural language processing can provide sentiment analysis, which puts information in an understandable context. Machine learning could also calculate trends and predictions that are driven by compiled data.

These innovations could transform patent licensing and litigation, and help evolve a historically inefficient patent system. AI would drastically reduce unnecessary patent infringement litigation and enable patent holders to more efficiently understand the value and scope of its patents. IP EDGE and countless inventors would be grateful for this innovation. They would have enhanced capabilities for defending patent holders and negotiating patent licensing transactions. IP EDGE knows this change will be gradual, but advocacy and education will be the key to unlocking a fair and just patent system.

"I don't think anyone's talking about how the patent industry needs to change because they're convinced that everyone who does early-stage settlements are bad actors. While that can be true in some instances, the system was designed to promote that activity. If we use economic principles to understand the system, it becomes obvious why people are doing what they're doing. That context informs our understanding of our current-day patent system and allows us to imagine possible solutions like AI," says Lillian Woung.