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Patent Pools &

Clearinghouses: A

Theoretical PerspectiveTTO Circle, 1st Plenary Meeting April 28-29th

Esther van Zimmeren

Centre for Intellectual Property Rights

University of Leuven

Please do not use these slides without prior authorization

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1. Rationale Patent Pools (PPs) & Clearinghouses (CHs)

2. From Closed to Open Innovation (OI)

3. Patent Pools & Clearinghouses - A brief reminder

4. Survey

5. Case Study: IMI

6. Conclusions & Policy Recommendations

Overview

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2

1. Focus on Problem/Challenges

• Fragmented patent rights – patent

thickets/anticommons: multiple patents, held by multiple

patent owners (complex technologies)

– Transaction costs (identification, negotiation,

enforcement)

– Legal uncertainty (e.g. hold-out, patent trolls)

– High royalties

– Royalty stacking

2. Focus on Opportunity

3. Sector-specific?

Rationale PPs & CHs

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1. Focus on Problem

2. Focus on Opportunity• Open Innovation

• Pools and clearinghouses as models to appropriate value

3. Sector-specific?• “Complex” technologies:

– Complementarity, interoperability (standardization)

– Information technology, consumer electronics,

biotechnology

Rationale PPs & CHs

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3

Rationale PPs & CHs

5

Patent Thickets/

Anticommons

Open Innovation

Collect/Integrate

complementary

technologies

(Standards)

YES YES

Reduce transaction

costs

YES YES

Clear blocking

positions

YES YES

Avoid costly

infringement

litigation

YES YES

From Closed to Open Innovation

Closed Innovation6

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From Closed to Open Innovation

Open Innovation

Internal Research Projects

External Research

Projects

Technology

Spin-insTechnology

In-licensing

Technology

Out-licensing

Technology

Spin-offs

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Inbound OI

Outbound OI

“…the use of purposive inflows and outflows of knowledge to

accelerate internal innovation, and expand the markets for

external use of innovation, respectively.

Open Innovation is a paradigm that assumes that firms can

and should use external ideas as well as internal ideas, and

internal and external paths to market, as they look to advance

their technology.”

Open Innovation

Open Innovation

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5

Open Innovation

Motives

• Inbound: value creation

• Outbound: value capturing

• ‘other’ reasons:

– reduced R&D costs;

– access to technology;

– greater technical critical mass;

– shared risk and liability;

– better relationships with strategic partners;

– technology transfer benefits;

– improved access to capital and new business;

– access to marketing/distribution strengths;

– standardization;

– etc.

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Open Innovation

Criticism

• Strong Dichotomy: black/white

• Are there (still) companies that only engage in closed innovation?

• P. Trott & D. Hartmann (2009), “Why 'Open Innovation' is Old Wine in New

Bottles”, Int'l J. Innov. Manag.

• Broad term, need for a clear definition?

But:

• Chesbrough coined the term and is leveraging the concept quite effectively

• the term is widely used (academics, business, legal experts, media, etc.)

• stimulates a reconsideration of long-held business models

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6

Closed v. Open Innovation

• The smart people in our field work for

us

• To profit from R&D, we must discover

it, develop it, and ship it ourselves

• If we discover it ourselves, we will get

it to market first

• The company that gets an innovation

to market first will win

• If we create the most and the best

ideas in the industry, we will win

• We should control our IP, so that our

competitors don’t profit from our

ideas

• Not all the smart people work for us.

We need to work with smart people

inside and outside our company

• External R&D can create significant

value, internal R&D is needed to

claim some portion of that value

• We don’t have to originate the

research to profit from it

• Building a better business model is

better than getting to market first

• If we make the best use of internal

and external ideas, we will win

• We should profit from others’ use of

our IP, and we should buy others’ IP

whenever it advances our own

business model

Source: Chesbrough (2006)

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Open Innovation

• Some sectors may be more appropriate for open innovation

than others

• Continuum instead of dichotomy?

• Organizations use a combination of closed and open

innovation strategies

• What is the role of the legal framework, in particular IP

(patents and know-how), in these strategies?

• What kind of IP licensing models are most appropriate

within the context of open innovation?12

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Assumption: Trend towards (more)

Open Innovation

Trend towards more “Open IP”/“Open

IP Licensing Models”?

Open Innovation

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Open Innovation

Classical “Open” Organizational Modes

• R&D Alliances

• Licensing (bilateral licenses and cross-licenses)

• Spin-offs

• Joint-ventures

• Purchase and Supply Agreements

• Mergers & Acquisitions

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8

Open Innovation

‘Other’ “Open” Organizational Modes

• Open Innovation Intermediaries, e.g. InnoCentive, NineSigma

• Public-Private Partnerships (PPPs) e.g. IMI

• Consortia

• Networks

• Open Source

• Patent Pools

• Clearinghouses

L1

L2

L3

L4

P2

P1

P4

P3

L1

L3

L2

L4

P2

P3

P4

P1 Cle

arin

gh

ou

se 15

No patent pool L1

L2

L3

L4

P1

P2

P3

P4

L1

L2

L3

L4

P1

P2

P3

P4

L1

L2

L3

L4

P1

P2

P3P4

L1

L2

L3

L4

P1

P2

P3P4

PATENT POOL

An agreement between two or more patent owners

to license one or more of their patents as a package to one

another and to third parties willing to pay the royalties

associated

1. Multiparty Agreement

2. (Sub)licensing to Third Parties

Patent Pools

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9

• Advantages

– No more stacking of licenses and royalties

– FRAND-licensing

– Reduced transaction costs

– Legal certainty

– Reduced litigation

– Exchange of know-how

– No need for state intervention

– Dissemination of technology

– No duplication of R&D investments

• Disadvantages

– Risk of invalid patents in the pool

– Proportional royalty allocation?

– Cartel cover-ups

Promoting

Competition

Innovation

Incentive

Patent Pools

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ONEONE--STSTOPOP--SHOPSHOP

USSewing machines (1850)

Radio (1920s)

Airplanes (WW II)

WorldwideElectronics & Telecom

MPEG2 (1997)

DVD (1998 en 1999)

Third Generation Patent Platform Partnership 3G3P (2002)

Biotech & Pharma

Golden Rice

SARS

Medicines Patent Pool-UNITAID pool

Pool for Open Innovation against Neglected Tropical Diseases-BVGH

pool

First half

20th

centuryE

nd 20

thcentury

More recent

developments

STANDARDS

Patent Pools

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10

“While the concept is intruiging for biotechnology, it is

questionnable whether the technologies and markets for

genetic inventions are amenable to pools”

OECD, 2002

• No standards in biotech (??)

• Interoperability irrelevant

• “Bunker mentality” – importance of patents

• High R&D costs, highly regulated markets

• Evaluation of patents = difficult process

• Incentives for dominant players

• Anti-competitive practices

Patent Pools

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Patent Pools

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Identification

patent

thicket

Patent

attorneyRo

leo

f exp

erts

De

velo

pm

en

tp

hase

Ro

leo

f au

tho

rities

Patent

attorney

Patent

attorney

Identification

essential

technology

Patent

attorney

Identification

essential

patent

holders

Agreement

to set up a

pool

between

patent

holders

Evaluation

patents

Develop

operating

model

Design

full

arrangement

Patent

attorney

Comp.

law expert

Comp.

law expert

Contract

law expert

Contract

law expert

Contract

law expert

Contract

law expert

Comp.

law expert

Patent

attorney

Patent

attorney

Patent

attorney

Initiator

(e.g.

WHO)

Comp.

agencies

Comp.

agencies

Comp.

agencies

Comp.

agencies

Comp.

agencies

Initiator

(e.g.

WHO)

Initiator

(e.g.

WHO)

Initiator

(e.g.

WHO)

Initiator

(e.g.

WHO)

Execution

arrangement

Comp.

law expert

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Competition Law

• Technology Transfer Block Exemption Regulation (TTBER)

• TTBER Guidelines

• ‘Old’ comfort letters

• Limited number of formal decisions of the European Commission

• US IP Licensing Guidelines (1995)

• Business Review Letters Antitrust Division of the Department of

Justice (MPEG2-pool, DVD-pools, 3G3P-platform, etc.)

• IP Antitrust Enforcement Report (2007)

• JFTC Standardization & Patent Pool Arrangements Guidelines

(2005)

Patent Pools

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Checklist

1. Patents

– Valid

– Essential

– Evaluation independent expert

– Dynamics of the pool

2. Patent holders- patent pool

– Non-exclusive license to the pool

• Licensing outside the pool should be permitted

– Royalty allocation formula

– Royalty collection and allocation by the pool

Patent Pools

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12

Checklist

3. Patent pool- licensees

– Non-exclusive license & FRAND-terms

– Development of alternative technologies

– Non-exclusive grant-back for improvements (essential patents,

reasonable conditions)

4. Institutionally

– Independant expert

– Confidentiality – Chinese Walls

– Arbitration/mediation

Patent Pools

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‘Any mechanism whereby providers and users of goods [resources],

services and/or information are matched’

Independent intermediary – two-sided platform

Clearinghouses

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[See also: Esther van Zimmeren, et al (2006), Bulletin of the World Health Organization, 352-359]

Clearinghouses

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Information

CH

Technology

Exchange

CH

Open

Access

CH

Standard

Licenses

CH

Royalty

Collection

CH

CHs providing only access CHs providing access & use

Differentiation of offered services increases

Information

CH

Technology

Exchange

CH

Open

Access

CH

Standard

Licenses

CH

Royalty

Collection

CH

CHs providing only access CHs providing access & use

Differentiation of offered services increases

INPIT PIPRASNP

Consortium

Science

Commons

SNP Nutrigenomics

CH

MPEG LA

Genetic Diagnostics

Royalty Collection Clearinghouse

- Platform:

• Provides Access to Information

• Identifies the Essential patents

• Matches Licensees with Licensors

• Offers Standardized Licenses

• Collects Royalties

• Distributes Royalties

• Monitors

• Enforces Patents

• Offers Dispute Resolution: Mediation &

Arbitration

Clearinghouses

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LICENSINGLICENSING

SUPERMARKETSUPERMARKET

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Licensing Practices

Cross-licensing

Patent Pools

Clearinghouses

Survey

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Licensing Practices

Patenting Profile

Knowledge CL, PP, CH

Experience CL, PP, CH

Attitude CL, PP, CH

- impediments

- merits

Recommendations

Survey

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15

L1

L2

L3

L4

P2

P1

P4

P3

L1

L3

L2

L4

P2

P3

P4

P1 Cle

arin

gh

ou

se

Cross-license (CL)

Patent Pool (PP)

Clearinghouse (CH)

Survey

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Medical biotechnology

Pharmaceutical, therapeutic and diagnostic applications as

well as research applications

drug discovery

vaccines

gene therapy

diagnosticsand ...

medical devices

genomics proteomics

pharmacogenomics

Survey - Scope

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16

Contracting states of the

European Patent Convention

(December 2007)

Source: Website EPO

Survey - Scope

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Professionals responsible for patenting and licensing

Members of LESI, Eurogentest, EuropaBio, national biotechnology

organisations, or Proton-Europe

Response rate: 19.7%

f

Pharmaceutical company/subsidiary 30

Biotechnology company 64

University and Research institutes 46

Hospitals 20

Other 17

Total 177

Survey - Sample

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17

0

10

20

30

40

50

60

70

0

5

10

15

20

25

30

35

40

45

In-licensing Out-licensing

f f

Survey - Results

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Types of out-licenses (Interaction-effect organisation x type of out-license)

1.5

2

2.5

3

3.5

4

Pharmaceuticals U&RI Biotechnology

Like

rt s

cale

Models

Non-exclusive

Exclusive for all fields of use

Exclusive for a specified field of of use

Sole license

Option to take a license

Likert scale variable experience

Never = 0

Sometimes = 1

Regularly = 2

Often = 3

Very often = 4

Survey - Results

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18

0

10

20

30

40

50

60

Yes No I don't know

%

Undue burden freedom to operate

Survey - Results

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Remedies

1. Negotiating licenses

2. Inventing around

3. Research exemption

4. Abandoning the project

5. Opposition

Survey - Results

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19

Knowledge about CLs, PPs and CHs

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

Cross-licensing Patent Pools Clearinghouses

Like

rt s

cale

Models

Pharmaceutical companies

U&RI

Hospitals

Biotechnology companies

Likert scale variable knowledge

No = 0

Yes = 1

Survey - Results

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Experience with CLs, PPs & CHs

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

Cross-licensing Patent Pools Clearinghouses

Like

rt s

cale

Models

Pharmaceutical companies

U&RI

Biotechnology companies

Likert scale variable experience

No = 0

Yes = 1

Survey - Results

38

20

Collaborative mechanisms, such as PPs

and CHs in open innovation?

• Multiple patents, multiple patent owners

• Complementary patents

• One-stop-shop/licensing supermarket

• Long-term relationships – research collaborations

• Open way of dealing with IP

Survey - Discussion

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Key issues

Control

Exclusivity – non-exclusivity

‘Customized’ way of gaining FTO?

All patent owners – essential, valuable technologies

– FRAND-terms

Competition Law?

Trust & Commitment

Flexibility

Survey - Discussion

40

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http://www.imi.europa.eu/

ObjectiveThe objective of IMI is to support the faster discovery and development of better

medicines for patients and to enhance Europe’s competitiveness by ensuring that its biopharmaceutical sector remains a dynamic high-technology sector.

Bottlenecks in the biomedical research and development process a:

• predicting safety,

• predicting efficacy,

• bridging gaps in knowledge management, and

• bridging gaps in education and training

IMI supports collaborative research projects and builds networks of industrial and academic experts in order to boost pharmaceutical innovation in Europe.

Focus- Precompetitive research – risk sharing

- Open Innovation

Case Study IMI

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GovernanceEuropean Joint Technology Initiative launched by the European

Commission (€1 billion) and the European Federation of Pharmaceutical

Industries and Associations (EFPIA) (€1 billion in-kind contributions) in

2004.

Consortia:

• large biopharmaceutical companies that are members of EFPIA,

• small- and medium-sized enterprises,

• patients' organizations,

• universities and other research organizations,

• hospitals,

• regulatory agencies,

• any other industrial partners.

Case Study IMI

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IP Policyhttp://www.imi.europa.eu/sites/default/files/uploads/documents/imi-ipr-policy01august2007_en.pdf(incl. copyright; design rights; patent rights; or similar forms of protection)

ObjectiveTo promote knowledge creation, together with its disclosure and exploitation, to achieve fair allocation of rights, to reward innovation, and to achieve a broad participation of private and public entities in projects.

PrincipleFlexibility (grant and/or project agreement), dissemination and fair allocation

Provisions• Background/foreground/sideground (data, know-how and information) identification

and ownership• Access Rights Completion Project: foreground (royalty-free), background (royalty-

free)• Access Rights for Research Use: foreground (non-exclusive, fair &

reasonable/royalty-free), background (non-exclusive, fair & reasonable/royalty-free)

• Access Rights for Research Use Third Parties: foreground (non-exclusive, fair & reasonable), background (non-exclusive, fair & reasonable)

• Access Rights Direct Exploitation: negotiations• Confidentiality – publications (review, delay)• Obligation to disseminate foreground within one year after the termination of the

project

Case Study IMI

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IP Policy

Case Study IMI

44

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Open Innovation & IP

• Need for tailor-made business models

– Sectors

– Partners (incentives)

– Aims

– R&D phase

– etc.

• Does “Open Innovation” require a more “Open IP Culture”?• Issue of control (closed innovation)

• Exclusivity – non-exclusivity

• Interests of different stakeholders, e.g. university v. industry, large companies v.SMEs (see IMI)

• Universities: government policies that focus on patents and revenu generation

• Foreground/background definition, Access Rights

Conclusions & Policy Recommendations

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Stimulate rethinking

tradititonal

IP licensing models

Open Innovation & IP

• Trust, balance of power – Governance Schemes

– Role of neutral intermediary/expert

– Expertise

– Competition

– Partners

– Valuation of patents

• Commitment

– Management e.g. Speeches GSK CEO Witty

– Legal Department!

Conclusions & Policy Recommendations

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Support research into &

experimentation with

different governance

schemes

Strong commitment

to use such models

in projects supported by the EU

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Questions or Comments?

esther.vanzimmeren@law.kuleuven.be

Conclusions & Policy Recommendations

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