LOT Network, the nonprofit that helps businesses of all sizes and across industries defend themselves against patent trolls by creating a shared pool of patents to immunize themselves against them, today announced that TikTik parent ByteDance is joining its group.
ByteDance has acquired its fair share of patents in recent years and is itself embroiled in a patent fight with its rival Triller. That’s not what joining the LOT Network is about, though. ByteDance is joining a group of companies here that includes the likes of IBM, the Coca-Cola Company, Cisco, Lyft, Microsoft, Oracle, Target, Tencent, Tesla, VW, Ford, Waymo, Xiaomi and Zelle. In total, the group now has more than 1,300 members.
As LOT CEO Ken Seddon told me, the six-year-old group had a record year in 2020, with 574 companies joining and bringing its set of immunized patents to over 3 million, including 14% of all patents issued in the U.S.
Among the core features of LOT, which only charges members who make more than $25 million in annual revenue, is that its members aren’t losing control over the patents they add to the pool. They can still buy and trade them as before, but if they decide to sell to what the industry calls a “patent assertion entity,” (PAE) that is, a patent troll, they automatically provide a free license to that patent to every other member of the group. This essentially turns LOT into what Seddon calls a “flu shot” against patent trolls (and one that’s free for startups).
“The conclusion that people are waking up to is, is that we’re basically like a herd, we’re herd immunization, effectively,” Seddon said. “And every time a company joins, people realize that the community of non-members shrinks by one. It’s like those that don’t have the vaccination shrinks — and they are, ‘wait a minute, that makes me a higher risk of getting sued. I’m a bigger target.’ And they’re like, ‘wait a minute, I don’t want to be the target.’ ”
ByteDance, he argues, is a good example for a company that can profit from membership in LOT. While you may think of patents as purely a sign of a company’s innovativeness, for corporate lawyers, they are also highly effective defense tools (that can be used aggressively as well, if needed). But it can take a small company years to build up a patent portfolio. But a fast-growing, successful company also becomes an obvious target for patent trolls.
“When you are a successful company, you naturally become a target,” Seddon said. “People become jealous and they become threatened by you. And they covet your money and your revenue and your success. One of the ways that companies can defend themselves and protect their innovation is through patents. Some companies grow so fast, they become so successful, that their revenue grows faster than they can grow their patent portfolio organically.” He cited Instacart, which acquired 250 patents from IBM earlier this month, and Airbnb, which was sued by IBM over patent infringement in early 2020 (the companies settled in December), as examples.
ByteDance, thanks to the success of TikTok, now finds itself in a situation where it, too, is likely to become a target of patent trolls. The company has started acquiring patents itself to grow its portfolio faster and now it is joining LOT to strengthen its protection there.
“[ByteDance] is being a visionary and trying to get ahead of the wave,” Seddon noted. “They are a successful global company that needs to develop a global IP strategy. Historically, PAEs were just a U.S. problem, but now ByteDance has to worry about PAEs being an issue in China and Europe as well. By joining LOT, they protect themselves and their investments from over 3 million patents should they ever fall into the hands of a PAE.”
Lynn Wu, director and chief IP Counsel, Global IP and Digital Licensing Strategy at ByteDance, agrees. “Innovation is core to the culture at ByteDance, and we believe it’s important to protect our diverse technical and creative community,” she said in today’s announcement. “As champions for the fair use of IP, we encourage other companies to help us make the industry safer by joining LOT Network. If we work together, we can protect the industry from exploitation and continue advancing innovation, which is key to the growth and success of the entire community.”
There’s another reason companies are so eager to join the group now, though, and that’s because these patent assertion entities, which had faded into the background a bit in the mid-to late-2010s, may be making a comeback. The core assumption here is a bit gloomy: Many companies seem to assume we’re in for an economic downturn. If we hit a recession, a lot of patent holders will start looking at their patent portfolios and start selling off some of their more valuable patents in order to stay afloat. Because beggars can’t be choosers, that often means they’ll sell to a patent troll if that troll is the highest bidder. Last year, a patent troll sued Uber using a patent sold by IBM, for example (and IBM gets a bit of a bad rap for this, but, hey, it’s business).
That’s what happened after the last recession — though it typically takes a few years for the effect to be felt. Nothing in the patent world moves quickly.
Now, when LOT members sell to a troll, that troll can’t sue other LOT members over it. Take IBM, for example, which joined LOT last year.
“People give IBM a lot of grief and criticism for selling to PAEs, but at least IBM is giving everybody a chance to get a free license,” Seddon told me. “IBM joined LOT last year and what IBM is effectively doing is saying to everybody, ‘look, I joined LOT.’ And they put all of their entire patent portfolio into LOT. And they’re saying to everybody, ‘look, I have the right to sell my patents to anybody I want, and I’m going to sell it to the highest bidder. And if I sell it to a patent troll and you don’t join LOT — and if you get sued by a troll, is that my fault or your fault? Because if you join LOT, you could have gotten a free license.’ ”