• Sumit Negi

Donating Patents: What It Means and Why To Do It?

Any company or individual can forfeit intellectual property rights in a patent by filing a disclaimer under Title 35, section 253 of the U.S. Code, which states “Whenever, without any deceptive intention, a claim of a patent is invalid the remaining claims shall not thereby be rendered invalid. A patentee, whether of the whole or any sectional interest therein, may, on payment of the fee required by law, make disclaimer of any complete claim, stating therein the extent of his interest in such patent. Such disclaimer shall be in writing and recorded in the Patent and Trademark Office, and it shall thereafter be considered as part of the original patent to the extent of the interest possessed by the disclaimant and by those claiming under him. In like manner any patentee or applicant may disclaim or dedicate to the public the entire term, or any terminal part of the term, of the patent granted or to be granted.” Patent donations are particularly regular in the US and depend on the idea that patent owners donate patents to non-profit organizations such as universities and other research institutions. For the patent donation, the original patent owner transfers the whole patent right including all commitments to the receiving party. By donating a patent, the original patent owner can gain both tax benefits and cost reductions, for instance, reducing yearly patent maintenance expenses. At the receiver end, the donated patent is integrated in the research and development process with the aim to generate a new product. Thus, the patent donation represents a potential source of income and both sides can benefit from strengthening their research network through collaboration during the patent donation process. Therefore, the innovation process can be accelerated for further developments in technology. You might remember when Tesla stated “Tesla will not initiate patent lawsuits against anyone who, in good faith, wants to use our technology.” All that has changed is that Tesla has invited their competitors to the table under their own terms. So rather than giving the patents away Tesla is in fact moving towards a license model. It is using the patents to steer the market- in this case inviting licensees into the fold to encourage more widespread R&D in electric vehicles, which benefits Tesla's long-term strategy.

When and why to donate patents? What are the motives? There are four motives towards patent releases. At one side, these motives contrast dependent on financial and non-financial motives. One can contend that any firm has financial motives in its activities. A firm that generates good will for instance has no direct money related intention. In any case, the good will is generated to determine a reputation which progressively may cause a new business.

On the contrary side, we separate these motives with respect to the kind of patent. For example, donating patents, moving the entire lawful right to an outsider was only applied for patents that had no more capacity for the firm and didn't accommodate their business. This sort of patent is named non-core patent. But firms also made patents accessible to others that were still being used inside the firm. These patents are referred to as core patents.

I. Earning Profits

Often firms release chosen core patents driven by financial motives, i.e. profiting by network exercises. This open source system is found in the software business where firms have become aware of the capability of expertise and thoughts of networks to improve items and hence secure a prevailing business sector position and lift benefits. The software industry strategizes in the following ways-

  • Selling complementary services such as installation, training, maintenance, consultancy, and certifications is a ruling strategy of firms to meet the appropriate returns through OSS exercises.

  • By utilizing the community to internal development endeavours, firms can bring down inside R&D costs.

  • Through open source community, firms can take advantage of the technology innovation side through comments, ideas, and further improvements which help firms to upgrade their technologies.

In 2005, IBM made 500 valuable patents freely available to the open-source software community with the objective to stimulate the flow of innovation. In 1970s Dolby decided to free-license patents which covered its noise-reduction technology through releasing pre-recorded cassettes encoded with this technology. Instead of gaining licensing fees directly from the patents, Dolby successfully profited from the lock-in effect of its noise-reduction technology and earned its profits through the sales of the tape players using this technology.

II. Cutting Expenses

Firms often release non-core patents driven by financial motives as well. For example, firms give away outdated patents that no longer fit their business to colleges, other research establishments, and non-profit associations with the motive to lessen their expenses. These expenses incorporate maintenance charges, which must be paid to the patent offices to keep up the patent, and any liabilities appended to the patent, for instance, costs for enforcement in case of infringement. Besides, at least in US, firms can profit by tax deductions.

Are there any limits on the tax benefits through donations?

Section 170 of the IRS Code differentiates between corporations and individuals. A corporation may take a tax deduction for a donation up to 10 percent of its net taxable income. For individuals, that deduction can’t exceed 50 percent of the taxable income base.

In 1990s, Shell shifted its core business to petrochemicals and gave up its specialty chemicals technologies. Towards this backdrop, Shell donated the patents covering its Carilon and Carilite technologies, which were considered to be applicable across a wide spectrum of industries, to the non-profit research institute SRI who incorporated the patents into its own polymer technology portfolio.

III. Expanding Innovation

Firms may also release non-core patents driven by non-financial motives. For example, a firm may give away patents to colleges or other research foundations in order to trigger innovation exercises and open up new fields of business. This way firms avoid throwing away potentially valuable technologies and speed up the innovation process for further enhancements.

Boeing developed a material they used in aircraft antenna units but due to its bio-compatibility, strength, and density, it also showed remarkable potential for being used in the medical sector to replace bones in humans. Since the medical area is very different from Boeing’s business and the firm also lacks respective know-how, Boeing donated the patent covering these applications to the University of Pennsylvania, where the technology was further developed. IV. Availing and Accessing Technology

Rarely, but surely, firms give away core patents to outsiders as well. The thought process of this conduct is mostly a mix of generating goodwill, serving society, and accessing third party patents via patent pools. Generating goodwill and serving society will help the firm to establish its reputation and receive social authenticity. Accessing third party patents via patent pools will help their R&D team to broaden the scope of their research in their technology.

What are these patent pools?

Patent pools are coalitions in which patent owners license at least one patent on a royalty-free basis to an organization that manages the patent pool. Through this, the licensed patents can be accessed by the other members of the pool and the non-member research institutions. Consequently, the patent owners can access all the patents inside the pool, can start new research and business coordinated efforts, decrease development expenses and risk through shared endeavors, and generate good will by serving society. Below are examples of patent pools. Eco-Patent Commons - The Eco-Patent Commons patent pool was initiated in January 2008 by the World Business Council for Sustainable Development (WBCSD). It provides an online repository of patents which covers environment friendly technologies. Firms can benefit from the creative results of this exploration joint effort and gain recognition through their contribution. In 2010 Hewlett Packard pledged three patents on a battery recycling technology to the Eco Patent Commons patent pool. Although the technology had the potential of generating earnings for Hewlett Packard, the company made the patents available without any purchase or royalty obligations in order to support the green technology initiative of the Eco Patent Commons. Medicines Patent Pool - The Medicines Patent Pool was established in 2010 by UNITAID to improve the treatment of HIV/AIDS, tuberculosis, and malaria. The main objective of the pool is public health instead of commercial interests. Conclusion

Firms taking part in Open Source Community are driven by financial and technology reasons and to a lesser extent, social reasons. Conversely, we find that social reasons assume a significant job for releasing patents to the public. Particularly the instances of green technologies and the medical sector show that firms want to react to their social obligation. Non-commercial patent pools appear to be a platform that is acknowledged by numerous organizations for the free release of patents without direct financial advantages. Considering financial motives, patents are donated to lessen costs through sparing R&D endeavors and cost reduction in terms of maintenance fees. In terms technological reasons, accelerating the innovation process and benefiting from networks are primary intentions. Likewise, giving or making patents accessible to public, is recognized by the organizations as a strategic approach in lieu of discarding significant technology that doesn't fit the organizations' present market. All in all, releasing patents by making them accessible to partners, clients, customers, and suppliers helps firms to build up a sustainable innovation ecosystem that is bound to bring profits in the long term.

#patents #technology #Tesla #Boeing #Shell #HewlettPackard

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