The Appearance of Non-Practicing Entities Signals that Patent Monetization Will Bedevil mHealth Providers
One large patent holder in the mHealth space is Nathan Myhrvold’s Intellectual Ventures (“IV”) Invention Science Fund I, which owns several hundred patents. IV is a non-practicing entity (NPE) patent aggregator that purchases patent portfolios and files additional, continuation patent applications to extend the portfolios to cover IV’s key licensing targets. IV is notorious for attempting to “cover” an industry with patents. Once it does so, it demands hefty license fees for the use of its intellectual property.
When IV was founded, it proclaimed that it would not file lawsuits to enforce its patents. More recently, IV dispensed with that policy and began initiating lawsuits to compel alleged infringers to purchase licenses to its portfolio. In addition to filing its own patent infringement lawsuits, IV sells patents to third parties for enforcement, or partners with third-parties who enforce the patents and return a share of litigation proceeds to IV.
IV’s presence in the mHealth marketplace signals that mHealth companies will have to contend with NPE lawsuits. NPEs typically focus on profitable companies, so mHealth start-ups should be able to avoid NPE lawsuits—at least while their revenues are low and they remain unprofitable.
NPE lawsuits are not only the result of patent acquisitions by aggregators like Intellectual Ventures. Companies from the computer, medical device, networking, and communications industries are pursuing technologies relevant to mHealth and they are investing massive amounts of money to patent their inventions. Many companies who obtain patents related to mHealth will fail, and when they do, some founders and investors will attempt to recoup their investments by selling patents to patent aggregators like IV, or by enforcing the patents themselves. Failed companies are not vulnerable to patent infringement counterclaims, so investors and founders often become more aggressive about enforcing patents after a company ceases operations.
The Convergence of Communications, Computer, Networking, and Health Care Technologies Results in Many Non-Healthcare Companies Owning mHealth Patents
Another notable mHealth patent trend is that almost half of the top twenty patent holders identified in my research are not pure-play mHealth companies, or even medical device makers. Microsoft, IBM, Intel, Cisco, HP, Broadcom, Honeywell, Nokia, Motorola, and Sony each own hundreds of patents on technologies that relate to mHealth. This convergence of competitors from other industries is simultaneously spurring innovation and growth in the mHealth field and creating barriers to entry for some mHealth start-ups. On the other hand, mHealth companies can benefit from the presence of these technology behemoths’ participation in the mHealth space by using commodity components (e.g., cellular components from Nokia or operating system software from Microsoft) in their products. Purchasing components keeps prices down, and may, as a practical matter, provide mHealth companies some protection from these players’ patents. Large companies like Microsoft and Nokia also tend to be more reliable about indemnifying their customers if components in customers’ products are accused of infringement.
Observations and Recommendations
The information I collected about the mHealth patent landscape reveals four major trends:
- Medical device, communications, and computer companies are all actively patenting technologies related to mHealth
- Big companies are winning the patent race and capturing the majority of the IP
- The mHealth intellectual property frontier is closing rapidly (or already may be closed) to companies who seek foundational mHealth patents
- As mHealth patent holdings increase, barriers to enter the mHealth industry also will generally increase
If current trends continue, companies in the mHealth industry will eventually find themselves in a patent thicket, in which non-practicing entities are more aggressive about demanding license revenues, and competitor patent infringement lawsuits are much more prevalent than they are today.
To help safeguard their interests as the mHealth patent landscape grows more treacherous, mHealth companies should consider the following options for strengthening their patent rights and decreasing patent infringement risk:
- Insurance: If your company is small and has never been sued for patent infringement, you can obtain a patent infringement policy for a relatively modest sum. Insurance will help ensure that your business is not derailed by an infringement lawsuit.
- Carefully Manage Indemnification Rights and Obligations: Pay careful attention to your business relationships, and ensure that you are properly indemnified by your suppliers, and that you are not unwise about the scope of indemnification that you offer your partners and customers.
- Rapidly Build-Out Your Patent Portfolio: Your patenting strategy should cover key innovations and product differentiators. But do not overlook ancillary improvements, which could become critical to your company if they are widely adopted by your competitors. If you have key mHealth inventions ready for patenting, it may be worthwhile to speed the issuance of those patents using the Patent Office’s Track 1 process.
- Streamline Your Internal Invention Disclosure, Review, and Filing Process: In early 2013, the United States patent system will convert from a “first to invent” to a “first inventor to file” system. The new system rewards inventors who file patent applications as early as possible—and bars others’ later-filed applications. The importance of filing patent applications early is even greater in a new field like mHealth, where the technology frontier is still open. Also consider accelerating the examination of key patent applications using the USPTO’s Track 1 process.
- Proactively Monitor Competitors’ Patenting Activities: In a crowded and fast growing field, it is especially important to gather competitive, timely intelligence about competitors’ applications and patents. Here’s why:
- The recently-enacted America Invents Act allows companies to make pre-issuance submissions of prior art during prosecution of competitors’ patents, which may improve the quality of the patent examination process and help ensure that competitors do not obtain overly-broad patent claims. Pre-issuance submissions may only be made during brief windows during the patent examination process.
- The America Invents Act established a post-grant review process that allows companies to challenge the patentability of competitors’ newly-issued patents on nearly any ground of patentability (this is a major change from previous patent reexamination procedures). But post-grant review is only available during the first nine months after patent issuance (with some exceptions, post-grant review is only available for “first inventor to file” patents).
- The America Invents Acts establishes new “derivation proceedings” to allow companies to recover an invention that was stolen and separately patented. But a derivation proceeding can only be initiated within the first year after a “first inventor to file” patent issues.
- Proactively Cross-License Patents: Many companies would be better-off if they cross-licensed their patents with other key IP owners. When cross-licenses are structured properly, they can decrease or eliminate litigation, expand freedom to operate, and hasten market acceptance of new technologies. Another strategy for reducing infringement risk is to use licensed components from a large patent holder or from companies who have obtained key cross-licenses.
- In Competitor Versus Competitor Lawsuits, Timing Is Everything: If your competitors are infringing your patents, consider whether you can enforce your patent rights before your competitors’ patent portfolios mature.
- If Your Company Does Not Own Any Patents, Reevaluate Your Strategy: Small companies often forego patent protection because the patenting process is expensive. Sometimes, foregoing patent rights is a wise business decision. There are significant trade-offs associated with allocating funds to patenting rather than sales or marketing. But over the long-term, owning patents can be important. Patents are a powerful deterrent, even to large companies. Large companies that sue smaller companies often find themselves “upside down” when an infringement counter-suit is filed, because the small patent owner is eligible to collect damages on a much larger royalty base. Your patents may also be an important asset even if your product offerings fail to win in the marketplace.
- Contact Your Congressional Representatives: Despite Congress’ recent passage of the America Invents Act, debate continues over the efficacy of America’s patent system. If you believe that the patent system requires further adjustment, speak with your congressional representatives. At least some members of Congress have expressed interest in implementing additional reforms to the patent system.
Orion Armon is a partner in the Intellectual Property Litigation practice group and a member of Cooley's Litigation department. He joined the Firm in 2003 and is resident in the Colorado office. Cooley LLP is an international law firm for the converging worlds of technology, finance and high-stakes litigation. The Firm’s business and litigation practices reach across a broad array of dynamic industry sectors, including technology, life sciences, clean tech, real estate, financial services, retail and energy. With 650 attorneys throughout the United States and in Shanghai, Cooley has the range and expertise to help companies of all sizes seize opportunities and secure their successes around the world.