Is Conversant being unrealistic?

This recent article, in which former U.S. Court of Appeals for the Federal Circuit Chief Judge Paul Michel calls licensing best practices “just not very realistic”, caught our eye.  Conversant was the first company to publish a set of Patent Licensing Principles  back in November 2013.  We have received a lot of support for our initiative, and we have been especially pleased to see the Licensing Executives Society’s program to establish industry-wide patent licensing standards.

But to Judge Michel’s point: Are patent licensing principles unrealistic?  The issue comes down to what we call Principle 9:

“Litigation should only be resorted to by a licensor when good-faith license negotiations prove unsuccessful or a potential licensee demonstrates an unwillingness to negotiate in good faith for a license.”

In other words, patentees should try to negotiate a patent license before filing a lawsuit.  At Conversant, we remain committed to our belief that good-faith negotiations are the best way to resolve any business issue, and we have tried to follow that principle throughout our  forty-year history.   But more and more we see other companies taking advantage of this principle to avoid concluding a license agreement.  As Judge Michel points out, trying to negotiate with a potential licensee that does not follow best practices becomes a “handicap” and in such situations, following best practices can “end up hurting good people, while the bad people who refuse to follow them go the other way”.

These are what IAM calls the patent ogres: “big companies – especially in the tech sector – that are all too happy to use their deep pockets to drive patentees that are short of resources into unfavourable deals, into walking away from disputes or even into bankruptcy”.  As IAM explains, patent ogres are not interested in good-faith negotiations; they only negotiate to delay litigation and paying fair value for a patent license.  At Conversant, we have experienced this behavior first hand when after over two years of negotiations a potential licensee refused to make any counter-offer for a patent license.  We were told that if we wanted anything more than a nominal amount for our portfolio that we would have to sue them.  So, we did.  Those patent cases now are a small part of the total 2014 filings that some people decry as excessive.  And, while we would have preferred a negotiated resolution, the reality is that we stayed true to our principles, because that “potential licensee demonstrate[d] an unwillingness to negotiate in good faith for a license”.

Is Conversant being unrealistic in sticking to its principles?  No, but neither are we naïve.  We simply have to recognize the realities of the current patent licensing market described by Judge Michel, where many potential licensees are not interested in a negotiated license and where, in the absence of real progress towards good-faith negotiations, patentees must decide whether to stop negotiating and resort to litigation to protect their interests.  No company should expect license negotiations to simply drag on indefinitely.  We still look forward to talking with companies who want to reach a license agreement through good-faith negotiations.  But, for the other companies, whatever label IAM or others may give them, we have run out of patience with your delaying tactics.