Many companies want to license their technologies. But what happens when a company takes a license, then decides to quit paying – or refuses to negotiate after the first license runs out?
LG Electronics is facing the same thing with TCL, a Chinese manufacturer of televisions.
LG had a license agreement in place with TCL. When it came time to renew the license, TCL refused to negotiate. After fruitless attempts, LG had to litigate to get TCL back to the negotiating table.
The “gold standard” strategy against holdouts.
Gene Quinn in IPWatchDog described the gold standard for dealing with licensees who refuse to negotiate a follow on license.
DivX faced the same problem as LG with the same licensee: TCL. TCL is well known for refusing to renew patent licenses, and TCL’s strategy is to hold out as long as possible.
DivX started with a single action in the United States International Trade Commission (ITC), then filed additional lawsuits in Germany, Brazil, and US district courts, plus a second ITC action.
As all of these (expensive) lawsuits proceeded, one in Brazil was in the brink of a decision when the parties finally settled.
The “gold standard” is brutally expensive.
As a back-of-the-envelope estimate, it would seem that DivX had an incredible amount of money on the line. Simultaneous patent lawsuits in many countries could cost DivX several million dollars and, if they went the distance in all of them, possibly $10M or more.
Of course, the object of all these lawsuits is to get the parties together to negotiate a follow on license.
But some licensees, such as TCL, are willing to spend money on litigation rather than negotiate. This is a calculated business decision, and if TCL can weaken the patents under suit, they can save money – at least in theory.
Startups have no bargaining power in licensing – unless you have insurance.
Patent holders, especially startup companies, need to back up their IP with the ability to enforce.
TCL is willing to test LG’s resolve as they did with DivX by forcing the patent holder to risk many millions of dollars in litigation before coming to the table to negotiate. TCL is playing this game with companies who have the fortitude (and bank account) to go the distance in long-running and expensive lawsuits.
How could a startup company survive when companies like TCL use this strategy?
Licensee coverage for patent enforcement insurance.
Patent enforcement insurance pays for your expenses, such as attorney’s fees and costs, for enforcing your patents against competitors.
Patent enforcement insurance is available with a rider for licensees.
Licensee coverage allows the patent holder to sue a recalcitrant licensee who refuses to negotiate, just like TCL refused to negotiate with DivX and as they are now doing with LG.
This insurance coverage would pay for all the attorney’s fees and costs for suing a previous licensee when they terminate the license or when they refuse to negotiate a follow on license.
Licensee coverage puts some power behind your license.
Just having licensee coverage makes your licenses much, much more powerful.
Even if your company is a small player in the market, having an insurance policy that will pay for litigation makes your license rock solid. Larger licensees would be on notice that you have the financial strength to sue them – and that you are doing it on someone else’s dime.
If you do any licensing, or you hope to do any licensing of your IP in your industry, make sure you have enough insurance to cover the huge expense that it may take to keep your licenses in force.
Every company should have the horsepower behind it to do the best job possible when enforcing their patents.