Back on August 9, I wrote about the fact that a patent pool had been formed by some of the patent owners that believe that their intellectual property rights (IPR) would be infringed by the implementation of RFID technology. I was reminded of this entry when a reporter who was writing about the current status of that initiative called me up to explain how patent pools work. He's written what I think is a very clear update on this situation, called "The RFID Patent Pool: Playing Poker," which you can find here.
The blog entry in question was one of those that I write from time to time that seek to dig below the surface of what is generally perceived to be bad news in order to determine just how bad that news really is. In this particular case, I was pointing out that if the laudable efforts of those that had been working hard to create a royalty-free environment for RFID technology were going to fail, then the next best outcome could well be a patent pool.
Why? Well, in brief, its because if the going rate for an individual patent license is, say, 5%, and there are 20 different patent holders, then you're not likely to have any products in the market at all. But if those same 20 owners agree to cap the total royalty per device at 5%, and also hire an agent to provide a single license to all those 20 patents, then the technology can move forward into the marketplace in a cost effective and orderly fashion.
It sounds simple, but it's much more tricky than that. Sometimes it works, and sometimes it doesn't, which is why you don't hear about them more often. Besides the practical problems with herding all of the IPR owner cats into the corral, there's also the fact that the concept of competitors getting together and setting prices waves all kinds of antitrust flags.
As a result, those that form a patent pool frequently describe what they plan to do in a letter to the Department of Justice (one of the two U.S. agencies that enforce the antitrust laws in this country) asking for a "business review" of what they planned to do. If the DOJ thinks that the benefits of the arrangement to the consumers ("procompetitive effects") outweigh the antitrust concerns, then the DOJ will send back what is often referred to as a "no action" letter. It's non-binding on the DOJ, and would also not constrain any court hearing a suit brought by a private party, but receiving this sort of initial green light from those in the know is considered to be sufficient comfort for most companies to move forward. You can see an example of a letter of this type relating to a DVD patent pool here, and a more easily digested press release here.
But even with care, patent pools can still be attractive targets for litigation. The 3C DVD patent pool, which includes Sony Corporation, Pioneer Corporation, and Philips Electronics, found itself the defendant in a national class action law suit in 2004, and of another suit (this time brought by two Chinese DVD manufacturers) in January of this year - even though the members of this pool had obtained a no action letter themselves. The following article, written from the Chinese perspective, makes for interesting reading.
So what does all this, you may ask, have to do with open source software? Well, there have already been a number of initiatives launched that could eventually lead to one or formal patent pools to support open source software – not for the purpose of charging royalties, of course, but for the purpose of creating "save havens" where open source licensing terms are assured. One such step is the Patent Commons Project, and various companies (e.g., IBM and others) have made unilateral pledges not to assert certain patents against open source solutions.
Hopefully, it will be possible to structure any such project in a way that makes all of those that participate feel comfortable. But the antitrust laws are tricky – even giving things away can be problematic, if the result is to devalue the products of others. So the task may be more challenging than would initially meet the eye.
Still, I'm hoping to read (or, better yet, write) an open source no action letter request soon. Something to look forward to in the New Year.