PATENT PLEDGES Jorge L. Contreras*

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PATENT PLEDGES Jorge L. Contreras* PATENT PLEDGES Jorge L. Contreras* ABSTRACT An increasing number of firms are making public pledges to limit the enforcement of their patents. In doing so, they are entering a little- understood middle ground between the public domain and exclusive property rights. The best-known of these patent pledges are FRAND commitments, in which patent holders commit to license their patents to manufacturers of standardized products on terms that are “fair, reasonable and non-discriminatory.” But patent pledges have been appearing in settings well beyond standard-setting, including open source software, green technology and the life sciences. As a result, this increasingly prevalent private ordering mechanism is beginning to reshape the role and function of patents in the economy. Despite their proliferation, little scholarship has explored the phenomenon of patent pledges beyond FRAND commitments and standard- setting. This article fills this gap by providing the first comprehensive descriptive account of patent pledges across the board. It offers a four-part taxonomy of patent pledges based on the factors that motivate patent holders to make them and the effect they are intended to have on other market actors. Using this classification system, it argues that pledges likely to induce reliance in other market actors should be treated as “actionable” * Associate Professor, S.J. Quinney College of Law, University of Utah and Senior Policy Fellow, American University Washington College of Law. The author thanks Jonas Anderson, Clark Asay, Marc Sandy Block, Mark Bohannon, Matthew Bye, Michael Carrier, Michael Carroll, Colleen Chien, Thomas Cotter, Carter Eltzroth, Carissa Hessick, Meredith Jacob, Jay Kesan, Anne Layne-Farrar, Irina Manta, Sean Pager, Gideon Parchomovsky, Arti Rai, Amelia Rinehart, Cliff Rosky, Daniel Sokol and Duane Valz for their helpful comments, suggestions and discussion of this article and contributions of data to the Patent Pledge Database at American University. This article has benefited from presentation and feedback at the 2015 Patent Pledges Symposium held at American University Washington College of Law, the 2015 Works in Progress in IP (WIPIP) conference, the 2014 Rocky Mountain Junior Scholars Forum, Michigan State Law Review’s 2014 Symposium on Public Domain(s) and a faculty workshop at University of Utah. The author is grateful to Jordan Bledsoe and Angela Silvers for invaluable research assistance and Michael Palmedo, for maintaining the Patent Pledge Database. This research was made possible in part through generous support from the Albert and Elaine Borchard Fund for Faculty Excellence at University of Utah. The author also thanks Google, Inc. for its support of the 2015 Patent Pledges Symposium. 544 ARIZONA STATE LAW JOURNAL [Ariz. St. L.J. and legally-enforceable, whereas others should not. And to provide the highest degree of market awareness and enforceability for actionable pledges, it calls for the creation of a state-sponsored public registry of patent pledges, accompanied by suitable governmental incentives for registration. INTRODUCTION In 2014, Elon Musk, the outspoken founder of Tesla Motors, surprised the automotive industry by announcing that the electric vehicle maker will no longer “initiate patent lawsuits against anyone who, in good faith, wants to use our technology.”1 Musk’s announcement, which effectively slashed the value of Tesla’s sizeable patent portfolio, prompted a flurry of media commentary ranging from praise to cynicism.2 Just six months later, automotive giant Toyota followed Tesla’s lead, announcing that it, too, would permit the free use of nearly 5,700 patents covering fuel cells for hydrogen-powered vehicles.3 Why would Tesla and Toyota, poised at opposite ends of the automotive spectrum, seemingly surrender valuable troves of hard-won patents for nothing?4 Making pledges such as these diminishes the patent holder’s 1. Elon Musk, All Our Patents Are Belong to You, TESLA BLOG (June 12, 2014), http://www.teslamotors.com/blog/all-our-patent-are-belong-you; see also infra notes 161–166 and accompanying text. 2. Jerry Hirsch & Tiffany Hsu, Elon Musk Opens up Tesla Patents; It ‘Isn’t Entirely Altruistic’, L.A. TIMES (June 12, 2014, 3:48 PM), http://www.latimes.com/business/autos/la-fi- hy-elon-musk-opens-tesla-patents-20140612-story.html#page=1; Alexander C. Kaufman, Tesla’s Clever Patent Move Is Already Paying Off, HUFFINGTON POST (June 18, 2014, 12:59 PM), http://www.huffingtonpost.com/2014/06/16/tesla-patent-supercharger- station_n_5500724.html; Kristen Korosec, The One Asterisk on Tesla’s Patent Giveaway, FORTUNE (June 13, 2014, 4:37 PM), http://fortune.com/2014/06/13/the-one-asterisk-on-teslas- patent-giveaway/; Tesla Head Elon Musk’s ‘High-Risk’ Patent Gamble, BBC NEWS (June 13, 2014, 1:09 PM), http://www.bbc.com/news/blogs-echochambers-27823166; Trefis Team, What Tesla Stands to Gain from Sharing Its Patents, FORBES (June 16, 2014, 1:39 PM), http://www.forbes.com/sites/greatspeculations/2014/06/16/what-tesla-stands-to-gain-from- sharing-its-patents/ (“This is a smart move that should not have any impact on Tesla’s position as a market leader of electric vehicles.”). 3. Toyota Opens the Door and Invites the Industry to the Hydrogen Future, TOYOTA USA NEWSROOM (Jan. 5, 2015), http://www.toyotanewsroom.com/releases/toyota+fuel+cell+patents+ces+2015.htm. 4. In May 2015, Ford Motor Company, apparently hoping to jump onto the patent pledge bandwagon, publicly offered to license 1,650 or so patents and patent applications covering electrified vehicles. See Ford Opens Portfolio of Patented Technologies to Competitors to Accelerate Industry-Wide Electrified Vehicle Development, FORD MEDIA CTR. (May 28, 2015), https://media.ford.com/content/fordmedia/fna/us/en/news/2015/05/28/ford-opens-portfolio-of- 47:0003] PATENT PLEDGES 545 otherwise unlimited right to exploit its property and seemingly flies in the face of economic logic. Yet Tesla and Toyota are far from the first firms to pledge their patents to the public. Beginning in the 1990s, large firms in the computing and software industries began to champion open source code platforms such as Linux and Android. They demonstrated that business models based on tight control over intellectual property are not the only viable pathways to innovation and product development. To support the growth of these emerging open source platforms, firms like IBM and Google each pledged not to assert hundreds of patents against open source products.5 Yet none of these firms has entirely forsaken the patents covering its innovations. Unlike patent holders that willingly cede their rights to the public domain, these firms retain ownership of, and the ability to exercise at least some rights in, their patents.6 Their voluntary commitments thus occupy a largely uncharted middle ground between the full commercial exploitation of patent rights and the abandonment of those rights to the public domain.7 In recent years, the number of firms venturing into this middle ground has grown. For example, Monsanto, the world’s leading producer of genetically-modified seeds, has publicly committed not to enforce its patents against farmers when trace amounts of patented genetic material patented-technologies-to-competitors-to-.html. Ford’s commitment was of a different nature than Tesla’s and Toyota’s, however, as Ford merely offered to license its patents to others without making any commitment as to the fees that might be charged for such licenses. As such, Ford’s commitment was more akin to the implicit invitation made by every university and patent holding company to potential licensees to come discuss the terms on which patents might be available for licensing. 5. See infra notes 23–24 and accompanying text. 6. One of the most important of these retained rights is known as “defensive suspension,” in which the patent holder may suspend a license that has been granted to a licensee that brings a patent infringement suit against the patent holder. See ABA COMM. ON TECH. STANDARDIZATION, SECTION OF SCI. & TECHN. LAW, STANDARDS DEVELOPMENT PATENT POLICY MANUAL 62–67 (Jorge L. Contreras ed., 2007) [hereinafter ABA PATENT POLICY MANUAL]. 7. Gideon Parchomovsky and Michael Mattioli propose the creation of lesser patent-like rights (semi-patents and pseudo-patents) to achieve similar ends, and observe that firms in so- called communities of innovation (patent pools and other collaborative relationships) may implement these structures through private ordering mechanisms. Gideon Parchomovsky & Michael Mattioli, Partial Patents, 111 COLUM. L. REV. 207, 236 (2011) (“Unbound by precedent or politics, the private contracts used by communities of innovation can be finely tuned to optimize the semi-patent and quasi-patent forms during the initial pilot phase of our proposal.”). 546 ARIZONA STATE LAW JOURNAL [Ariz. St. L.J. appear in their fields by “inadvertent means.”8 And dozens of firms ranging from home-swapping website Airbnb to cloud storage giant Dropbox have committed not to enforce their software patents against businesses with twenty-five or fewer employees.9 In fact, over the past decade, hundreds of major patent holders across a broad range of industries have made pledges limiting their ability to assert thousands of patents. These patent pledges share several key characteristics: they are commitments made voluntarily by patent holders to limit the enforcement or other exploitation of their patents. They are made not to direct contractual counterparties, but to the public at large, or at least to large segments of certain markets.10 And they are made without any direct compensation or other consideration. The best-known category of patent pledge today is the so-called FRAND commitment, in which patent holders promise to license their patents to manufacturers of standardized products on terms that are “fair, reasonable and non-discriminatory.” Patents covering well-known standards such as 4G LTE, Wi-Fi, H.264, and hundreds of others are subject to such pledges.
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