Google and Patents for Startups
Google has a number of patent initiatives. One that I was not aware of until recently is the Google Patent Starter Program. This program provides a unique opportunity for a limited number of startup companies or developers.
In this Patent Starter Program, Google offers eligible startups and developers two patent families from Google’s patent portfolio. Specifically, Google identifies a group of 3 – 5 assets generally based upon the company’s business focus, from which the startup or developer can choose two. In addition to the two patent assets Google provides to the startup, Google provides an access portal (at no cost) to these startups for users to search Google’s non-organic patent portfolio for assets that Google may be willing to sell and pledges to provide fair valuations on these assets. This can be extremely helpful to a startup looking to leverage existing technology from a high-tech company such as Google, particularly when market exclusivity is important and investors are constantly asking for patent protection.
While this Starter Program sounds like a great idea, it’s not for everyone. There is some fine print. The program is offered only to the first 50 eligible startups or developers that sign up. Startups are required to commit for at least 2 years. Startups who apply must also have 2014 revenues between $500,000 and $20,000,000, which is a steep hill to climb for many startup companies, and focuses the program toward later-stage companies. Additionally, the business of the startup must be similar to the business of Google.
In addition to the above requirements, the startup must agree to participate in the LOT Network (www.lotnet.com). As admitted by Google, a big incentive for them is to encourage smaller companies to join the LOT Network. The LOT Network is an industry-led networked, royalty-free patent cross licensing agreement for transferred patents. It was developed to reduce the number of patent infringement claims received from non-practicing entities (or patent enforcement entities) — entities that purchase patents for the sole purpose of enforcing them and extracting royalty payments. The LOT Network works by extending a patent license to all Network participants in the event a Network participant transfers its patent rights to someone out of Network. This has the effect of reducing the risk of patent enforcement entity (or patent troll) litigation. In other words, everyone in the Network gets an automatic license to the technology that is acquired, and as a result the patent purchaser has no cause of action against those Network participants. Exceptions which do not trigger this license are transfer to another LOT Network participant, or a legitimate M&A or spin-out activity. LOT User Fees are waived for the first two years (the minimum commitment in the Starter Program), but then begin at $1,500 per year for entities with revenue under $10 Million.
Google unilaterally decides what assets it will share/divest and retains a broad, non-exclusive license to all of these assets. Moreover, the startup will be responsible for any additional costs that are incurred in the patent process (e.g., prosecution, maintenance fees, etc.). Furthermore, patents obtained through this program can only be used defensively. Meaning, the startup or developer cannot use it to sue others, which is often required to maintain the market exclusivity afforded by a patent. There are many additional details in Google’s agreement which should be vetted by the startup and explored with an attorney.
As mentioned, this Program can be extremely helpful to a startup in need of patent protection, but it should be carefully explored.
Details on Google’s Patent Starter Program can be found here: http://static.googleusercontent.com/media/www.google.com/en//patents/licensing/doc/patent-starter-program-announcement.pdf
DISCLAIMER: The information provided is for general informational purposes only. This post is not updated to account for changes in the law and should not be considered tax or legal advice. This article is not intended to create an attorney-client relationship. You should consult with legal and/or financial advisors for legal and tax advice tailored to your specific circumstances.