The World of Patents and IP Licensing Is Changing

The World of Patents and IP Licensing Is Changing:
A Closer Look At The LES High Tech Sector Royalty Rates & Deal Terms Survey

By Bob Held, President & Chair of the Board, LES (U.S.A. and Canada)

No other organization in the world offers the type of data that LES does via our royalty rate and deal terms surveys. The LES High Tech Sector Royalty Rates & Deal Terms Survey is our third, comprehensive report on the dynamics of the licensing market across a wide range of sectors from Aerospace, Computing, and Communications to Electronics, Medical, and more. Because we have the unique ability to analyze and compare the transaction-level data from three reports going back to 2008, we are able to look at deal dynamics and trends in a unique way. For example, the report identifies elusive changes in industry-specific deals and trends. With regards to royalty rate averages ranging from 2008 to 2017, the survey paints an almost sinusoidal wave. In 2008, royalty rate averages were around 5 percent. In 2010, they jumped as high as 7 percent. Then, in 2013, rates dropped down to 4 percent, then climbed back up in 2014 to 6.5 percent, and then back down to 4.5 percent in 2017. The deal flow in those years followed a similar pattern. Through the survey data, we can correlate the dips to the 2011 America Invents Act (AIA), as well as court rulings that have taken a toll on our industry, such as Alice v. CLS Bank. LES is also seeing that patents are taking a smaller role in licensing, and non-patent assets are playing a larger role. The validity of a patent has always been questionable, but these days it is even more so because of changes in law and judicial proceedings.

The LES report found the highest royalty rates in the area of aerospace and transportation, a steady trend across all three surveys. In aerospace and transportation, the royalty rate was 9.29 percent in 2017, followed by 6.5 percent in software, and 6.4 percent in medical, health, and biotechnology. Having spent eight and a half years in the aerospace and transportation industry within my own career, I understand the dynamics of intellectual property (IP) licensing in that domain. Aerospace and transportation command a higher rate because the development cycle in military and aerospace applications can take years. By the time they are allowed to be licensed to another party in the commercial sector, these technologies are fully-tested and developed many times over. They also come with complete technical data packages, software, trade secrets, and maybe even patents. It’s because of these reasons that once aerospace companies decide to license or sell these technologies, they can demand a higher royalty rate.

NPEs Changing Role

The role of non-practicing entities (NPEs) has gone down significantly due to many factors, including negative portrayal within the media. When the LES High Tech Sector team surveyed market sentiment towards NPEs for the report, the results reveal that the role of NPEs has been deteriorating. In fact, two-thirds of the non-NPE respondents in our most recent report stated that they would not use NPE services. Many factors, including the AIA’s IPR provisions and the lack of injunctive relief, are making patent litigation more difficult and as a result, we’re seeing many NPEs go out of business.

Granted, there were bad actors in that realm, but there were also true licensing entities that had the wherewithal to help individual inventors and small companies protect their patents and their technologies from infringers.

The highly anticipated 2018 LES Global Life Sciences Royalty Rates and Deal Terms Survey is also available. Visit: https://www.lesusacanada.org/members/group_content_view.asp?group=160356&id=559828

LES Remains at the Forefront of IP Licensing and Best Practices

LES is in a unique position as we’re the only community of IP professionals that brings together operating company executives, consultants, university tech transfer executives, lawyers, supply chain managers, contractors, and students to address this evolving field. Today, nearly 80 percent of a company’s value comes from its intellectual capital in all its forms (IP, Human capital, etc.). Yet, within companies, very little is understood about what intellectual capital is and the best practices needed to create, manage, and protect it.

To address this and other issues, LES has created a new forum entitled “The Leading Edge Series” of one-day meetings. These new forums provide professionals the ability to connect and engage with the leaders in the field via deep-dives into hot topics. For example, our first forum in the Leading Edge Series took place at the Silicon Valley USPTO in May. The sessions explored some of the biggest challenges technologists and IP professionals face today and revealed best practices around standards in licensing and intellectual capital management. Dave Kappos, one of the world’s most prominent intellectual property attorneys and the former Under Secretary of Commerce and Director of the USPTO, spoke on behavioral issues in licensing of SEPs and IP and how to define acceptable and best practices through voluntary standards.

LES is at the forefront of educating the world on the latest trends and best practices driving all sorts of IP and intellectual capital management matters. We see some positive changes occurring in the industry and hope the momentum continues. Throughout the year, we continually inform members about the latest trends and share best practices. To support the best interests of the IP and intellectual capital management industry, LES regularly publishes public policy statements on best practices as they relate to important issues. LES is growing, we’re getting stronger and we are continually taking steps to meet the needs of our community.