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Google Forms Alliance to Battle Patent Abuse

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Google Inc. (GOOGL - Free Report) , in collaboration with five other technology giants, Newegg, Canon (CAJ - Free Report) , Dropbox, SAP, and Asana, has created an alliance known as the License on Transfer ("LOT") Network, in a bid to ward off patent trolls.

Google and Canon were two of the top receivers of U.S. patents last year. Patent litigation hit an all-time high last year, with more than 6,000 patent infringements filed. Therefore, the latest move will help Google protect itself against patent trolls and leverage the network effect, thereby using its energy towards innovation.

The LOT alliance is an initiative to oppose the patent deals of other firms that have engaged in "patent privateering” and to eliminate patents available to patent assertion entities ("PAE"). The members of the alliance will uphold full ownership and licensing rights of their patents and allows other members to access royalty-free licenses to transferred patents.

At times, technology companies transfer their patents to a patent assertion entity, which is not bound by the same laws and is therefore able to extract bigger licensing fees from competitors. These entities, or patent trolls as they are called, engage in significant litigation that wastes time and money of the competitors. This process is referred to as privateering.

PAE are businesses that purchase old patents and try to monetize them by alleging others of violation. They demand a one-off licensing fee to end a lawsuit, which many companies unwillingly pay since it's cheaper than defending the infringement claim.

Therefore, the latest effort is expected to mitigate patent lawsuits and extortion attempts for Google and other companies. Google is also a part of an alliance called the Coalition for Patent Fairness that seeks to minimize litigation between technology companies and thereby devote more energy to innovation. Cisco (CSCO - Free Report) Samsung, Dell and Adobe (ADBE - Free Report) are other major players that have joined this coalition.

Google currently holds a Zacks Rank #3 (Hold).

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