Possibly a repost, but interesting nonetheless.

http://www.lem.sssup.it/WPLem/documents/papers_EMAEE/pohlmann2.pdf

CASE STUDY: Alliacense (TPL group)

The next case study describes the US company Alliacense which accused German endproducers in the electronic and electrical industry of patent infringement. The following information is based on an interview with the legal division of the ZVEI (Central Association of Electrical and Electronic Manufacturers Germany). Alliacense is a wholly owned subsidiary of the TPL Group, which has been active in developing, marketing and licensing of

intellectual property rights since 1988. The TPL Group also includes the manufacturing company IntellaSys, which was founded in 2005 and develops and produces processor solutions. It is believed that the manufacturing subsidiary company was founded to counter accusations of the TPL Group being a patent troll.

Alliacense holds four IP portfolios and is responsible for the management of the license rights. The portfolios include technologies from the vast field of electronics. It is striking that the patents are usually acquired through purchase or merger of the companies that have invented this technology.

In the case known to us, Alliacense uses one of the four portfolios to proceed against German end-producers. This is the mmp-portfolio, which was named after its inventor, Charles Moore, a member of the board of the TPL Group. The patents protect fundamental design techniques for improved performance of microprocessors that are used in products of many industries such as mobile phones, home appliances and automotives. The mmp-portfolio includes seven U.S. patents as well as their German and Japanese equivalents, which are valid until 2015.

The accused German companies are small and large system manufacturers which install these protected microprocessors into their devices. So far, Alliacense asked only those companies, which distributed their products on the American market to pay royalties. Alliacense specifically targets the end-producers on the downstream markets and not the microprocessor manufacturers. It proceeds cross-industry against infringers and communicates clearly that those companies which are the first to pay a license, get significant discounts compared to their competitors. The procedure of Alliacense can be illustrated by using a simplified sketch of a possible value chain (graph1).

Graph1:

The potential patent troll, in this case Alliacense, does not address the manufacturer, whose microprocessors infringe the patent, but the system manufacturer (OEM), which implements these processors in its devices. The reason why Alliacense chooses this strategy could firstly be due to the fact that from an OEM, because the processor is installed in a higher quality product. built-in microprocessor itself usually has a smaller value. Alliacense also uses the pressure from retailers and customers to patent infringements, OEMs are not able to supply, terminating existing contracts.

Following a first-mover strategy by offering lower royalties, Alliacense considerable pressure between the competitors. Similar to a prisoner’s dilemma cooperation i.e. everyone not paying license fees competitors. However due to risk aversion, first and get favorable licensing terms, one company might choose to free license. This has the consequence that the others are urged to enter into a license agreement, especially if the first-mover is an influential company. This way Alliacense can build up and benefit from additional pressure potentials between the potential licensees.

Therefore, OEMs are in a position which only allows few escape options. Alliacense’s patents are grounded on patent law are non-trivial. However, in some cases the scope of the patent was not affected by the technology of the accused company. Since the companies were under such great pressure, the license was paid in many cases without further checking for patent claims. In such cases it is crucial to consider the particular interests of different

departments within a company. Given an infringement charge, the legal departments first wait and then check carefully whether there are legal ways to bring down the patent or whether the patent is actually touched by the company’s technology. Sales divisions however fear the pressure of customers and are therefore interested in a quick solution by means of a payment.

If the OEM does not agree with the royalty requests, Alliacense usually sues these companies in court. Some German companies are currently involved in litigation in the US. The OEM will probably try to make the component manufacturer recourse. Thus, on the one hand transaction costs accrue for the OEM. On the other hand, some microprocessor manufacturers have already passed over to withdrawing guarantees on their products being free of third party rights. Based on these observations it can thus be shown that for enforcing its IPR, Alliacense uses the bargaining power of other actors towards the final manufacturer to promote its interests.

The extent of the Alliacense case against German OEMs can be illustrated by the fact that the ZVEI formed, at the suggestion of many affected members, a special task group. Representatives from affected companies, who are accused of patent infringement by Alliacense, are thus able to negotiate. The main purpose of this work group is the mutual exchange of information. Common legal steps have not yet been taken. For antitrust reasons, agreements and actions compelling to all members are not possible. However, political influence is being pursued thoroughly. As the automotive industry is also accused of infringement charges from Alliacense, it is thought to exchange information with the VDA (Association of the German Automobile Industry).

It is expected that Alliacense will also accuse OEMs manufacturers on the German market. In a message from 02.02.2009, the German Patent Court in Munich confirmed the validity of a patent from the MMP portfolio. This suggests that Alliacense is planning to increase its presence on the German and European Market.