Why patent losses are a risk to industry innovation

Entities swooping in to buy the rights to tech innovation pose a risk to healthcare innovation, but collaborative protection offers an effective defense.

Over the past decade, the healthcare industry has greatly increased its technological dependence, and that trend is only accelerated.

Many other industries – they include banking, retail, hospitality and others – have undergone similar transformations in service and solution delivery, offering valuable experience to healthcare. Organizations now thriving in these sectors are those which invested in R&D and new technology. With this strategy shift, patents and other intellectual property take on new importance for protecting investments and creating business advantage.

These trends now are emerging and growing in healthcare, as technology transforms the way in which wellness is maintained and care is delivered. And as the emphasis on innovation grows, healthcare organizations are at risk of being impacted by a trend that’s hit other innovative industries.

The trend is this – as innovators release new technology-driven solutions, patent assertion entities (PAEs), also known as “patent trolls,” may follow. The business model of PAEs involves obtaining patents, then attempting to assert those patents against operating companies. PAE lawsuits cost companies $29 billion a year, according to research by James Bessen and Michael Meurer.

The impact within healthcare may not be immediately apparent, but if PAEs are successful, then costs could rise across the healthcare value chain, with the risk that these costs could extend across the industry, from life sciences firms, healthcare technology developers, to providers and payers themselves.

To combat this threat, UnitedHealth Group, including its subsidiaries Optum and UnitedHealthcare, and other organizations have joined the License on Transfer (LOT) Network.

Investment and intellectual property

The technological reliance enveloping healthcare makes patent protection more important than ever. Covid-19 has highlighted the importance of healthcare technology, but the trend was present before the pandemic. For example, in August 2019, CB Insights observed that healthcare AI patents were increasing. For example, healthcare patent applications from Siemens, GE and Philips rose from less than 20 per year from 2001 to 2011 to surpass 120 per year by 2017 and 2018.

Similarly, in July 2019, IAM-Media, a major observer of intellectual asset activity, summarized WIPO’s (World Intellectual Property Organization) 2019 Global Innovation Report, noting that patenting of medical technologies is on the rise.

Technology will play a critical role in all phases of individual health journeys, from maintaining wellness; through diagnosing illnesses; to pinpointing personalized care paths, based on genetic and epigenetic factors, along side social determinants of health. Underneath this is an undergirding of business functions, including mitigating fraud, waste and abuse.

For example, UnitedHealth Group is making significant investments, and this requires restless innovation and constant reinvention of business processes, and its patent portfolio increasingly reflects these investments, which peer organizations are likewise making. That’s why joining the LOT Network will make sense for other healthcare companies.

It’s crucial for the industry overall because large healthcare companies have been the target of PAEs, and this is likely only to grow. Fighting PAEs involves distraction of legal teams, engineers and corporate leadership, with payments of varying sizes resulting.

For providers and other healthcare organizations, indemnification issues may impair their supply chain ecosystem management. Even worse, an organization caught in a patent dispute between its vendors could be sued, and even if indemnification is avoided, the organization still wastes time and money to resolve legal actions.

To counter this, LOT Network membership protects the healthcare ecosystem by mitigating risks for all of us. It does so through an alliance with some of the most sophisticated global IP holders across various industries. Network members include Google, Microsoft and IBM, which consistently rank among the top 20 annual U.S. patent assignees.

Typically, PAEs acquire patents solely to assert them against operating companies to extract cash or other value. The LOT Network’s coalition of tech companies, major brands and startups are working together to combat the expensive litigation and innovation risks brought on by PAEs. They start by recognizing where PAEs get their patents – more than 70 percent originate with operating companies. Further, in times of economic uncertainty, downturns frequently lead companies to sell patents — some of which may find their way into the hands of PAEs.

How LOT can intervene

The power behind the LOT Network stems from its community of businesses and their collective patent portfolios. In total, the network consists of over 1,100 members and over three million patent assets. Through its innovative business model, the network effectively enables all operating companies to use their patents against each other to protect legitimate business interests. In other words, joining LOT won’t impair a company’s current innovation or IP strategies. Instead, the LOT Network mitigates the PAE threat by granting a license to all other Network members, should any patents held by a member entity fall into the hands of a PAE.

Healthcare organizations that become members help protect others in the healthcare ecosystem by ensuring that patents will be less valuable should they ever come under the control of a PAE. It’s crucial that other tech companies – and the industry as a whole – realize the importance of the cumulative protection offered by the LOT Network, and that the healthcare industry will follow, protecting both those companies working in this space and those who entrust their health and wellbeing to these organizations.

Rick Hamilton is a Senior Distinguished Engineer and Senior Inventor, Invention Program, Optum. He has more than 1,030 issued patents.

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