Sovereign Funds Change The Patent Game

As sovereign governments expand their investments into uncharted territories, a new kind of fund has emerged: the sovereign patent fund (SPF), a state-owned patent investment fund that buys and licenses patents, covers the cost of litigation and protects against patent infringement.

Sovereigns have been using their financial heft to invest in a wide range of assets to further macroeconomic goals—from real estate to venture capital. Reactions to the move on patents have been mixed. Supporters focus on the underfunded inventions market and potential sovereign investment in important emerging technologies. But others claim that SPFs do not produce products and create market distortions. Critics also say they target small companies and disrupt innovation. Yet leading tech economies like France and South Korea see value there and have created such financial vehicles.

The real impact of SPFs on the intellectual property (IP) field has yet to be seen. So far they have operated similarly to other private, nonpracticing patent assertion entities and patent pools, such as Intellectual Ventures, which reportedly has $5 billion for patent investments.

Sovereign interest in IP is not new. “Government-related organizations have long been involved in patent assertion,” notes Sherman Kahn, a technology law expert with law firm Mauriel Kapouytian Woods. “For example, in 2003 the Commissariat à l’énergie atomique, a research institute funded by the French government, sued a variety of manufacturers of LCD displays in Delaware for alleged infringement.”

Sovereigns’ natural interest in protecting their own industries and national champions may change the way governments use SPFs in the future. We have already seen how sovereign funds in general try to use financial resources to achieve protectionist targets.

“Governments are already giving preferences, to some extent, to domestic parties or at least parties with domestic connections in IP enforcement,” says Kahn. “The US International Trade Commission allows parties who can show a ‘domestic industry’ uses patent to seek an exclusion order barring import of products alleged to infringe the patent.”

Although the emergence of sovereign patent funds has triggered a serious policy debate, it is too early to assess what the actual risks are for operating entities.