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Accounting for Patent-Holding Companies in Infringement Litigation

By Robert A. Matthews, Jr.
April 01, 2005

For a variety of reasons, manufacturers owning patent rights may find it beneficial to assign their patents to a patent-holding company set up as a wholly owned subsidiary of the manufacturer. Using a holding company to manage a patent portfolio may permit the holding company to take advantage of favorable state tax treatment of licensing revenues. Through the use of a royalty-paying grant-back license to the manufacturer, placing patents in a holding company may help produce a tax deduction for the manufacturer. Administrative conveniences of having one corporate entity focus on maintaining and maximizing the return on patent rights may also justify transferring a manufacturer's patents to a holding company. Some also believe that having a holding company, rather than the manufacturer, enforce patent rights in litigation can make the litigation process easier on the manufacturer.

Whether due to any of the foregoing or for other reasons, it seems evident that many manufacturers have used, and continue to use, patent-holding companies as a vehicle for managing their patents. Transferring a patent to a patent-holding company can impact aspects of enforcing the transferred patent in litigation, especially in regard to standing to bring suit and the ability to recover a manufacturer's lost-profit damages. For the reasons that follow, accused infringers faced with a claim of lost-profit damages in a suit for patent infringement should investigate the ownership history of the asserted patent and determine whether at anytime during the alleged period of infringement a patent-holding company held the rights to the asserted patent.

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