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NewsTop Stories

What’s the value of FreightTech patents? For Omnitracs, maybe nothing.

Technology investor says patents are just ‘icing on the cake’

For Omnitracs, patent number US 9,147,335 B2 — also known as “System and method for generating real-time alert notifications in an asset tracking system” — is key to its position as a leading fleet management software company. 

It’s why Omnitracs filed a lawsuit last year against Platform Science, alleging that its competitor had infringed upon its technology patents. Omnitracs had taken similar protective measures against startups KeepTruckin and Samsara.

In response, Platform Science filed a petition with the United States Patent and Trademark Office for an inter partes review (IPR) that included all 22 patent claims of US 9,147,335 B2. Platform Science cited two prior patents that represented the same functions of Omnitracs’ -335 patent. 

IPR, if instituted, reviews the patentability of one or more claims. In this case, U.S. District Judge Janis L. Sammartino earlier this month instituted IPR on all 22 claims of Omnitracs -335 patent. That’s not good for Omnitracs, since recent studies have found that once IPRs are instituted, an 80% chance exists that at least one claim will be found unpatentable.

Adding a twist to this drama is that the -335 patent, along with a majority of Omnitracs’ 174 U.S. patents, had multiple liens on them with creditors Barclays Bank (NYSE:BCS) and Credit Suisse (NYSE:CS). These liens were released on all of Omnitracs’ patents and patent applications a few days after IPR was instituted on the -335 patent. If found unpatentable, Omnitracs would have technically defaulted on its loan agreements with its lenders. 

Omnitracs representatives declined comment on the instituted IPR.

But in taking a step back to view the big picture, the FreightTech industry might want to ask itself this question: Is relying on the value of intellectual property (IP) — especially as a collateral and competitive advantage — really the best strategy for your business?

According to at least one longtime transportation investor, the answer is no.

“Historically, patents were a source of value creation. But today, innovation often comes from other places,” Benjamin Gordon, the founder and managing partner of Cambridge Capital, told FreightWaves. 

“Building a network, for instance, isn’t patent protected. Neither is creating a more efficient supply chain strategy. Patents can help a company build a fortress, but they are only one ingredient.”

Gordon follows this same mentality when investing in supply chain technologies.

“As an investor, we focus on businesses with a competitive advantage,” he explained. “That advantage is usually a function of team, technology, strategy, customers and network. It rarely is a function of patents, although they can help. [The patents] are the icing on the cake.”

The 1-Click patent

As the supply chain industry accelerates through its technological revolution, so does the number of patents granted to its players, representing innovation from visibility techniques to management systems to robotics technology.

Companies have used the patents to advance research and development investment, prove authenticity of innovation for licensing purposes, and in a more recent trend, provide financial security and collateral.

It’s not surprising that supply chain leader Amazon (NASDAQ:AMZN) has played a major role in shaping the narrative.

In 1998, the U.S. Court of Appeals for the Federal Circuit in its State Street Bank v. Signature Financial Group decision set a new test for the patentability of software. If applicants could prove their software produced a tangible result, that process could be patented — as long as that process was not already in use.

Amazon was one of the first companies to take advantage of this new test and applied for its 1-Click patent, which patented the process of enabling customers to make purchases with previously used payment information. In other words, it was a transformative innovation — and Amazon secured the patent in 1999.

Soon after, it sued Barnes & Noble for its Express Lane option (settled in 2002 for an undisclosed amount) and required Apple (NASDAQ:AAPL) to license the IP in 2000 for $1 million.

FourKites was granted a patent for a supply chain visibility platform that can locate shipments when the truck or other mode of transportation lacks the technology to transmit the real-time location. 

In an interview with FreightWaves about the announcement, Matt Elenjickal, the founder and CEO of FourKites, explained that while real-time visibility is not a new concept to the transportation industry, his company had innovated the process to obtain shipment location that his competitors had not considered or achieved. FourKites, he noted, deserved the recognition for that work.

“We believe there is something unique here,” he said. “Our idea is to provide intelligence to the shipments that cannot be tracked. We started working on that process and within a year, we [found] a pattern.”

With this new IP, FourKites has the ability to create strategic partnerships among industry partners to license the innovation.

Another visibility provider, Overhaul, has four granted patents and 31 applications on a number of methods for monitoring the security and conditions of shipments.

“Securing these patents enables us to support building a world-class product that will help shape the future,” explained Overhaul CEO and founder Barry Conlon. “Although they are not core to our business, nor should they be relied upon as part of your competitive strategy, patents can be useful in helping offer some protection.”

Buy vs. build 

Providing customers with digital tools means staying innovative. And in order to win, that innovation must be protected quickly. Some FreightTech companies have out-innovated the competition by purchasing patents and their inventors from other technology firms in order to quickly build their portfolios.

Project44 has taken this approach to become the real-time visibility market’s first unicorn, a startup that has reached a valuation of $1 billion.

In its acquisition of GateHouse Logistics in 2018, project44 also obtained assignment of the patent-pending “method for data retrieving and distributing using geofence-based triggers” along with the intellectual team behind the process innovation.  

While project44’s latest acquisition, ClearMetal, has not yet reassigned its patent ownership to the visibility leader, it will likely pass over its IP. Inventors of the pending IP have also become a part of the project44 team.

But the most aggressive digital transportation player to deploy this patent-buying strategy is Uber Technologies Inc. (NYSE:UBER). 

In 2017, Uber bought 87 issued patents and five patent applications from AT&T (NYSE:T) for an undisclosed amount in order to gain leverage against its competitors, covering an array of topics including routing network traffic, voice over internet protocol and ride-matching methods.

Companies and their investors have used acquired patents as capital security and to fuel expansion. For example, after Uber acquired map technology startup deCarta in 2015, many of those patents were transferred as a security interest to Goldman Sachs (NYSE:GS) or Morgan Stanley (NYSE:MS) soon after the ride-sharing company secured a $1.15 billion high-yield loan from the creditors.

Just like personal property, IP can be used as collateral in the event that a loan’s terms are not met and this capital strategy has been used many times throughout patent history. But then, what happens if that IP is found unpatentable?

That’s the worry now for Omintracs. And it’s why patents perhaps should be treated as icing. To solidify long-term strategy in the FreightTech space, companies may have to look at the cake itself as the true foundation — not the frosting on the edges, no matter how delicious it may taste.

Click here for more articles by Grace Sharkey.

Related Articles:

FourKites receives US patent for supply chain visibility technology

Locus raises $50M to build the operating system of logistics

Project44 raises $202M in Series E, boosts value to $1.2B

Grace Sharkey

Grace is an entrepreneur and former supply chain executive who has held positions in sales, operations, and consulting. She is passionate about the future of the industry and how technology can improve the experience for all supply chain members. She believes supply chain is the one industry that affects every human directly, and is looking forward to creating content that mirrors that sentiment. If you have a story to share, please contact me at gsharkey@freightwaves.com.

One Comment

  1. most patents today are a waste and stupid. you see them for the most stupid stuff that’s so general they shouldn’t waste their time and money applying for them.

    you can’t patent clicking a button and a screen changing people lol

    besides, today by the time you apply for a patent 50 other companies are already using the idea commercially and and can prove it anyway. so even if you get one the enforcement is close to zero after a long expensive court battle.

    patents used to mean something. today they mean nothing unless it’s for something real and rare like a new drug or a new medical device.

    startups would be better off building actual profitable companies with needed services than literally wasting cash on patent lawyers for patents that can’t stand up in court 🙂

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