Patent Holding Companies and Ownership Issues

BlueIron uses a conventional patent holding company structure to separate the ownership and control of a patent portfolio.

In this construct, an operating company has full control of the assets, even though the patent assets are held in a separate company.

OperatingCompanyHoldingCompany

The BlueIron arrangement gives the operating company full control of the assets through an exclusive license. Because the license is exclusive, the operating company can fully enforce, license, sublicense, and use the assets without anyone else (including BlueIron) having a say in their decisions. BlueIron only receives a predefined royalty from the operating company. If the operating company fails to pay the royalty, only then can BlueIron step in and attempt to liquidate the assets.

This construct is used by virtually all sizes of patent owners, from very large multinationals to small LLCs with one inventor/owner.

Large multinational companies use separate patent holding companies for several reasons. One reason is pure accounting – a royalty paid to the holding company can be expensed from the operating company, and the holding company can capitalize the assets. In some cases, the holding company can be a way to channel revenue for various tax reasons, such as the Double Irish, Double Irish with Dutch Sandwich, or some other structure.

Small companies use separate holding companies to increase flexibility in how the founders/inventors get paid. For example, an operating company may pay a small salary to the inventors/founders but may pay a royalty to a holding company which may also be owned by the inventors/founders.

Small companies also use holding companies to protect the IP assets in case of problems with an operating company. In many cases, the separate holding company may make the operating company *immune to lawsuit*, because the big prize asset (the patents) cannot be reached by a litigant. The operating company may be sued or may go bankrupt for a host of reasons, many of which may be out of control of the entrepreneur, but by having a holding company with the IP assets, the company can be restarted with the same IP if that were to happen.