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At the recent IP Business Congress in Portugal, IPBC2012, there
was an apparent sea change in attitude towards the role of the
non-practising entity – a subject that was widely
discussed.
A non-practising entity (NPE) is an organisation that owns
patents but which does not manufacture products based on them.
Instead, their income is obtained by licensing their intellectual
property – their patent holdings. Some NPEs have been
referred to as 'patent trolls' in the literature, although
when used in this way the phrase has derogatory overtones and their
modus operandi is not necessarily predatory.
There are those who believe that NPEs have a role to play now
which is more sophisticated and refined than the outdated role of
the troll. The NPE can allow a corporate to license to its
competitors in a controlled way. The term non-practising entity
also encompasses patent owners that primarily seek to develop and
transfer technology, such as universities and semiconductor design
houses.
Moreover, the new style of NPE that has emerged from the ashes
of a bankrupt company with the prime purpose to deliver returns to
creditors, including employee pension funds, has led to a sea
change in attitude where NPEs have become legitimised.
"A core criticism of patent trolls is that they are in a
position to negotiate licensing fees that are grossly out of
alignment with their contribution to the alleged infringer's
product or service notwithstanding their non-practising status or
the possible weakness of their patent claims. The risk of paying
high prices for after-the-fact licensing of patents they were not
aware of, and the costs for extra vigilance for competing patents
that might have been issued, in turn increases the costs and risks
of manufacturing."
On the other hand, the ability to buy, sell and license patents
is seen by some as generally productive. The Wall Street Journal
argued that by creating a secondary market for patents, these
activities make the ownership of patents more liquid, thereby
creating incentives to innovate and patent. Patent Licencing
Entities also argue that aggregating patents in the hands of
specialized licensing companies facilitates access to technology by
more efficiently organizing ownership of patent rights.
In an interview conducted in 2011, former US federal judge Paul
R. Michel regarded "the 'problem' [of non-practising
entities, the so-called "patent trolls"] to be greatly
exaggerated." Although there are a number of problems with the
U.S. patent system, i.e. "most NPE infringement suits are
frivolous because the defendant plainly does not infringe or the
patent is invalid", "patent infringement suits are very
slow and expensive". NPEs may add value to the patents by
buying them up when manufacturers decline to do so. Inventors may
have benefited from the developing market in patent
acquisition."
The Cost of Litigation Caused by NPEs
A recent study from the Boston University School of
Law claims that patent litigation caused by NPEs costs US
software and hardware companies US$29 billion in 2011. "This
figure does not include indirect costs to the defendant's
business such as diversion of resources, delays in new products and
loss of market share," the researchers said.
The study also looked at the impact of NPE litigation on
small/medium-sized and large companies and concluded that much of
the burden fell on small and medium-sized companies.
"The burden of all of these costs appears to rebut the
assertions that NPEs play an important role in improving the
profits of innovative start-ups," the study said. The
implication is that more companies, large and small, need to be
aware of IP rights that may be asserted against them.
The Impact on IP Strategy
With more pressure on business from NPEs some delegates at
IPBC2012, commented that an IP strategy could no longer be that
which only related to innovation in their own products. Knowing
which companies might litigate against a business was as important
as holding a patent portfolio to protect products and processes.
Having an arsenal with which to respond to NPEs was to be
considered as important as developing a portfolio that reads onto a
company's products. Of course not all companies, particularly
start ups, are in a position to invest in an arsenal from day one.
However, litigation readiness now needs to be on the radar within
an IP strategy if longevity is sought.
This discussion looks set to run and run and we will provide
updates in future newsletters.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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